SBA Stimulus Lifeline Too Short for Mission District

Small businesses line 24th Street

Small businesses line 24th Street

President Barack Obama’s stimulus plan to aid struggling small businesses looks good on paper – no fees, higher guarantees and billions of dollars – but small businesses in the Mission District have not benefited from the new programs, according to local bankers and SBA data.

Only four businesses in the 94110 zip code have been approved for the Small Business Administration’s (SBA) largest loan program, which offers $375 million in fee reductions for small businesses and federal guarantees of 90 percent to the banks as of Feb. 17.

“A 90 percent guarantee doesn’t overcome lack of profitability,” said Blaine Laney, executive vice president and chief lending officer for Mission National Bank.

Small businesses line 24th Street

Small businesses line 24th Street

To be approved, businesses must show they can repay the loan from current revenues.  Laney said his staff spends a lot of time visiting the small businesses they finance and they find most are struggling, not profiting.

“In the last 18 months, sales are down, profitability is down, and businesses are employing less,” he said.

Those struggles would seem to make Mission District businesses worthy candidates for America’s Recovery Capital Loan Program (ARC), which went into effect on June 15.  It offers qualifying small businesses the opportunity to borrow up to $35,000 interest-free.

The ARC loans are designed to help small businesses make their principal and interest payments on existing business debt.  This includes mortgages, term and revolving lines of credit, capital leases, and credit card obligations.

The payments are deferred for one year and for another five years the borrower has to pay back only the principal amount.  In this case, the SBA guarantees 100 percent of the loan amount if a business defaults.

Andrew Murphy, business coordinator for the Mission Economic Development Agency, works with small businesses of low and moderate income in the Mission and throughout San Francisco.

While he has found that most of them are aware of these loans and some have even inquired about how to take advantage of them, they do not qualify.

“Someone who wasn’t bankable five years ago when it was booming won’t be bankable now,” he said.

As of August 21, the SBA has approved less than 1,600 ARC loans and none of those have been made in the Mission District or anywhere in San Francisco, according to Gary Marshall, the business development specialist for SBA’s San Francisco district office.

“Banks are more comfortable with a process they know,” Marshall said in trying to explain why no ARC loans had been made in San Francisco.  “Lenders are struggling with how to use it and how to work with them.”

Ralph Ross, the Deputy District Director for Jacksonville’s district office which has given out three loans, agreed.   It comes down to the banks and their ability to develop the products, the loans.  “The pace at which we’re doing it is picking up,” he said.

Banks in Minnesota and Wisconsin, which have given the highest number of loans, don’t seem to have an issue with the requirements.  California banks, however, have given only 27 loans, including two in northern California.

Robert Borden, public information officer at SBA’s regional office, said there are a lot more community banks in the mid-west, and these banks tend to see the loans as a service to their customers.  In the east and west coasts larger banks dominate and these are less willing to do the paperwork involved in processing such a small loan.

“Banks have shied away,” said Borden.

However, having a little bit of both can help.

“I’m seeing it here,” said Ross in Jacksonville.  “It’s been everything from small banks and some of the larger banks are doing it also.”

The money for the loans will be given out through Sept. 10, 2010 or until the $255 million in funds run out, whichever happens sooner.  So far more than $50 million has been given out.

While funds are still available, many banks will only offer ARC loans to existing customers.

“This eliminates more people that can benefit from them,” said Laney.

5 Comments

  1. The SBA ARC Loan program continues to be problematic for many struggling small businesses as this program has evolved in unexpected ways compared to what was touted when it was launched. The loan amount is too small to help many businesses (Ask Congress why they thought this would be enough). The amount of documentation is nearly the same as is needed for a $1million loan. And the biggest issue that borrowers are facing is finding a lender who will loan to them, which is based on the type of qualifying debt that applicant has. So even if a business is qualified, it is far from automatic that they get a loan. As the article intimates, banks are wary and the debt they “prefer” are the term loans, notes and capital equipment leases, because the borrower can’t draw back on them once the ARC Loan pays off that debt.

    My company, Business Borrowers Alliance, is working with a lender in Northern California which accepts ARC Loan applications from certain types of Small Businesses and they will accept every type of qualified debt.

    We are presenting a Free Webinar on the SBA ARC Loan Program – SBA Rules vs. Reality http://bit.ly/UBpya – Information & Discussion to help applicants optimize their chances of obtaining the loan and locating the lenders; 3 Dates – Thurs. 9/10, Mon. 9/14, Tues. 9/15

    Neal Gordon
    http://www.businessborrowersalliance.org
    We provide direct assistance and help to businesses throughout the complete ARC Loan application process.

  2. bird

    thanks for raising awareness!

  3. john

    I have some questions:
    What is the relationship between the first (unspecified?) loan program and the ARC? It seems that that program was not designed to help struggling businesses but rather to help grow stable small businesses.
    Do you have any information on how many businesses are actually applying for these loans? The article’s suggestion seems to be that they don’t qualify for them: why not, precisely? What does being “bankable” mean?
    And finally, what about the many local credit unions? These seem to be the community level banks that should be good at giving out the ARC loans.

    Happy reporting!

  4. Nancy

    Hi John,

    Through Obama’s stimulus bill, the SBA’s largest loan program, which is the 7(a), will now offer fee reductions and guarantee banks up to 90 percent, with the hope that banks will be more willing to give out loans to struggling small businesses. The ARC loan is a new loan program given out by the SBA as well.

    Both programs are meant to help struggling small businesses. However, businesses have to prove they’ve been economically stable at least one year in the last two years – i.e that they’re bankable. This seems to be where the problem lies. How can struggling businesses prove they’re stable when they’ve been struggling? Also, while the SBA does provide these incentives, it’s the banks that still decide whether to give out a loan or not. According to the SBA, the ARC loan is just another option for banks should they choose to offer this program to their customers.

    As far as data, we were only able to get the number of businesses that had actually qualified for loans. There weren’t any numbers on how many are applying in general.

    Nationwide, community banks are more willing to give out ARC loans, but in California specifically, they don’t seem to be actively promoting it.

    This is definitely a story we need to follow up on as the word spreads around.

    Thanks for your questions.

  5. john

    Thanks for the response Nancy. I am really appreciating the articles in this news source about the community’s financial difficulties and opportunities. Cheers!

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