SBA has big plans to ease credit crunch

SBA has big plans to ease credit crunch Q:I have heard that the government is finally providing some funds to assist struggling small business owners. Can you provide any details? -- Cynthia L., Hanover

Answer: The government is determined to make a big dent in the small-business credit crunch, according to the Small Business Administration.

The goal for the SBA is to jump-start job creation, restart lending and promote investment in small businesses.

The American Recovery and Reinvestment Act provides the SBA with $375 million to temporarily eliminate loan fees and raise guarantee limits to 90 percent on most types of 7(a) loans, the most basic and most used type of SBA's business-loan programs.

It also temporarily eliminates 504 loan fees for both borrowers and lenders. The 504 loan program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.

The SBA estimates these provisions will apply to about $8.7 billion in 7(a) loans and $3.6 billion in 504 loans through 2009.

Another new program funded by the act, tentatively called America's Recovery Capital or ARC stabilization loans, has generated lots of interest.

The ARC loan program is designed to give viable small businesses, suffering immediate financial hardship, some temporary financial relief so they can keep the doors open and get their cash flow back on track.

The temporary program will offer deferred-payment loans, which are 100 percent guaranteed by SBA, for up to $35,000 to small businesses that need help making payments on existing, qualifying, non-SBA backed loans. The program has about $255 million in funding.

There are no interest charges to the borrower and the SBA will pay the monthly interest of prime plus 2 percent to the lender on behalf of the borrower.

The disbursement period is for up to six months, followed by 12 months with no repayment of the ARC loan principal. After the 12-month deferral period, the borrower pays back only the ARC loan principal over a period of five years.

ARC loans became available June 15 through SBA-approved lenders. The loans are available until funds are exhausted or until Sept. 30, 2010, whichever comes first.

The only eligible purpose for use of the ARC loan proceeds is to make periodic payments of principal and interest on qualifying small business loans including:

• Secured & unsecured conventional loans (mortgages and term and revolving lines of credit);

• Capital leases;

• Notes payable to vendors, suppliers, or utilities;

• Development company loan program (504) first mortgage loans; and

• Credit card obligations for business purposes

ARC loans cannot be used to make payments on another SBA-guaranteed loan, with the exception of loans made after Feb. 17.

Volunteers with the Richmond Chapter of SCORE, Counselors to America's Small Business, will answer questions from small-business owners and managers. Go to http://www.richmondscore.org and click on the link to "Ask SCORE." A counselor will respond within 48 hours. Select questions and answers will be featured in Metro Business on the second and fourth Mondays. To learn more about management issues facing small businesses and SCORE's workshops, go to http://www.richmondscore.org or call (804) 771-2400, ext. 131.