Ten thousand interest-free loans are expected to be made to small businesses under a new federal program launched in June, but so far many banks aren't participating. Loans are trickling out with only a half-dozen made in Maryland.
The goal of America's Recovery Capital loan program, part of the government's economic stimulus package, is to assist viable, but temporarily struggling, small businesses by offering them interest-free loans of up to $35,000 with lenient repayment terms. Banks started accepting applications for the government-backed loans June 15.
The program runs through Sept. 30, 2010, or until its $255 million appropriation is exhausted. As of last week, 1,191 loans for about $39 million have been approved across the country, according to the Small Business Administration. Of those, six loans worth $175,800 were made in Maryland by five banks.
Among participating banks, some are offering loans only to existing customers, and still might add restrictions.
Some small businesses in Maryland and their supporters say they are frustrated and disappointed by the lackluster response by banks, especially when taxpayers came to the aid of big institutions earlier when they needed a bailout.
"It's unfortunate they don't see themselves as having a role of helping small businesses through this disaster," says Jane Seebold, executive director of Federal Hill Main Street Inc. "This is one situation where we all need to be in it together."
Amy Mutch, owner of a fashion boutique in Federal Hill, got her application into the bank the first day.
"I was told that people would be camping out the night before because they were so afraid that there was just a fixed amount of money that they wanted to be first in line," Mutch recalls. "I obviously didn't camp out, but I had my application pretty much ready to go."
Sales at Amy's Boutique had been growing at a healthy clip until last fall, when the stock market plunge made customers less concerned about clothes and more worried about their pocketbooks. Sales dropped about 30 percent over a few months.
Mutch says the ARC loan seemed like a perfect solution to help with new inventory, and she fit the program's criteria.
To be eligible for an interest-free loan, small businesses generally must be at least two years old and have been profitable for at least one of the past two years. The proceeds must be used to pay down certain debt, including mortgage and small business loans, as well as credit cards and lines of credit used for business. Money is disbursed over six months, and payments thereafter are deferred for 12 months. Borrowers then have five years to repay.
