The American Rescue Plan Act provides $10 billion for the State Small Business Credit Initiative (SSBCI) as part of the national response to the coronavirus pandemic-induced recession. This funding is unlike other small business assistance programs funded during the emergency so far in that SSBCI specifically provides funds to states — at least $56 million per state — to use for their own capital access initiatives, including programs that make investments in small businesses.
SSBCI was originally funded in 2010 to help address the severe decline in small business lending that accompanied the Great Recession. The U.S. Department of the Treasury (Treasury), which managed the initiative, approved more than 150 state and municipal programs for funding. Through 2016, these efforts tapped $1.0 billion in federal funds to leverage an additional $8.4 billion in private capital. As a result, the program facilitated more than 16,000 transactions that allowed businesses to remain solvent, if not expand, preserving and creating an estimated 190,000 jobs, according to Treasury.
The challenges faced by small businesses today, however, are different than those faced in 2010. One significant difference is that small business lending was on the rise through 2020 instead of declining. Overall equity investment is at record levels as well. Despite these high-level strengths, both markets contain structural challenges for specific types of small businesses (e.g., minority-owned enterprises and new companies), and these segments particularly could benefit from SSBCI assistance.
While the condition of the capital markets in 2020 is very different from their status in 2010, SSBCI, which is a flexible model for bolstering state-based efforts to address regional capital challenges, remains an appropriate mechanism to help address the current economic strife. However, the same may not be true of all of the 150+ programs approved by Treasury last time. The onus is on the states to identify the challenges and needs of their small business capital markets today and design appropriate plans to meet the moment.
The purpose of the released paper is to help states prepare to make the most effective possible use of funds from this round of SSBCI (SSBCI 2.0). To this end, we discuss the history of the SSBCI program, including lessons learned, recent trends in capital access, how SSBCI 2.0 is structured differently from the original, and recommendations for making the most of this opportunity — including prioritizing funds for seed investment, manufacturer competitiveness and addressing inequitable capital access.