The State of State Small Business Credit Programs

The Department of Treasury’s State Small Business Credit Initiative (SSBCI) doesn’t get a lot of attention, but it was (and still is) a pretty big deal.  As part of the 2010 Jobs Act, SSBCI invested more than $1.5 billion in various state small business finance and credit initiatives.   These funds are in turn expected to leverage as much $15 billion in new small business investments—that’s real money.

A new report, developed by my colleagues at the Center for Regional Economic Competitiveness, assesses lessons learned from SSBCI.   This is an interesting exercise because the SSBCI program worked as something of a “natural experiment.”   It provided general guidelines to states but let state leader develop their own program and organizational models.  Many states (35) managed programs via state economic development agencies, but a large share also utilized state-chartered organizations (15) or private companies (9)

Besides detailed the important and impressive impacts of these loan programs, the evaluation offers some important lessons for how to effectively manage small business credit programs.   A couple of ideas stand out:

1)      Simple is Good:   Some programs and rules were so complex that they deterred lenders and businesses from participating.   Keeping program rules simple, and focusing on a small but doable set of tasks, worked best.

2)      Mind the Gaps:   The most effective programs targeted clear and easy to understand finance gaps, clearly stating the kinds of deals they wanted to support.  Examples included:  bridge financing, loans to non-profits, or loans that didn’t meet existing SBA or USDA lending criteria.

3)      Link to Existing Networks:   Lending efforts were most effective when supported in partnership with existing networks of mission-oriented lenders, such as CDFIs, revolving loan funds, and other non-profit investors.

While funds for the SSBCI programs expire after 2017, this report details many excellent lessons learned for the design and improvement of existing and new small business credit programs.

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