LL INVESTIGATION: SBA loan program ‘designed to fail’

| 8/7/2009

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 second 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 II: ARC loan program just a ‘clunker without the cash’ 
While SBA Administrator Karen Mills claims the rollout of the ARC loan program nearly two months ago 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 “America’s Recovery Capital” loans were designed to help “struggling small – but viable – companies” ride out this recession. However, nearly 93 percent of the money allocated to this loan program remains untouched because only about 13 percent of Small Business Administration-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 for $35,000 and 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 25 customers with their ARC loan paperwork. He said the ARC loan program is “just a clunker without the cash at this point” because lenders are just not 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 $2 million.

OOIDA member Sherrie Bond of Chehalis, WA, equates the ARC loan process – which SBA encourages small business owners to pursue as a possible lifeline – 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 ahold 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 a 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 information 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 seven 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 50 participating banks, and Wisconsin, which has over 30 lenders, are leading the entire country in the number of ARC loan participants. SBA Spokesman Michael Stamler supplied a list of lenders by state who have made at least one ARC loan.

Meanwhile, only one lender in the entire state of New York and only nine in California are making these loans. Gordon said few larger banks are participating in the program.

Gordon said he spoke with a representative at a bank in rural Wisconsin recently who said his bank was participating in the ARC program even though they were 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.”

– By Clarissa Kell-Holland, staff writer