Published on December 28th, 2022.

The State Small Business Credit Initiative (SSBCI) has seen renewed interest lately due to the approval of 18 state plans under this renewed initiative.

About the SSBCI

The SSBCI was established by the Small Business Jobs Act of 2010, and reauthorized in 2021 with the American Rescue Plan Act (ARPA) with $10 billion in funding. The reauthorization of the SSBCI by ARPA now provides a combined $10 billion to states, the District of Columbia, territories and tribal governments. To date, the U.S. Department of the Treasury has approved 39 state plans for $6.3 billion in funding. The mission of the SSBCI is to empower states to assist small businesses to access capital to invest in job-creating opportunities, which is crucial in pandemic recovery. The list of programs that the updated SSBCI can fund includes venture capital programs, loan guarantee programs, collateral support programs and capital access programs. The initiative can also fund loan participation programs, which provide direct lending to small businesses by using states to buy an interest in loans or lend directly. The SSBCI also allocates funds for a certain type of small business, or ones located in a certain geographic area. There is a $1.5 billion allocation for business enterprises owned and controlled by socially and economically disadvantaged individuals. These are defined as small businesses that have faced racial, ethnic, or cultural barriers to accessing capital and markets or are in Community Development Financial Institutions (CDFI) investment areas that are low income or high poverty.

Treasury Approves 18 States’ SSBCI Plans

On Dec. 6, the Treasury announced the approval of seven state SSBCI plans. These states (Florida, Georgia, Illinois, Louisiana, North Dakota, Oklahoma and Virginia) will receive $1.5 billion in funding. The highlights of these plans include a venture capital program in Florida, a direct equity program that serves minority entrepreneurs in Georgia and programs through the Oklahoma Center for the Advancement of Science and Technology.

In October, Treasury announced the approval of 11 state SSBCI programs. In total, the 11 states will receive up to $1 billion in funding. The 11 states with plans approved in October are: Alaska, Idaho, Iowa, Massachusetts, Minnesota, Missouri, Nebraska, Nevada, New Mexico, Ohio and Utah.

These 18 states approved in October and December join 20 states approved in March 2021 for the SSBCI: Hawaii, Kansas, Maryland, Michigan, West Virginia, Arizona, Connecticut, Indiana, Maine, New Hampshire, Pennsylvania, South Carolina, South Dakota, Vermont, North Carolina, Colorado, Montana, New York, Oregon and California. To date, these 39 states have received $6.3 billion in SSBCI funding.

Approved states’ plans vary from targeting tech startups to microbusinesses. In Alaska, SSBCI funded programs to fund commercial fishing, mariculture and tourism. In Nevada, funding is being used for programs that fund energy and water efficiency capital improvements in commercial properties. In Massachusetts, the focus is on Massachusetts-based technology companies. In Minnesota, funding is being used for programs to support loans to purchase machinery, equipment, or software for small businesses.

California’s SSBCI plan was approved in September and is the largest funding amount ever approved–$1.1 billion–in the SSBCI program. California will operate six programs with SSBCI funding with a focus on assisting entrepreneurs in small communities. These programs include a capital access program that helps cover losses on small business loans, a small business loan guarantee program and a program that provides collateral for small business loans. California also plans to adopt a program for venture capital strategies to provide key investments to small businesses.

2016 Program Evaluation Statistics

While the most current SSBCI is not identical to the 2010 version, it’s worth considering the results from a 2016 program evaluation conducted by the Center for Regional Economic Competitiveness and Cromwell Schmisseur. Between 2011 and 2015, the SSBCI provided $1.5 billion to state small business financing programs. The SSBCI’s impact can be attributed to the ways in which it differed from previous small business programs. The SSBCI was unique because of its flexibility: States could design a program that met the market conditions in their area and did not have to adhere to strict requirements when drafting their plans. States could choose to target to microbusinesses, manufacturers or high-tech businesses depending on the market.

Between 2011 and 2015, SSBCI targeted funds to 152 small business programs, with 69% of this funding supporting lending or credit programs while 31% supported venture capital programs. Additionally, state SSBCI programs supported $8.4 billion in new capital small business loans and investments by 2015. SSBCI provided support to both small and young businesses–80% of transactions supported small businesses of 10 employees or fewer, and other supported businesses that were less than five years old. Additionally, SSBCI programs also targeted funds to address capital needs in low- and moderate-income (LMI) areas, which are defined as census tracts with median incomes at or below 80% of the area median income. Nearly half (42%) of the 26,919 SSBCI transactions were made with small businesses located in LMI census tracts.

SSBCI Funding and New Market Tax Credits

In 2021, Americans applied to start 5.4 million new businesses. This is 20% higher than any year on record and small businesses with fewer than 50 workers created 2.8 million jobs in 2021. This recent round of funding establishes the SSBCI as a powerful tool to support business development, much like the New Markets Tax Credit (NMTC). Both the SSBCI and the NMTC are ways to support economic and community development. The NMTC differs slightly as it promotes economic development in low-income communities, whereas the SSBCI can benefit small business in all communities. To date, the NMTC has been very popular, which shows the demand for federal assistance to support small businesses in underserved communities. To illustrate, for the most recently awarded round, for which $5 billion in allocation authority was available, nearly 200 applications requesting $14.7 billion in total NMTC allocation authority were received. Additionally, the 2022 NMTC round was recently opened by the CDFI Fund with $5 billion in allocation authority available. The prevalence of these two incentives shows the importance of federal funding to encourage investments in previously mentioned communities.

Looking Forward

Unfortunately, the current SSBCI allocation is a onetime only allocation. Additionally, with the current NMTC authorization set to expire in 2025, it is crucial that Congress expand or make the incentive permanent. There is potential for NMTC permanence to be added to a year-end tax bill. If Congress were to make the NMTC permanent this year, it would cost only $1.38 billion over 10 years. Both the SSBCI and NMTC are needed for small businesses to recover from the pandemic, as well as generate economic development in both low-income communities and small businesses.

Original Article