National Clothesline

America’s Recovery Capital (ARC), the loan program created as part of the federal government’s stimulus package, has been picking up its pace after a slow start in June.

By the end of September, the ARC loan program had backed 2,715 loans totaling just over $88 million, with an average loan size of $32,425, according to the Small Business Administration.

Applicants still face obstacles in their attempts to land a loan. Lenders, especially the big, megabank-types, have been slow to get on board. For them, the ARC program involves a lot of paperwork for loans that generate relatively little profit.

The SBA’s largest lender, Wells Fargo, is issuing ARC loans, but the second-biggest financer, U.S. Bank, has taken a pass.

Bank of America decided to get on board after studying the program for three months. Still, the bank hasn’t yet set a timeline for when it will begin accepting ARC applications.

The SBA anticipated this delay from larger banks that need time to create systems that will work across hundreds or thousands of branch offices. Agency executives point out that the ARC program is, by Congressional mandate, a narrow initiative, one that isn’t designed to aid the majority of America’s six million small businesses.

“We have been averaging about 50 new lenders into the program each week and a little over 220 loans approved each week, and those numbers continue to grow,” said Jonathan Swain, the SBA’s assistant administrator for communications. “For a brand-new program, a program that is very different from any other program SBA has done, we feel those numbers are encouraging.”

For those who qualify, the program offers up to $35,000, distributed over several months, that can be used to pay down other debts, such as credit card or mortgage bills. The government covers the loan’s interest, making it interest-free to borrowers, and offers banks a 100-percent guarantee — if the business defaults, the government will pay the bank back.

Business owners don’t need to start repaying the loan for a year. The goal is to provide small business owners with a way to keep up with their bills until they can get back on their feet.

Borrowers have to be running a “viable” business, which the SBA defines as one that has been around for at least two years and been profitable in at least one of the last two years. They also have to be experiencing clear financial hardship, as illustrated by a sharp drop in sales, staff, or working capital.

“The way I would characterize it is that it is one tool in the tool box,” Swain said of the ARC program. “It is a very small loan program for a very targeted, very specific situation, as a result of the economy.”

Some in Congress are already eyeing ways to expand and simplify the program.

In the Recovery Act, Congress included a restriction forbidding borrowers from using ARC loans to pay down previous SBA loans. But as part of a broader bill extending several about-to-expire SBA programs, the House of Representatives lifted that restriction. The Senate, however, stripped it back out of the version of the extension bill that it passed.

Nydia M. Velázquez (D-NY), chair of the House Committee on Small Business, is pressing for other ARC changes as well.

“The SBA should streamline its application and approval processes,” Velázquez said on the House floor last week. “Businesses that apply for these loans do so because they need a lifeline now. The SBA should make the process fast and simple.”