Depending on whom you ask, the SBA's America Recovery Capital loan program is either a real credit relief provider or padded with so many strict and unrealistic guidelines that lenders do not want to even bother. The ARC program has only funded 139 loans totaling $4.6 million since its debut on June 15 despite the SBA prepping financial institutions for huge loan demand. The agency anticipated so much demand that it capped the amount of loans lenders could process to 1,000 each. It provides loans up to $35,000, carries a 100% SBA guarantee, charges no interest and offers deferred payments. When the program rolled out a month ago, the SBA said it expected to make about 10,000 ARC loans in all. Janet Tasker, SBA deputy associate administrator for capital access, said that the 50 loans-per-week cap may be eliminated. Meanwhile, some lenders have criticized the program, saying costs to underwrite a small loan under $35,000 are too expensive. Others said they are prohibited from selling ARC loans on the secondary market. The SBA requires that loans go to "viable small businesses that are experiencing financial hardship," but "viable" and "hardship" have been subjective for some. The agency said viable businesses are those that were profitable in the past yet are currently struggling but still making loan payments. The business must also prove it has had positive cash flow for the past two years. Officials with the SBA did not respond to questions about concerns regarding the ARC loan program. In a July 2 Atlanta Journal Constitution column, SBA spokesman Michael Stamler said the default rate on these loans is "likely to be higher than 7(a)" loans. "The demand is there," Stamler told the publication. "I can guarantee you all of the money Congress has appropriated for loans under the Recovery Act will be used up by borrowers." Business lending staff at the $231 million First U.S. Community Credit Union in Sacramento, Calif., recently underwent online training to offer ARC loans, said Gordon Gerwig, business services manager. So far, the credit union is still reviewing the 10 applications it has received. Gerwig's only concern is the "fairly narrow window" small businesses have to show that they have been profitable for the last one to two years but are not more than 60 days delinquent on debt. Otherwise, Gerwig expects the credit recovery program to help some members. It also helps that the SBA is guaranteeing 100% of the loans, he added. "It kind of fits within our natural market. We tend to do small loans," Gerwig said. "For those who can, if they have high credit card debt, [the ARC loan] might work for them." The $621 million Dupaco Community Credit Union also believes the loans will bring much-needed assistance. Employees of the Dubuque, Iowa-based financial institution attended two ARC training sessions and mailed out information to a list of business members that might be interested in the program, said Steven Baumhover, vice president of business lending/development at Dupaco. "In the past week, we have been receiving phone calls inquiring since SBA has started to promote the program," Baumhover said. "I am not sure how other credit unions will embrace the new SBA program, but based on my knowledge [of it], I believe it can help their members as well." Baumhover said Dupaco has offered SBA loans for more than five years and was the first credit union in Iowa to fund one of the agency's Patriot Express loans for military veterans. The ARC loans will provide an immediate infusion of capital to small businesses to help them make payments of principal and interest on existing debt, he explained. "These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses, to help sustain the business and retain jobs," Baumhover said. "For example, making loan payments on existing loans with proceeds from an ARC loan can allow a business to focus more funds on core operations, such as buying inventory or making payroll." The SBA has earmarked $350 million for ARC loans. The program is available until Sept. 30, 2010 or until funds run out. –[email protected]