Like cars, many small businesses out there are clunkers—cash guzzling, severely damaged by the recession. Now, the government is looking to bail out these business owners, as it did for car owners. If you have a venture that’s a bit of a stinker, you might benefit from the America’s Recovery Capital program, or ARC, which offers up to $35,000 to save your business.
 
Just like Cash for Clunkers, which ended this week, ARC a deadline. But don’t sweat it too much. ARC is set to end either September 2010 or when its $235 million budget runs out, “whichever comes first,“ according to the Small Business Administration. But only about 1,000 ARC loans have been approved since mid June, new lending data released this month shows. That’s well below the 10,000 loans the SBA says its budget can support.

To reach that target, the agency will have to get far more lenders on board. Of more than 8,000 FDIC-backed banks out there, only 400 have made loans to small businesses under ARC—mostly in the nation‘s heartland. Just three of the agency’s top 10 small-business lenders, Wells Fargo, PNC Financial and Zions Bank, are administering the $35,000 interest-free loans to “viable” small businesses struggling with debts as a result of the downturn. (By “viable,” the SBA means businesses that were in good shape before the crash.)
 
So why are banks shunning the program? For one thing, the loans are seen as too risky by many once-burned-twice-shy lenders. Consider the very nature of ARC loans—a last-minute cash injection for businesses who desperately need it. The SBA itself expects a greater than 50 percent default rate. And while the loans are fully guaranteed, the extra paperwork it takes to process government-backed loans, then seek reimbursement for the ones that go bad, can boost administrative costs beyond profitability. And in the end, there’s the chance officials will deny reimbursements to banks that didn’t properly vet loan applications under the program’s strict guidelines. It simply isn’t worth the headache, lenders say.
 
As a result, some banks are adding their own restrictions, like insisting applicants not use ARC funds to cover debts with from other financial institutions.
 
Here are some tips for clearing the ARC hurdles:

• Not sure you qualify? Go ahead and apply anyway. The SBA has posted an online  checklist for determining eligibility. In the end, though, individual banks make the final determination. And judging by lending data released this month, there’s no single set of criteria out there.
• Work with your local bank. Many lenders are willing to shoulder the additional costs and bureaucratic paperwork for clients with whom they already have a strong relationship. Keeping your business afloat, and your account open, is a win-win situation.
• Use the Web. If your current bank isn’t interested in offering emergency government-backed loans, a number of online services are now tracking nationwide ARC loan participation rates among lenders.  Many also list federal and individual bank guidelines, and how they’re being applied.
• Banks are highly competitive these days. If your current lender doesn’t support the program, and you need the cash badly enough, consider moving your account to one that does. That may motivate your old bank, or convince your new one to get on board.