Cover Story
A Clunker with cash
A majority of the money set aside for the Small Business Administration's ARC loan program remains untouched, and few SBA-backed lenders are even participating in it. Truckers applying for the loans want to know: What's the problem?

By Clarissa Kell-Holland
staff writer

 

While the “Cash for Clunkers” program ran out of funding in just four days, the same can’t be said for the U.S. Small Business Administration’s America’s Recovery Capital Program – known as the ARC loan program.

That’s because the majority of the money – approximately 85 percent – that was targeted to help small businesses survive this recession remains untouched since the program was rolled out nearly three months ago.

And for some small-business truckers who were told these ARC loans could be a lifeline to help their struggling businesses, their hopes of getting an ARC loan are diminishing more each day.

OOIDA member Russ Iund (pronounced yoo-und) of Chehalis, WA, has been waiting nearly 16 weeks as of press time for a final decision on whether he will receive one of these ARC loans. So far, only 10 SBA-backed lenders in all of Washington state have signed up to participate in the program.

“Right now we are still waiting to hear something,” Iund told

Land Line in early September. “We were told that we were way up on the charts for being accepted and everything looks good, but we still haven’t gotten a loan.”

Iund, who owns a small flatbed trucking company, said that although his business is slowly picking up again, he still needs a cash infusion to dig his way out of the “economic tsunami” that crippled his business a year ago.

His business was doing well until fuel hit $5 per gallon and his fuel bills were topping $50,000 per week for his 12 trucks. Iund said that when the economy took a nosedive – that “completed the perfect storm.”

Where’s the bottleneck?
Of the $336 million that was set aside for the ARC loan program, only about $52 million has been shelled out so far, according to SBA Spokesman Michael Stamler.

Stamler also said that of the nearly 2,500 SBA-backed lenders who have participated in other SBA programs in the past

18 months, just over 520 – or 21 percent – have signed up so far to participate in the ARC loan program.

Of the 589 loans that have been funded, small businesses in the transportation and warehousing industry have received fewer than 100 of the ARC loans, according to SBA statistics.

While the demand for these $35,000 ARC loans is great, many small-business owners can’t find a bank that is even participating in the program. And most lenders are doing these types of loans only for their existing customers.

One SBA-backed lender, Superior Financial Group LLC of Walnut Creek, CA, which specializes in small-business loans of $25,000 or less, isn’t participating in the ARC loan program. Tim Jochner, chief executive officer for SFG, said that’s because “the program was designed to fail.”

Jochner said there are many reasons why most lenders aren’t going to participate in the ARC loan program.

“Congress should be rewarded for their idea because it is a great concept. But whoever wrote the intricacies of the program didn’t ask lenders their opinion, and the result is that it’s basically a program that not a lot of lenders are going to use,” Jochner told Land Line.

SFG is one of only 13 companies to be approved as a non-bank SBA lending company. Before the lender requirements were released, Jochner said his company was prepared to participate in the ARC loan program because these loan sizes are SFG’s “sweet spot.”

However, Jochner said after receiving the requirements and the way the loans were to be structured, company officials threw up their hands on participating in the ARC loan program. He predicts many other lenders are doing this as well.

“It’s not that we don’t want to do these loans. … We can’t deliver this product because there isn’t any profit,” he said. “By the time you factor in all the costs to meet the requirements and to book this loan and to bill the government for the interest, it’s just an accounting nightmare. One of the most important things to note is that most SBA lenders sell their guaranteed portions of their loans, which you can’t (do) on the ARC loans.”

For Iund and countless other small-business owners that looked to the ARC loan as a possible lifeline to keep their businesses afloat, the waiting games continue.

 “We are working good enough to hold ourselves, but we need a boost that will bring us up to present time, pay off our back bills that are just dragging back there like a net, and bring us up to date with enough money to restock our supplies so we can drive out from here,” Iund said.

A clunker
While SBA Administrator Karen Mills claims the rollout of the ARC loan program in June is “a good example of our commitment to manage risk in a conscientious way,” some small-business truckers who have been trying to obtain these loans disagree.

The ARC loans were designed to help “struggling small – but viable – companies” ride out this recession. However, the majority of the money allocated to this loan program remains untouched because only about 20 percent of SBA-backed lenders are participating in this program.

Mills compared the ARC loan to a “bridge over troubled waters for struggling but viable small businesses” in an update to the U.S. House of Representatives Committee on Small Business in late July.

“Our staff put in extraordinary amounts of time and energy to ensure that this program would be both responsible to taxpayers and beneficial for these uniquely situated small businesses,” she stated. 

Both lenders and borrowers have expressed frustration with the various problems associated with the ARC loans, which are 100 percent guaranteed loans. The money is to be disbursed over a six-month period, and borrowers will not have to start repayment on these loans for one year after the final installment.

Neal Gordon, who is the principal for the Business Borrowers Alliance, is currently assisting 33 customers with their ARC loan paperwork. He said the ARC loan program is “just a clunker without the cash at this point” because too few lenders are participating. Gordon said this is because the volume of paperwork involved in these $35,000 loans is almost as much as for SBA-backed loans for up to $1 million.

OOIDA member Sherrie Bond of Chehalis, WA, equates the ARC loan process to a tactic farmers used long ago to keep their donkeys moving forward.

 “It’s like dangling this carrot on a stick in front of you; then when you make a move forward, that carrot is moved just out of reach again and again,” she said. “This program is being touted as a way to help small businesses survive this ‘tsunami’ that wasn’t of their own making. I am afraid small businesses are going to fail before they finally get hold of that carrot.”

Bond, who is also the director for the Northwest Log Truckers Cooperative, was encouraged when she first heard about the ARC loan program. She even hosted an SBA workshop on how her log-hauling members as well as other small-business owners could find out more about these loans and how the process works.

None of the truckers who filled out applications on these ARC loans after that workshop have received one of these types of loans yet. In fact, two of the truckers who went online and requested additional information from the SBA have yet to hear anything back electronically with any information at all, even though they received a message back that they would hear from an SBA representative “within two business days.” That was 16 weeks ago.

Gordon said there really isn’t enough money in it for banks to participate because they can’t charge an application fee for these types of loans, which would have covered at least some of the lenders’ costs.

“Even if the banks want to do the right thing, they are having trouble doing it because of this program,” he said. “Their hands are tied in many ways, or they have to make decisions that are counter to what is considered to be good business just because of the way this works.”

Which states are lending?
SBA-backed lenders in the states of Minnesota, which has more than 91 participating banks, and Wisconsin, which has more than 64 lenders, are leading the entire country in the number of ARC loan participants.  As of press time, 589 ARC loans have been made so far, and lenders in these two states account for 463 ARC loans – which amounts to approximately 29 percent of all ARC lending.

Meanwhile, only eight lenders in the entire state of New York and only 16 in California are making these loans. Gordon said few of the nation’s larger banks who received federal bailout money are even participating in the program.

Gordon said he spoke with a representative at a bank in rural Wisconsin who said his bank was participating in the ARC program even though it was a small bank with an even smaller staff.

“I asked him how he’s able to do this, and he said ‘because it’s the right thing to do,’ ” Gordon said. “He said they don’t hope to make much money – if any – on these loans, but he knows the small-business owners in his community and he wants to help them.”

Gordon said that while a direct-lending program was the best solution, at this point “there’s not a lot that they are going to be able to do until the legislation is changed.

“There’s nothing the SBA can do to tweak the program to make it better,” he said. “They might be able to make it a little better, but Congress wanted a program that had no fee for the borrower. Well, that’s a wonderful idea, but somebody’s got to do the work, so the result is banks aren’t participating.”

Although the trucking industry is the backbone of the American economy and small businesses provide the majority of jobs that will stimulate the economic recovery, Bond says “the reality is that small businesses are ignored, and businesses who continue to mismanage their funds get rewarded for bad behavior.” LL

 

clarissa_kell-holland@landlinemag.com

Aug/Sept Digital Edition