LIHU‘E — Designed to assist small businesses in financial straits, America’s Recovery Capital, or ARC loan, has only been successfully acquired by two establishments on island thus far, said U.S. Small Business Administration Hawai‘i Deputy District Director Karen Sakihama.
The loan, which was created for the SBA under the 2009 American Recovery and Reinvestment Act, is “intended to give small businesses some temporary financial relief or keep their doors open and get their cash flow back on track,” according to the SBA.
While some states like Minnesota and Wisconsin processed more than 100 ARC loans last year, others like New York, Connecticut, Pennsylvania and New Jersey combined closed some 35, according to an earlier SBA article.
Hawai‘i has approved 16 ARC loans to date, Sakihama said Friday.
“It’s a limited program in terms of how it can be used,” Sakihama said. “In that sense, the demand has not been as high as we thought it might be.”
Strict guidelines must be adhered to in order to qualify, said Kaua‘i Community Federal Credit Union Credit Manager Justin Ganaden, who was responsible for processing one of the two loans on island.
“Right off the bat, a lot of applicants don’t qualify,” he said.
Businesses have to show they are “financially struggling,” yet must also exhibit profitability, Ganaden said.
Businesses are required to be “established” and have “financial statements demonstrating it was profitable in one of the past two years, and be able to project sufficient cash flow to meet current and future loan payments over a two-year period from loan approval,” according to the SBA.
Enterprises either do not “show enough hardship or enough profit,” Ganaden said.
Soul Mates in Coconut Marketplace in Waipouli happened to be one business which was able to acquire the hard-to-get loan and it was a “pretty difficult” process, said one of the owners, John Kaohelauli‘i.
“Most major banks didn’t want to participate,” he said. But Ganaden was able to help them out.
“It’s a challenge … they wanted to cross all ts and dot all is,” Kaohelauli‘i said.
“They wanted everything,” agreed his wife and co-owner Juliet.
The entire process took some three months to complete and several stacks of paperwork, but will provide them “with a cushion to survive economic times,” John Kaohelauli‘i said. “We’re not so apprehensive now.”
The loans are interest-free for the borrower, as the SBA is taking responsibility for it, and the organization also “guarantees” repayment of the loan, Sakihama said.
During the first six months after approval, “disbursements” are made and payments are deferred for an additional 12 months, allowing business owners 18 months before their first payment, she said.
A maximum loan amount of $35,000 is to be paid within a period of five years, according to the SBA.
It does “free up some capital” and “cash flow in a short-term basis” for entrepreneurs, Ganaden said.
Businesses get to take a “debt holiday,” so to speak, said Kaua‘i Small Business Development Center Director John Latkiewicz.
If the ARC program meets a business’ needs, then Latkiewicz said he would advise business owners to “go ahead with it.”
“The upshot of it is for businesses that have suffered due to economic climate … and need help,” he said.
However, his “reluctance in recommending ARC loans” is because there “appears to be” hesitation among lenders, Latkiewicz said.
The ARC loan is likely “not very profitable” for banks and “a little bit cumbersome to administer,” he said. Because — in a “sweeping generalization” — if a business is already in trouble, then it “almost invites people” with “problematic” circumstances.
It assists business owners who have experienced instances such as a “loss or reduction of customer base,” and an “inability to restructure existing debts to credit restrictions,” according to the SBA.
Other SBA programs are still able to address a business’ needs, though they do not offer the same deferred payment option, Latkiewicz said.
KCFCU offers six SBA loans, including ARC, Ganaden said.
“If you’re going to get a loan” of any type, make sure your paperwork is in order, John Kaohelauli‘i said.
“Our original loan was just as tough,” he said in comparison to the ARC program.
Any business that can survive the current economic storm, whether they choose to take out a new loan or not, will make it through anything, he said.
ARC loans will be offered until funding is no longer available, or until Sept. 30, whichever comes first.
Visit www.sba.gov for more information.
