Managing Small Business Debt; Government Loans and Refinancing Lifelines

Note: The ARRA (Recovery Act) initiatives and/or programs referenced in this article will expire on September 30, 2010. Any statements about qualifying time periods, or extensions of these dates, as they pertain to the availability of ARRA programs are over-ridden by the expiration of the Act on September 30, 2010.

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

• SBA Recovery Information Center - Links to policy, fact sheets, podcasts, and more.
• Information about small business loans and grants from Business.gov.
• Free Online Course: Finance Primer: Guide to SBA's Loan Guaranty Programs.
• SBA ARC Loan Information Web Portal
• Loans and Grants Search Tool - A quick online tool for finding financing that your small business might be eligible for

Relevant Articles

• *Tips to Surviving the Great Recession (Rieva Lesonsky, Allbusiness.com)
• *Paying Your (Small Business) Bills (Laura Rich, RecessionWire, from the AMEX Open Forum)
• *National Small Business Week: New Interest-Free SBA Loan for Small Businesses in Financial Hardship (Allbusiness.com)
• *Obama's 504 Loan Helping Businesses Expand (Inc.com)

Podcasts

• A Small Loan Can Make a Big Difference: SBA's Microloan Program (transcript)
• ARC Loan Program Provides Relief For Stressed Small Businesses (transcript)
• Loan Program Changes Helping Small Businesses (transcript)

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

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley