New State Funds Aim to Boost Small Business Lending
by NicoleD, Former Moderator
- Created: December 1, 2010, 11:11 am
- Updated: May 18, 2011, 1:32 pm
In early October, the US Department of the Treasury announced a new funding for small businesses in the form of a State Small Business Credit Initiative (SSBCI). The funding, which is a component of the Small Business Jobs Act, will support $15 billion in new small business lending through local programs that help businesses grow and create new jobs.
How the State Small Business Credit Works
The SSBCI is state funding initiative, which means that state governments apply for a portion of federal funding. To be eligible for the funding, states must demonstrate that for every $1 of federal funding they receive, they will generate $10 in new private lending. Based on this formula, the SSBCI is expected to generate $15 billion in private lending, in addition to the $1.5 billion the federal government has committed.
How the Funding is Used
Eligible states must use the funding to enhance or create local small business lending programs.
If your state already has a small business lending program, the funds will be used to improve local loan guarantee, collateral support, and Capital Access programs.
- Loan Guarantee Programs: Under loan guarantee programs, states provide partial guarantees on certain small business loans to give lenders greater confidence to extend credit.
- Collateral Support Programs: Collateral support programs help viable businesses that are struggling to get credit because the value of the collateral they hold has fallen, often due to the decline in commercial real estate values.
- Capital Access Programs (CAPs): CAP programs are loan portfolio insurance programs designed to ensure lending stability to small businesses. Through CAPs, states provide small business lenders with a matching contribution to the lende;s loan loss reserve. These reserve contributions encourage lenders to expand credit to new borrowers when they might otherwise be inclined to take that risk.
If your state government does not have an existing small business lending program, it can use the SSBCI funding to establish one.
The Bottom Line for Small Businesses
The new SSBCI funds are intended to improve the flow of small business lending. The Treasury Department has provided a breakdown of state-by-state funding allocations, but for details on how the funding will be distributed in your area, contact your state economic development agency.
To learn about loan programs for which you might qualify, visit the Loans and Grants Search Tool.
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