The Pros and Cons of the SBA ARC Program

On June 15th, small businesses were able to begin submitting their applications for the highly-anticipated financial savior known as the America’s Recovery Capital loan Program (ARC). The ARC offers a $35,000 cap on an SBA-insured loan. The loan is interest free and comes alongside a year-long deferred payment program. The biggest factor: The loan is only available to businesses that are facing “immediate financial hardship” and have experienced at least one profitable year within the last two.

ARC ProgramThe program is designed to be this economy’s safety net for struggling small business. However, once again, we find a disparity between lending and the businesses that truly need the financing. On top of that, most banks are hesitant to take part in the program, considering the lack of information they were provided before the formal announcement a few weeks ago. Most banks are finding themselves in their own deferment, requesting more time to read about the pros and cons of lending through this program. On the other hand, some of the most prestigious lenders that have built a relationship with the Small Business Administration jumped on board with the program as soon as it was in discussion.

So what does the ARC program mean for business? For the most part, it really doesn’t mean a whole lot. The new administration promised changed and this is merely the first response to a hopefully wide umbrella of relief. Will it work? Only for some. Is it enough? No chance.

The pros of this program can be counted on two hands:

  • Banks are lending again.
  • The current administration is actually attempting to save small businesses.
  • Businesses can avoid bankruptcy in the short-term and act as a buoy as the economy continues to recover.
  • No payback for one-year.
  • The loan is insured by the Small Business Administration.
  • If you are going to take a loan out during these times, this is the one to apply for. Default will come along with a lot of leniency and forgiveness, considering the circumstances.

The cons are obvious and should not be overlooked:

  • The program offers nothing to startup businesses, which is arguably what needs to surface during these tough times. Old ideas are stale. The new ones need to rise up.
  • Recipients must have been profitable in one of the last two years. To me, this current economic downturn has been taking place for longer than that. If a company is going to stay in business, allow them more room to change and evolve for the better.
  • Not enough information has been released on the program.
  • A lot of banks are simply not participating in the program.
  • The total amount lent cannot exceed $35,000. What if a company needs $40,000 to remedy their current balance sheet?

As you can see, the program can be analyzed in many different lights. If you conduct your own due diligence and read about it today, you will find a lot of the negativity highlighted around it. However, this seems like one of those relief programs that will slowly catch on and its importance will begin to be realized thereafter.

All in all, I think this is a good first step for the recovery of small business. While it doesn’t apply to everybody, I think something had to be done, and this first step forward at least shows some attempt. From here, only time will tell if we can offer something to new companies and/or a broader spectrum of businesses to start to turn our entire economy around. After all, this downtown is affecting everybody, isn’t it?