SBA Micro-Loans To Small Businesses

Through the America’s Recovery Capital (ARC) program the Small Business Administration (SBA) was awarded some $750 million for 2009 – 2010 to lend to small businesses in financial peril. This program is part of the American Recovery and Reinvestment Act of 2009 or Stimulus Plan/Recovery Act.

Small businesses that qualify can take advantage of SBA guaranteed micro-loans from $5,000-$35,000. To take advantage of this program you will need to be in business for more than two years and be profitable for at least one out of the last 2 years. Also, you will need good credit and a FICO score of at least 650.

The business owner needs to provide at least two years of cash flow statements as well as a plan on how the funds will be used to help make the business profitable. By demonstrating that the bottom line is suffering, due to the economic environment, a micro-loan can be used to meet their obligations.

An SBA ARC loan can be used for:

1. Debt consolidation
   
2. Equipment purchase
   
3. Remodel or expand
   
4. Advertising & marketing
   
5. Payroll
   
6. Secure working capital

As a result, many struggling businesses can “buy time” until the overall economic environment improves. Creative entrepreneurs can also use such financial support to improve their market position with customers and prospects, at a time when many businesses are cutting down on their marketing reach.

The following are the Terms that apply to ARC loans:

1. Interest-free to the borrower.
   
2. No fees paid to SBA.
   
3. Loan proceeds are provided over a six-month period.
   
4. Repayment of principal is deferred for 12 months after the last disbursement of the proceeds.
   
5. Following the 12-month deferral period, the borrower pays back the principle over a period of five years. For example, a $35,000 loan to be paid in 60 months, result in monthly payments of $584.
   
6. The SBA will pay the monthly interest rate of prime plus 2% to the lender on behalf of the borrower.

Ultimately, a prolonged economic growth will help small businesses navigate out of the recession, but this program can put them on the right path and give breathing space to a sector of the economy that is deprived of traditional financing options. The program is scheduled to end in September 2010 or until the funds run out. You can call 877-693-8691 for assistance with the application process or contact your local SBA office.