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The SBA’s ARC (America’s Recovery Capital) loan is designed to help viable existing businesses make payments on loan/debt obligations during these tough times.

As I’ve mentioned in my other post on ARC loans, there are both good and bad parts to this loan for the borrower.  (Everything has good points and drawbacks.)

The PLP is a preferred lending partner of the SBA.  The PLP is the bank.

So what would make a PLP not want to do the loan, or just say no?

Before the answer to the question is given, let’s see what the bank gets:

100% guarantee from the government.  (No risk)

Prime plus 2% paid by the government.  (Earning interest – not at a discount.)

The bank has no risk and earns interest at an adjustable rate.

Well, the answer is to the question is… cashflow.  Payments are deferred for the first 12 months; therefore, cashflow is significantly reduced.

If the prime interest rate is 3.25%, the rate on the loan is 5.25%.  Just the interest amount on a $35,000 loan is $1,837.50 or $153.13 per month.

A traditional five year loan would have payments of $664.51.

That’s $500 per month difference – on just one account.

If the bank understands cashflow, shouldn’t you?