DALLAS -- Paperwork has overwhelmed Jimmie Hughes, who received an $8,100 American Recovery Capital loan for his telemarketing firm.

Sales at his Grand America firm in Richardson, Texas, are growing, and he'd like to add more people. But a record amount of money owed to the company and a heavy debt load are leaving it starved for cash.

Last summer, Mr. Hughes applied for a $35,000 American Recovery Capital loan, part of the federal government's stimulus plan to help small businesses. Six months later -- after delays and mountains of paperwork -- he received approval for $8,100.

"I was so disappointed," said Mr. Hughes, who keeps a three-inch-thick file of loan paperwork on his desk. "It has been an intensely frustrating and time-consuming process."

The program has been fraught with problems from the get-go.

A year ago, the Obama administration said it would provide $255 million in emergency loans for "viable" small businesses facing immediate financial hardship. The deferred-payment loans of up to $35,000 would be interest-free for five years.

The program was delayed until mid-June as the U.S. Small Business Administration devised guidelines. The SBA set strict criteria for qualifying businesses and what counts as existing debt, a "viable" business and a financial hardship.

Small-business owners such as Mr. Hughes say the program has too few lenders and too much red tape. Lenders say a new SBA loan program with separate criteria, regulations and processing is unnecessary, and they don't have the staff to justify making such low-profit microloans.

Sen. Olympia Snowe, R-Maine, helped start the ARC loan program, but late last year she pushed a bill to end it because of its ineffectiveness. The loan funding runs through Sept. 30.

"I don't think it has worked very well because there are not many lenders participating in it," said John Hart, president of the North Texas Association of Government Guaranteed Lenders. "Lenders don't have much incentive" to make small loans.

In North Texas, only about 20 lenders have made recovery loans, but nearly 140 typically make other SBA loans.

The SBA's Dallas-Fort Worth office, which covers 62 counties, approved $2 million in 63 ARC loans through Jan. 29. Nationally, the SBA guaranteed $184.8 million in 5,726 ARC loans in that period.

SBA spokesman Mike Stamler said the program has been successful, with more than half the money distributed already.

Others disagree.

"By no means am I satisfied," Herbert Austin, director of the SBA's D-FW office, said about recovery lending.

ARC loans compete with existing SBA loans: Many lenders have shunned the loan program in favor of increasing "bread and butter" SBA loans by up to 15 percent this year, Mr. Austin said.

Small-business owner Mr. Hughes calls himself the poster child for ARC loans.

His company sells businesses items from paper clips to traffic cones to body bags. He worked alone at home until last year, when he added about a dozen people and rented an office. Grand America's annual sales nearly quadrupled to $581,000, but credit card and other debt used to finance the expansion grew to $157,185.

New customers were slow to pay their bills, amounting to a record $88,000 owed.

Mr. Hughes applied for an ARC loan to help make payments on six credit cards, a vendor loan and two bank lines of credit.

He said he applied for a loan at Chase Bank in July but never heard from his banker. After contacting Chase, he began the process anew in October.

Chase spokesman Greg Hassell attributed the lag to the bank's request for information.

Chase's Mr. Hassell said the loan program "can be helpful, but there are many federal requirements a borrower must satisfy." Chase is the top ARC lender in North Texas and the nation, with 19 loans locally and 461 nationally as of Jan. 29.

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