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State Small Business Credit Initiative Gets $10 Billion Boost Under ARP

  • American Rescue Plan revives the State Small Business Credit Initiative
  • Program receives $10 billion, including $4 billion in targeted assistance
  • Initiative aims to leverage capital and lending investments in small businesses

Summary by Dirk Langeveld

A long-term small business support initiative set up in the wake of the Great Recession has been revived with a considerable increase in funds under the American Rescue Plan.

The $1.9 trillion stimulus bill includes $10 billion allocated for the State Small Business Credit Initiative, which helps states strengthen existing programs or create new ones offering financial support for small businesses that are responding to or recovering from the effects of the COVID-19 pandemic. The legislation also sets aside funding for targeted assistance, including:

  • $1.5 billion for states to provide assistance to businesses owned by socially or economically disadvantaged individuals
  • $1 billion for an incentive program to increase allocations for states that demonstrate “robust support” for these businesses
  • $500 million to be disbursed among tribal governments
  • At least $500 million for very small businesses, defined as having fewer than 10 full-time employers; this definition includes sole proprietors and independent contractors
  • $500 million for technical assistance to help states link businesses to legal, accounting, and financial services

Technical assistance priority will be given to very small businesses as well as socially or economically disadvantaged business owners. In addition to states, technical assistance can be allocated to the Minority Business Development Agency and to legal, accounting, and financial firms to provide services to socially and economically disadvantaged business owners.

Disbursements must be completed before Sept. 30, 2030. Any unexpended funds will be returned to the Treasury at that point.

The State Small Business Credit Initiative was originally established in 2010 with $1.5 billion in funding. This money was allocated through a formula based on states’ job losses during the Great Recession, and distributed in one-third increments. The program remained in place until Sept. 27, 2017, and disbursed $1.43 billion.

The program aimed to leverage investments at least 10 times greater than the funding amount, and it fell slightly short of this goal. By the end of 2016, the program had leveraged $8.95 for every dollar of funding.

However, the program saw widespread implementation with 47 states participating, along with the District of Columbia, four U.S. territories, two consortiums of municipalities in North Dakota and Wyoming, and the city of Anchorage, Alaska. The State Small Business Credit Initiative funding supported 21,000 loans and investments amounting to over $10.7 billion, 80 percent of which went to companies with 10 or fewer full time employees. The initiative was credited with creating 79,193 new jobs and retaining 161,476 positions.

Connecticut was allotted $13.3 million under the original program. The entire sum was dedicated to its Capital Access Program, which provided loan portfolio insurance to encourage lenders to provide funds to creditworthy small businesses.

A report by the Congressional Research Service notes how there was partisan disagreement over reviving the State Small Business Credit Initiative. Democrats argued that the original program had a proven record of success and that the updated initiative assists communities that were often unable to access Paycheck Protection Program loans. Republicans argued that the initiative was inefficient, duplicative of PPP, and unrelated to COVID-19 relief.

The report also suggests that the relatively small amount of financing makes it difficult to determine the effect of the program outside of other factors. The initial $1.5 billion allocation was equal to just 0.24 percent of all outstanding nonagricultural small business loans in 2017.

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