Rep. Lois Capps, D-Santa Barbara, announced Monday that many local small businesses soon may be eligible for interest-free loans under a new program created by the American Recovery and Reinvestment Act.

The newly launched America’s Recovery Capital program allows small firms to take out loans of up to $35,000 to pay existing business debts. Borrowers pay no interest on the ARC loans and repayment doesn’t begin for one year.

The loan program was established through the ARRA, which President Obama signed into law in February.

“Small businesses are the heart and soul of our local economy, and they have been particularly hard-hit by this economic downturn,” Capps said. “Up and down the Central and South Coasts normally strong small businesses are struggling in these challenging economic times because consumers have drastically cut back on spending and because of the lack access to adequate capital. This initiative helps otherwise viable small businesses get through this rough patch by providing small businesses with the resources to pay their bills, retain employees and play their traditional role as job creators in our communities. This short-term investment will yield huge dividends in the long term as these small businesses survive and ultimately thrive, helping to lead the economic recovery in our communities.”

To qualify for the ARC loans, small firms must demonstrate they are experiencing immediate financial hardship because of the economic downturn, but are otherwise deemed by the Small Business Administration to be viable.

The loans will be made by commercial lenders and can be used for payments of principal and interest for existing, qualifying small-business debts such as credit card obligations, mortgages, lines of credit, and balances due to suppliers, vendors and utilities.

Capps said that in addition to the ARC loan program, the American Recovery and Reinvestment Act contained other measures aimed at helping small businesses access credit. For instance, the new law increases the percentage of a loan that the SBA can guarantee, makes SBA-backed loans more affordable and provides tools to unfreeze the small business credit markets, helping small companies access capital at affordable rates.

“Seven out of 10 new jobs are created by small businesses, making them a key piece of any economic recovery effort,” Capps said. “This America’s Recovery Capital loan program is just one of several initiatives in the American Recovery and Reinvestment Act that are carefully targeted to ensure that our small businesses have all the support that they need to survive this downturn and help lead our country back to economic prosperity.” 

To apply for ARC loans, businesses should visit a local SBA-approved small-business lenders. The loans will be available through Sept. 30, 2010, or until appropriated funding runs out.

Click here for more information about the program.

— Emily Kryder is the communications director for Rep. Lois Capps, D-Santa Barbara.