Need to Refinance? Simply Incredible New SBA Programs

Don’t tell the media, but if you need to refinance your debt – or need additional capital – it may never have been easier. That’s right. You can thank President Obama and Congress for approving America’s Recovery Capital (ARC) loan program last February as part of the trillion-dollar economic stimulus package.

Yes, the U.S. government has taken bold steps to keep companies afloat during the downturn. Small Business Administration (SBA) guarantee levels have been increased to as high as 100 percent on some loans. In addition, it has waived all fees through the end of the year, raised the maximum business size threshold, and in some cases will even make your interest payment(s) for you!

Loan proceeds can be used for most sound business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, new construction and leasehold improvement), and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.

Government Guarantee Helps Banks Say “Yes”
You still go to a bank to get the loan or refinancing, but government guarantees help banks say “yes” when they otherwise could not.

“We believe these changes are making a difference,” said Fred Munden, lead development specialist for the SBA’s Oklahoma City office. “Commercial lending is increasing and some businesses that were at risk of closure due to inability to refinance debt are now getting the funding they need. In some cases, it’s with a different bank, but the money spends just the same.”

“The program was a godsend for us,” said David LaGere, president and owner of Cherokee Architectural, a 12-person firm that manufactures ornamental staircases.

More Businesses Eligible
SBA loans are available to small businesses, and the definition of “small” has been temporarily expanded. From now until September 30, 2010, it’s any businesses with a tangible net worth of under $8.5 million and average after tax-income of less than $3 million during two fiscal years.

Borrowers cannot use the money to pay down SBA-backed loans made prior to Feb. 17, 2009.

100 Percent Guarantee, No-Interest Loans
A 100 percent guarantee program began June 15 and has a maximum loan amount of $35,000. Even more, all interest and fees will be paid by the SBA. The borrower has to repay only the principal. The best candidates are small businesses that have been profitable for one of the past three years but are now struggling and starting to miss loan payments.

Loan proceeds are disbursed over six months and repayment does not have to begin for 12 months after the last loan disbursement. Further, repayment can extend up to five years. Loans of this type will remain available until either the allocated funding runs out or Sept. 30, 2010, whichever comes first. Businesses are limited to one ARC loan apiece.

“This type of loan is designed to provide a shot in the arm for struggling companies,” said Munden of the SBA. “We want to help the qualifying companies make it through these tough times and come out the other end whole.”

Not for Start-Ups
Munden stressed that ARC loans are not for start-up businesses. “They are designed to help existing small businesses deal with making other loan payments,” he said. “Examples of qualifying loans include credit card obligations for your business, capital leases or notes payable to suppliers. They might also involve other loans made without an SBA guaranty.”

Application Requirements
Although SBA programs may make loans available to businesses that otherwise would not be able to qualify, there are underwriting standards that must be met. Lenders and the SBA will generally need the following from you when you apply:

Business Profile: A description of your business. Include what it does, the type of legal entity, its products, whom it sells to, the number of employees, a brief history and who owns the business.

Loan Request: A description of how much money is needed and what the funds will be used for.

Collateral: Description of collateral offered to secure the loan. Include equity in the business, borrowed funds, available cash, and assets such as accounts receivable, inventory, equipment and real estate.

Business Financial Statements: Complete financial statements for the past three full years plus year-to-date. This includes balance sheets and income statements.

Projections: Of revenue, expenses and cash flow for the next three years. Must show that the business can support repayment of the requested funds.

Business Tax Returns: Most recent three years.

Personal Financial Statements: For each person who owns 20 percent or more of the business, current personal balance sheets (i.e., a listing of all assets and liabilities and personal tax returns for the past three years).

For more information, including a complete list of SBA lenders, go to www.sba.gov.