More discussion on the SBA ARC program

20. July 2009 by admin.

A few posts ago, I discussed the SBA “America’s Recovery Capital” program (”ARC”).  If you haven’t heard, the ARC program is what came out of the stimulus package to help small business.  The program is intended to help small businesses  that are having trouble making loan and interest payments.  How?  By issuing those same businesses more debt, of course.  These ARC loans are to be issued with no fees and no required principal payments for 1 year. 

I argued in my previous post that this program would not motivate banks to loan money.  Why?  Banks are businesses, not charities.  They are in the business of accepting fees for issuing loans.  They issue a loan wanting their money back, usually the sooner the better.  Not requiring principal repayment for a year goes against everything they believe in.  Also, the default rate is going to be higher on these loans (a fact agreed upon by the SBA), but the bank is going to have to spend the time and money to collect on the defaults.  Not exactly an appetizing situation for a recently battered industry, is it?

 I have spoken to a few local bankers here in central Texas, and I have not heard one say they were issuing these loans.  My guess is they would rather alter the terms of the existing loans instead of propping some of these companies up with more of their (now) valuable funds.

I found an article that I believe paints a good picture of the banks mentality when it comes to these loans.  I encourage you to read it here.

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