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What is SSBCI?

The State Small Business Credit Initiative (SSBCI) is a program authorized by the U.S. Department of the Treasury to provide federal funding assistance to small business owners and Tribal governments within the United States and the District of Columbia. The original version of this program was authorized in 2010 and remained active through 2017. The program was reauthorized and $10 billion in funds were reallocated to SSBCI on March 11, 2021, when The American Rescue Plan Act was signed by President Joe Biden to help American small business owners recover from the financial impact of the pandemic.

SSBCI was considered the most successful business capital delivery program during the time it was first active. The original funding program was executed by a joint effort between the federal government, tribal governments, and state governments. Each U.S. territory was given the freedom to develop unique small business support services and succeeded in providing more than $1.4 billion in SSBCI funding to help entrepreneurs and small business owners access more than $8 billion in loans and equity investments. 

During the active period of the original SSBCI program, more than 16,900 small businesses received financial assistance and more than 190,000 jobs were created or retained. Eighty percent of relief funds were made available to small business owners that employed fewer than 10 staff members and 42% of the funds went to businesses in low-to-moderate income communities. The reauthorization of SSBCI in 2021 has brought financial relief through investment programs and sustainable hope to many small business owners still struggling in 2022 to recover from the impact of COVID-19.

SSBCI programs

According to the fact sheet, there are five programs under the SSBCI dedicated to helping small businesses in each U.S. jurisdiction and focusing on entrepreneurs in underserved communities.

Venture Capital Programs

The SSBCI Venture Capital Program was created to help new businesses and startup entrepreneurs find investment capital. This SSBCI program can either be a venture capital fund that invests in small businesses and is run by the state, or it can take the shape of a fund of funds where a fund is set up to invest in other intermediary venture capital funds, which will then directly invest in small businesses.

The Venture Capital Program is individually designed by each state but is required to provide relief to small business owners that employ fewer than 750 employees. Similar to other SSBCI programs, this program may target specific industries and is generally permitted to assist with a principal amount of up to $5 million for qualified business owners. The SSBCI Capital Program can aid different stages of venture capital financing including angel investors and mezzanine financing.

Loan Participation Program

The Loan Participation Program, initiated by the SSBCI, works when the governing agency, like the state or Tribal government, purchases interest in loans issued by approved lenders or works directly with private lenders to provide lending options to small business owners. The loans approved through this program are typically long-term loans issued with the intent of promoting business growth.

Unique to the Loan Participating Program, states can partner with financial institutions to directly lend funds to small business owners using one of the following two methods:

Purchase transactions

Purchase transactions, or purchase participation transactions, describe a portion of the program where the state buys a part of a lender-originated loan. Since the state owns an interest in the loan, the risk is reduced for both parties. The interest rates, maturity dates, required collateral and other repayment terms are determined by the lender and approved by the state. All monthly payments and correspondence are collected by the lender.

Companion loans

Companion loans can also be called parallel loans or co-lending participation arrangements. They occur when a lender issues a primary loan fund to the borrower and then the state originates an additional, subordinate loan to the approved borrower. The repayment terms of a companion loan are determined by the financial institution and the state.

Loan Guarantee Program

The Loan Guarantee Program makes use of SSBCI funds through an insurance-like program. The state, territory, or other governing agency guarantees partial repayment of the loan to the lenders in situations where the borrower is unable to repay the providers, despite collection efforts. Because the risk is reduced for the lender, approved borrowers that may have been denied for other financing options are able to borrow funds with more affordable interest rates and origination fees.

The funds issued through Loan Guarantee Programs typically are part of a line of credit or term loan issued by a private lender, but the state backing the funds designs the specifics of the eligibility requirements and loan characteristics. SBA loan borrowers are not eligible for the Loan Guarantee Program. The funds can be used for most business needs, but there are restrictions governed by each state on using the funds for refinancing other debts.

Capital Access Programs

The capital access program (CAP) initiated by SSBCI provides insurance benefits through a loan loss reserve fund. The program works when an SSBCI-approved lender issues financing through a loan or line of credit and then works with the borrower to contribute 2 – 7% of the borrowed funds to a reserve fund managed by the lender.  The state then matches the contributions of the lender and the borrower with a state contribution to the reserve fund. The CAP reserve fund is available to the lender as collateral if the borrower defaults on the loan agreement.

The approval requirements, percent reserved, and other eligibility factors are dictated by the state government where the funds are issued. Some states choose to favor specific industries or areas with CAP funding, by increasing the matched contribution for applicable businesses. The SSBCI requires CAP business recipients or nonprofits to have less than 500 employees and be structured as a corporation, partnership, or sole proprietorship. The maximum loan size is $5 million, but the average CAP loan is $100,000. The funds can usually be used for any qualified business purpose like working capital, real estate, renovations, franchise fees, and more. Benefits to the CAP program include lower interest rates and faster funding time than other programs.

Collateral Support Programs

The Collateral Support Program works to reserve SSBCI collateral funds with the purpose of helping startups and small businesses promote economic development. The program uses pledged collateral accounts, funded by SSBCI and the state, to provide collateral to individual loans issued by a lender. Each state can tailor its own eligibility requirements, use of funds specifics, and increase benefits for small business owners in underserved, or under financed, industries.

What’s the purpose of the SSBCI?

Implementation of SSBCI funding programs was created for the purposes of creating new jobs, promoting equality, and encouraging capital investments in underserved communities.

Jobs

A large part of the SSBCI program was created to promote new jobs by increasing financing options available to small business owners struggling to retain current employees or hire new staff members. A caveat for states to participate in SSBCI funding programs requires the state, District of Columbia, or Tribal government to submit an explanation of their programs’ economic benefits. Details are given about the jurisdiction’s intentions to create well-paying jobs within the community, and the intended support for American manufacturing businesses and the supply chain.

Equality

Since the shutdowns and business interruptions endured during the pandemic, many small business owners have found themselves underequipped to handle inflation and supply chain backups, while giant corporations are able to navigate the rising costs and challenges. The SSBCI program is intended to expand the access to capital for all businesses, especially the previously underserved small business community. To promote equality, the U.S. Department of Treasury set aside $1.5 billion of SSBCI funds to be made available to individuals that have been prohibited from accessing other capital due to racial, ethnic, or cultural prejudices. The $1.5 billion allocation is earmarked for small business owners in low-income or high-poverty regions as well as minority-owned businesses. As part of the SSBCI efforts to promote equality, $600 million was reserved to help U.S. Tribes and $500 million was set aside for very small businesses with fewer than 10 staff members.

Capital investments

The SSBCI was created, in part, to catalyze private investments and promote business development. The five assistance programs, using SSBCI funds, are designed to catalyze $10 in lending and investment for every $1 that was federally funded through the program. The program can encourage investments in local small businesses by lenders, the government, and private capital investors because it rewards any qualifying investment that is considered “outside of traditional high-access areas.”

How can your small business benefit from SSBCI?

In order to be eligible for financial assistance through the SSBCI program, you must live or own a business in a state that has been approved for federal funds. To be approved as an SSBCI participant, each state must apply and disclose:

  • The specific department to oversee administrative responsibility
  • A Governor’s statement outlining the state’s adherence
  • How the state will allocate funds for underserved communities
  • Plans for regular assessments of the program’s progress

The portion of the initial $1.5 billion allocation is awarded based on the percentage of that state, District of Columbia, or Tribal government’s population that lives in Community Development Financial Institutions (CDFI) Investment Areas. The allocation of funds is based on the number of socially and economically disadvantaged individuals SEDI in each jurisdiction or private sector.

The first five states of the reinstated SSBCI program were approved in May of 2022 and included Hawaii, Kansas, Michigan, Maryland, and West Virginia. Since then, in July, another nine states’ funding plans were approved for the program including:

To learn more about the eligibility requirements in your state, check the U.S. Treasury’s State Small Business Credit Initiative website. If your state participates in the SSBCI program, the next step is to work with an SSBCI-approved lender which can be found through traditional banks, community banks, or online lenders. Since most of the state programs initiated by the SSBCI allow the lender to negotiate the repayment terms and eligibility requirements for each loan or line of credit, an interested borrower can follow the steps to get approved for any loan, which include:

The reinstatement of SSBCI small business programs makes it possible for more borrowers in underserved or underdeveloped communities to have access to financial services and business loans. The five programs have been created with the intention of providing outreach programs, creating new jobs, catalyzing capital investments, and promoting business development. If you are interested in learning more about the SSBCI programs or other small business financing options, consider working with a finance expert at Biz2Credit. After all, they were the financial specialists able to help a small community dentist, Ravindra Gautam, expand his dream.

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