The U.S. Department of the Treasury has launched the 2021 State Small Business Credit Initiative (SSBCI) portal. The portal will provide access to $10 billion, which is made possible by the American Rescue Plan Act of 2021. This is a considerable increase from the first SSBCI and the $1.5 billion it offered in 2010.
2021 State Small Business Credit Initiative Application Portal Open
With SSBCI 2.0, the program will have $10 billion available for creating specialized small business access to capital programs. It will fund state, territory, and Tribal government small business credit support and investment programs. The SSBCI is managed by the U.S. Department of the Treasury, and it will be allocating the funds.
The $10 billion will be distributed in the following manner:
- $6.5 billion for State allocation – $6 billion based on unemployment and half a billion dollars based on percentage of companies with less than ten employees
- $1.5 billion for businesses owned and controlled by socially and economically disadvantaged individuals
- $1 billion for incentives to States/Tribal governments that demonstrate robust support for businesses owned and controlled by socially and economically disadvantaged individuals
- Half a billion dollars for technical assistance programs
- Half a billion dollars for Tribal governments
State Programs to Use the SSBCI Funds
States can then use the following small business financing programs to use the SSBCI funds:
- Capital Access Programs – Contributions are matched dollar for dollar with SSBCI funds. And in the case of loan default, the lender and borrower contribute to a portfolio loan loss reserve with a percentage of the loan amount.
- Loan Guarantee Programs – Up to 80% of the loan is guaranteed or assured by the state. The lender guarantees any amount the state does not.
- Collateral Support Programs – If there is a shortfall in collateral, the state provides cash to lenders to cover it.
- Loan Participation Programs – Using the SSBCI funds states can make direct loans to borrowers by purchasing a portion of an existing loan. They can also offer a companion loan along with the original private-sector lenders’ senior loan.
- Venture capital programs – States provide capital to new businesses from a state-led venture fund or through private-sector VCs to use the state’s capital for individual businesses.
The State Small Business Credit Initiative
Also known as SSBCI 2.0, the second iteration of this program maintains the initial goals of the 2010 version. This is to deliver capital to small businesses that urgently need it in the U.S. The large increase to $10 billion is due to the success of the program, which is considered one of the more successful mechanisms for delivering capital from a federal source.
This is primarily due to the hands-off approach of the program by allowing states the flexibility to design their own small business support programs. In turn, states were able to adapt to existing economic conditions in their region and disperse the funds accordingly. The $1.4 billion of the first SSBCI was able to leverage more than $8 billion in private small business loans and investments.
More importantly, 80% of the loans and investments of the first SSBCI went to small businesses with 10 or fewer employees. Additionally, businesses in low- and moderate-income communities were also beneficiaries of the program. All said the SSBCI was responsible for helping more than 16,900 small businesses. The result was 190,000 jobs that were created or retained because of the support.
Small Businesses and Lenders Benefit
The funds SSBCI makes available benefit both small businesses and lenders because of the federal involvement. This means small business owners that otherwise wouldn’t get any loans could qualify under SSBCI.
For small businesses, it offers attractive terms for loans, flexible resources for funding with little red tape, fast access to funds, and a quick answer to a loan request. For the lenders there is a lower risk of loss, thus allowing them to approve loans they would ordinarily decline.
When approved a business can generally use the funds for:
- Working capital
- Equipment and inventory
- Start-up costs
- Term loan financing
- Lines of credit
- Trade cycle financing
- Purchase or construction renovations of non-passive real estate
This can vary by state, so make sure to check.
Becoming a Lender
Lenders looking to participate in the SSBCI program will undergo a vetting process. This will be evaluated by the state to determine management, lending experience, financial capacity, and ability.
Get more information at the U.S. Department of the Treasury State Small Business Credit Initiative Capital Program Policy Guidelines – SSBCI program guidelines.