LL INVESTIGATION: SBA loan program ‘designed to fail’

| 8/5/2009

The August/September 2009 edition of OOIDA’s Land Line Magazine includes a news analysis article that follows some small-business truckers’ attempts to secure an ARC loan for $35,000 through the Small Business Administration. This article by Land Line Staff Writer Clarissa Kell-Holland is the first in a two-part series online – expanded coverage on why the majority of the money set aside for this program remains untouched and why so few SBA-backed lenders are even participating in the ARC loan program.

PART I:  Flawed loan program leaves truckers without lifeline

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 right around 93 percent of the money targeted to help small businesses survive this recession remains untouched since the program was rolled out nearly two 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 seven weeks for a final decision on whether he will receive one of these ARC loans. So far, only seven 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 on Monday, Aug. 3. “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 fuel for his 12 trucks. Iund said that when the economy took a nosedive – that “completed the perfect storm.”

Where’s the bottleneck?
Of the $350 million that was set aside for the ARC loan program, only about $26.2 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, only 316 lenders – less than 13 percent – have signed up so far to participate in the ARC loan program.

Of the 806 loans that have been funded, small businesses in the transportation and warehousing industry have received only 47 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 because “the program was designed to fail.”

Tim Jochner, chief executive officer for SFG, which is one of only 13 companies to be approved as a non-bank SBA lending company, 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 recently.

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, he said the company “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 on the ARC loans.”

For Iund and countless other small businesses 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.”

– By Clarissa Kell-Holland, staff writer