A $10 billion stimulus package is being made available to small businesses as part of the State Small Business Credit Initiative (SSBCI). The initiative is designed to provide funding through grants for businesses to get access to credit and investment programs for existing small businesses and start-ups, and technical assistance to small businesses applying for SSBCI funding and other government small business programs.

$10 Billion from SSBCI

The SSBCI funds will not be distributed directly to small businesses but will instead go to lenders. The funds will be available to small businesses through programs that offer venture capital, capital access, collateral support, loan participation and loan guarantees.

The funds are being allotted to individual US State governments who have submitted their respective plans to Treasury for how they will use their SSBCI allocation to provide funding to small businesses. The initiative has already provided funds to the states of Hawaii, Kansas, Maryland, Michigan and West Virginia other states will also be receiving funds throughout the year on a rolling basis.

How Will it Help Small Businesses?

The funds are designed to promote American entrepreneurship and democratize access to startup capital across the country, including in underserved communities. States can disburse their individual funds through community development investment funds (CDFIs), Minority Deposit Institutions (MDIs), community banks, economic development groups and other non-profits that work with small businesses in their areas.

According to the Department of Treasury, the SSBCI funding is expected to capitalize up to $10 of private investment for every $1 of SSBCI capital funding, amplifying the effects of this funding and providing small business owners with the resources they need to sustainably grow and thrive. In addition, the SSBCI will help businesses in:

• Venture Capital Programs: where states may set up public-private partnerships for equity investing or invest in venture capital funds. These investments are focused on providing capital to underserved startups and democratizing venture capital.
• Loan Participation Programs: Here states and Tribal governments can buy an interest in the loans made by lenders or lend directly alongside private lenders, providing direct lending to finance small businesses.
• Loan Guarantee Programs: States can use SSBCI funds to provide an assurance to lenders that they will be partially repaid in the event of default, after the lender makes every reasonable effort to collect, helping small businesses secure loans that may have otherwise been inaccessible or prohibitively expensive.
• Collateral Support Programs: The programs in this model will set aside funds as collateral for new loans, enabling start-ups to borrow funds to help their businesses grow with the assistance of SSBCI capital.
• Capital Access Programs (CAPs): These programs provide portfolio insurance in the form of a loan loss reserve fund into which the lender and borrower contribute, supplemented with SSBCI funds.

Offering small businesses a leg up

A report by the White House has found that in 2021, Americans applied to start 5.4 million new businesses – 20 percent more than any other year on record. It also found that small businesses are creating more jobs than ever before, with businesses with fewer than 50 workers creating 1.9 million jobs in the first three quarters of 2021 – the highest rate of small business job creation ever recorded in a single year.

As part of the American Rescue Plan Act in March 2021, President Biden reauthorized and funded the State Small Business Credit Initiative (SSBCI). SSBCI is part of the Biden Administration’s strategy to keep this small business boom going by expanding access to capital and by providing entrepreneurs the resources they need to succeed.

SSBCI was first created in 2010 and had distributed $1.5 billion in grants. Of all SSBCI loans and equity investments, 80% had gone to businesses with 10 or fewer employees and 42% went to businesses in low- and moderate-income communities. More than 16,900 small businesses received financial support, resulting in the creation or retention of 190,000 jobs.

The new revamped initiative seeks to expand in scale by over 6.5 times and is expected to support communities impacted by large-scale job losses, support emerging industries, and serve centers of entrepreneurship currently underserved by capital markets.

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