State Incentives: SSBCI Program Recap and Overview

State Incentives: SSBCI Program Recap and Overview

In 2010, President Obama signed into law the Small Business Jobs Act, which created the State Small Business Credit Initiative (SSBCI). Functioning as a recovery response to the Great Recession, it delivered $1.5 billion in capital to small businesses. Federally, SSBCI phased out in 2017.

Nevertheless, after more than a decade, many of the same original SSBCI programs still exist, suggesting that states value them. In the wake of the COVID-19 pandemic, similar economic challenges to the Great Recession emerged. President Biden signed the American Rescue Plan Act in March 2021 to deliver immediate and direct relief to families, businesses, and workers impacted by the COVID-19 crisis, part of which reauthorized SSBCI.

A Continuation of the Trends

The 2021 bill allocated $10 billion to SSBCI, which is a sizeable $8.5 billion more than the amount authorized in 2010. Based on a 2016 SSBCI program evaluation[1] conducted by Center for Regional Economic Competitiveness (CREC), this could mean significant economic benefits for states. The CREC report highlighted that SSBCI programs expended $1.04 billion, supporting “nearly $8.4 billion in new capital in small business loans and investments by the end of 2015.” The very next year the Congressional Research Service calculated SSBCI participants leveraged $8.95 in new financing for every $1 in SSBCI funds[2] a significant return on investment.

Moreover, the Great Recession and COVID-19 both substantially impacted very small businesses. SSBCI aims to fund all small businesses, but 80 percent of transactions involved very small businesses of 10 or fewer employees in the original authorization. The American Rescue Plan now codifies this trend by requiring $500 million to specifically fund very small businesses.

What’s new?

Given the good return from SSBCI 1.0, if states are well-coordinated with their strategic plans, then they should have an even better outcome for SSBCI 2.0. Through its first action, the U.S. Treasury Department distributed $6.5 billion of the preliminary allocation by formula to states. Other funding is set aside for designated purposes: $500 million for technical assistance, $500 million for tribal governments, $1.5 billion to socially and economically disadvantaged businesses, and $1 billion will be kept to award states that perform well using SSBCI.

As with many new federal funding initiatives, SSBCI 1.0 experienced bumps along the road. Capital access programs experienced difficulties getting significant quantities of funds out the door because small loan sizes meant that it took many more loans to lend the same amount as other programs. Collateral support programs encountered issues in generating sustainable revenues because they tended to take longer to recycle. However, in tandem with the experience gained by the states, technical assistance funds may be an important mechanism for helping to smooth the path going forward. Funding for socially and economic disadvantaged businesses as well as tribal communities helps address the traditional disparity in capital access for these groups.

The Current State of SSBCI

CREC has been following the SSBCI 1.0 programs since it was phased out in 2017. At that time, some states reallocated their SSBCI funding to other activities. States continue to operate slightly less than half of those programs some four years later. Of the five major program types, states were more likely to keep loan participation programs. Close to half of those programs are still active. It is likely that the newly authorized funding will be built from this foundation based on preliminary planning reports from the states.

Through these existing programs, states already have a solid foundation for the next round of SSBCI. Several states have maintained all SSBCI programs including Idaho, Illinois, Kentucky, Maine, Delaware, Maryland, Massachusetts, Mississippi, New York, Ohio, Oklahoma, Oregon, South Carolina, and Vermont. All original programs are inactive in Arizona, Connecticut, Hawaii, Michigan, Montana, New Hampshire, North Dakota, Wisconsin, and Wyoming. We expect to see an influx of new financing programs from SSBCI 2.0, especially in the states where either all or some programs are inactive.

The map below indicates the number of still active SSBCI programs and the preliminary allocations states have received by formula. Access the C2ER State Incentives Database to stay up to date on what SSBCI programs are available. To get a preview of notable programs from SSBCI 1.0 by program type, read the case studies under the graphic.

Click here to access the interactive SSBCI 2.0 map

Case Studies

California Capital Access Program

California SSBCI 1.0 Allocation: $168 million

CalCap Allocation: $19.5 million

California SSBCI 2.0 Allocation: $892 million

California received an allocation of $168 million from 2011 to 2017. The state split the funds between its collateral support (CalCSP) and capital access program (CalCap). CalCap emerged as the state’s shining star during SSBCI 1.0. While only $19.5 million of the $168 million (11 percent) went to CalCap, the program generated over $337 million in new financing. That translated into $22.19 in private lending for every $1 of SSBCI leveraged.[3] Capital access programs rely on enrolling many loans continuously and pooling contributions to create a reserve fund to recycle funds and protect against default by borrowers. The Opportunity Fund, a CDFI and frequent user of CalCap, dispersed 8,754 loans to small businesses by 2018, aiding in the program’s immense success.[4] These loans, 91 percent of which were granted to minorities, assisted small businesses of all types, ranging from street vendors to family-run restaurants.[5] Going into SSBCI 2.0, CalCap still operates and will probably be an important contributor to SSBCI 2.0.

Florida Venture Capital Program

Florida SSBCI 1.0 Allocation: $98 million

FVCP Allocation: $26.5 million

Florida SSBCI 2.0 Allocation: $324 million

Florida’s venture capital program, managed by the Florida Opportunity Fund, offers equity investments and convertible debt instruments to emerging Florida companies, particularly those with long-term growth potential. The programs website indicates that “through June 30, 2019, the FLVCP completed 19 investment commitments, and there are active investments in 15 companies.”[6] According to the National Bureau of Economic Research, businesses in their adolescence with potential for high growth have significantly positive effects to job growth and regional economies.[7] In 2013, the earlier years of SSBCI, Florida invested all venture capital SSBCI funds into companies in their seed/early stages.[8] Over the past few decades, venture capital funds have slowly transitioned to disproportionately concentrating in specific metro areas. In 2015, close to 80 percent of all venture capital went to businesses in San Francisco, Los Angeles, New York City, and Boston.[9] SSBCI 2.0 will hopefully break geographic concentrations down and distribute business expansion evenly. As programs like these grow, they have the potential to break through equity capital barriers in so-called flyover states.

Michigan Collateral Support Program

Michigan SSBCI 1.0 Allocation: $79 million

MCSP Allocation: $44 million

Michigan SSBCI 2.0 Preliminary Allocation: $176 million

Among all program types, collateral support programs struggled the most to generate sustainable income streams. Michigan stood out at the front of the pack, however, by making this model work and recycling funds at an exceptional rate. The program rests on the rationale that the financial sector woefully undervalues equipment and other assets as collateral. This is especially true with hard-to-liquidate fixed assets such as specialty equipment or unique real estate properties. Collateral support helps to “boost the value” of the collateral by providing a cash asset to guarantee the fixed asset’s collateral value. Michigan’s program provided a model that 16 other states followed[10] and is still active today, playing an important part in financing companies during the pandemic. In 2020, the program helped 100 companies, opened 300 new jobs, and helped maintain 1,500 other jobs.[11] Michigan clearly values this program, since it continued well after the sunset of SSBCI 1.0 in 2017. New funding will permit Michigan to further showcase why its collateral support program is a model for other states to follow coming out of COVID-19.

Alabama Loan Guarantee Program

Alabama SSBCI 1.0 Allocation: $31 million

ALGP Allocation: $27 million

Alabama SSBCI 2.0 Preliminary Allocation: $56 million

The Alabama Loan Guarantee Program helped form partnerships between the state and community banks. Community banks have a pulse on the needs of the business community, so consulting with them optimized the use of funds. Prior to SSBCI, Alabama had no credit-support programs for small business.[12] Marketed as an easier, cheaper, and more inclusive alternative to SBA, lenders and borrowers alike benefitted from the program, resulting in 568 transactions.[13] Alabama expended all the program’s funds by 2016 but continues to operate it with recycled funds. The state’s SSBCI 2.0 allocation provides resources that could help reinvigorate the program.

Advantage Illinois Loan Participation Program

Illinois SSBCI 1.0 Allocation: $78 million

AILPP Allocation: $70.5 million

Illinois SSBCI 2.0 Preliminary Allocation: $282 million

Advantage Illinois Loan Participation Program assists many business types, with a focus on minority-, women-, disability-, and veteran-owned businesses by purchasing subordinated loan participation at below market interest rates.[14] Furthermore, the program allows funding to be used for a wide range of purposes. The flexibility, inclusivity, and favorable characteristics of the loan made it a highly popular program. The program made up 87 percent of total SSBCI funds the state expended, totaling in 200 transactions that leveraged $8.65 for every dollar.[15] The program continued operating throughout the pandemic and could be an important part of Illinois’ future plans.

[1] Program Evaluation of The US Department of Treasury State Small Business Credit Initiative, Arlington, VA: Center for Regional Economic Competitiveness, 2016), https://www.treasury.gov/resource-center/sb-programs/documents/ssbci%20program%20evaluation%202016%20-%20full%20report.pdf.

[2] State Small Business Credit Initiative: A Summary of States 2016 Annual Reports, Washington D.C.: Department of the Treasury, 2017, https://home.treasury.gov/system/files/256/SSBCI-Summary-of-States-Annual-Report-2016_508-Compliant.pdf.

[3] State Small Business Credit Initiative: A Summary of States 2016 Annual Reports, Washington D.C.: Department of the Treasury, 2017, https://home.treasury.gov/system/files/256/SSBCI-Summary-of-States-Annual-Report-2016_508-Compliant.pdf.

[4]  Seidman, Ellen, “Capital Access Programs: CDFI Case Study on the California Capital Access Program,” Urban Institute, April 2018, https://www.urban.org/sites/default/files/publication/98051/capital_access_programs_cdfi_case_study_on_the_california_capital_access_programs_0.pdf.

[5] Program Evaluation of The US Department of Treasury State Small Business Credit Initiative, Arlington, VA: Center for Regional Economic Competitiveness, 2016), https://www.treasury.gov/resource-center/sb-programs/documents/ssbci%20program%20evaluation%202016%20-%20full%20report.pdf.

[6] Florida Opportunity Fund, “Florida Venture Capital Program,” https://www.floridaopportunityfund.com/florida-venture-capital-program/.

[7] Haltiwanger, John C.,Jarmin, Ron S., & Miranda, Javier. Who Creates Jobs? Small Versus Large Versus Young. National Bureau of Economic Research. Working paper 16300. August 2010, revised November 2012. Web accessed. (http://www.nber.org/papers/ w16300.pdf).

[8] Information and Observations on State Venture Capital Programs, Washington, D.C.: Cromwell Schmisseur LLC, 2013), https://www.treasury.gov/resource-center/sb-programs/Documents/VC%20Report.pdf

[9] State Small Business Credit Initiative: A Summary of States 2016 Annual Reports, Washington D.C.: Department of the Treasury, 2017, https://home.treasury.gov/system/files/256/SSBCI-Summary-of-States-Annual-Report-2016_508-Compliant.pdf.

[10] Program Evaluation of The US Department of Treasury State Small Business Credit Initiative, Arlington, VA: Center for Regional Economic Competitiveness, 2016), https://www.treasury.gov/resource-center/sb-programs/documents/ssbci%20program%20evaluation%202016%20-%20full%20report.pdf.

[11] Overbey, Courtney, “MEDC Helps Small, Medium-Sized Businesses Access Capital in Michigan,” Michigan Economic Development Corporation, June 16, 2021, https://www.michiganbusiness.org/news/2021/06/medc-helps-small-medium-sized-businesses-access-capital-in-michigan/.

[12] Program Evaluation of The US Department of Treasury State Small Business Credit Initiative, Arlington, VA: Center for Regional Economic Competitiveness, 2016), https://www.treasury.gov/resource-center/sb-programs/documents/ssbci%20program%20evaluation%202016%20-%20full%20report.pdf.

[13] State Small Business Credit Initiative: A Summary of States 2016 Annual Reports, Washington D.C.: Department of the Treasury, 2017, https://home.treasury.gov/system/files/256/SSBCI-Summary-of-States-Annual-Report-2016_508-Compliant.pdf.

[14] Program Evaluation of The US Department of Treasury State Small Business Credit Initiative, Arlington, VA: Center for Regional Economic Competitiveness, 2016), https://www.treasury.gov/resource-center/sb-programs/documents/ssbci%20program%20evaluation%202016%20-%20full%20report.pdf.

[15] State Small Business Credit Initiative: A Summary of States 2016 Annual Reports, Washington D.C.: Department of the Treasury, 2017, https://home.treasury.gov/system/files/256/SSBCI-Summary-of-States-Annual-Report-2016_508-Compliant.pdf.