America's Best Business Practices

You wrote “Is it possible that the small banks are the only ones really capitalizing on the ARC Loan Program and Minnesota and Wisconsin have far more small banks than do other geographic areas?”

It’s important to note that it appears banks do not make any money on ARC loans, so small community banks must be making ARC loans as a loss leader to generate new business.

I’ve spoken with hundreds of Lenders around the country including many who aren’t participating and about half of those who are doing ARC Loans. I have also talked with a good number of the lenders in MN and WI who are doing the loans here’s what they are saying:
* They know that there is no profit in the program
* They know that the app process is onerous
* They know the loans could go sideways
But to a person, they say that if the program could possibly help:
* Their neighbor
* The parent who has a kid that is a friend of their kid
* Or the people they worship with every week
that they are going to do this loan.

It sounds a little like Jimmy Stewart at the Saving & Loan, but I am convinced these people have the ethic to try to help if they can. Maybe they are just nicer people.

Just my 2cents

Neal Gordon
http://www.businessborrowersalliance.org
We provide direct assistance and help to businesses throughout the complete ARC Loan application process.

Douglas, why would this be? The government pays an acceptable interest rate.

The only thing I can think of is that it is a lot of paperwork for such a small loan (max of $35k). For the same amount of paperwork, they can secure a $250k+ loan through the regular 7a loan.

The facts about the ARC loan program are sprinkled throughout SBA.gov and there does not seem to be any concise overview. The Government made ARC loans attractive to borrowers by subsidizing the interest on the loans.

Lenders are collecting approximately prime plus 2.5% in interest from SBA while they collect the principal balance of the loan from the borrower over 60 months [after an 18 month moratorium on payments]. With a $35,000 cap, the lender can collect no more than about $150/month in gross interest income and the average ARC loan will be much lower. Now subtract the lender’s cost of capital, and the result is their monthly gross profit per loan.

Next, take a look at the lenders operating expenses incurred as they deploy the capital for each loan over six monthly payments to the borrower, servicing the loan while remaining in compliance with the ARC loan program and it appears they can’t be earning much, if anything.

The cost of labor for compliance/bookkeeping for this program is a very expensive burden on lenders, which are not well suited to doling out money at less than $6,000/month while monitoring borrower’s monthly debt related expenses. Sure, the loans are 100% guaranteed by SBA, but there can’t be much profit in ARC loans.

COLLINS & COLLINS INVESTMENTS
Douglas Baumwall, Certified Business Intermediary
Expert & confidential management of the valuation,
finance, purchase and sale of businesses since 1975
Sound Advice • Effective Methods • Exceptional Results
http://www.305-235-4444.com

Quick note. Our CT SCORE chapter was asked by a rep from CT SBA why we thought the demand was low in our State. I called a few accounting firms that I know in various nearby cities. Their execs told me that they felt that their clients fell into 2 categories that would not use/need ARC. Ones that had planned for an economic downturn and were managing via exisitng bank relationships and extended lines of credit at better terms. Others had waited too long, were in a death spiril, and had caused enough credit damage that they would not qualify for the loan. By the way, one of the banks listed in your list of banks using ARC is the largest past and current loaner of SBA based loans in CT.

Wes, I have to ask, “what terms could small businesses secure that would be better than no interest for the term of the loan, no payments for 18 month, then 60 months to repay loan, no processing fees and 100% guaranteed by the SBA?”

I do understand how they can be so far gone it is too late to do something.

Mike, I agree with you that the terms are generous. One recent local SCORE client saw the benefit and took advantage of the program. (Only local one that I know of so far). It makes me wonder if some of the local accounting firms that service small businesses really understand the program. Their customers may not reach out to SCORE or even their banks. Maybe that’s one source/cause of the low of applications from many States ? I encourage the accounting firms to attend the local SBA/SBDC evening classes on the program when I see them at the Chambers of Commerce meeting.

I’m visiting a local savings bank today and will check on their understanding of the program and their client demand as well. The largest bank broker of SBA loans in CT gave a joint presentation of ARC with the SBA in June and certainly understand the benefit. So it could be a general education issue. Since the internet can be a passive vehicle for communication, maybe more proactive face to face outreach by the SBA and all of us is needed.

SCORE CT

It is interesting to note the number of banks offering the loan in MN and WI versus other states. There are a combined 124 banks between MN and WI which dwarves the number of banks in other states. While the number of banks does not mean a proportionate number of business customers, it is noticeably different.

Can anyone provide any leads on banks located in the state of Connecticut or New York that are actually doing SBA loans???

Any leads or help would be appreciated!

Jim, there is a link in the article above to download a list of participating banks. I hope this is helpful.

I was told most bank consider your company profitable after the owner’s salaries are added back in along with the depreciation. Can anyone tell me if that is the same when appling for a ARC loan?

I was turned turn down by Wellfargo because line 21 on my tax return was not positive. Where most banks add back in depreciation and owner’s salaries. I called SBA and they said that was Wellfargo’s criteria.

I am frustrated, I live in California’s Central Valley can not find banks offering the ARC Loan. Does anyone have any suggestions?

Karen, did you click on the link in the article above that lists all the banks in each state making ARC Loans?