What does SSBCI mean?
The State Small Business Credit Initiative (SSBCI) is a nearly $10 billion federal program to support small businesses and entrepreneurship in communities across the United States by providing capital and technical assistance to promote small business stability, growth, and success. As of 2023, over $531 million total was expended to support underserved businesses. 43% were minority-owned and 32% were women-owned.
Where did SSBCI funds come from?
Congress first established the SSBCI program in 2010 to promote small business entrepreneurship and provided $1.5 billion in funding for state programs intended to expand access to capital, particularly for small businesses in underrepresented regions and communities following the Great Recession after the financial crisis.
The SSBCI program was reauthorized and expanded by President Biden’s American Rescue Plan Act on March 11, 2021, as part of a pandemic relief package.
How does the SSBCI program work and what is the goal?
The federal government does not distribute SSBCI funding directly to small businesses. Rather, it provides SSBCI grant money to participating US states, territories, and tribal governments for those jurisdictions to create tailored programs that offer funding to small businesses and entrepreneurs through equity/venture capital, loan participation, loan guarantee, collateral support, and capital access programs. Those governments then administer the funds as they decide within the parameters set out by the federal program (and the law that authorizes it).
SSBCI investors associated with such government entities (e.g., the State of New York) look to transact with a company that fits certain eligibility standards (e.g., location, number of in-state employees, revenue amounts).
Businesses can apply for SSBCI funding by determining which types of funding programs their state offers and contacting the relevant program offices. While this structure allows each of the states to create programs to address barriers to capital access specific to their jurisdictions, it also means the SSBCI programs all have different objectives and different requirements for eligibility.
Part of the goal is to incentivize private capital to be transacted alongside the public SSBCI dollars so that the amount allocated by the government to the SSBCI program has a much bigger effect on the small SSBCI-eligible companies by bringing in private capital (usually to minority owned local businesses) that can reach 10:1 private dollars for every single public dollar expended.
In addition to capital access, SSBCI funding unlocks access to critical technical assistance (e.g., legal, accounting, or financial advisory services) through SSBCI’s formula Technical Assistance Grant Program and the SSBCI Investing in America Small Business Opportunity Program. The Minority Business Development Agency at the US Department of Commerce, through its Capital Readiness Program, also supports technical assistance to improve access to capital, including in traditionally underserved communities, with SSBCI funding.
More information can be found on the US Department of Treasury website.
How do I find out if I am eligible for SSBCI funding?
To check if your business is eligible for SSBCI funding in New York or to check what SSBCI programs exist in New York, you could fill out the online form located HERE. If you are located in another state, please contact us for assistance.
What is the status of SSBCI funding with respect to venture capital investments?
Data for SSBCI-supported venture capital programs is preliminary—but as of July 2024, 54 venture capital funds have received an SSBCI capital commitment, of which 36 are owned/managed by diverse or underserved fund managers or have an investment strategy that includes a focus on supporting companies with underserved founders/leaders.
What are common terms of SSBCI investors?
The SSBCI investor will usually invest through a sidecar entity that has a separate partnership agreement and separate terms/conditions specific to the state SSBCI fund partnership form. The SSBCI investor’s sidecar partnership agreement will be based on the SSBCI investor’s form and should largely align the key terms with the main fund partnership agreement. For example, an SSBCI investor is usually comfortable paying the same amount of management fees as any other main fund investor. The SSBCI investor will usually try to have the same economic terms as the main fund investors except where not permitted by law.
Deviations between the sidecar and the main fund terms will be based on (1) requirements to comply with SSBCI rules, and (2) supplemental rights needed to put the SSBCI investor into the same position as a main fund investor. Examples of terms that may need to be changed to comply with SSBCI rules include (i) maintenance of a public/private investment ratio, and (ii) equity investments cannot be used to pay fund-level borrowing costs. The investment ratio is an important point and a key part of the SSBCI program. This can be anywhere from 1:1 to 10:1.
Separate from SSBCI rule requirements, a fund sponsor may need to provide supplemental rights to the SSBCI investor sidecar entity that would put the SSBCI investor into the same position as if the SSBCI investor was a main fund investor. This is to provide that the SSBCI investor is treated substantially similar with respect to economic and other terms as any other main fund investor. For example, voting at the main fund level may preclude a sidecar investor from voting with the main fund. However, in such circumstances where the sponsor will not allow the SSBCI investor to vote with the main fund, the SSBCI investor should maintain a 1-sided consent right over issues main fund investors must vote on (e.g., dissolution) as they relate to the SSBCI investor’s sidecar.
