Paperwork stunts SBA's ARC loans
Photo/Carol Coultas
Richard Moseley, owner of the Harpswell Inn in Harpswell, has been trying to get an ARC loan since the program was launched in June
A new SBA loan program intended to help small businesses bridge the gap between the recession and better times has generated few results in Maine, hampered by low participation by lenders and a disjointed rollout that discouraged borrowers.
“I have been trying to get this loan for months now,” says Richard Moseley, owner of the Harpswell Inn in Harpswell. “My thinking is, if the SBA is offering this loan, they ought to do what it takes to stand behind it.”
The American Recovery Capital loan was announced in May by Karen Mills, the new administrator of the U.S. Small Business Administration. The program offers loans of up to $35,000 for qualifying small businesses to pay down debt. Interest-free, the loans require borrowers to pay back the principal over five years. Participating banks are not allowed to charge fees for ARC loans.
Although Congress authorized $255 million for the ARC program, only 55 loans valued at $1.77 million have been approved here in Maine
through mid-October. Nationally, about 3,400 ARC loans have been made, which, when the program was unveiled in June, was projected to help 10,000 small businesses. The program will run until the money is exhausted — the tally stands at about $110 million — or Sept. 30, 2010, whichever comes first.
Moseley, who has operated the inn since 2005, says he meets all the eligibility criteria, including the right FICO score, profitability range and appropriate debt. ARC loans are intended to pay down debt, not for operational expenses as other SBA loans, such as the 7(a) or 504 programs. Moseley says he’d like the money to help pay last season’s fuel bills and credit card debt. He approached his two longtime banks, Androscoggin and Bath Savings, who elected not to participate in the ARC program, citing the paperwork, he says. Now he’s working with a loan officer from Atlantic Regional Federal Credit Union.
“He showed me a folder, 2 inches thick, with all the paperwork he has to fill out in order to process an ARC loan,” says Moseley. “He said, ‘You know, I could write you a personal note for $35,000 and you’d be approved in 45 minutes.’”
But that wouldn’t be an interest-free, 100% guaranteed loan, one of the beefed up lending programs the SBA has rolled out in the past year to help small business combat the recession. In addition to the ARC loans, the SBA has also waived or reduced fees on some of its conventional loans and is trying to raise the limit of 7(a) loan and most 504 loans from $2 million to $5 million and to raise the maximum microloan size from $35,000 to $50,000. Last week, the SBA proposed new size definitions that would broaden eligibility for 71 types of businesses, including many in the retail trade, hospitality and food service industries.
Nationally, SBA weekly loan volumes have spiked 200% since the federal stimulus act passed. Maurice Dube, the SBA district director who oversees Maine, is thrilled that the number of SBA loans closed here this fiscal year tallied 513 versus 470 last year. But he acknowledges the ARC program has been slow to catch fire.
“There is a cost to processing all loans and for a lender, the cost to process a $35,000 loan is darn close to the cost of processing a $300,000 loan,” he says. “I can see where some banks are reluctant.”
To date, 10 of Maine’s roughly 40 banks have processed Maine’s 55 ARC loans. (Minnesota leads the pack with 400 ARC loans approved; Hawaii has two.) Dube said some banks are encouraging small business operators to refinance or restructure their debt using other SBA programs, rather than ARC.
At Bar Harbor Bank and Trust, nine ARC loans have been approved. President Joseph Murphy says participating in the program hasn’t been onerous, although there was some set-up work involved. He considers it an extension of the bank’s commitment to support small business.
“We don’t get any fee for this, but why wouldn’t we want our customers to prosper?” he asks. “It’s very helpful for certain borrowers.”
Murphy says all the ARC loan recipients are existing bank customers. He’d consider applications from new small business operators if they considered moving their business banking to Bar Harbor, a standard, point-of-sale marketing strategy, he says.
That’s a pitch Larry Moore, owner of Music & Moore music store in the Topsham Fair Mall, knows well. He, too, has been seeking an ARC loan for several months. His original business bank wasn’t participating in ARC, and the only bank he could find locally making the no-interest loans told him they would only consider his application if he shifted all his banking business to them.
“I don’t understand why the SBA offered this on such a wide scale without getting a commitment from participating lenders,” he says. “When I called the SBA to find out who the participating banks were earlier this summer, they couldn’t tell me. They suggested I call each bank individually.”
Complaints about the ARC loans reached Sen. Olympia Snowe, who held a series of meetings this summer in Maine to address small business concerns. Staffers in her office say measures to streamline the ARC application process and make it easier for borrowers and lenders have been submitted to the SBA, but none have been enacted as yet.
SBA officials acknowledge the roll out of the program could have been smoother. Jonathan Swain, an SBA communications liaison in Washington, says the program took a while to ramp up, but now counts 865 lenders with an average of 240 loans approved weekly. Some of the bigger banks such as Bank of America, JP Morgan Chase and Wells Fargo are beginning to express interest in the program, he says, an indication of more ARC lending to come.
Moseley hopes $35,000 of that will ultimately come his way. He intends to keep trying for an ARC loan before this season’s fuel bills start to come in.
“ I haven’t given up … I’ll keep pounding them,” he says. “But I‘m not optimistic. I expect it’ll run out of money before I ever get an application submitted.”
Mainebiz web partners
Most Recent
Most Recent
Comments