(This article originally appeared in the Philadelphia Inquirer)
The U.S. Senate rejected legislation last week that could have provided small businesses with up to $48 billion of additional aid to help them recover from the pandemic. So is this the end? With the expiration of both the Paycheck Protection Program and the Economic Injury Disaster Loans from the Small Business Administration, does this mean that all federal aid for small businesses has run out?
The answer is no. Soon there will be another source of federally backed funds. Small businesses in Pennsylvania, New Jersey and Delaware will shortly be able to access $584 million as part of a new round of the $10 billion State Small Business Credit Initiative program, otherwise known as SSBCI.
What is the SSBCI? It’s a program under which the U.S. Treasury Department distributes money to states, which then gives the money to lending and financing organizations — community development financial institutions (CDFIs), community banks, minority depository institutions, investors, and other nonprofits focused on economic development — to help local small businesses get access to capital that they otherwise would not have been able to tap.
Back in 2011, more than $1.5B in SSBCI aid was used to fund entrepreneurs across the country. The new program, which was signed into law on March 11, 2021, as part of the American Rescue Plan Act, reauthorized and funded the SSBCI to the tune of $10 billion.
The money has not been distributed yet: There remains some back-and-forth in Washington over timing and the final amounts. But representatives from the Treasury tell me that the funds should start rolling out this summer to the states and then from the states to participating community organizations.
“Capital remains a major barrier for many small businesses, and it’s all about networks,” said Bruce Katz, cofounder and director of the Nowak Metro Finance Lab at Drexel University, who specializes in public improvements and private innovations that advance the well-being of metropolitan areas and their countries. “The SSBCI program will provide funding for organizations which may have a tradition of community reinvestment and who better understand the business owners in their local areas.”
Katz believes that these intermediaries have “grown up over time” and are very mission-driven. “They’re trying to help entrepreneurs in metropolitan areas that have been bypassed by large equity investments,” he said. “Or they’re trying to help disadvantaged firms or individuals access capital for their business. The Delaware Valley is fortunate because it has a pretty rich network of these organizations.”
So do you want a piece of this funding? You should start reaching out for information. A great place to find organizations in the region that are offering financing through the SSBCI program is on the Council of Development Finance Agencies’ State Resources Map.
Know that these are not just traditional loans. SSBCI money will be used for:
- Venture capital programs, which make investments in qualified start-ups and other early-stage companies.
- Loan participation programs, in which an approved organization buys an interest in the loans made by lenders or lends directly alongside private lenders.
- Loan guarantee programs, which use funds to provide an assurance to lenders that they will be partially repaid in the event of default.
- Collateral support programs, which set aside funds as collateral for new loans, enabling start-ups to borrow funds).
- Capital access programs, which provide portfolio insurance in the form of a loan loss reserve fund in case a loan can’t be repaid.
Ben Franklin Technology Partners, a nonprofit in Philadelphia that helps both early-stage, technology-based firms and established manufacturers with funding, business and technical expertise, is an example of a local financing firm participating in this program.
“SSBCI will enable us to invest in more companies,” said Scott Nissenbaum, the group’s president and chief executive officer. “The impact of the program for us and the impact on the region is pretty dramatic because it’s that extra dollar that really allows us to be more flexible in where we invest.”
Because the SSBCI money is intended to fund businesses that otherwise couldn’t get traditional funding (and, of course, help those businesses to create jobs), the financing requirements are less stringent than the requirements of a traditional bank loan.
Interest rates, depending on the deal, may be lower than market rates. The money can be used for just about anything from working capital to inventory and equipment purchases. Minority business owners and establishments in lower-income economic areas will be given priority in some cases.
The key is starting the process now, because, as Nissenbaum warned, “demand will definitely outstrip supply.”
His advice (and mine) is to target a number of the participating organizations immediately. Call them, visit them, get to know them — and, just as important, help them get to know you and your business.
Start building relationships ahead of when the money becomes available. Their job is to get the financing out to businesses that need it, and you want to be at the top of their list.
But this doesn’t happen overnight. The application process is complex, so ask about the different funding options and provide whatever documentation they need in advance — tax returns, historical financial statements, contracts and other paperwork — to start the application process.
“Right now is a good time to talk to an accountant or a business adviser and start reaching out to the entities that are going to be distributing these funds,” Nissenbaum said. “You want to be high on their minds.”