State Small Business Credit Initiative: Lessons for Federal and State Programs to Support Business Capital NeedsOctober 13, 2016
Different types of programs are needed to meet the wide spectrum of business capital gaps. The states have learned a lot of lessons over the past few years in which programs meet which gaps. That’s a key takeaway that CREC and its partners at the U.S. Treasury Department and Cromwell Schmisseur learned from a new study of more than 140 business financing programs operated as part of the State Small Business Credit Initiative (SSBCI) during the past 5 years in the 56 states and territories.
The study, “Program Evaluation of the US Department of Treasury State Small Business Credit Initiative,” released in October 2016, represents the culmination of nearly four years of research and technical assistance involving hundreds of telephone interviews, dozens of site visits, and an analysis of nearly 17,000 SSBCI-supported loan and equity transactions. SSBCI’s primary purpose is to get capital into the hands during and immediately after the financial crisis and to help jumpstart private sector lending by leveraging $1.45 billion in public funds made available by Congress as part of the Small Business Jobs Act of 2010.
The study found that the temporary program—expiring in 2017—had expended, by the end of 2015, well over $1 billion, or 72 percent of available funds to stimulate small business financing. About 70 percent of the funds were used for lending and 30 percent for equity financing. Combined, the state programs helped to leverage $8.4 billion in private capital thus far – an 8.15 leverage ratio, shy of its 10:1 goal, but well within sight given the ability of states to use recycled funding to continue making loans and investments to small businesses. Furthermore, 42 percent of the transactions were made to businesses located in low and moderate income census tracts – an unexpectedly high proportion given the need to get capital across many sectors. Also surprisingly, the loans and investments went to primarily to very small firms – 80 percent of the transactions went to businesses with 10 or fewer employees.
For state leaders, however, the most impactful aspect of SSBCI may well have been the restored capacity that SSBCI provided to states. SSBCI has been critical in helping states meet capital gaps when they had limited to no funding, and the program facilitated new program models designed to encourage cooperation among the states, the federal government, and private capital markets in delivering financing to firms. In addition, SSBCI:
- Helped states develop their local solutions to meet aspects of small business financing needs.
- Offered technical assistance and build a network for knowledge sharing that did not previously exist.
- Supported state efforts to determine their efforts might fill gaps in national programs offered by SBA, USDA, Treasury, and others agencies and adapt to unique challenges (e.g., falling collateral values, nonprofit financing needs, and gaps in private capital institutions or products).
- Developed greater capacity within states to articulate and document capital needs, build stronger private sector relationships, and align program characteristics with market practices.
The report is available here or from the Treasury website.