How SSBCI Provides Leverage for Growing Small Businesses

Aug 8, 2022

The State Small Business Credit Initiative (SSBCI) is important for growing small businesses, but few small business owners understand what it is or how it helps them access capital. So, what is SSBCI, and why (and how) should small business owners look into it?

What is SSBCI?

SSBCI was established through The American Rescue Plan Act, which was signed into law on March 11, 2021. The initiative gave $10 billion in federal funds to individual states, the District of Columbia, territories and Tribal governments. In turn, these entities were tasked with using the funds to make it easier for their growing local businesses to get approved for small business loans.

SSBCI is an umbrella of programs that create credit enhancements.

Credit enhancements cover the shortfalls that keep small business owners from getting approved for loans, like cash flow, credit score, and lack of collateral.

There are several types of credit enhancements under SSBCI:

  • Venture capital programs
  • Loan participation programs
  • Loan guarantee programs
  • Collateral support programs
  • Capital access programs (CAP)

A credit enhancement may guarantee a percentage of the loan for the lender in case of default. Others may support investment in loan funds for businesses located in low-income neighborhoods, or allow the state to purchase all or part of a risky loan from the lender.

While each type of credit enhancement has a different approach, they all have the same end game.

How does SSBCI help small businesses?

Often, newer businesses don’t have collateral to offer a small business lender, or their cash flow isn’t on par with what banks are looking for. This makes it nearly impossible to be approved for an affordable loan.

This lack of options with responsible lenders often causes small business owners to look to predatory lenders. Predatory lenders make a quick profit with high interest rates from businesses who feel they have no other choice if they’re going to stay in business.

Working with a small business lender who participates in SSBCI, SBA 7(a) or other credit enhancement programs gives small business owners a better chance of being approved for fair, affordable financing. This gives them leverage, because as they make on-time payments on their affordable loans, these small businesses become more “bankable”, or able to be approved at traditional banks later in their journey.

In short, credit enhancements enable lenders to say yes to small businesses they may have turned down otherwise, because they provide the lenders a state-funded safety net.

So in reality, SSBCI programs help small businesses by helping lenders.

Lenders, like Lendistry, who care about supporting underserved businesses choose to participate in credit enhancement programs so they can help socially and economically disadvantaged individuals (SEDI-owned businesses) grow while staying viable themselves. Not just any lender can use credit enhancements. They have to be approved by the state.

How do I find SSBCI programs for my small business?

SSBCI programs and credit enhancements are not loan products, they make loan products, like term loans and lines of credit, more accessible. They do their part behind the scenes. That means it can be challenging to know which lenders use them, and which programs are offered in your state.

To find SSBCI programs and approved lenders in your state:

  1. Visit your state’s website and search for the Economic Development department

  1. Under Economic Development, look for small business

  1. There, you should find programs and approved lenders

 The U.S. Treasury’s SSBCI page also keeps a list of proposed programs and contacts.

Lendistry is constantly working with state and local governments to participate in as many credit enhancement programs as it can, so its commercial real estate and small business loans are accessible as possible to underserved small business owners.