This is the first in a series of blog posts about communities deploying capital into small businesses. The following is an overview of a statewide program funded by the US Treasury; subsequent posts will focus on regional, county and municipal programs.
The State Small Business Credit Initiative (SSBCI) was authorized in the Small Business Jobs Act of 2010. It included an appropriation of $1.5 billion and directed the US Treasury Department to allocate these funds on a formula basis to the states. It also directs Treasury to develop program guidelines with respect to proposals from the states along with program performance and reporting requirements. The key purposes of the Initiative were: (1) to allow the states to build upon or create successful financing programs tailored to individual state needs; (2) to use the funds allocated to stimulate and leverage expanded private sector lending and investments to small businesses; and (3) to support business growth and job creation.
North Carolina’s allocated share of federal funding was $46.1 million. The North Carolina Department of Commerce was designated to take lead responsibility for implementing the SSBCI. It was among the first states to submit its application to US Treasury to participate in the program and it was the first state to have its proposal approved for implementation.
In North Carolina, the SSBCI funds are being used to support three financing programs all aimed at businesses with fewer than 500 employees: the North Carolina Capital Access Program (NC-CAP), the North Carolina Loan Participation Program (NC-LPP) and a North Carolina Fund of Funds Program (NC-FoF). It is expected that the SSBCI program funds committed to these programs will achieve 15:1 capital leverage from participating private sector lenders and investment firms.
Both the NC-CAP and NC-LPP work through traditional lenders such as banks and credit unions who participate in these programs in order to reduce their credit risks on debt capital which they are providing to borrowers.
NC-FoF invests in North Carolina based venture capital and angel funds, which in turn make equity investments in North Carolina businesses.
The initial financing program – the North Carolina Capital Access Program (NC-CAP) was launched in the spring of 2011. This program provides matching loan loss reserve funds for business loans that are just outside a lender’s usual credit standards. When a loan is approved and enrolled in the program by a participating bank or credit union, the borrower pays a fee which is matched with money from the program. The funds together are deposited in a reserve account to offset losses in the case of a default. The average NC-CAP loan is targeted at $100,000. The state has allocated up to $8,261,319 to support this program.
The NC-LPP was the second program to be brought on line. This program reduces lender’s risk by purchasing up to 20 percent of a loan made to an eligible business borrower. The program targets loans of $250,000 to $5 million. The state has allocated up to $27,800,000 for this program.
The NC-FoF was the third program initiated. Under this program, investments are made in 4 to 6 North Carolina based venture capital and angel funds. Those selected are newly formed funds which are expected, in turn, to make a diverse range of investments in North Carolina businesses ranging from early stage to mature companies. The state has committed up to $10,000,000 for this program.
The North Carolina Rural Economic Development Center was chosen by the Department of Commerce to administer these three financing programs on behalf of the State of North Carolina. All programs are accessible statewide.
For further information about North Carolina’s SSBCI programs, click here.
Christy Raulli is an Analyst with the School of Government’s Development Finance Initiative (DFI).