State Small Business Credit Initiative Offers Big Growth Opportunities For Small Businesses

The Ohio State Small Business Credit Initiative gives small businesses and manufacturers new opportunities for growth. Here are the details.

Certain eligible small businesses and manufacturers in Ohio that are creditworthy, but are not able to access capital they need to expand and create jobs, may be surprised to learn that there are new borrowing opportunities available to them.

The Ohio Department of Development recently received more than $55 million from the U.S. Department of Treasury as part of the State Small Business Credit Initiative (SSBCI). The SSBCI was created by the federal Small Business Jobs Act, which President Obama signed into law in September 2010 in an effort to stimulate small business lending. The Small Business Jobs Act provided $1.5 billion to establish or strengthen state programs that support lending to small businesses and manufacturers. Under the SSBCI, states were given the opportunity to apply for federal funds for state-run programs that will partner with private lenders to increase the amount of credit available to small businesses. Of the 56 states and territories that were eligible, 54 submitted applications requesting a total of approximately $1.4 billion in SSBCI funds. States that have received SSBCI funds are expected to leverage the funds to generate private financing and investment in an amount equal to at least 10 times the amount of their funds received.  The Ohio Department of Development will utilize the SSBCI funds it received to administer the following three programs:

The Collateral Enhancement Program

The Collateral Enhancement Program (CEP) was designed to facilitate financing for eligible small businesses that might not otherwise be able to obtain financing because of a collateral shortfall. The program provides lending institutions with cash collateral deposits to use as additional collateral support for small business loans. Under the CEP, the Ohio Department of Development will open an interest-bearing account with a lender and deposit up to 30% of the loan amount (up to 50% of the loan amount for minority-owned businesses or business located in a Historically Underutilized Business Zone).

To be eligible to participate in the CEP, a business must be a small business whose principal place of business is in Ohio with fewer than 250 employees and with revenues equal to or less than $20 million.  Eligible borrowers can be either new or existing businesses that are creating or retaining jobs. Under the CEP:

  • Borrowers can borrow up to a maximum of $5 million
  • The minimum loan amount for working capital is $100,000
  • Loans can be used for short-term or long-term owner occupied commercial real estate purchases, expansions, renovations, new or used equipment purchases, leasehold improvements, working capital, purchases of inventory or rolling stock, refinancing of another lender’s debt, start-up costs, franchise financing, or other business purposes
  • Ineligible businesses include: those involved in mining, agriculture, real estate investment, speculative activities, lending or leasing activities, pyramid sales, illegal activities, gambling activities, charitable institutions, religious institutions, consumer and marketing cooperatives, and other nonprofits, and small businesses whose principal has been convicted of a sex offense against a minor

The Ohio Capital Access Program

The Ohio Capital Access Program (OCAP) was designed to encourage lenders to provide loans to small businesses that have experienced difficulty obtaining loans using conventional underwriting standards in order to assist them with growing and expanding their businesses. The program, which essentially acts as a loan portfolio insurance program, establishes a loan guarantee reserve pool at lending institutions that have enrolled in the program to cover losses on any participating loans. The lender, the state, and the borrower each pay a small contribution fee into the pool.

The eligibility requirements for the OCAP are essentially the same as for the CEP. Loans are available in amounts of up to a maximum of $250,000 for working capital and up to $350,000 for fixed assets. There is no minimum loan amount.

The Targeted Investment Program

The Targeted Investment Program (TIP) is a program that was developed to facilitate the strategic growth and expansion of targeted small businesses, with an emphasis on women- and minority-owned businesses. As part of the TIP, the Ohio Department of Development will invest in up to 20 eligible companies that are active in one or more established value chains, with a substantial presence in Ohio involving manufacturing, production or logistics. Eligible companies are those with as few as five and nor more than 250 employees, and revenues as low as $1 million and no greater than $10 million.  Investments may be between $500,000 and $5 million, and the proceeds may be used for working capital business procurement, equipment, machinery, research and development, inventory, and the purchase, construction, renovation or tenant improvements of an eligible place of business not intended for passive real estate investment purposes.

The funds made available under the State Small Business Credit Initiative provide new opportunities for growth for Ohio small businesses and manufacturers and should be welcome news to businesses who may still be struggling to recover from the most recent recession.