Spilling Business Beans

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A U.S. Treasury program that’s the well-kept secret in small-business lending

By Jessica Milano

Community banks are vital providers of small-business credit because of their extensive local market knowledge and deep customer relationships. All too often, though, an otherwise strong small business is unable to qualify for a loan due to a collateral shortfall, short credit history or lingering effects of the recession.

However, an innovative program run by the U.S. Treasury Department funds state credit support programs, like loan guarantee and loan participation programs, which give lenders an easy-to-use tool to bring borrowers’ applications in line with credit policy. The State Small Business Credit Initiative provides funds to individual states and municipalities to use for financing small businesses that do not qualify for credit in more traditional ways.

In 2013, Columbia State Bank in Oregon used a 50 percent loan guarantee from the state of Oregon’s Business Oregon program to support a loan to Boneyard Brewery for the company’s expansion to a new, 15,000-square-foot facility. The company had strong management and was growing quickly, but as a young company, its historic cash flow did not support the proposed expansion.

According to Columbia State Bank, the Oregon loan program, “allowed us to rely more heavily on the projected future income and growth the borrower was experiencing.” Less than three years after brewing its first keg of beer, Boneyard Brewery has grown to become one of Oregon’s largest microbreweries.

In Illinois, a loan participation plan by a community bank “insourced” jobs to the local area from overseas. Customer Speak LLC provides call center services for market research and customer support to clients, including Fortune 500 companies. In 2011, the company purchased a Costa Rica-based company with the intention of moving its operations to Rockford, Ill.

To make the move, Customer Speak needed working capital, workstation equipment and financing to outfit a leased property—all challenging to finance given their lack of collateral.

Working with the Illinois Department of Commerce and Economic Opportunity’s SSBCI Participation Loan Program, Northwest Bank of Rockford was able sell $1.2 million of their $5.1 million financing to the state. Since Illinois Department of Commerce took a subordinate position in the deal, Northwest Bank was able to eliminate their collateral gap and make the loan. Customer Speak’s expansion is expected to create 150 jobs over its first two years of operations.

Community banks are the most active participants in the SSBCI program. Of the $800 million in lending supported by the program, 84 percent was lent by banks with less than $10 billion in assets and 58 percent by banks with less than $1 billion in assets. To date, SSBCI has helped more than 12,400 small businesses in a diverse range of industries across the country—from retail trade and manufacturing to accommodation and food services—access $6.4 billion in private-sector small-business lending or investing that wouldn’t be possible without the program’s support.

SSBCI differs from the Small Business Administration and other federally backed loan programs in that each state is responsible for designing and implementing its own small-business funding model. This flexibility gives each state the authority to structure a program best suited to its economic needs to generate the greatest economic growth. Community banks have been important partners in the success of SSBCI, lending nearly $3 billion to small businesses through the program, though there are no restrictions to the size of banks that can participate.

Participating in the SSBCI program has allowed for banks of all sizes to engage in more economic development activities that strengthen small businesses that may not qualify under their standard underwriting requirements. The program’s success in spurring private lending and investing will continue because funds stay with the states in perpetuity. Community banks have played an especially important role in identifying high-potential small businesses that would not have qualified for traditional lending, yet represent solid investments for state programs through the SSBCI. To build on the success of the program, President Obama’s FY16 budget calls for extending the program, doubling the amount of funding available to states to support access to capital for small businesses.

The U.S. Treasury and SSBCI are looking forward to a continued, successful partnership with the states and financial institutions, and I encourage you to learn more about programs in your state that can help community banks like yours reach out to small businesses and grow the local economy.


Jessica Milano (jessica.milano@treasury.gov) is deputy assistant secretary for small business, community development and affordable housing for the U.S. Department of Treasury.

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