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Tuesday, August 6, 2013

State Small Business Credit Initiative: Implementation and Funding Issues

Robert Jay Dilger
Senior Specialist in American National Government

Congressional interest in small business access to capital has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to assist in the economic recovery. Some, including President Obama, have argued that the federal government should provide additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs.

During the 111
th Congress, P.L. 111-240, the Small Business Jobs Act of 2010, provided the Small Business Administration (SBA) additional funding and enhanced several SBA lending programs in an effort to assist small businesses access capital. The act also authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF; $4.0 billion was issued) to encourage community banks with less than $10 billion in assets to increase their lending to small businesses and a $1.5 billion State Small Business Credit Initiative (SSBCI).

The SSBCI provides funding, allocated through a statutorily created formula and distributed in one-third increments, to states, territories, and eligible municipalities to expand existing or to create new state small business investment programs, including state capital access programs, collateral support programs, loan participation programs, loan guarantee programs, and venture capital programs. In most instances, the initial round of funding (called a tranche) took place in FY2011. Treasury anticipates that most SSBCI participants will have received their second tranche by the end of FY2013, and their final tranche by the end of FY2014.

SSBCI participants are expected to leverage their SSBCI funds to generate private financing and investment that is at least 10 times the amount of their SSBCI funds. Forty-seven states, American Samoa, the District of Columbia, Guam, the Northern Mariana Islands, Puerto Rico, the U.S. Virgin Islands, Anchorage, Alaska, two consortiums of municipalities in North Dakota, and a consortium of municipalities in Wyoming currently participate in the program.

During congressional consideration, advocates argued that the SSBCI would promote economic growth and job creation by enhancing small business access to capital. Opponents argued that the SSBCI did not address the need to stimulate demand for credit by small businesses, which, in their view, is the core issue affecting small business job creation during the economic recovery. They argued that “the solutions to America’s economic problems do not lie in more taxpayerfunded bailouts,” and advocated small business tax reductions as a more effective means to stimulate small business job creation and economic growth.

This report examines the SSBCI and its implementation, including Treasury’s response to initial program audits conducted by the U.S. Government Accountability Office and Treasury’s Office of Inspector General. These initial audits suggest that SSBCI participants are generally complying with the statute’s requirements, but that some compliance problems exist; Treasury’s oversight of the program could be improved; and performance measures are needed to assess the program’s efficacy.

Date of Report: July 15, 2013
Number of Pages: 29
Order Number: R42581
Price: $29.95

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