Community Developments Investments (February 2013)
State Small Business Credit Initiative
Cliff Kellogg, Director, Office of State Small Business Credit Initiative
The Department of the Treasury building in Washington, D.C. The department works with states to implement the SSBCI program, which was created as part of the Small Business Jobs Act of 2010.
The State Small Business Credit Initiative (SSBCI) provides $1.5 billion to states, U.S. territories, eligible municipalities, and the District of Columbia to support new and existing programs that offer access to credit for small businesses and small manufacturers. The SSBCI was created by the Small Business Jobs Act of 2010 and is administered by the U.S. Department of the Treasury.
Although we are emerging from a financial crisis, many small businesses still struggle to find available credit from private lenders and investors to expand their businesses and hire employees. Many of these small businesses have the ability to repay a loan but are unable to access credit because of a lack of a repayment history or because the value of their collateral has fallen below traditional underwriting criteria. Many states have operated credit enhancement programs to address these issues, but funding for these programs has been reduced or eliminated because of state budget cutbacks.
The funding from the SSBCI program allows states to build on successful models for state small-business programs or to launch new programs that respond to market conditions and address local credit needs.
The most popular approved program types are:
In their applications, states wanting to participate in the SSBCI program must demonstrate a reasonable expectation that each $1 in federal contributions will lead to $10 of new small-business lending by the end of the allocation period in December 2016.
A variety of small-business borrowers are eligible for state programs using funding made available through the SSBCI program. One condition for funds made available through the state program is that the small-business borrower must have fewer than 500 employees for CAP loans, and fewer than 750 employees for all other programs. There are additional restrictions on small-business borrowers and loan purposes.
Lender participation is essential to the program. Eligible lenders include any insured depository institution, insured credit union, or community development financial institution (CDFI).1 Lenders can use the program to expand their small-business customer base and support state economic development efforts. The programs administered by the states that take advantage of funds made available through the SSBCI program are generally easy to use and allow lenders to retain control of the underwriting and credit decision-making. Certain transactions, such as those involving working capital or subordinate debt, as well as small transaction sizes, are well-suited for SSBCI-supported programs.