Small business support has finally arrived in the form of America's Recovery Capital (ARC) Loan Program.
The ARC program, passed with the Stimulus Act, American Recovery Actis aimed to help established small businesses that are currently facing financial hardship. ARC allows small business to apply for a loan worth up to $35,000--with a 100% guarantee from the SBA to cover existing debt.
The interest-free small business loans give borrowers up to five years to pay back the principal, allowing them to increase their cash flow and invest it back into their businesses. In order to be eligible for the ARC loan, the SBA is requiring that businesses show proof of "change in financial condition" including difficulty making rent, payroll, or loan payments, and frozen credit lines. Businesses must have a record of positive cash flow in at least one of the past two years. (For more information on loan requirements, check out the SBA website- ARC Loan Eligibility)
According to CNNMoney.com , lenders approved 72 loans during the first week of the program, totaling $2.4 million.
Despite the numbers, many lenders are still hesitant to latch on to the program - with a 60% default rate expected; they are wary of how quickly they will receive payments from the SBA. Still, the SBA encourages potential borrowers to seek out ARC loans from area lenders.
The program started June 15 and will run until September 30, 2010 (or until the funds run out), and the SBA estimates that 10,000 businesses will receive loans in that amount of time.
Just last month, Business First reported that nearly half of business owners have been experiencing cash flow problems these past three months. While the state of the economy can bear some of the blame, the importance of cash flow is something that many business owners greatly underestimate.
So what exactly is cash flow and why is it so important? A company's cash flow is the revenue stream that changes a cash account, or simply, the movement of cash in and out of a business.
Cash flow management is crucial for a business's survival. Sufficient cash flow means that you have enough money on hand to pay creditors, employees, and other emergency bills that might pop up along the way. Having ample cash flow also gives you the opportunity to use the extra cash to expand your business. On the flip side, having little to no cash flow means that your company may be on the verge of bankruptcy.
Cash flow analysis can be classified into three separate areas- operational cash flow, investing cash flow and financing cash flow.
Operational cash flow comes from a company's internal business activities (sales, labor, and purchase of materials). Cash that's received from the sale of long-term assets, or spent on investments is called investing cash flow (purchasing capital). Financing cash is cash that comes from the issuance of debt and equity like loans, loan repayments, and ownership shares.
All three of these categories equal the net cash flows that are necessary to reconcile the cash balance.
Here's a quick example of a positive $550.00 cash flow.
A Cash flow Statement tells a company's story. It helps the owners not only reflect on the financial health, but also allows them to budget for the future. It truly is the lifeblood of every business.
