State Small Business Credit Initiative Encourages Investment in Rural Areas

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In response to the financial crisis, the State Small Business Credit Initiative (SSBCI) was created as part of the Small Business Jobs Act of 2010. It provided capital to small businesses at a time when small-business lending and equity investment had fallen sharply.

“At a time when capital for small businesses was in short supply, the SSBCI program created a strong and effective incentive for lenders and investors to meet the financing needs of small businesses throughout the U.S.,” Michael Eggleston and Lisa Locke, senior community development specialists at the St. Louis Fed, wrote in a recent Policy Insight.

States in the Eighth District used this initiative to leverage private-sector lending and equity investment into small businesses, particularly in rural areas.

Through the SSBCI program, lenders and investors deployed more than 20 percent of total capital to small businesses located in rural areas of the Eighth District. This exceeded the national rate of 15 percent of total capital that was deployed to rural areas.

Among Eighth District states, Mississippi and Kentucky led the way with 59 percent and 41 percent, respectively, invested in rural areas.

Eggleston and Locke noted that although there proved to be challenges to finance small business located in rural areas, “states like Mississippi and Kentucky found ways to deploy substantial financing to these communities.”

One lender that was particularly active in making loans to small businesses in rural areas was the Mountain Association for Community Economic Development (MACED). As a community development financial institution (CDFI) based in Berea, Ky., MACED made 20 loans to small businesses through the SSBCI program, 19 of which were to businesses in rural communities.

Indeed, said Eggleston and Locke, CDFIs were one of the major participating lenders to small businesses through the SSBCI. While there was no requirement that lenders and investors deploy a minimum amount in rural areas, the initiative did require states to develop a plan targeting underserved communities.

• Nationally, CDFIs loaned and invested $630 million through the SSBCI, of which 18 percent was deployed in rural areas. Non-CDFI lenders and investors deployed almost 19 percent of funds to small businesses in rural areas.
• In the seven states that are part of the St. Louis Fed’s district, CDFIs loaned and invested a total of $45 million; 52 percent was deployed in rural areas.

The authors noted that relative to CDFIs across the nation that participated in the program, CDFIs in the Eighth District “over-performed on investments in rural areas.”

• Policy Insight: The State Small Business Credit Initiative (PDF)
• Interactive data tool: State Small Business Credit Initiative Tool
• On the Economy: The Issues Affecting Low- and Moderate-Income People Differ between Metro and Rural Areas
• Open Vault: Boosting Financing for Small Businesses