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SBA ARC Loans in Northeast Florida

Rachel Witkowski writes in the Jacksonville Business Journal this week that not all banks are jumping on the ARC loan bandwagon. We are seeing a lot of activity and have been providing technical asssistance to applicants daily. Check the UNF Small Business Blog often for program updates.

Most bankers have either turned down or tiptoed cautiously into a new small-business relief loan program despite heavy demand pouring in from struggling businesses.

The U.S. Small Business Administration launched its America’s Recovery Capital, or ARC loans June 15 as an effort to temporarily help once-profitable small businesses now strapped with debt.

So far, a handful of banks in the market said they will offer ARC loans, but most said only to existing customers. An ARC loan has yet to be made in the market though applications are being sent to the SBA, lenders said.

Other bankers said they do not plan to offer the loans largely because the time and cost in making the loans well exceeds a typical SBA or business loan.

“Banks just can’t make money on that,” said Jami Bucy, regional sales manager for Alabama and Florida at BBVA Compass. “If anything, they’re going to lose a lot of money on the loan.”

Part of the concern with the ARC loans from a banker’s standpoint is that typical SBA or small-business loans can have a much higher interest rate. The SBA, rather than the borrower, pays the interest and then the borrower can defer the principal payment for up to 12 months after the final loan payment by the SBA, which makes payments for six months. The interest on the loan is the prime rate, which is 3.25 percent, plus 2 percent.

“Our branches are really being bombarded by requests for it,” Bucy said. But since the risk is higher and the loans are smaller, Bucy said the bank is not participating at this time.

“We still have been very successful in helping business owners through a lot of the regular SBA loans,” she said.

The limit on the amount per ARC loan was also considered very small by most bankers, which means they would have to produce a lot of them to make a profit. And the SBA has limited participating banks to no more than 50 ARC loans per week until the amount set aside by the SBA for the program runs out.

The $35,000 limit “is not a huge loan and so there’s a segment of the market that it just is not going to help,” said Randy Chesak, executive vice president of commercial banking for North Florida at SunTrust Bank. However, the demand is high and the bank, which is participating in ARC, is beginning to get some traffic for the program.

A qualified business can use the loan for the sole purpose of paying down principal and/or interest payments on existing qualified small-business loans including mortgages, traditional SBA loans, capital leases, notes payable to vendors or suppliers and credit card obligations. The money cannot be used for refinancing existing debt or capital expenditures.

Most of the banks that said they were participating have only begun to process applications to submit to the SBA for approval. The SBA approved 72 ARC loans from 42 lenders in 21 states within the first week of the program’s launch as of June 22. None of those were local, according to the SBA’s North Florida district office.

About 40 to 50 lenders in North Florida have called about the program, said Ralph Ross, deputy director of the regional office.

“There are a lot of lenders who are undecided. Some said they will do it, but only to existing clients,” he said. “We had quite a few calls from banks that are flat out not interested.”

But like any new lending product, Ross said it may take some time for lenders to jump on board.

The Small Business Development Center at the University of North Florida released a list of lenders nationwide that are participating as of June 23. Among 12 participant lenders, more than half are offering it only to existing clients. Eight of the 12 have offices in Northeast Florida.

The question remains: Which of those locally will participate? Regions Bank, SunTrust and Wachovia Corp. were the banks offering it locally so far, said Paul Arrington, certified business analyst at the center. Wachovia and SunTrust spokespeople said they are offering it to existing and new customers.

The work and resources required to make ARC loans may cause some lenders to say it doesn’t make sense, but being a struggling business in this economy “we think holistically it makes sense to do,” said John Asbury, executive vice president and business banking division head at Regions Bank.

Regions is offering ARC loans to existing clients only. Asbury said since all banks are limited on the number of ARC loans per week, Regions is going to address its struggling existing clients first. Regions is a preferred lender with the SBA and one of the largest in the country.

The bank is receiving a lot of inquiries from small businesses about the program and has begun to process applications, but it has received fewer applications than the “overwhelming” amount expected, Asbury said. Some of that has to do with clients misunderstanding what is required for an ARC loan.

For example, the small-business applicant is required to prepare two years of financial projections and demonstrate it has the ability to service both existing debt and the ARC loan after the 18-month deferral period. The qualified business must also be less than 60 days past due on its existing loan at the bank.

“This program will help a subset of clients experiencing financial hardship,” he said. “It’s a bridge to a better economy making the assumption that things will get better as a business owner to where I will be able to service the debt.”

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