Small businesses should be checking in with their state governments to see how to get a piece of the latest round of pandemic funding. In late May 2022, the US Treasury Dept. issued the first chunk of the federal government’s much-debated State Small Business Credit Initiative (SSBCI) – a $10 billion program included in the $2.1 trillion America Rescue Plan Act of 2021 that distributes money to states, territories and tribal governments for the purpose of providing venture capital to, and encouraging private lending for, small businesses. 

States must apply for the federal funding, and if chosen, will receive money in three tranches throughout the year. The program also allocates $1.5 billion of the $10 billion for women-, minority- and veteran-owned small businesses, as well as those in economically disadvantaged areas. An additional $1 billion in incentive funding has been set aside for states that demonstrate a proven ability to reach those small businesses.

The Treasury recently released $200 million to five states – Maryland, Hawaii, Kansas, Michigan and West Virginia in the first of three tranches to be released to them this year. 

The Purpose of SSBCI

There have been grumblings from some politicians that pandemic funding is no longer needed as unemployment has decreased dramatically, and that the program has the potential to be rife with corruption. 

Both the Biden Administration and the US Treasury Dept., however, have pointed out in public statements that there are several safeguards in place to detect and avoid corruption. Among them are that states receiving funding will not receive subsequent tranches if they have not met specific performance and compliance requirements, and they will also be required to provide quarterly and annual statements on how the funding is being deployed.  

The Biden Administration has said that the program is still necessary to support the thousands of budding entrepreneurs who launched small businesses during the pandemic, as many of them lost their jobs or worked from home and became inspired to start their own businesses.

Biden Administration advisor Gene Sperling said the SSBCI program is meant to boost small businesses and entrepreneurs still suffering from the pandemic.

In a public statement, Gene Sperling, a senior advisor to the President, said, “This program is directly putting more wind at the back of this trend. It is precisely about helping people with good business plans and strong ideas but without deep financial ties or significant collateral not to be unfairly shut out of access to capital as happens far too frequently in our economy.”

How it Works

Once states receive their initial tranche of funding, they must meet requirements of how the money is spent. Generally, states that receive funding can redistribute money towards community development programs, minority depository institutions, community banks, economic development programs and nonprofit organizations that support small businesses in their communities. As mentioned above, states that offer funding opportunities to women-, minority and veteran-owned small businesses will be favored when applying for funds.

Maryland, for example, will use its funding to expand the state’s Neighborhood Business Works program, as well as increase the state’s venture capital funding to aspiring startups, as well as provide debt offerings to new small businesses, said Owen McEvoy, deputy secretary of the state’s Department of Housing and Community Development, in a public statement.

Specifically, the act outlines five areas in which individual states can spend the funds:

1. Loan Guarantee Programs. Individual states can partially or fully guarantee private small business loans. These can include microloans – smaller loans often earmarked for startups in underserved communities. Small businesses can also receive partially guaranteed lines of credit, term loans and commercial real estate loans.
2. Collateral Support Programs. This type of program gives eligible small businesses cash collateral for a loan that otherwise do not have such assets on hand to obtain a loan.
3. Capital Access Programs. These types of programs typically create a reserve fund in local communities to shield eligible private small business lenders from taking large losses when borrowers default on their payments.
4. Loan Participation Programs. In these types of programs, the state government can act as a direct lender by offering to purchase a portion of a small business loan or granting a new, companion loan to loans that already exist. 
5. Venture Capital Funding. Participating states can use government funds to either directly fund startups or provide assets to private VC managers that invest in startup small businesses.

Other Rules

States that receive funding must spend at least 80% of funds received through the SSBCI program and must release detailed progress reports on how the funding is being distributed, as well as reports on how those supported businesses are faring. States must also demonstrate stringent screening requirements of applying small businesses to guard against fraudsters posing as small business owners. 

How to Take Advantage of Funding

Unfortunately, small businesses will have to do some legwork to try to find out whether their individual state has received funding through the SSBCI program, as there isn’t a single way to do so. Small business owners should:

• Keep a close eye on press releases and announcements from the governor’s office of their respective state.
• Check with local private lenders and VC funds to see if they have received funding guarantees from the SSBCI program.
• Monitor news of community development programs in your state.
• Frequently check for breaking news about small businesses in your state and local communities.
• Keep a close eye out for any new announcements from your local Small Business Administration office. 

Don’t Pass up Opportunities for Funding

By not renewing the Paycheck Protection Program and the Restaurant Revitalization Fund, it’s clear that the chances of Congress authorizing spending on any additional pandemic relief funding is nil, so this may be the last chance for small businesses to capitalize on such funding. 

Monitor your state government carefully to see if and when funding from the SSBCI comes through. If your state receives funding, your state government will clearly spell out ways you can take advantage of that.