The U.S. Treasury announced today $1.5 billion in funding allocations for all 50 states, the District of Columbia, and the U.S. territories under the State Small Business Credit Initiative (SSBCI). SSBCI is a part of the Small Business Jobs Act of 2010 (SBJA), which was signed into law on September 27, 2010. SBJA creates a $30 billion Small Business Lending Fund designed to provide capital to banks that serve small business borrowers. SSBCI works as a complement by offering states the opportunity to apply for federal funds for programs that partner with private lenders to extend credit to small businesses. Said Treasury Secretary Timothy Geithner, “Innovative local initiatives that support small business lending are under extraordinary pressure because of state budget difficulties. These funds will provide vital support to successful state-level programs that help local entrepreneurs obtain the credit they need to put more Americans back to work.”

The amount allocated to each state was determined by a formula in SBJA that considers each state’s unemployment rate and decline in unemployment compared to other states. Under the terms of the program, states must demonstrate a minimum “bang for the buck”, a correlation between program spending and private lending equal to at least $10 in non-government loans for every $1 of federal funding. The $1.5 billion commitment Treasury has made is therefore expected to generate $15 billion in new private capital. States may apply the funds to their own existing programs including the following examples.

  • Collateral Support Programs. These programs support existing collateral of the borrower that has lost value, often due to declines in commercial real estate prices. Through such measures, banks may have greater confidence in extending credit to viable businesses in some of the communities that have suffered the most in the economic downturn.
  • Capital Access Programs (CAPs). Already operating in more than 20 states, CAPs are loan portfolio insurance programs in which states provide matching contributions to the loan loss reserves that banks maintain when extending credit to small businesses.
  • Loan Guarantee Programs. States provide guarantees on small business loans under this type of program to give lenders greater confidence in making loans.

States that do not have an existing small business lending program may create one in order to access SSBCI funding. Treasury must review and approve in advance all plans for the use of funding allocations.