Government readies emergency small biz loans
The SBA will begin backing new, emergency America's Recovery Capital loans next week. What do you think of the ARC loan program?
From Assert Marketing, Dulles, VA It is sobering to read the frustration experienced by small businesses (and quite understandable). I requested a payment extension on my small business credit card -which is at the credit limit- to temporarily suspend a payment. Unfortunately, my bank wanted a cash flow analysis, saying this was required by sba. Well, I was discouraged in a hurry! So I've closed the credit card myself and continue to use my personal credit for business expenses – but not for long. I'm not sure why it is better to file bankruptcy and subsequently "start over" than for lenders to deal more flexibly with small businesses. Mr. Trump's organization is coming to my area and I hope to meet him to find out. After more than a couple of bankruptcy filings, the businessman is still "successful"!
From John B. I have just received a letter from Wachovia/Wells Fargo informing me that they are unable to approve my A.R.C Loan application at this time. I must say that I am not only disappointed, but frustrated and confused with the reason why I was denied.
I have had a personal banking relationship with Wachovia for the past 10 years and a business relationship for the past 5 years. My business cash flow is sufficient to service existing and proposed debt. My accounts with Wachovia, other financial institutions or trade lines have all been handled satisfactorily and are not delinquent, and my credit history demonstrates reasonable assurance of ability to repay loans, repay other obligations and operate at a rate profitable to repay the loan/other debt.
The Treasury Department has invested about 200 billion in hundreds of banks through the Capital Purchase Program in an effort to prop up capital and support new lending. Wells Fargo was one of those bailed-out banks. With that said, where is the help to small business owners that are experiencing hardship? Why is Wachovia/Wells Fargo not willing to help out my small business as the A.R.C. Loan was designed specifically for businesses like mine?
At this time, I am requesting that the SBA investigates this matter with Wachovia/Wells Fargo, as I have not found one small business owner in my area that has been approved for the A.R.C. Loan. The ARC Loan is a JOKE!
From Ephraim I've spoken to a banker and the reason according to him why financial institutions are reluctant to ease lending to small businesses inspite of the government gurantee is that they are trying to avoid the same mistakes that happened in the mortgage mess. I tend to disagree with this observation. To have a small business which has been in operation for at least 2 years, it took a lot of efforts and hard work (having a license, at least have expertise in the business, etc) from the owners/entrepreneurs in order to keep the business profitable if not afloat. You cannot compare this in the same category as the mortgage business where anybody then can just secure a loan even without any track record (first time buyers are even a priority)
Majority of the small business owners will work their butts out to ensure that his business will be successful and this is something that the lending intitutions and government must consider.
From John Macpherson, Hagerstown, MD. So far, I've called about 1/2 the banks iin Maryland that are on the Sba-Baltimore's Top Lender List (that's about 90 banks total) of the 45 that I called at least 1/2 said they are NOT doing the ARC loan, about 2/3 of the remaining banks said they're still thinking about it and trying to figure out how to do it and whether it is economically feasible (ie – will they make money on it), and the rest said "Yes, but only to our existing customers."
So, where does this leave folks like me whose bank is not an SBA lender, isn't doing the loan, and doesn't even want to deal with the SBA?
Even if I qualify for the loan, I can't even apply because (so far) none of the banks will even consider doing the loan for someone who is not already a customer of theirs.
From Tammy, East Peoria, IL I tried with several banks and they have their own rules. I called SBA to make sure I was reading the requirements correctly… I am. the banks are either not willing to lend the money or just don't want to participate. Many claim to be "small business friendly" banks. It's a joke.
From Steve, Texas (1) You cannot blame a bank for not willing to bail out another bank's problem loan. The bank that made the loan having the repayment issue should be responsible for making the ARC loan period. Don't push bad loans from bad banks to good banks. (2) There is a misconception in the media and public that these are working capital or refinance loans. The purpose of these loans is to simply help a small business make payments for six months. That is it – nothing more and nothing less. (3) Banking 101 says lend to customers you know. The last time you want to lend to a new customer is when they tell you they company is distressed and they are having problems making their payments. Banks are not using ARC as a tool to move people's banking deposits to their bank. That is a ridiculous assumption by some out there. (4) This program was ill-conceived and makes the banks looks bad to the public if they don't participate. It was over-hyped by the SBA when it was announced. I don't believe any banks were even consulted on the program before it was released. (5) Not all banks took TARP funds, but even if they did, they shouldn't be forced into making bad loans just because the government tells them. Isn't that kind of how we got here in the first place? (6) Most banks will come up with an ARC Loan Program that meets the eligibility requirements of the SBA (which are pretty lengthy given the 32 page manual they issued) and the credit qualifications as determined by the bank's credit/risk management team.
From Josh, Bismarck, ND To the business owners who don't understand why they are getting denied for an ARC loan:
As lenders, we have to liquidate and collect on these loans and even though they are "100%" guaranteed, there are many loopholes for the SBA to deny reimbursement.
I understand your frustration, as these loans were intended to help struggling businesses. What they won't tell you is that nothing will convince a sane lender to borrow to a business that is going to fail, especially when we have to do the clean up work.
From Dave, Grand Rapids, MI Before the program started, I commented on this blog about how banks likely won't use the program. This has proven largely true, according to the comments on this board and apparent statistics to date. A lot of these comments show the frustration the public has with not having access to funds, when they are so desperately needed.
Please don't be mad at the banks over ARC or their apparently unwillingness to make loans to your business. SBA has had the 'magic bullet' in hand all along to fix this problem. By simply lifting rate caps on regular SBA loans, they could entice banks to lend a great deal more under SBA's existing programs. Yes, there would be a higher interest rate to pay, but if business owners aren't savvy enough to decide if they can afford a slightly higher payment or not, they shouldn't be in business. Rate caps, imposed by SBA and capable of being lifted at any time, are responsible for a lot of lender hesitancy in lending to small businesses today. Call or write your congressman or senator to have them lifted! Then banks will have the incentives to make more of these loans to your business and others like you who need access to capital. It's as simple as that.
From Chip Parker, Brooklyn, NY What do you think of the ARC program? The first word that springs to mind – cruel – hold out hope and provide nothing. Assuming it's not cruel, it's obviously designed by people who have no clue about business.
From John Macpherson, Hagerstown, MD. I just talked to a guy at the Baltimore MD District SBA Office. It turns out that there is a requirement that BANKS know about, but not the public! The SBA requires a debt to income ratio of 1:1 for the loan. Now, my question to the SBA was- why?? If the loan is supposed to help business that are having trouble meeting current obligations (loan pymts & other expenses) due to reduced sales or increased expenses, how could they possibly have a 1:1 ratio??
If it's better than 1:1 (more income than outgo) then they don't qualify for the loan. If it's lower than 1:1, then they (technically) qualify because of "financial hardship" but actually DON'T qualify due to the bad D:I ratio.
WHO will this loan program actually help??
From Cezar Jr. California Soros was right that China will get out of this recession sonner than us. They saw that lending to businesses is the best thing to stimulate the economy and when their leaders say so the banks follow. Here even if the banks are told to lend using taxpayers money it still fell on deaf ears.
Why penalize small businesses when the root cause of this mess is subprime mortgage. Statisitics will show that we (small business) had helped our economy.
Let's see if the secondary market which these banks are partially blaming for in their reluctance to lend and which the government plans to implement gets underway. If they still refuse then our authorities should ask them to return the TARP money and give them to any institution that is willing to lend us.
From Brian Reed,Redmond, OR. We are still missing the problem. It is not the cost to fund ARC loans, it is the simple problem of of the FDIC.
With the bailout the FDIC has warned Banks that they can not approve loans to businesses with 180 days or more of negative cash flow. Find a small business in America that hasn't been running negative. The SBA can start any programs they want and it won't help if the banks are threatened with FDIC forced closure if they start approving them. I hope CNN will investigate this further.
From John Macpherson, Hagerstown, MD. We just applied for an ARC loan on Monday (6/15) at an SBA Preferred Lender, who claimed to be doing the loans.
The answer we got, NOT from mthe SBA but from the BANK, was that "We are NOT going to submit this loan to the SBA because we feel thst your Debt to Income ratio is too high."
I thought the whole purpose of the loan was to assist with debt that companies were having trouble meeting because of deopressed sales (ir income). So if thee banks are gonna use the Debt to Income ratio as grounds for denying the loan, then WHO will these loans help??
From Tracy T, Idaho Falls ID My bank where I have done business for the past 8 years is on the list of banks who do ARC loans. I'm the perfect canidate for this but my bank will not even take my application because their cost of funds is more than the return on these loans. I was in commercial banking for 15 years and actually worked for this bank. I have perfect credit and run tens of thousands through my accounts in this bank. They would do this loan if they could. There isn't going to be a bank in this country that will do these loans unless they are profitable or get CRA credit for doing them.
From san digo Hi ,
Where can you get unemployment or any statistic for individuals who did have small businesses? No one ever talk about us. Those who did start businesses last four years to five years specially builders in CA,NV, FL and other areas, we were not on payroll and did not start making money to pay for social security or medical insurance. We charge up the credit cards to operate the business. We never could borrow any money from the bank for business. We did have to take money from equity from our houses to start our business. My guess is this happen to 30% of the businesses in this category and each did employed 3 to 10 peoples many of them as subcontractors. We bail out the banks who now are even more strict landing policies. Our equity are gone, we are ether upside down, went to bankruptcies or our credit score is so low. We are unemployed. We can't go back to business for few years. We are the people who has guts to start business. All politicians talk about " new small business will create 70% of the jobs." When and how now? No one talk about us. What CNN has to say? Were one can find statics about us? Only place I'm registered is Job agency. They not looking for someone who was on his own and had to close down the business .
Thanks Joe
From Scot E It's interesting that US Bancorp utilized over $6 billion in taxpayer funded TARP loans but yet I as a small business owner now can't utilize the ARC loan program because my bank, US Bank, won't participate in the program.
I'm beginning to think the FED should refuse the payback of the TARP funds by US Bancorp so that they continue to be overtly regulated until they start playing ball!
Also, I believe TARP banks that aren't participating in these loans should be fined monthly to fund additional ARC loans as well.
From Jimmie Hughes, Dallas, Texas I am a small busines owner in Dallas, Texas and I have been consistently talking with many different lenders since the program was announced last February. Well, the guidelines have been out for 1 week and the lenders are STILL hesitating. This whole ARC thing is a joke. The SBA knows the lenders are hesitating, so why not DO SOMETHING ABOUT IT?!?STIMULUS? HAH! The only thing this program is stimulating is frustration and disappointment.
From Ephraim, Brentwood, CA It is unfortunate that the banks are still hesitant to participate in the ARC program when even the headline states that it's a 100% safe loan. We won't appeal on their sense of patriotism to help turn around our economy since their main motivation is only profit. We will only remind them that it is in their best interest to help small businesses become profitable since they will eventually benefit from a thriving economy.
From Drew, Dallas, TX Are you kidding me? Why would a bank make a loan to a business that can't pay the bills NOW? What bank is going to take this risk in this environment. Why don't we just open a Government Bank (really) to loan these businesses this money, cut the middleman.
This whole bail-out was done wrong. 70% of the economy is based on the CONSUMER, so why do we bail out the companies? Get the money in the CONSUMER'S hands and this will turn around. Doing it from top down will not fix it. Same thing as these loans….if the consumer has the money to spend the businesses will thrive!!
From Citizen, Houston, Texas Its easy for the SBA to say that 5.25% is a fair rate. However, banks cannot just print money when they need to lend it. What is a bank's cost of funds when most SBA borrowers usually have very little in terms of compensating balances to offset the funds being lent? Futhermore, the overhead to close a $35,000 loan is no less than it costs to close a $1,000,000 loan. These loans, if not underwritten properly, will probably have a really poor repayment record.
From Clarence McGill-Cincinnati, Ohio The SBA and the administration still do not get it. Until small business firms are treated like GM and Chrysler and can receive loans directly from the U.S.Treasury, we will be at the mercy of the Banks. The SBA should gear up to process and service these loans as it was done in the past, and when that happens, we will see a real recovery. The Small Business Community of America will always be the engine that drives our economy.
From Jim, Walnut Creek, CA The fact is the SBA didn't need to create a new program, especially one that participating lenders would not use because it makes no monetary sense to a lender on several levels. Instead, they could have turned to an existing program already in place that has reached over 30,000 small businesses while offering paid for technical assistance, The Community Express Program is ideal for getting the moeny to the small businesses that need it so badley, and has the track record to prove it. With an average size loan much smaller than the traditional 7(a) program the Community Express Program could reach the small businesses without spending millions of taxpayer dollars and several months to design a program that will deliver very little, way to late. I doubt anybody at the top at SBA even considered it……what a shame.
From Amy Rhodes, Puyallup, Washington Once again, you have read the response from the banks and their attitude regarding small business customers. As usual, it is about THEM not the people that keep them in business: the customer. The ARC program is better than nothing and for small business like mine, the ARC program will make a huge difference to our bottom line. There is virtually NO RISK for the banks. This is truly about customer service.
So, here is my challenge to the banks out there. You come up with your OWN program to help small businesses. If you can do better, you can talk about how bad the ARC program is. If don't want to offer ARC loans, expect to lose customers. If my bank doesn't plan on offering ARC loans, I will be moving all my accounts (business, personal, kids saving, future loans, etc) to a bank that will.
From Sam Moyers, Wichita, KS Not a good idea. Not a win-win and when there is no cost, the incentive to succeed is less.
From Mark Habermann, Litchfield Park AZ As a small business owner and in the engineering field directly related to construction, I have witnessed the bottom dropping out of my firm. The ARC Loan program looks real good until you see that there won't be enough loans to go around to all the small firms that have major financial challanges. The Banks aren't on board? Maybe they need to be reminded that they and the rest of the financial sectors are reponsible for this crisis to begin with and have been bailed out by our tax dollars. Now it's time to step up to the plate and do the right thing.
From Josh L., Bismarck, ND As a commercial lender, I have reservations about the SBA being able to handle this program. The turn around time on guarantee requests has tripled. They can't keep up with demand now, let alone when the flood gates open on this.
From S Clark, Hiawassee, GA whether the program is good, bad, or indifferent has become a moot issue since I can not find a bank on the SBA list that plans to cooperate in this program. You can't apply directly through the SBA and banks aren't interested. Sounds like once again the little guy is made to believe there is a carrot but when he reaches for it it's just a STICK. If banks don't want to participate in SBA programs they shouldn't be allowed to participate in ANY OF THEM. When are we going to stop allowing businesses that benefit from tax dollars to cherry pick who they will provide their services too?????
From Todd, Columbus, Ohio Too little, too late. The applicable rules make this loan unavailable to my struggling business because I am unable to show a profit in one of the last 2 years. While it might benefit me if it were available, it is essentially useless government propaganda.
From Dave, Grand Rapids, MI With ARC loans on the doorstep, the rubber is about to meet the road on this new product. Unfortunately, it appears the program is a bit of a gimmick. Usually great 'political' programs aren't great practical programs. ARC appears to be a case study in this principal. While the government is advertising this program as great for borrowers, there are a lot of disincentives for banks. First the loans are small and the SBA appears to not be allowing banks to charge fees on them. So, basically banks won't make any money on them. Secondly, even SBA acknowledges many of these loans will go bad. However, even though they know this will happen, SBA still says they'll hold these bad loans against banks on their 'SBA currency ratio' which is how SBA determines if a bank is allowed to continue in various SBA programs. This fact alone with keep many lenders from even thinking about ARC loans. These issues, along with a plethora of new rules that come along with a new program, will likely keep many lenders out of the ARC game. And that's probably the way is should be. Lenders can send SBA a message – we like long term, stable programs that benefit both bank and borrower, not short-term gimmicks that appear to make the government look good while diminishing the good name of SBA amongst many lenders.
From businessborrowers The $35000 ARC Loan is finally set to arrive on June 15 and the devil truly is in these details. Congress passed and the President signed a bill that is too little, very late and doesn’t provide a long-term solution for small business to restructure their debt. Instead, the original House bill to provide for larger loan amounts to refinance debt went to the Senate and conference committee and became a “band-aid for a heart attack victim”.
Since there will only be an approximate 10,000 loans available and the demand is so high, it is predicted that these loans will go very quickly. However, there has yet to be one lender who has officially committed to this program. Since lenders are prohibited from charging any fees to cover their costs, many are openly questioning whether they should participate in a loan program that is either break even or could cost them money.
We will continue to offer advice and assistance as the details continue to emerge and the loans become available.
Neal Gordon
http://www.businessborrowersalliance.org
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There has been ZERO arc loans closed in the Houston area. There is a huge disparity on the use of these federal funds. Banks are not advertising the Arc loans and will not give potential customers any information on the loans when there is an inquiry. Banks will not deny your loan and will keep it on their books. This is a loop hole for not having to report. Arc loans are a complete failure in the Houston area and I am working with several institutions that will back me up on this, such as Acion Texas and PTAC. There is absolutely no follow through with the Arc loan program. Bank of America is the main lender that is promising the most when getting the federal funds and delivering nothing. It was very embarrassing to be a small business owner who is excited about the stimulus plan efforts to only be turned away. Where is our voice in all this?