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Comments on SBA ARC Loan Program

May 20, 2009

SBA's America's Recovery Capital Loan Program can provide up to $35,000 in short-term relief for viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability. Each small business is limited to one ARC loan. Starting June 15, 2009 ARC loans will be offered by some SBA lenders for as long as funding is available or until September 30, 2010, whichever comes first. Comments from SBA lenders have been posted. Send more comments to bob@colemanpublishing.com

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If you can't use to assist current SBA loans I have little use for it. Waste of agencies money and resources.

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yes

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No Fee, No Interest to SBA. Have to intuit that Comm. Lenders MAY charge a fee and/or interest or their incentive is zero. Perhaps an incentive is to save an otherwise lost loan. Probably will see Comm. Lenders getting a fair fee up front from the ARC proceeds and maybe a small interest carry over the term or even renegotiating the primary loan to cover the carry on the ARC loan. There has to be a market value to doing the loan or it won't get done. SBA does not have a specific application or checklist that I could find. Lenders should worry about how to document to protect the guaranty when is it called upon.

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Yes. We have at least two businesses that would be perfect candidates for this program. They have been in business 15 = years and need soem help right now.

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I want one!

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To early to know. Detailed requirements of the guaranty needed.

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I need more information, but it sounds like a good idea, especially since the credit card companies are in a melt-down.

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yes

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not likely - no stated ability yet to charge an interest rate

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No

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Small business is the economic engine to get us out of this recession. The ARC will be like fuel!

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There are still a number of ambiguities to the program, but probably not. "Interest free to the borrower?" Why would we do that? It looks like we can charge fees, but why burden the borrower with fees up front when they're cash strapped already. Proceeds can only be used ot make debt payments so the fees apparently can't be paid through the loan. Eligibility requirments are still vague. SBA's web site states that borrowers whose history or past cash flow indicates the business might not be viable "...are not good candidates.." So are they eligible or not? I assume additional information will come out on the program, but as I understand it now, we will not utilize it.

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unknown @ this time. Need more details of the program. We feel there will not be many businesses eligible to meet the guidelines. May further erode our SBA portfolio, jeopardizes the "risk" grade which we feel is not justified.

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We do not yet know if we will participate. Until all the guidelines are published we cannot assess the program. We might not participate based on interest rate restrictions that would render the program unprofitable. Also, as with any SBA guaranty, there is the concern that the agency might repair or outright refuse to honor the guaranty. This could be a very high-risk form of lending. We are also attempting to assess the potential demand for the program, since most existing SBA borrowers are not eligible.

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Yes, but probably for current customers only. I hesitate as I have heard nothing on how the lender can profit - Only that the loans bear no interest for the life of the loan.

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I am banker. My Comment is there needs to be greater clarification on what will motivate the banks to make these loans. We have scarce resources that we must employ to make these loans.

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We will likely participate however SBA's approach is very concerning. To date the lenders responsible for delivery have been provided little information and nothing outside the press release format. On a daily basis we have been addressing customer questions without backing, now a date has been issued and lenders still know little other than etran is required. Small issues like interest payments have yet to be addressed. We were under the impression that interest would be subsidized during the disbursement and deferment period with P&I thereafter. The news release says interest free to he borrower but no mention of subsidized interest or the mechanics of reporting, such as 1502. We have no intention of providing interest free loans despite a 100% guarantee; we are in the end for profit business looking for an investor return.

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If it will benefit our cusomters and help them remain current on their loans, then we would be interested in participating. However, complete details on the program will have to be released before we can make out final decision.

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conceptually something like this program may make sense. as a lender however, if a lender is delinquent on their loans, how is giving, and that is what it appears to be, a delinquent borrower money to pay past due obligations responseble? Loans need to be granted to borrowers who show the capacity to repay an obligation. Deferral of current obligations only creates future problems for repayment. Loans are simply that, loans. They are not gifts or grants and need to be repaid. This appears to be not much different than loans granted to individuals to purchase SFR's who didn't qualify to begin with.

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As the owner of a Lender Service Provider firm, we work with hundreds of banks throughout the country. I absolutely understand the plight of small business borrowers. Lenders are exploring all kinds of options to help their borrowers get through this difficult time. I view the ARC Loan Program as more of a grant than a loan program. I can foresee a very high default rate for users of this program. A small loan of $35,000 may provide some amount of temporary help, but I think the administration of the program will be onerous compared to the benefit. While the ARC Loan Program may be well intentioned, I think it will turn out to be a give away program - much the same as the Low Doc Loan Program turned out to be. While we in the small business lending community must be sensitive to the needs of stressed borrowers, extending and/or deferring payments on SBA loans would likely serve the same purpose without the introduction of a new loan program. Thank You, G. Arne Monson President Holtmeyer & Monson

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Have not received any clarification as to how the bank is receive their accrued interest if the borrower is not responsible.

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difficulty finding banks to fund ARC

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We don't work on smaller loans

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It appears to be a great benefit to a borrower - But with no interest being charged to them, how does the bank make any money on the loan? Is this to be a purely benevolent relationship? We are on the fence.

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To help our small business clients with short term cash flow problems in an attempt to save their businesses and make sure they do not get forced to borrow additional funds at outragious credit card rates.

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no

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No interest to the bank ? Why particiipate other than to potentially bail out your potential bad loans.

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We will wait to see the implementation details. We want to use it, but need the details on how it is going to work. The news release is nice, but it has no implementation information and the District Offices do not have any information, so it is still going to be a while before we know if it is usable or not.

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Are site visits going to be required to verify that the business is open and operating.

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I plan to participate in the program. My business needs the help and, as I read it, this program is 100% guaranteed by SBA, is interest-free to the borrower, and doesn't have the typical SBA fees. I can't see the down side.

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Enormous boondoggle that will ultimately result in great embarrassment for SBA.

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How does a lender complete the forms and application? How does a lender get compensated for this loan when it is zero interest rate? Without these questions & others answered it is hard to determine if we should participate.

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I've got clients that are interested, but not sure I can find a bank. Also need definitions on "start up". Have established businesses that were purchased within 2 years that may or may not qualify.

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The term VIABLE must be vetted and a non-subjective way to determine what is "viable" means must be given to our Bank. I do not want to have SBA come back and tll me that they are not paying the guarantee because the business was not viable. I think we will only participate for existing customers. I also think the hype of the program in the public is going to cause a huge PR problem for SBA when the funds for the program are gone in 3 months.

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My only question is why would any commercial bank consider processing these loans when there are no fees, no interest, and no visible way to justify taking the banks capital and booking loans that will not provide any kind of return on equity to the bank? How are the banks going to justify the loans to their board when there is apparently no way to have any kind of return on the equity? Either the program is flawed or the complete picture has not been exposed.

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We don't have enough details.

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Will not particiapate. Reason: STAR Program, Not nearly enough return for the risk and associated work

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At this point we will probably not participate. What about this program is of value to the Lender? We make a no-interest/no-payment loan to a troubled borrower. If it defaults, do we have to wait until all collateral is liquidated to collect on our 100% Guaranty? Why doesn't the Agency just issue these loans directly? This program will be viewed by most banks as imprudent.

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We won't be participating if these loans are truly "interest-free". We don't have enough details at this point to determine.

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I am a business broker and the ARC Loan Program is capricious at best. It does not help existing SBA barrowers and it is so small that it might help the tiniest of businesses but it ends there. A bigger conceern is the good will limitations on loans. This is a joke. Most small businesses generate revenue and thus profits based on good will. They do not have vast assets to collateralize or the revenue streams required to service the debt typically associated with an asset bassed operation. This limit is a dagger in the heart of progress with respect to the recovery of small businesses in our country. Why did we give $172 billion to AGI and only $20 billion to millions of businesses who are successful and employ multiple times more people than AIG and the auto industry combined? How much more convoluted can our dunderheads in Washington think? It truly is astounding.

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Yes

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Procedures? Program Eligibility? Again, the SBA has communicated to the public of a "great new product" and forgot to inform the lenders the basic information of who, what, when, where, why & how. As a result, we're now receiving calls from many borrowers that we no idea if they qualify or not Or, if they did, how to process the application. Our decision to participate in the program will have to wait until the SBA gives us a clear policy and procedure that can be implemented.

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Yes we will participate. However, we do not have very many details and we may change our minds.

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They should have used financial intermediaries rather than banks.

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Not too many ARC loans will be made here. May be few to our existing clients. By the way, can a lender sell these loans on the secondary market?

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Probably not going to use this 'program'- too many questions and the program was thrown together with probably way too many loopholes and/or pitfalls. No thanks.

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Although the new ARC program may sound like a good idea, the ultimate test will come when the loans are eventually submitted for repurchase. I wonder how many denials or repairs will be made because the lender's exposure to the applicant was reduced. Ultimately our participation in the new ARC loan program will depend upon SBA's ability to issue clear program guidelines that address any and all conflicts with existing SOP regulations.

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I do not believe banks will use this program enough to benefit small businesses. Small businesses now have impaired financial statements and will not get enough attention from banks who already have stressed out portfolios and are being pressured by regulators to improve capital ratios. The SBA needs to consider doing these loans directly as disaster loans in certain states like Florida, California, Nevada, and Arizona.

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I'm a packager in Michigan. This program essentially looks like a gimmick by SBA to make it look like they're doing more than they actually are right now. This money would have been better spent on extending the fee-waiver program on the 7a side, which has boosted 7a lending tremendously over the past few months. I talked to Hazard today, and they have 305 loans on the stack (compared to about 20 on any given day before the March rule changes). I agree with other comments I've read - if it's interest free, what's in it for the lender? If there is no allowance for fees, once again, what's in it for the lender? I can see that the lender may benefit from 'saving a customer' who cannot make their payments currently, but usually a lender would downgrade a credit like that, probably making it non-eligible for this ARC program. A downgraded credit (say a 5 or worse) would probably be considered a loan that would transfer liability onto SBA, which SBA would almost certainly be opposed to (as they are in their 7a program).

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With no fees or interest, which is great for the borrower, what is the incentive for the lending institutions to push the ARC program?

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Not as I read it now, why would we offer a 6 year intest free loan with underwirting and servicing of the loan costing more than we could ever feasibley charge an already cash strapped borrower?
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I UNDERSTAND THAT A BORROWER WITH AN EXISTING SBA LOAN CAN"T GET THE ARC LOAN...SO WHAT GOOD IS IT? WAKE UP SBA!!!

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not enough details to Comment yet

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Interest free to borrower doesn't translate to no interest to the lender. SBA pays the interest.

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We would participate. Local paper announced program on 5/18/09. To date our Bank has not received any information on the program. Not aware it was to start 6/15 (newspaper did not specify a start date either). We dojn't even know if there is a separate application or eligibility checklist. Kind of in the dark right now.

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Loan amount is too small to work on.

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As a former small bank "credit policy" person, "Viable" is a key word in my view. However, a BIGGER issue is the regulations/regulators view of a commercial bank making a "new", separate loan (including ARC) that helps bring a past due loan current (a reg violation to the best of my knowledge) or avoids a likely past due situation with what is likely already a rated credit (certainly would open the eyes of a bank examiner).

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Think this would be best deliverd as a Direct Program. Far too many holes in it. One that is quite troubling relates to the determination of "business viability." Don't have the confidence that it would not be second guessed.

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Most of my past due commercial loans were made under an SBA program. Excluding those borrowers from the ARC does nothing for them. If they really want to help, include existing SBA credits! Those loans made after FEb. 17, 2009 shouldn't be in trouble yet anyway! I see no real benefit except that any loans made under this program should just as well be called "grants"

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Per ARC policy, US SBA will pay monthly interest to the lender at reasonable rates throughout the loan term

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No interest or fee income to the bank. Basically, here's $35M, start giving me back the money in one year at drawn out payments. The banks are already in trouble, is the SBA & Fed. Gov't trying to make it worse?

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We'll participate because it's a low cost account acquisition for the future. Thanks to all the sideliners!

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I'm a small business person whose family business has been hit hard by economic downturn. By the time the legislation and the SBA and the powers that be, (the banks) get off their butts, we'll probably be out of business. Billions at the drop of a hat to insurance companies and bankers . . . and a small business person can't get a $35,000 loan.

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