Small Business ARC Loan Arbitrage

Posted by Madison on May 19, 2009

The Recovery and Reinvestment Act of 2009 included some terrific financing opportunities for small businesses. The SBA ARC Loan Program offers 0% loans to small businesses for up to five years.

The program caught my eye, because it looks like a fantastic arbitrage opportunity!

ARC Loan Program

The loan program offers loans to small businesses 100% backed by the small business administration. The idea is to help businesses experiencing hardship, which includes declining revenues; common for many small businesses right now. The loans are structured as follows:

Loan Terms. Loans up to $35,000, at 0% with no fees. No collateral is needed.

Repayment. The loan money is distributed over 6 months. Repayment begins one year after the last distribution and can last up to five years.

Time Frame. The loans will be offered until September 30, 2010. It will end sooner if all the funding is used before then.

ARC Loan Eligibility

To qualify for the ARC loan, businesses must meet the following criteria:

  • Show profits in one of the past three years.
  • Show cash flow projections for the next two years to meet loan payments.
  • Established business, in operation for at least two years.
  • Current on all debts, or no more than 60 days past due on any loan.


I’ve been a fan of using 0% balance transfers for credit card arbitrage for a long time. This is another opportunity to keep that arbitrage wheel spinning!

You’ll need some current business debts to qualify, which can include credit card obligations. Since we’ve used business cards to super-size our credit card arbitrage in the past, we’ll have plenty of “business debt” to show.

Action Plan

Our business will hit the 2 year mark later this year, so I’m planning to submit an application. Because I’m taking time off this summer, I’ll have no problem showing a decrease in revenue!

What a fantastic way to convert some 0% balance transfer money into five years at 0%!

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Comments to Small Business ARC Loan Arbitrage

  1. I am understanding the way you are thinking but the main idea of this loan is to help Small business survive the downturn and continue operation not use this as an arbitrage opportunity. I am disappointed by this article.

    RD @ Money Blog

  2. I have had mixed feelings about your work and advice for a while now. On one hand, you are clearly a master of the personal finance game. On the other, you seem extremely bent on winning the game and have little concern for adding any value to the world you live in. Maybe that’s not fair, but it’s how your articles leave me.

    This idea crosses a great big line for me. I don’t mind when you and others play the arbitrage game with credit card companies. I don’t think you’re adding any value to the world by doing so, but you’re also not hurting anyone so I don’t care. I do mind that you’re now taking advantage of a government plan meant to help actual small businesses that need it. If you take this money, it’s one less loan that could go to some struggling small business – and could be the difference between them making it and not. Think of the entrepreneur, their employees and dependents. Now think of what it will do for you.

    I think you owe it to yourself and your readers to reevaluate this idea. You’re not gaming the credit card companies, you’re gaming our government at the expense of another small business owner. Do you really need the 3% or whatever on $35,000 over six years? You’re financially independent, how much is enough?

    John L

  3. I have to second John L.’s opinions – this post did leave a bad taste in my mouth.

    I’m all for using the tools companies offer, but this is a program taxpayers are financing. While I am sure there are others who will do what you’ve outlined, you have the choice to be one less unethical investor, and taxpayers desperately need that.


  4. @ RD, John L, and Michelle: Thanks for your feedback! I appreciate that you’ve voiced your concerns.

    I think it would have helped if I would have included some other information about our small business. We too, have seen a significant decline in revenues over the last six months. Taking in less money is not something that I worry about personally, but I do have multiple contractors that probably depend on some of the income, even if it is a small amount.

    It may not always appear so, but I’m a very compassionate person. The last thing in the world that I would want to do would be to cut back someone’s work. Stability and cash flow are very important in running a small business.

    Utilizing a loan like this to invest and provide extra income to help our business revenues remain stable would eliminate the need for me to let anyone go or cut back their work in months with lower revenues. In addition, I could even hire additional people, which we all know at a time like this, could make the difference in some else’s life.

    I would never want someone else to get hurt, or in this case lose their business, because I’m using a loan that they desperately need. I have spent a lot of time reevaluating this idea, and I’ll look for other ways to stabilize our revenues, with the goal to continue to make opportunities for others to earn extra money.

    I strive to present real world financial situations and look at them from a new angle to present a unique analysis. In this case, I missed the boat. Thanks for holding me accountable!


  5. Probably whacking a hornet’s nest here, but I’m going to side with Madison on this one.

    I honestly respect the previous posters for speaking from principle, but I guess I see a different palette of priciples in play here.

    “the main idea of this loan is to help Small business survive the downturn and continue operation not use this as an arbitrage opportunity.”

    Okay, but ask yourself what’s better for the economy as a whole–obstructing natural selection and funding weak performers or putting the money to work efficiently in a market where the liquidity becomes easier credit?

    “…how much is enough?”

    I have a big problem with this type of thinking. I make <$40k a year, but that doesn’t blind me to the fact that the wealthiest people are also generally the most generous. If Gates/Buffett had decided a modest fortune was enough, we wouldn’t have the Gates Foundation. The same goes for the fortunes behind every private cheritable foundation in the world. And I am much more sanguine about the good they do than I am about any government’s misguided and moral-hazard-laden attempts at Robin-Hood charity.

    Though I reject the premise behind the ARC loan program and think it is bad legislation, Kudos to Madison for putting it to work in the open market–for her family’s good and the good of others.


  6. Madison – I think that’s great that you reevaluated and decided against using the ARC loan. There is a fundamental difference in using credit provided by credit card companies than that provided by the government.

    Your original post was giddy with the chance to “keep that arbitrage wheel spinning!” Not stabalize revenue to pay your workers. There is a big difference in the two.

    Bill, have fun at your next Young Republicans meeting.

    John L

  7. John,

    It’s worse than that. On a continuum of Democrat to Republican, I’m cucumber.

    I blame my reading of “The Law” by Frédéric Bastiat. Changed me.



  8. @ Bill and John L: You both bring up an interesting question that goes beyond just this particular situation.

    … “How Much is Enough?”

    I think it would make an interesting topic in the future for readers…


  9. Madison,

    I’d read it.

    If you want to cut straight to the watershed philosophical issue for most readers, you could title it: “Wealth building as pie: a bigger slice, or a bigger pie?” or “Do the dollars I make drain the economy or grow it?”

    Most people mistakenly believe in a zero-sum game in which every dollar you earn is snatched from some other poor soul.

    My wife and I have arranged a fine life for our family of five on a single ~$35k/yr income. That’s enough for us for now. But I wholeheartedly defend anyone’s right to set their sights on a lot more zeros. And your fellow citizens should thank you as their ships rise on your tide.


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