by Mark Rosenzweig, Score Accredited Counselor, Score NE Mass

In May of this year to much fanfare from the government and the Small Business Administration as well as this newsletter, The America’s Recovery Capital (ARC) Loan Program was launched with the goal of helping small businesses weather the economic storm with a fast injection of up to $35,000 of funds which would be 100% SBA guaranteed, 0% interest, 5 year loan. It sounded too good to be true but our government wanted to help Main Street America weather the downturn and give the economy a good shot in the arm.

Well so far, it hasn’t worked as planned. The reality is that the program has gotten off to a slow and painful start. One of our clients, Sweet Mimi’s, a candy store on Main Street in Andover, started the day after our newsletter went out (May 19th,2009). Mimi Queen, the owner, contacted the her bank and was told they were not interested in these loans as they were too small for them. Undaunted, over the next 6 weeks, she continued to search for a bank willing to provided the 100% SBA backed loan with little positive results. Some banks said they will not offer the loans others said they would but only to businesses who had been with the bank prior to the loan program. Frustrated but determined, Mimi continued her search finally locating Merrimack Valley Credit Union that agreed to provide the loan. Finally, in mid September, the bank completed the paperwork and made its first payments. To their knowledge Sweet Mimi’s was the first ACT loan granted in the Merrimack Valley 4 months into the program.

So what is going on with the ACT program and should you (as we recommended) go out tomorrow and apply for the loan. The answer is yes and no. The program is a great deal with a loan that requires no payments until a year and a half after you use it and then it is 0% interest for 5 years. That is what is called cheap money. So the answer is yes, do it. But like all good things, our government came up with the strings tomake it an awful lot of work to get the benefit. What started out as a simple one page form turned into a major amount of paper work including multiyear financial documents, cash flow projections and an amazing amount of legal documentation. So the answer is no unless you are ready to put significant investment in your time to get over the hurdles the SBA and the Banks require. And then there is the trouble of finding a bank that would even entertain doing the loan with you. Good luck!

Don’t blame the banks. The problem for the banks comes in several areas. First, the amount of work the bank needs to do to complete the application is more than they would do for a normal business loan most of which are much larger in size and thus larger fees. And the government, wanting to make sure the small business actually spends the money on paying off debts (rather the taking a vacation to the Hawaii or some such place), requires that the bank pay the small business debts directly and monthly as they become due so the paper work and processing is many times more complicated than a normal loan. The result, very few banks are interested in providing the resources to help get these loans done and even those that do see it as a loss but will do it to support there customers.

This goes into the bucket of really good ideas that bureaucracy and red tape is going to kill or at least make ineffectual for most small businesses and the economy to benefit from.  So if you have the will power or are in such a tough business position that you need this money, I urge you to go forward and run the process gauntlet. If you are not prepared to the battle or can live without the loan, focus on your business and make it better every day. It will be time better spent.