Comment: Just attended a training session on ARC and I couldn't agree with you more on your assessment of ARC. The program has too many vague elements that come down to judgment calls at the time of SBA purchase review
How viable is previously viable? A firm can show heavy losses but generate substantial cash if there is a large depreciation base
Certain debts are ineligible except if they are reduced to a note ( landlord for rent arrears or CAM reassessment, certain trade creditors) but where is the line drawn between a pre-existing note and a note created for the purpose of ARC refinancing?
Economic injury is required (and there's plenty to go around) but how much?
Credit card debt can be eligible but tieing the actual draws to business use can be difficult
Less apparent is the issue of indirect origination cost and administration cost? It is clearly intended that the lenders are required to use the same labor intensive used to put on a regular 7-A loan in packaging, due diligence, funds control, SBA reporting, servicing (which may be more complex than the average SBA since these accounts are -by definition for troubled situations) and liquidation. With no fees permitted, cost recoupment becomes an issue. The average earnings on a 35K loan would be $2100/year- considering the risks and liquidation rate to be expected- it will be hard to recoup all the overhead expended. In a time when Banks are running lean to minimize losses, resources aren't available for this type of a program

The loans might make sense to prop up a lender's own troubled accounts (where the recovery on own paper may make them worthwhile ) but on that type of financing delegation no longer applies due to potential preference issues on most decisions. This will raise the cost of administration substantially

Finally, SBA will have the upper hand at time of purchase because the loans cant be sold. SBA can raise questions especially on the more vague eligibility elements (on which they may ultimately be proven wrong). SBA can simply refuse to act until the issue is resolved to their satisfaction The lender may be faced with the choices of accepting a repair or engaging in litigation more costly than the loan balance to recover the purchase funds. Most lenders will take the former.

SBA could rework the program to a viable alternative by removing some of the restrictions on eligibility and use of funds (whole sectors of the economy-notably retail and franchise will have difficulty qualifying) and closely defining the remaining items greatly simplifying the required process to reduce cost offering it as a 90% guaranty with guaranty adjustments restricted to gross misfeasance (i.e..e. disbursing against your own loan and foreclosing 60 days later, making one to an associate of the lender) very narrowly defining preference issues for this program and allowing full delegation on everything else (including compromise settlements not involving a going business. For now I doubt if we will do any - maybe on one or two troubled accounts.

Do you believe ARC was structured by the SBA as Congress and the Obama Administration mandated? Comments

1. Regardless it is very poorly structured and with little incentive for lenders to make them. As structured it should have been delivered as a direct loan from the SBA. Wed, Jun 17, 2009 10:05 AM

2. Yes Wed, Jun 17, 2009 7:26 AM

3. Yes Tue, Jun 16, 2009 12:46 PM

4. yes Tue, Jun 16, 2009 8:21 AM

5. Not sure - but the lenders sure were not consulted. Tue, Jun 16, 2009 7:49 AM

6. Maybe Tue, Jun 16, 2009 6:16 AM

7. To us, this program is the SBA's response to a Congressional mandate to "do something". The program is overwhelming in its details and requirements...32 pages of guidelines for a $35,000 loan? The most common phrase found..."lender must", which is a clear indication of an "out" for the agency if/when a guaranty payment is requested. Also, there is the mysterious credit scoring system for approvals into which lenders have no input. Tue, Jun 16, 2009 5:25 AM

8. No. Too tightly structured, too complicated to administer for such a small loan. Tue, Jun 16, 2009 5:22 AM

Leave a comment

ARC Loan Program Comments May 18, 2009 - June 17, 2009

1. what banks are participating in this program? Tue, Jun 16, 2009 10:50 AM

2. No, the economy tanked in September, my credit score in january, if you don't have a decent score your not getting the cash. Just a big waste of money to bail the banks, again! Mon, Jun 15, 2009 4:40 PM

3. BANKS DO NOT HAVE ANY INFORMATION ABOUT ARC LOAN PROGRAM Wed, Jun 10, 2009 9:44 PM

4. I have a small automotive business in Arcadia ca.I owe approx. 350,000 dollars on my variable rate sbc loan.I have had this loan since 2002,it has gone up and down, however, I think in the next 5 years the interest rate could go sky high. I just figured out that I have no cap on my interest rate. This could cause some major problems. Before there is a major problem, I woula like to have some kind of a cap or fixed rate. I don't have $10,000 to refinance. I have contacted my mortgage company and they have basically said until there is a major problem, we don't want to deal with it. I am willing to pay something to aquire a fixed rate, I am not looking for a freebe, but $10,000 I don't have. Please let me know if you can help.My name is Jeff Stellern at Arcadia Ultimate Automotive. 626-821-0262. Or Stellern@sbcglobal.net. Thank you Wed, Jun 10, 2009 3:21 PM

5. Would like to participate. Few banks are participating. Banks are choosing not to participate. The news is good, but the reality is not good. Tue, Jun 9, 2009 1:56 PM

6. Not sure yet - still haven't posted what rate lenders will be paid. Fact we can't charge any fees, even out of pocket for processing/docs or late fees once repayment starts is also disconcerting. Mon, Jun 8, 2009 3:07 PM

7. SBA's main objective -- to look good and sound helpful……this program will fail miserably Fri, Jun 5, 2009 11:30 AM

8. Scary that all this publicity is taking place before the banks receives any specifics on who is eligible, underwriting requirements, and terms and conditions. Fri, Jun 5, 2009 6:48 AM

9. I agree with the earlier comment that I would only offer this to an existing Bank borrower as a lifeline. Why would anyone want to bring in a troubled business that currently banks with someone else? As far as the exclusion of SBA borrowers, I imagine SBA would say offer them a deferment. Fri, Jun 5, 2009 6:13 AM

10. I agree totally, at least 35,000 could pay off some very high interest accounts and afford more cash flow if used the right way. Thu, Jun 4, 2009 2:04 PM

11. We are in big trouble to save some jobs. My employees are working here for past 14 years. This is going to be little helpful foe us.. Sat, May 30, 2009 6:35 AM

12. Maybe.
It is typical of the agency to release information to the general public about the great benifits of this new program before they have the details and procedures out to the lenders. The business phsyche is not helped by the continual "I am not sure, I don't have the details yet" responses from the local lenders. This could be a helpful tool in our box, however there are many questions left unanswered. How to process the new ARC loans, how should the banks account for the deferral, will the banks be allowed to roll deferred interest into the final loan and will the process be sufficiently streamlined (i.e. Express style) to not disincent the banks. Wed, May 27, 2009 6:28 AM

13. This is worse than the express loan program which was a failure Sat, May 23, 2009 7:33 AM

14. I'm also a small business owner and have received NOTHING in the way of a bailout yet the bitchy and whiny lender comments above who've probably received funds from TARP or in the least were able to draw from a Fed discount window at nearly 0 cost really piss me off when they say "what's in it for me?" What's in it for you??? NOTHING! It isn't about you! You've gotten your bailout with MY TAX DOLLARS now I WANT IT BACK! So stop your bitching and whinning and start doing your responsibility to the people who bailed your collective asses out over the past 18 months! Fri, May 22, 2009 4:25 PM

15. I would participate if my small business would qualify. I haven't seen details of what qualifies a small business, who pays the interest on the money borrowed, when do you pay back the money and what happens if the small business fails even with the ARC loan. I am a small business. I was refused a loan from my bank three years ago, but they wanted to give me a line of credit. I wanted to know what the difference was between a line of credit and actual loan. My question would be what does the bank and the SBA get out of this generous offer. Fri, May 22, 2009 2:36 PM

16. I have 3 established businesses that could benefit from this program. The lender who can come through with this program for us will get all of our business and personal banking. Lets see, benefits for all: No more job loss, between the 3 businesses I employ over 120 people. Like many business owners I hate and distrust the banks who got us into this crisis in the first place and participating in this program could go a long way with rebuilding the relationships damaged by this crisis. Lets see, state the obvious, it is in the best interest of everyone that formerly thriving businesses stay in business (tax base, community, charity, employment etc etc etc.) Fri, May 22, 2009 1:19 PM

17. I intend on applying for a loan. This what's in it for me attitude by the banks is rather appalling. It is partially because of the banks' greed that we are in this mess now. IMHO, everyone in the business community has to come together and make a decent economy out of what's going on now. The businesses that are left now can probably survive for awhile without the loan but to be honest, the government is trying to suck up to the small business people. Lastly, if the feds are not subsidizing this program, I would be completely shocked. Fri, May 22, 2009 9:41 AM

18. The 35k is not for existing SBA loans. Thu, May 21, 2009 5:30 PM

19. May 21 Update ARC Procedurals and Apps will be availablr to Lenders on June 8. Apps will be available to business owners on June 15. Gerald Watson Thu, May 21, 2009 12:43 PM

20. See www.bobgreenfest.wordpress.com for insight. Thu, May 21, 2009 11:59 AM

21. The only loans I would even consider under the program would be for existing borrowing bank customers. I'm not willing to take on someone elses problems. We are so swamped right now with good loans, that it would be stupid to pull my underwriters off of the good requests to do a bunch of $35,000 loans to questionable companies. Thu, May 21, 2009 10:37 AM

22. In theory it sounds like a good idea, but in reality and as a Loss Mitigator, I believe that these loans will only avoid the inevitable for some business' and paint a rosey picture regarding Business Loan defaults, until the $$ runs out and after 6 months the borrower is back were they were before the ARC came along. Thu, May 21, 2009 10:28 AM

23. We'll participate because it's a low cost account acquisition for the future. Thanks to all the sideliners! Thu, May 21, 2009 8:38 AM

24. 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. Wed, May 20, 2009 2:08 PM

25. 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? Wed, May 20, 2009 10:40 AM

26. Per ARC policy, US SBA will pay monthly interest to the lender at reasonable rates throughout the loan term Wed, May 20, 2009 8:42 AM

27. 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" Wed, May 20, 2009 8:26 AM

28. 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. Wed, May 20, 2009 7:33 AM

29. 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). Wed, May 20, 2009 7:14 AM

30. Loan amount is too small to work on. Wed, May 20, 2009 6:47 AM

31. 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. Wed, May 20, 2009 6:44 AM

32. Interest free to borrower doesn't translate to no interest to the lender. SBA pays the interest. Wed, May 20, 2009 6:23 AM

33. not enough details to comment yet Wed, May 20, 2009 5:42 AM

34. I UNDERSTAND THAT A BORROWER WITH AN EXISTING SBA LOAN CAN"T GET THE ARC LOAN...SO WHAT GOOD IS IT? WAKE UP SBA!!! Wed, May 20, 2009 5:15 AM

35. 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? Tue, May 19, 2009 2:02 PM

36. With no fees or interest, which is great for the borrower, what is the incentive for the lending institutions to push the ARC program? Tue, May 19, 2009 1:38 PM

37. 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). Tue, May 19, 2009 1:08 PM

38. 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. Tue, May 19, 2009 11:21 AM

39. 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. Tue, May 19, 2009 11:16 AM

40. 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. Tue, May 19, 2009 11:11 AM

41. 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? Tue, May 19, 2009 11:08 AM

42. They should have used financial intermediaries rather than banks. Tue, May 19, 2009 10:49 AM

43. Yes we will participate. However, we do not have very many details and we may change our minds. Tue, May 19, 2009 10:30 AM

44. 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. Tue, May 19, 2009 10:08 AM

45. Yes Tue, May 19, 2009 9:15 AM

46. 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. Tue, May 19, 2009 9:11 AM

47. We won't be participating if these loans are truly "interest-free". We don't have enough details at this point to determine. Tue, May 19, 2009 9:05 AM

48. 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. Tue, May 19, 2009 8:57 AM

49. Will not particiapate.
Reason: STAR Program, Not nearly enough return for the risk and associated work Tue, May 19, 2009 8:56 AM

50. We don't have enough details. Tue, May 19, 2009 8:52 AM

51. 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. Tue, May 19, 2009 8:45 AM

52. 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. Tue, May 19, 2009 8:41 AM

53. 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. Tue, May 19, 2009 8:30 AM

54. 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. Tue, May 19, 2009 8:20 AM

55. Enormous boondoggle that will ultimately result in great embarrassment for SBA. Tue, May 19, 2009 8:13 AM

56. 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. Tue, May 19, 2009 7:55 AM

57. Are site visits going to be required to verify that the business is open and operating. Tue, May 19, 2009 7:23 AM

58. 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. Tue, May 19, 2009 7:20 AM

59. No interest to the bank ? Why particiipate other than to potentially bail out your potential bad loans. Tue, May 19, 2009 6:47 AM

60. no Tue, May 19, 2009 6:45 AM

61. 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. Tue, May 19, 2009 6:35 AM

62. 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. Tue, May 19, 2009 6:15 AM

63. We don't work on smaller loans Tue, May 19, 2009 6:15 AM

64. difficulty finding banks to fund ARC Tue, May 19, 2009 6:12 AM

65. Have not received any clarification as to how the bank is receive their accrued interest if the borrower is not responsible. Tue, May 19, 2009 6:09 AM

66. 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,br /> G. Arne Monson
PPresident
Holtmeyer & Monson Tue, May 19, 2009 6:01 AM

67. 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. Tue, May 19, 2009 5:58 AM

68. 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. Tue, May 19, 2009 5:58 AM

69. 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. Tue, May 19, 2009 5:51 AM

70. 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. Tue, May 19, 2009 5:41 AM

71. 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. Tue, May 19, 2009 5:40 AM

72. 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. Tue, May 19, 2009 5:33 AM

73. 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. Tue, May 19, 2009 5:23 AM

74. 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. Tue, May 19, 2009 5:19 AM

75. Small business is the economic engine to get us out of this recession. The ARC will be like fuel! Tue, May 19, 2009 5:17 AM

76. No Tue, May 19, 2009 3:54 AM

77. not likely - no stated ability yet to charge an interest rate Mon, May 18, 2009 10:46 PM

78. yes Mon, May 18, 2009 10:36 PM

79. I need more information, but it sounds like a good idea, especially since the credit card companies are in a melt-down. Mon, May 18, 2009 6:50 PM

80. To early to know. Detailed requirements of the guaranty needed. Mon, May 18, 2009 4:07 PM

81. I want one! Mon, May 18, 2009 2:37 PM

82. 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. Mon, May 18, 2009 2:28 PM

83. 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. Mon, May 18, 2009 1:59 PM

84. yes Mon, May 18, 2009 12:49 PM