Builders and other small businesses in desperate need of capital just got a helping hand from the federal government, via the stimulus package passed earlier this year.
On June 15, the Small Business Administration launched the America’s Capital Recovery (ARC) program, which promises no-interest, deferred-payment loans of up to $35,000 over a six-month period to qualified small businesses, including builders.
“This is one of the few SBA loan products that will help builders,” said Bill Renner, director of single-family finance at the NAHB. “To a lot of real small businesses, whose cash flow is temporarily impaired, this could make a difference.”
There are a few caveats to the program, which will run until Sept. 30, 2010 or until the money runs out.
First, it is intended for established companies, not startups.
Second, the money cannot be used to finance “speculative real estate construction or development,” according to Mike Stamler, a spokesman for the Small Business Administration. So using the money to start additional specs in anticipation of a fall rush by buyers eager to use their tax credit is out. But these loans can be used for payments on existing loans, lines of credits, business credit cards, capital leases, and other accounts payable.
Third, a company must have posted a profit in one of the past two years and expect to have enough cash flow to cover its loan payments over a two-year period after receiving the loan.
Fourth, a company must qualify as a “small business” under SBA rules. According to the NAHB, “home builders are considered a small business if their annual revenues do not exceed $37.5 million, while the annual revenues of contractors are capped at $14 million. Manufacturers, such as those who make components used in home construction, are limited to 500 or fewer employees, while wholesalers may employ up to 100 persons.”
Fifth, builders and others interested in this program should prepare to do some serious dialing for dollars. Since the program is so new, not many lenders are familiar with it yet, according to news reports and the NAHB’s Renner. His advice: “Just keep calling.”
For builders, who have essentially been cut off by REO-wary banks, the $225 million program could be a lifeline as the housing market stumbles its way into a recovery. If they do receive such a loan, they won’t have to start repaying the money until a year after they receive the last infusion of money, and repayment will be spread over five years.
Alison Rice is senior editor, online, at BUILDER magazine.