State Small Business Credit Initiative: Big Help for Small Business

April 01, 2012

Historically, small businesses—defined as enterprises with 500 or fewer employees—have played a significant role in the American economy. According to the U.S. Small Business Administration, these companies represent 99.7 percent of all firms, employ about half of all private-sector employees and generated 65 percent of net new jobs over the past 17 years. During the Great Recession, however, lending to small businesses slowed and the underwriting standards of financial institutions became more conservative. Almost three years after the official end of the recession, small businesses continue to face challenges in access to credit, and there are increased concerns about their ability to survive. Access to credit provides an income stream to businesses and allows them to take advantage of growth opportunities. Without credit, businesses could be forced to cut back on employees and services, or even to close.

In an effort to stimulate small-business lending, investing and job creation, the State Small Business Credit Initiative (SSBCI) was created as part of the 2010 Small Business Jobs Act. The primary objective of the SSBCI is to enhance new or existing state programs that provide access to capital for small businesses and manufacturers. Congress appropriated $1.5 billion to the Initiative. The expectation is that this funding will generate the minimum bang for the buck of $10 in private investment for every $1 in federal funding, totaling $15 billion in lending.

Eligible State Programs

Eligible state programs for SSBCI funds include Capital Access Programs (CAP) and Other Credit Support Programs (OCSP), which include loan participation programs, collateral support programs, loan guarantee programs and venture capital fund programs. Each state has the opportunity to design a program that fits the needs of their communities, assisting business owners start new companies and/or expand existing entities.


A CAP is a loan portfolio insurance program in which the lender and borrower pay an up-front premium to a reserve fund held by the participating financial institution. The state matches the premium in the originating lender’s reserve fund. To be eligible for the program, the borrower must have 500 or fewer employees. The loan maximum is $5 million. This program encourages lenders to make loans they may not otherwise make.


In a loan participation program, a state uses SSBCI funds to purchase part of a loan and may take a subordinate lien position to the lender. The state may also provide a lower interest rate to the borrower, which allows the small business to qualify for a loan for which it would not normally be eligible. In a collateral support program, the state uses SSBCI funds to deposit cash at a financial institution, which serves as partial collateral for loans. The state guarantees a portion of a loan under loan guarantee programs, and venture capital fund programs are used to attract more private investment for small businesses.

Under the SSBCI, all states may apply for the federal funds. States receive funding based on a statutory formula determined by the portion of local job losses relative to national losses, with each state receiving a minimum of $13.2 million. According to the Treasury Department, as of February 2012, 47 states, the District of Columbia, five territories and one municipality have been approved for $1.43 billion in SSBCI funding. Funds are distributed in thirds: 33 percent, 33 percent and 34 percent. States are required to have committed a minimum of 80 percent of prior funds before a second or third disbursement can be received from the Treasury. To date, all states that were approved for SSBCI funds have received the first disbursement. As of Dec. 31, 2011, states reported payouts of $60.3 million in SSBCI funds. In meeting the minimum bang for the buck expectations of a 10 to 1 match, this should lead to $600 million in small-business lending and investing.

Eighth District Programs

The seven states that comprise the Eighth District of the Federal Reserve Bank of St. Louis have been approved for just over $211 million in SSBCI funds. (See box below for program participation.)

As each state starts to ramp up its SSBCI program, the funding provides an additional tool needed to grow and invest in local business. SSBCI provides much needed access to capital and, in turn, a small business has the ability to take the capital and turn ideas into reality. The Treasury Department will continue to provide technical assistance to states as the funds are disbursed.

For additional information, visit

About the Author
Lisa J. Locke

Lisa J. Locke is a community development advisor at the St. Louis Fed, specializing in the Bank On National Data Hub. Read more about Lisa's work.

Lisa J. Locke

Lisa J. Locke is a community development advisor at the St. Louis Fed, specializing in the Bank On National Data Hub. Read more about Lisa's work.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

Email Us

Media questions

All other community development questions

Back to Top