On June 15, the Small Business Administration officially kicked off its new America’s Recovery Capital loan program, which is designed to help small businesses that are struggling to make debt payments as a result of the tough economy.

Authorized as part of the federal stimulus package, an ARC loan is a $35,000, interest-free, deferred-payment loan that is fully guaranteed by the SBA and available to established, viable, for-profit small businesses suffering “immediate financial hardship.”

The main idea is to provide temporary financial relief, so small businesses can meet debt obligations and get their cash flow back on track. There are no associated SBA fees, payment is deferred up to a year and the borrower has five years to pay it off. ARC loans are made through commercial lenders, and for lenders willing to provide the loans, the SBA is paying the interest on borrowers’ behalf, plus guaranteeing 100 percent of the loans in case of defaults.

Not surprisingly, the program is strongly endorsed by the International Sign Association, which is urging its members to quickly take advantage of the program because, not only is it a great deal, but because the program will end Sept. 30, 2010 (sooner if the $350 million in stimulus money runs out first).

The program could provide much-needed relief to thousands of small businesses. However, it turns out that many banks are hesitant to participate, and skeptical critics say they may ultimately cause it to fail. According to recent articles in The New York Times, the Coleman Report and Entrepreneur magazine, banks are unwilling to participate because: the complex SBA paperwork is perceived as a burden; despite the SBA guarantee, they feel the expected 60 percent default rate is too high; interest paid by the SBA—set at prime plus two percentage points or currently 5.25 percent—is too low; and banks are concerned that they will not receive any principle on the loan for a full year.

The upshot, according to Investment Watch, is that while banks have ample capital and improved liquidity right now, they still are willing to lend only to their A-list customers.

Frustration is building among sign and print shop owners who feel they qualify for ARC loans but still are being turned away. Reports are emerging that some banks are adding additional qualifications beyond those required by the SBA. For example, a bank might require a debt-to-income ratio of 1:1. A business with that kind of debt ratio likely would not need a loan.

Despite these reports, word from SBA officials is that they are addressing lenders’ concerns. They say they expect it to take a while to fully ramp up the program, but an increasing number of banks are signing on, perhaps realizing that injecting cash back into the business community serves their own interests. At press time, SBA reported that 72 ARC loans totaling $2.4 million already had been approved. This program is a needed lifeline to thousands of small businesses, and it may just work. For a full description of the SBA’s ARC loan program and to see whether your business qualifies, Click Here.

OK, back to work.