If your small business is struggling to pay debts, you may qualify for a new type of interest-free loan in amounts up to $35,000, guaranteed by the U.S. Small Business Administration. The temporary emergency program, called America’s Recovery Capital, or ARC, was authorized under the economic stimulus law passed earlier in the year and is now being launched by the SBA.

For borrowers, ARC loans will be interest-free, and with no SBA fees attached. But as with all SBA financing programs, the ARC loans will be made by private, commercial lenders, not SBA directly. Lenders, of course, won’t make loans for free, so the SBA will pay lenders monthly interest on the ARC loans on your behalf. And that’s basically free money for you and a good chance to get a little breathing room if you’re facing burdensome debt payments.

ARC loans are deferred-payment loans available to established, viable, for-profit small businesses that are suffering hardship right now and need short-term help to make principal and interest payments on existing debt. These loans are interest-free to the borrower (you), and 100 percent guaranteed by the SBA.

Here’s How it Works
In addition to the loans being zero interest and fully guaranteed by the government, you don't have to make any payments until a year after you receive the last of the funds, which will be disbursed within a period of up to six months. After the initial 12-month payment-free grace period, you'll have five years to pay it off.

Banks and other financial institutions that make small business loans should have information on the program available soon, and it will be up to them whether or not to participate. Meanwhile, details and updates on the program will be available at the SBA’s special Economic Recovery Act website at www.sba.gov/recovery. Keep in mind that proceeds from an ARC loan must be used specifically to make payments of principal and interest on existing business debt. But that includes a wide range of different types of loans, leases and lines that you might have.

Here are the types of debt that will qualify:
1. Commercial mortgages on a building or property that your business owns.
2. Conventional term loans, including secured and unsecured.
3. Revolving lines of credit.
4. Capital leases.
5. Credit card debt.
6. Notes payable to vendors, suppliers and utilities.
7. First mortgages loans under SBA’s 504 Development Company Loan Program.
8. Any SBA guaranteed loans made after Feb. 17, 2009 (but not SBA-backed loans made prior to that date).

For many business owners, paying down high-interest credit card debt would be the best use of ARC funds. But you will have to prove that the debt was incurred for specific business purposes, and the documentation requirements to use ARC funds for credit card debt could be stringent.

The loan application process, however, is designed to be rather quick. Once lenders submit the application, SBA is promising turnaround within 5-10 business days.

The “Viable” Business Standard
The key to qualifying for and receiving an ARC loan is whether your business is considered "viable" and is facing “immediate financial hardship.” While the standards don’t seem to present a major hurdle for existing businesses that have had success in the past, the viability measure might rule out newer businesses that haven’t turned a profit. And ARC loans are specifically not intended for startups.

Here's how the SBA defines “viable” for getting one of these loans:

"A viable small business is one that has been profitable in the past, but is just beginning to struggle with making loan payments, and can reasonably project that it can get back on track with the infusion of ARC loan funds and the benefit of deferred payments."

Examples of financial hardship offered by the SBA include declining sales or revenues, or difficulties in paying the operating expenses of the business.

ARC loans will be available through SBA-approved lenders as long as the money holds out, or through September 30, 2010.

Daniel Kehrer is Editor and Director of Content Development for Business.com, and write the What Works for Business blog.

^© 2009 Business.com, Inc.

Money — or the lack thereof — is the missing link in many a grand business plan. Startups often launch with less than they need, and struggle from Day One. And adequate financing is crucial for your business to grow and thrive. The good news is this: The Internet has made the process of finding traditional as well as alternative sources of funding easier than it once was. Funding types and sources fall into a few broad categories — either debt or equity financing from institutional or informal sources.

1. Debt financing is a loan you pay back. Common sources include: family and friends, personal credit cards, home equity lines of credit, commercial bank loans and small business loans backed by the U.S. Small Business Administration (SBA).
2. With equity financing, you give up pieces of your business in return for the cash. The good news is you generally don't have to pay the money back. The bad news is that the people or institutions that put up the money — your investors — now own part of your business.
3. Other funding or cost-sharing options include: Partnerships, joint ventures, alliances and co-branding arrangements.Business incubators don't generally offer cash, but do provide crucial support in the form of free or reduced rent and business services.

Business.com's "What Works for Business" blog is a great way to keep up with the latest solutions, trends and strategies for small and medium business — including small business loans and financing.

Action Steps
The best contacts and resources to help you get it done

Comparison shop online for multiple financing sources

There are many sources of small business loans and credit lines. To find the perfect fit and absolute best terms, you can comparison shop among many lenders.

I recommend: Enter your information at BusinessFinance.com or iBank – both are Web portals that match lenders with small businesses, to find the best fit for your particular needs. Or fill out a business loan request form at BuyerZone and interested lenders will respond with loan quotes.

Shop major small-business loans providers

All banks that serve small business offer business loans and commercial lines of credit. Biggies like Wells Fargo offer credit lines that you can easily apply for online, even if you're not already a customer of the bank.

I recommend: Online offerings at these banks active in serving small business: Wells Fargo, Bank of America, Washington Mutual, Wachovia, Key Bank. Or for strictly Web-based banking, try NetBank. American Express also offers credit lines to $100,000 with a short online application. There's no collateral or minimum balance requirement.

Find venture capital sources online

The best way to find venture capital financing is to first locate potential VC backers online.

I recommend: Visit NVST.com, an Internet hub for the private equity and finance community. You'll want to plug into NVST's Capital Motion program which provides entrepreneurs with access to angel investors, venture firms, corporate venture funds and other private equity investors. Check the listings for venture capital and private equity firms at Business.com.

Check SBA-backed loans and lines of credit

The U.S. Small Business Administration (SBA) has numerous loan programs for small business. But the SBA only guarantees small-business loans; it does not lend the money directly. Banks and other private lenders do that.

I recommend: Lean about different SBA programs and find active SBA lenders.

Don't overlook Small Business Investment Companies (SBICs)

SBIC's are a hidden treasure trove of small business financing.

I recommend: Complete information on the program, including guidelines for entrepreneurs seeking funds and detailed listings of all operating SBICs in the country, is available in the Investment Program section of the SBA Web site. Or locate SBICs under the member listings of the National Association of Small Business Investment Companies (NASBIC). The National Association of Investment Companies (NAIC) is geared toward financing for minority-owned business.

Line up with the financing angels

For those wary of a business loan, angel investors can be a good source of financing.

I recommend: Angel Capital Education Foundation directory of member angel groups is available free. AngelDeals.com matches entrepreneurs with potential angels.

Look to non-traditional sources

UPS - a big name in small biz shipping - is also a major small business loan provider under its UPS Capital wing, offering both business loans and lines of credit. Other finance companies specialize in credit based on your credit card receivables.

I recommend: Check the case histories of how UPS Capital is helping small businesses grow and find out how to apply here. See Business.com's listings of credit-card receivables companies.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Button down your business plan. A business plan is a 'gotta have' piece in your financing puzzle. The plan should be realistic and cover all the bases. Avoid vague goals and pie-in-the-sky projections. The plan should document why the business needs financing, and how much is needed to reach a specified level of growth and profitability.
• •  Take a personal, financial stake in your business. If you want others to back you and your ideas, be prepared to ante up yourself. If loans are part of the mix, your personal credit profile should be in tiptop shape.
• •  Budgets and financial statements tell the tale. If your business is already operational, create some basic financials on how you are doing. Don't worry if you aren't looking completely gorgeous just now. Investors know that if everything were perfect, you wouldn't be looking for money.
• •  Be prepared. Lenders are likely to ask tough questions, be skeptical of your answers and have little patience for running off at the mouth. Your best step is to be totally prepared and comfortable with your plan.
• •  Know how much you'll need and how you'll use it. It's critical to estimate how much money you think you will need overall. All good lenders or investors will want to know this, as well as what you plan to do with the money.

Knowing the small business loans basics will give you the information you need to start or expand your business. Most business owners use small business loans, but it's important to note that you will have to pay this money back through the money that your company earns.

Small business loan rates determine the amount of money that you will pay back over time. You should try to get the lowest rate possible in order to get the most bang for your buck.

When you apply for small business financing, lenders will look at:

1. Your credit score. Lenders base the rate of your small business loan on your company's credit score. If this is a new company, they will look at your score.

2. Your business plan. It's best if your business is already running and you have income coming in. However, if you need small business start up loans, then your business plan will show lenders how you plan to repay the loan.

3. Whether you plan to use your own money. When applying for business loans, it looks better if you are also using some of your own money to start the business.

Action Steps
The best contacts and resources to help you get it done

Get small business startup loans through the SBA loan program

One of the biggest problems that new business owners face is finding a bank to loan them the money they need without having a proven track record. The Small Business Administration helps encourage small businesses by backing the loans that banks give to owners, making the loan less risky.

I recommend: Learn about the details of the SBA loan program at the Small Business Administration website. Then apply for a loan through your bank. Most banks offer SBA loans, though some lenders, such as Chase, are preferred lenders, which means that can process your application faster.

Get a small business loan through your local bank

If your business already has a proven track record, then banks are more likely to loan you money through their commercial lending programs. Talk to your bank about getting the money that you need.

I recommend: While many business owners prefer to work with major banks, such as Wells Fargo and PNC Bank, you should also look into small local banks in your area as well.

Use a line of credit for small business financing

Some banks will issue a line of credit for your company. This is the maximum amount that a bank will lend you, but you do not have to take all of the money at one time. This is ideal for owners that don't necessarily need money right away, but want to feel more comfortable knowing that it is available if they need it.

I recommend: Get a line of credit through US Bank. Alternatively, credit cards are a good way to get unsecured business loans for small amounts of money. Check out the options at CreditCards.com.

Look for alternatives when you need an unsecured business loan

Most banks look for some type of collateral when giving loans to business owners. If you don't have anything of worth, it can be difficult to get a loan. Check out the alternatives.

I recommend: America One Unsecured offers unsecured business loans to customers. Fast Up Front offers cash advances. You will pay them back through a percentage of your credit card sales.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  However you choose to get small business financing, it's best to repay your loan as soon as you are able. The faster you are able to pay it off, the less money you pay in the long run.

As you work to start your business, you may find that you don't have the funds available to reach the goals you have in mind. Under such circumstances, you may want to consider applying for a small-business loan to help boost your start-up or expansion dreams. However, there are several types of small-business loans, and several elements you need to be aware of, before you consider putting your business in debt.

Action Steps
The best contacts and resources to help you get it done

Business plan

A brief description of a business plan is a detailed analysis of your company structure, your plans for the company's future and how you plan to use funds received in a small-business loan in order to reach your goals. Be aware that you won't be able to obtain a small-business loan without a business plan to present to the potential lender.

I recommend: My Own Business and the Small Business Buzz from GreatFX Business Cards provide details on what a business plan consists of and how it will help you in your quest for a small-business loan.

Collateral

Collateral is the asset you pledge to a bank as full repayment of the loan if you default, giving the lender full authority to seize the collateral property in order to make up for its loss. Typically, it is real or personal property of substantial value, such as your business, machinery or vehicles.

I recommend: Visit Financial Web for more information on collateral for a small-business loan, including the differences between what the collateral is worth to you and what it's worth to the lender.

Guarantor

A guarantor is an individual or business that guarantees to pay back your small business loan to the lender should you default. Basically, a guarantor is a means of providing collateral to the bank when you have no property available to use.

I recommend: Find out more about using a guarantor for your small business-loan through Entrepreneur Media.

SBA loan

An SBA loan, or Small Business Administration loan, is not really a loan at all, at least not in the sense that the money comes from the SBA. The U.S. Small Business Administration offers loan programs through lenders in which the SBA serves as the guarantor of the loan. The SBA requires your business to meet certain criteria before it will assist your start-up.

I recommend: Learn more about the SBA 7(a) loan program and others from the U.S. Small Business Administration.

Unsecured

Unsecured means there is no collateral required for your business to receive loan funds. Businesses that have high credit scores and a successful financial history will likely get approval for an unsecured loan. Most unsecured business loans come in the form of a cash advance or line of credit.

I recommend: The American Unsecured Group provides an overview of services, products and suggested uses for an unsecured loan, to give you a better idea of how they work. BusinessFinance provides more information on the requirements for unsecured business loan approval.

Line of credit

A business line of credit, or LOC, is basically a loan in which your business has funds available from a lender on a needs basis to keep debt to a minimum. The lender agrees to provide you with funds up to a certain amount, and you use those funds when income from your business won't cover expenses, such as for unforeseen repairs or the purchase of new supplies and equipment.

I recommend: Access BusinessFinance and LoanUniverse for more information on business lines of credit.