WASHINGTON, DC The U.S. Small Business Association today announced a new emergency bridge-lending program geared toward helping struggling small businesses ride out the current recession.
Calling it another "tool to our toolbox" SBA head Karen Mills said the new American Recovery Capital (ARC) program will offer "viable" small businesses temporary six-month loans of up to $35,000.
"We expect these loans to be in high demand," said Mills, who made the announcement as part of her keynote address at the National Small Business Week conference.
"As you look around, many businesses will meet the criteria of being important, viable businesses that haven't missed a payment yet, but their credit lines are down, their sales are down a bit and they're having hardship and they really could use this."
Mills said typically these short-term loans will be used for helping ease a credit crunch, as banks call in balances on credit cards.
"You can pay down your credit card line and now you have $35,000 more of liquidity."
The interest-free loan must be used within six months and borrowers have up to six years to repay it. The only other stipulation is that it cannot be used to pay any previous SBA-backed loan the business may have outstanding.
The ARC program, effective June 15, is part of the larger Recovery Act that President Barack Obama legislated earlier this year. That bill earmarked $15.4 billion to purchase existing SBA-backed loans from banks to free up lenders to make more loans and stimulate the so-called "secondary" market that had stalled.
Last month the SBA also dropped fees and broadened eligibility criteria for businesses applying for funding, opening the doors for an additional 70,000 companies to apply for its 7(a) and 504 lending programs.
Mills said since the Recovery Act about 10,000 new loans had been approved, causing a 25 percent boost in the SBA's average weekly loan volumes. Since October the SBA had seen loan volumes fall by more than half.
Mills said companies directly helped by the new measures included Jamiel's Shoe World, a Rhode Island family-owned operation that was able to procure a $400,000 SBA-backed loan that gave owner Joseph Jamiel a "second chance at saving the family business." The story "really hit home" for Mills, as she purchased shoes there for her three sons when they were young.
"He (Jamiel) was able to reduce existing debt, consolidate operations and save more than $10,000 in fees," said Mills, who promised to make the SBA "the strongest voice for small business."
The new funds will likely be good news to entrepreneurs like Michele Justice, who operates a personnel security firm in Albuquerque, New Mexico.
After getting to the critical five-year mark with her company, Personnel Security Consultants Inc., Justice began experiencing problems with a couple credit card companies. A representative would call every time she used her Discover card to make purchases seeking authorization. Sometimes it would take two days for things to go through, severely hampering her business.
After being in good standing with Wells Fargo, who has received billions in federal bailout money, the bank suddenly jacked up the rate on her credit card and dropped the balance on her seldom-used line of credit to the point it wasn't even worth keeping.
"It was ridiculous," said Justice, who immediately paid off the credit card and canceled the line of credit. "They say they're doing these things to protect us, but it's just hurting small businesses."
Democratic Senator Mary Landrieu, who co-chairs the Committee on Small Business and Entrepreneurship, wants to make sure entrepreneurs like Justice are more supported by the government and banks.
Currently just 25 percent of the roughly 8,000 banks in the U.S. participate in the SBA's lending programs and Landrieu, who worked closely with Mills to get more money for small businesses into the Recovery Act, would like to see that number be much higher.
"I'd like to get that up to 100 percent," she confessed. "I would like to think that no one in America, who has a viable idea for a business and a decent plan and a work ethic, would ever be turned away.
"That we become a country wanting to support entrepreneurs, as opposed to making it difficult."
In more news that may bode well for small business owners, a tough new bill aimed at reforming the credit card business was on track for approval by the U.S. Senate as early as Tuesday, with President Obama expected to sign it into law before the end of the month.
Almost 80 percent of U.S. families have a card and nearly half of them carry a balance.