Financial Innovation at Work: North Carolina Capital Access Program

About the Author

Jeff Hughes

Jeff Hughes was the Director of the Environmental Finance Center (EFC) at the UNC School of Government between 2003 and 2019. Hughes currently serves as a Commissioner in the North Carolina Utilities Commission.

Jeff Hughes is Director of the UNC Environmental Finance Center and a School of Government faculty member.

The corporation that owns the business at the end of Main Street has decided to close the business down rather than reinvest in needed new equipment. The corporation is willing to sell the business at a bargain price. A group of the business’s employees have created a new company and developed a business plan that shows a realistic path towards making the business profitable again. The employees believe that with a modest investment in new equipment, the business can thrive and continue to employ dozens of people. A local bank reviews the business plan and would like to provide the group with a loan, but under the current climate has had to institute stricter underwriting standards in response to recent loan losses due to the recession. In the end the stricter underwriting standards and fear of loan defaults results in the bank manager deciding that the bank must deny the loan.   At the final meeting in which the bank manager has to give the group the bad news, she expresses regret and tells the group that if the bank could only have a bit more security than the group can offer alone, the bank probably would have gone ahead with the loan.  Just as she finishes saying this, she pauses as if suddenly remembering something and excitedly turns to the group and says she just remembered reading something about a program that might change their decision. 

What this fictional bank manager in an all too real situation might have remembered reading about was an exciting program administered by the North Carolina Rural Economic Development Center (Rural Center). The North Carolina Capital Access Program is funded as a result of the federal Small Business Jobs Act of 2010.  The N.C CAP program allows banks to charge borrowers an additional up front charge equal to between two to seven percent of the loan value. An equal amount of funds is contributed by the CAP pool to create a guarantee pool which the bank can draw on in case of defaults. Each time a bank enrolls a loan into the program, more funds are deposited and the pool builds. If the bank makes a series of loans and only a relatively small percent of the loans go bad, the bank is much less likely to suffer charge offs and may be more willing to lend to borrowers like our factory group that might otherwise not have access to capital.  To read more about the NC-CAP program, see

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