Federally Funded Small Business Financial Port in a Storm

Bridge financing? A few thousand dollars just to tide us over? I’ve been there, and, in fact, I’ve been there to the tune of $65,000 in credit card debt, which is definitely not the best way to do it.

So I’m noticing today that the US Small Business Administration (SBA) is making good on a promise with the announcement of details for what I call its “port in a storm” program, alias ARC loans, meaning up to $35,000 in deferred payment debt for small companies with 1.) a problem; and 2.) a foreseeable future way out of that problem.

How much will it help? Diana Ransom calls it Financial Help for a Few Lucky Shops in her Wall Street Journal Smart Money column.

Beginning on June 15, the agency will begin doling out 10,000 deferred-payment loans of up to $35,000 to small businesses that are struggling to stay afloat.

The most interesting number in that statement is 10,000. On one hand, that’s a drop in a 24-million-small-businesses bucket. On the other hand, though, traditionally only a few small businesses actually find their way through the banking maze into the helpful programs of the SBA.

To get the real info, click here to go straight to the SBA’s page announcing the program. You’ll see fairly quickly there that ARC stands for American Recovery Capital; and, more important, this is for “viable” companies:

viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability.

In her WSJ piece, Diana lists pros (no fees, no interest, deferred payments, and extra cash flow) and cons of the program. The cons start with the limited number of loans, then add some doubt about banks being happy to participate, and then the real heart of it, eligibility:

Businesses are required to show that they were either profitable or maintained a positive cash flow in at least one of the past two years. A business also needs to demonstrate — via quarterly cash flow projections — its ability to meet current and future debt obligations, including future repayment of the ARC Loan.

So eligibility goes straight to the catch 22 of bank financing, which has always been there, and probably will always be there: banks aren’t allowed to take risks. Don’t be hard on them, it’s banking law, to protect the depositors’ money, but still, an important truth: If your company really, really needs the money, then you’re probably not eligible.

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