Well, this one is interesting. A Federal Agency tried to do something right (or almost right), and the private sector broadly torpedoed it.
If you've followed this thread, I'm referring to the America's Recovery Capital (ARC) loan program, originated by the Small Business Administration (SBA). In my view, this program was flawed only in the fact that it was too small -- limited to $35,000 instead of an amount that really might have helped -- say, $100,000 or more. Here's some detail on the ARC program: http://www.chiefexecutiveblog.com/2009/08/sba-arc-loan-program-interest-free.html
The idea was simple -- help provide some much-needed working capital to small businesses that have been hurt by the 2008-2009 recession. Small businesses, that is, who had been profitable in either 2007 or 2008 -- people who know how to run a business and simply had the bad fortune of being in a recession-impacted industry. Usable to pay down existing debt, such as credit cards, and 100% guaranteed by SBA, so banks had few reasons to be worried about these loans. They're interest-free (interest paid by SBA), with no principal payments at all for a year. So far, so good.
Except that many banks have rejected this program out of hand or made up their own hurdles that prevent this capital from flowing to small businesses. One Chief Executive Boards International member actually filled out the paperwork himself. Guess what his bank's excuse was? "Well, you're really not in bad enough shape that we think you need the money." He thought $35,000 in interest-free money sounded pretty good, but they just didn't care enough to help him get it.
Here are some of the lame excuses CEBI members have heard from bankers rejecting ARC loan applications:
- It's too much trouble for that small an amount
- We'll do those only to pay down debt already on our own books (Not consistent with the ARC program)
- Your business isn't badly enough impacted (You've prudently managed, and you still have cash)
- Your current cash flow isn't sufficient (Not a requirement of ARC eligibility -- the reason it's 100% guaranteed to the bank, and the reason there are no payments for a year)
Note the absence of "big brands" on this list -- these tend to be community and sub-regional banks who are apparently interested in $35,000 loans. Most large banks remain paralyzed as far as small-business lending is concerned.
And here's an article you may find helpful in approaching a bank for the first time -- make sure you're "dressed up for the party" when you initially visit a new banker: http://www.chiefexecutiveblog.com/2009/10/your-bank-may-be-your-critical.html
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CEO
Chief Executive Boards International
http://www.chiefexecutiveboards.com/
TerryWeaver@ChiefExecutiveBoards.com

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