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Interest-free loans for small-business owners

June 11, 2009|By DAN DEARTH

HAGERSTOWN -- Financial relief could be right around the corner for small-business owners who are struggling in today's sluggish economy.

On Monday, lenders will begin taking loan requests from small-business owners as part of the America's Recovery Capital (ARC) Loan Program, which is a $255 million segment of the federal stimulus package that was passed in February by Congress.

Edward Knox, a lender relations specialist from the Small Business Administration's Baltimore District Office, said each interest-free loan can be up to $35,000.

Knox was on hand Thursday at Hagerstown City Hall to discuss the ARC program with about 45 local small-business owners. He touched on several areas, such as the program's eligibility requirements.

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"If you're interested, apply sooner than later," Knox said. "Once (the money) is gone, it's gone ... This $35,000 might be just enough to get you over the hump."

Knox said the federal government will provide the money, but banks will act as the lenders.

After a loan is approved, borrowers will have a one-year grace period before they have to start paying back the money, Knox said. The interest-free loans won't be due in full until five years after the one-year grace period ends.

Knox said businesses have to be at least 2 years old to qualify and be able to show that one of those two years was profitable or produced a positive cash flow.

The loans must be used to pay off a business' pre-existing debt, Knox said. The money cannot be used to meet payroll or make purchases.

Knox said some lenders might ask borrowers to put their homes up for collateral to ensure the borrower will put forth a serious effort to succeed.

Approved loans likely will be disbursed to the agency or person that the small business owes the money to, Knox said.

John Macpherson, co-owner of the Spirit of the Lotus Tea Co. in Hagerstown, said after the informational session he plans to apply for an ARC loan. Sales have tapered off over the last two years, he said, from about $2,750 to $800 per month.

"It's just rough," Macpherson said. "Hopefully, it won't be bad for too much longer."

Knox said government officials anticipate the ARC program will "have money available for (about) six months."

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