By Jenna Mink, The Daily News, Bowling Green, Ky.
Nov. 1--As President Barack Obama makes a plea for small businesses, several local business owners are having trouble getting loans that were set aside to help them.
The U.S. Small Business Administration landed $335 million in stimulus funds to create the America's Recovery Capital Loan Program -- interest-free loans of up to $35,000 to help small businesses survive the recession. The loans are offered until Sept. 30, 2010, or until funds run out, and they are guaranteed by the SBA -- meaning the administration will pay off the loans if the business owner cannot make payments.
Since June, 69 ARC loans worth more than $2 million have been approved in Kentucky, said Phillip Danhauer, chief of finance for the Kentucky district SBA office.
"We've had a good response from our lenders on these credits ... it's like any other business loan. You have to fill out financials and the other criteria is it needs to be a viable business, (having) either positive cash flow or net profits one of the last two years," he said.
But, for many local businesses, it's not that easy.
"There's not very many of the banks willing to work with ARC loans," said Chris Bixler, assistant director of the Small Business Development Center at Western Kentucky University. "I've had several people who've had problems even finding a bank that will work with ARC loans."
SBA has encountered similar issues; SBA officials have talked with several businesspeople whose banks are not SBA lenders, making ARC loans difficult to access, Danhauer said.
The problem, according to Bixler, is that ARC loans require a lot of time and paperwork. Bixler said she's not aware of any Bowling Green business that has received an ARC loan. About 10 business owners come to her office each week, searching for additional financing.
"I've seen some that are on the verge of going out of business," she said. "I mean, they're hanging on by a thread."
Obama recently asked Congress to increase the size of some SBA loans and asked banks to make loans more available to small businesses, according to reports.
But, for some bankers, the problem lies with SBA requirements. ARC loan qualifications are very stringent, making the loans hard to obtain. The process is lengthy and complicated, and few people inquire about the loan, said Crawford Hightower, vice president of small business lending for American Bank & Trust in Bowling Green.
"In our experience, it's very consumer unfriendly. They're very difficult to get," he said. "With the SBA, we're very leery about doing it because it puts the consumer through a mess."
Hightower said his bank has processed a handful of ARC loans. So far, none has been approved by the SBA -- one is pending and two have been denied. In those cases, the bank is willing to offer the loan, but the SBA is not willing to guarantee it, he said.
"It's the bank's money, but the SBA is going to guarantee that loan," he said. "We've heard that the banks in our local lending area, they've submitted a number (of ARC applications) and nobody's been awarded any."
First, the local bank must approve the loan application based on its guidelines. Then, the SBA must approve the loan application based on its regulations. Often, the applicant must submit stacks of documents, including profits and cash flow projections. Hightower recalls one application being denied by the SBA because the business did not have enough profits, and another was denied because its cash flow estimations were not good enough, he said.
"The last sheet of stipulations I saw from the SBA was phenomenal; it was incredible," he said.
Bixler also said the loan comes with "several restrictions," including proof that the business has been profitable for at least one of the past two years. Applicants also must submit a business plan, and many businesses cannot get credit approval because they have used credit cards to survive the recession, she said.
"Businesses have just overextended themselves to keep their doors open," she said. "They've used those credit cards as far as they can go and now they're in financial straits."
ARC loans can involve extra paperwork, but they're not much different from other business loans, Danhauer said.
"Anytime that you have a third party guaranteeing 100 percent of a loan for a bank, there obviously is going to be additional documentation required," he said. "But the application process is, by and large, the same as commercial loans."
In fact, Edmonton State Bank in Monroe County was one of the first banks in the nation to approve an ARC loan.
Tony High, community president for ESB, got his client's application approved in June. The ARC loan does have certain requirements, but it can be a fairly simple process, High said.
"If the applicant has all the required paperwork when they come in to apply, it's pretty much an easy process," he said. "But, just like any loan, it requires the appropriate documentation and verifications."
High declined to reveal the total number of applicants his bank has approved, but "not a great number" has submitted applications, he said.
And not every business has struggled to get an ARC loan. Big Meadow Oil Co. in Knob Lick was among the first businesses in Kentucky to receive an ARC loan. The bulk fuel business has operated for nearly 30 years, employing about 10 people, co-owner Betty Gentry said.
Gentry and co-owner Sheila Pruitt researched ARC loans and contacted their banker with Edmonton State Bank. They then submitted documents, such as income tax forms and copies of assets and liabilities.
"It was so simple, I could not believe it," Gentry said. "One of the things that may hurt a lot of businesses is, if you are already in default, they won't loan you the money ... and we weren't anywhere close to that."
The business received $35,000 in ARC loans, which owners will use to pay off a fuel truck. They owe about $80,000 on the truck and will get $1,300 a month from the SBA to pay that debt, Gentry said.
"If it had been a year like last year and we did not have an ARC loan, it would be at a serious point," she said. "It really has made a difference -- $1,300 not coming out of our bank account every month is really nice at this point."
-- For more information on ARC loans, visit www.sba.gov.
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