ARC Loans' Weak First Month

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Diego Iorio's SIRS Electronics had been profitable through last year

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But the SBA hopes the pace will pick up. "You have to give these banks time," says Karen Gordon Mills, who was confirmed as the new SBA chief in April. "This is different and we had to be very clear about what a viable small business was," meaning companies that were profitable within the past two years and have a plan to return to profitability. Mills also says that other SBA lending has increased 40% since the agency cut fees and expanded guarantees in the 7(a) program to 90% as part of the stimulus package.

More Aid for Small Business?

Still, given the tepid response from lenders and borrowers, there's some speculation that the SBA might plan further aid for small businesses. A Washington Post story last week suggested a plan was in the works to funnel money from last year's $700 billion bank bailout to small firms through SBA loans. Mills wouldn't comment directly on the idea but said there were ongoing discussions in the Obama Administration about how to help small companies create jobs.

Business owners would welcome more robust aid from the government, especially since other credit sources have disappeared. Doris McMillon is seeking an ARC loan for her three-employee communications consulting firm in Fort Washington, Md., since she has had tens of thousands of dollars in credit lines and cards cut. She would like to bring on another person, but she doesn't have the cash flow to support it. "Things are just very tight," says McMillon, who has been in business for 23 years. "I'm looking at the ARC loan as one of the vehicles that will help me reduce the debt and give me some breathing room."

Iorio does not know what to do next since his application for an ARC loan was denied. "We are not delinquent in any account yet, but we don't want to be," he says. "Honestly we're just praying, and trying to keep our eyes open to see where we can find some relief to the situation."

Jeremy Quittner contributed reporting. Tozzi covers small business for BusinessWeek.com.

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