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Managing Small Business Debt – Government Loans and Refinancing Lifelines

by Moderator on 08-04-2009 07:48 AM

From the housing market to Main Street, cash flow strapped individuals and business owners struggling to stay on top of borrowed credit have increasingly found that traditional refinancing options are harder and harder to come by.

 

For small business owners in particular, the cost of repaying business loans can amount to thousands of dollars each month. Combine this with other business operating expenses, credit card debt, and so on and it's easy to see how even a slight decrease in foot traffic and demand can have a devastating impact on your financial health.

 

But when the imperative of business survival overtakes any focus on potential business growth, what options are available to small business owners?

 

Government-Backed Options for Managing Business Debt

 

For several months now, under the provision of American Recovery and Reinvestment Act (ARRA), the government has been sending out lifelines to small business struggling to manage business debt.

 

And while these initiatives - administered by the Small Business Administration (SBA) -  have not grabbed the headlines as much as the TARP program provisions for corporate bailouts,  there are genuine options that small business owners struggling with debt should be aware of.

 

Here is a "non-political" summary of all the recently launched government-backed initiatives that can help small business owners address the challenges of mounting debt and financial hardship. For more comprehensive information on these programs refer to the SBA's Recovery Act Portal.

 

1. The ARC Loan Program - Interest Free Loan for Debt Repayment

 

The American Recovery Capital (ARC) Loan Program provides interest free loans of up to $35,000 to small businesses for the purpose of making principal and interest payments on existing, qualifying small business loans for up to six months. The loan is interest free and 100% guaranteed by the SBA. No collateral is needed and there are no fees associated with the loan.

Loan proceeds are provided over a six-month period and repayment of the ARC Loan principal is deferred for 12 months after the last disbursement of the proceeds.  Repayment can extend up to five years. 

 

The good thing about the program is that qualifying loans can include credit card loans, capital leases, 504 loans, other loans made without an SBA guaranty, and loans made with or without an SBA guaranty since February 17, 2009.

Get more specifics on the ARC Loan Program, including who qualifies and where to apply for the loan, here.

 

2. SBA 504 Loan Program Changes - Existing Debt Refinancing for Expanding Businesses

 

Recent modifications to the SBA's 504 Certified Development Company Loan Program  - which provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings - will permanently allow small business owners refinance existing loans.

If you intend to expand your business through the acquisition, construction or improvement of land, building, or equipment for business use, the permanent changes will allow you to restructure eligible debt - if that refinanced debt does not exceed 50 percent of the projected cost of the expansion.

 

More on the changes to the SBA 504 Loan Program and how to determine if you are eligible.

 

3. Floor Plan Refinancing for Struggling Car, RV, and Boat Dealerships

 

Few industries were hit so prolifically in recent months as the auto industry. On July 1, 2009, the SBA extended an olive branch by offering government guaranteed loans to help dealers finance inventory for eligible auto, RV, boat and other dealerships.

 

The Dealer Floor Plan Financing Program (DFP) can offer some dealerships the opportunity to get through tough economic times by allowing them to keep their inventory and cash flow intact, as well as save the jobs these small businesses provide.

 

The DFP is a pilot program that allows dealers to borrow against retail inventory and acts as a revolving line of credit for a dealer to obtain financing for retail goods. The dealer repays the debt as the inventory is sold and can borrow against the line of credit to add new inventory. You can find more information on how the DFP works and who it can help here.

 

There is no guarantee that your bank will embrace these programs or that your particular business will be eligible, so talk to your local SBA representative for more information about eligibility and how these programs can help your business.

 

Additional Resources

 

 

Relevant Articles

 

 

Podcasts

 

 

* Note - Hyperlink directs to non-government Web site.

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Comments
by tmhelton on 08-06-2009 08:13 PM
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Hello, you seem to be pretty knowledgable about getting help for small businesses. I have some interesting hurdles to overcome that make finding loans grants etc. even harder... or they "might" make it easier, I am not sure. would like to run all this by you and see what you think if you are up for it..?

 

thanks

 

mike

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by Moderator on 08-11-2009 10:10 AM
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Mike

 

Would you like to post your questions as a comment here so that we and other Community experts can provide feedback?

 

Thanks

Caron

 

 

 

 

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by jtilley on 09-18-2009 01:26 AM - last edited on 09-21-2009 02:14 PM by Administrator
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A lot of small business owners aren't aware that there are funding options available based on their company sales (i.e. purchase order funding). In other words, turning down sales orders for lack of adequate financial resources doesn't have to be an option. Doing so not only loses the order, but could lose you the customer for good

 

Thank you for the informative read.

Message Edited by NicoleD on 09-21-2009 02:14 PM
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Provides helpful information about a broad range of small and home business issues, taking a deeper dive into topics on the minds of entrepreneurs, and including direct links to resources that every business owner looks for when navigating the government maze.
About the Author
  • Caron Beesley has over 15 years of experience working in marketing, with a particular focus on the government sector. Caron is also a small business owner and works with the Business.gov team to promote essential government resources for small business owners.
  • Hi, I'm Sean Gallagher. I'm a business journalist and freelancer, and a consultant to Business.gov. I've been a sole proprietor for 18 of the last 20 years, working as a freelance writer and technology consultant.
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