SBA’s 100% Guarantee ARC Loan Program

A loan program with a 100% guarantee sounds great; let’s recall the old adage, if it sounds too good to be true it is.

After announcing this program months ago, the U.S. Small Business Administration, beginning June 15, will start guaranteeing America’s Recovery Capital (“ARC”) loans. ARC loans are in an amount up to $35,000 (no typos or 000’s omitted here) and are to be used to help businesses make principal and interest payments on existing loans. ARC loans will be originated by a bank, will have no fees attached to it, and will possess the 100% guarantee of the U.S. Small Business Administration in the event of default. The borrower, after not making payments for up to 12 months, will then have 5 years to repay the principal balance. Since there is no interest charged on these loans the monthly payment will be a fixed payment of $583.33.

Why is the SBA wasting time and resources on a program that no lender will ever use? First of all, if a customer is having difficulty making its loan payments, the odds are that providing them with up to a whopping amount of $35,000 will not actually help the situation as this amount is negligible. Also, if a company is having trouble making its loan payments now, it is usually for myriad reasons and rare that in one year, the time for repayment to begin, that the company will be viable once again with positive cash flow and able to make payment on the ARC loan, as well as its other obligations. Finally, what’s in this program for the lender? They will have to underwrite the loan, and take administrative time to advance the proceeds, bill the customer, and collect loan payments. What financial incentive is there for the lender to get involved in this process? Sorry, that was a rhetorical question because the answer is NONE!

This isn’t even smoke and mirrors; this is hyperbole. All of the time and effort that it has taken the SBA to develop this program and finally get it implemented (in one more month), and trust me once again, this will never succeed. The Government must stop wasting resources on programs like ARC and start getting in the trenches and figuring out what type of program will work to restart the economy and help the small business sector.

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One Response to “SBA’s 100% Guarantee ARC Loan Program”

  1. Bill Rolser Says:

    The answer isn’t for the Government to figure out what works, the answer is for Government to get out of lending, and every other business. Let the private sector (and that horrible word “capitalism”) determine financing methods. Aren’t Fannie and Freddie enough evidence that Government intervention in markets is foolish? If you still need more evidence that Government fiddling in markets doesn’t work, check out the NRA. No, not the National Rifle Association, but rather the National Recovery Administration. The NRA was a depression era Agency created by Roosevelt to run all manner of businesses. The Agency was most famous for prosecuting a pair of brothers who owned a Kosher butcher store in Brooklyn, NY. The brothers’ crime was to allow their customers to choose the chickens they wanted, rather than sell the next chicken in line!! LOL (If you think I’m kidding, see Schechter Poultry Corp. v. United States 295 U.S. 495.) Fortunately, the Supreme Court ruled the NRA unconstitutional. If only we could learn the lessons of history…..

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