Program Evaluation of 

The US Department of 

Treasury State Small 

Business Credit Initiative

Prepared by the Center for Regional Economic Competitiveness and Cromwell Schmisseur

OCTOBER 2016 

DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

October 13, 2016

Dear Colleagues,

We are pleased to present the Program Evaluation Of The U.S. Department Of Treasury State 

Small Business Credit Initiative. This report summarizes the outcomes of 142 state credit 

support and investment programs funded by the State Small Business Credit Initiative (SSBCI), 

which supported over $8 billion in new lending and investing to small businesses since 2011. 

Small businesses drive innovation and are an important source of employment and economic 

mobility for American families. Yet for many of the smallest businesses, youngest businesses, 

and businesses in underserved communities, accessing capital to start and grow is a challenge. 

Our hope is that this report will demonstrate the pivotal role SSBCI played in the economic 

recovery and provide evidence to support ongoing federal funding for small business financing 

programs like SSBCI. 

We are grateful to the state program managers who helped thousands of small businesses 

access financing and whose collaboration with each other and with Treasury is a model for 

intergovernmental collaboration. Finally, we thank Federal Management Systems, and the 

authors of this report, the Center for Regional Economic Competitiveness and Cromwell 

Schmisseur. They have supported SSBCI’s work since 2012, and brought a deep familiarity 

with the state programs to this report.

Jessica Milano

Deputy Assistant Secretary

Small Business, Community Development

And Affordable Housing Policy

Jeff Stout

Director

State Small Business Credit Initiative
4

Program Evaluation Of The US Department Of Treasury State Small Business Credit Initiative

Acknowledgements 

This report resulted from the efforts of many people including the authors, SSBCI team, and 

state program managers. We are grateful for the leadership and support of former Under 

Secretary Mary Miller, former Assistant Secretary Cyrus Amir-Mokri, Counselor to the Secretary 

Antonio Weiss, Acting Assistant Secretary Amias Gerety, former Deputy Assistant Secretary Don 

Graves, and former SSBCI Director Cliff Kellogg. We particularly wish to thank the following 

people for their contributions to SSBCI and this report: 

Report Team 

Abou Bakayoko

Brendan Buff 

Diane Casey-Landry

David Cervantes

Eric Cromwell

Dennis Downer

Sarah Gutschow

Ron Kelly

David McGrady

Donna Nails

Ken Poole

Christina Prevalsky

Marty Romitti

Dan Schmisseur

George Surgeon

Brandon Poole

Terry Valladares

Treasury and Former Treasury Team 

Peter Bieger

Tam Carlock

Danielle Christensen

James Clark

Linda Clark

Tim Colon

Drew Colbert

Dan Cruz

Steve Davidson

Dan Dorman

Don Graves

Jodie Harris

Cliff Kellogg

Maureen Klovers

Jamie Lipsey

Phyllis Love

Opal Moore

Ruthanne Murray

Richard Oettinger

Karin Peabody

Sarah Reed

Katie Reilly

David Rixter

Roberto Rodriguez

Zakaria Shaikh

Mark Stevens

Anita Washington
5

Table of Contents

Executive Summary ....................................................................................................................................... 1

Chapter 1: About SSBCI ................................................................................................................................. 9

1A. SSBCI in Context ................................................................................................................................ 9

1B. How SSBCI Worked.......................................................................................................................... 10

1C. How States Used SSBCI................................................................................................................... 11

1D. Private Lenders and Investors ........................................................................................................ 13

1E. Treasury’s Role in Supporting State Programs .............................................................................. 14

Chapter 2: Program-Wide Outcomes .......................................................................................................... 17

2A. Small Businesses Assisted............................................................................................................... 17

2B. Supporting Small Businesses in Underserved Communities........................................................ 20

2C. Leveraging New Lending and Investing.......................................................................................... 21

2D. Deploying Available Funds.............................................................................................................. 24

2E. Jobs Supported by SSBCI................................................................................................................ 27

Chapter 3: Observations from Credit Support Programs .......................................................................... 31

3A. Credit Support Program Strategies and Administrators ............................................................... 32

3B. Characteristics of Participating Small Businesses for Credit Support Programs......................... 34

3C. Characteristics of Participating Lenders for Credit Support Programs ........................................ 38

3D. Profiles of Credit Support Programs .............................................................................................. 41

3E. Lessons Learned by State Program Managers ............................................................................... 54

Chapter 4: Observations from Venture Capital Programs.......................................................................... 59

4A. Why States Support Venture Capital Investment Programs.......................................................... 61

4B. Classifications of SSBCI Venture Capital Programs ....................................................................... 65

4C. SSBCI Venture Capital Program Investment Activities and Characteristics ................................. 72

4D. State Goals and Business Environments Influenced SSBCI VCP Strategies ................................. 81

4E. Return on Investment Measures Varied Across Venture Capital Programs .................................. 82

4F. SSBCI Impacts on State Entrepreneurial Ecosystems .................................................................... 83

4G. SSBCI Addressed a Gap in Federal Programs for Equity-Support of Innovation.......................... 85

4H. Program Manager Commentary on VCP Challenges and Lessons Learned ................................. 87
6

Program Evaluation Of The US Department Of Treasury State Small Business Credit Initiative

Chapter 5: Concluding Comments ............................................................................................................. 91

5A. Key Program Outcomes................................................................................................................... 91

5B. Lessons Learned from Credit Support Programs........................................................................... 92

5C. Lessons Learned from Venture Capital Programs.......................................................................... 94

Appendices .................................................................................................................................................. 97
Executive Summary

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016

1

Executive Summary

Executive Summary

Small businesses are a vital part of the American economy 

and their success is a critical component of economic growth. 

Established by the Small Business Jobs Act of 2010, the State 

Small Business Credit Initiative (SSBCI) provided nearly $1.5 

billion to state small business financing programs. A departure 

from federal credit programs with uniform requirements, 

SSBCI gave states significant flexibility to design programs 

that met local market conditions. For some states, this meant 

targeting micro-businesses; for others, it meant targeting 

manufacturers or high-tech businesses. Each state has its own 

needs and, with them, a unique set of partners to administer 

the programs.

With this flexibility, states, territories, and municipalities1 directed SSBCI funds to 152 small 

business programs with a wide range of models and strategies. Approximately 69 percent of 

the funding supported lending or credit support programs and 31 percent supported venture 

capital programs. This report studies program activity based on data reported to Treasury on 

16,919 transactions made between 2011 and 2015, and interviews of state program managers 

and their partners. 

Key Program Statistics

• State SSBCI programs supported nearly $8.4 billion in new capital in small business 

loans and investments by the end of 2015. States expended $1.04 billion (72 percent of 

available SSBCI funds) to leverage nearly $8.4 billion of new lending and investing. 

• SSBCI provided capital to very small and young businesses. Eighty percent of SSBCI 

transactions supported businesses with 10 or fewer full-time employees and nearly half 

the supported businesses were less than five years old. 

• States designed and marketed SSBCI programs that addressed capital needs in 

low- and moderate-income (LMI) areas. Through 2015, 42 percent of the 16,919 SSBCI 

transactions were with small businesses located in LMI census tracts. In several states, 

a successful relationship with community development financial institutions (CDFIs) 

resulted in higher percentages of loans in LMI areas.

1 Treasury approved applications from 47 states, the District of Columbia, five territories, and municipalities in three states 

(collectively referred to as “states”).
2

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

General Themes 

From 2012-2015, the consultants interviewed managers of SSBCI state programs. Several 

overarching themes emerged from these interviews.

• The SSBCI program model leveraged state expertise and networks. States are well 

positioned to collaborate with the federal government on small business programs 

because they understand local market needs, can build an integrated support system, and 

can manage these programs either directly or with local partners. 

• States expanded existing or built new programs that addressed local objectives. 

State programs addressed the spectrum of small business financing needs, from loans for 

microbusinesses and equipment purchases for small manufacturers to equity capital for 

early stage technology businesses. 

• SSBCI helped build capacity at the state level. Treasury played an active role as technical 

assistance provider to facilitate knowledge sharing among state program managers. By 

participating in a national network of practitioners interested in documenting and sharing 

detailed information on small business financing programs states replicated best practices 

and expanded their capabilities.

• SSBCI state programs complemented existing federal small business programs. State 

programs complemented federal programs, such as Small Business Administration (SBA) 

or U.S. Department of Agriculture (USDA) loan guarantees, which typically have uniform 

national requirements. Furthermore, SSBCI’s state programs filled market gaps that some 

other federal programs do not cover, such as guaranteeing loans from CDFIs, financing 

non-profits, directly targeting collateral shortfalls related to falling property values, and 

supporting equity financing for high-growth potential businesses. 

• Successful state programs shared common characteristics. State programs that 

successfully deployed SSBCI funding in support of small business financing:

• addressed a clearly defined capital gap;

• were staffed by teams with relevant experience and strong working relationships 

with private lenders and investors;

• aligned with state economic development objectives and had the support of their 

state agency and state leadership; and,

• aligned with market expectations in terms of pricing and business practices.
3

Executive Summary

Observations from Credit Support Programs

States directed approximately $1 billion, or 69 percent of total SSBCI funds, to credit support 

programs that supported small business lending, such as capital access, loan guarantee, loan 

participation, and collateral support programs. Through different mechanisms, each program 

type shares a portion of the risk of loan repayment with lenders, thereby enabling transactions 

that might not otherwise have occurred. From 2011 to 2015, states operated 103 active credit 

support programs supporting nearly 15,600 transactions. Credit support programs expended 

$766 million in SSBCI funds to spur $5.3 billion in new loans and investments. 

• Capital access programs (CAPs) supported a high volume of very small loans: The 

median CAP loan size was approximately $14,800 and almost 47 percent of CAP loans 

supported businesses in LMI areas. CDFIs actively adopted CAPs in states with pre-existing 

programs. CDFIs accounted for 65 percent of the 10,561 CAP transactions. Large banks 

did not adopt CAP as many states had expected in 2011, leading states to reapportion 85 

percent of their original CAP allocations to other programs. 

• Other credit support programs varied widely in design, but tended to support larger 

loans: Loan guarantee, loan participation, and collateral support programs supported 

larger transactions, with a median size of $300,000. On average, states used SSBCI 

funds to support 17.4 percent of each transaction, implying a leverage ratio of 5.75:1. By 

redeploying funds after repayment (recycling), other credit support programs achieved a 

leverage ratio of 6.44:1 by year end 2015. Manufacturers were the most common business 

type, representing 17 percent of all non-CAP credit support transactions. 

• Community banks and CDFIs were the most active lenders: Community banks and CDFIs 

were the most active lenders in the credit support programs. Together they represented 81 

percent of the total number of loans supported by SSBCI and were critical in helping SSBCI 

provide capital to underserved areas. Community banks alone accounted for 61 percent of 

the dollar volume supported by SSBCI credit support programs. Few large national banks 

participated, representing 6 percent of total loans, but several that did were among the 

top volume lenders.

• Lessons learned from implementation: 

• The most widely used programs incorporated input from lenders in the program 

design process; aligned their terms, conditions, and documentation with market 

practice; and engaged in a consistent marketing effort. 

• Programs that subordinated the state’s position on collateral to the lender achieved 

faster market acceptance. 

• CAPs levered private dollars 23.12:1 and all other credit support programs combined 

achieved 5.69:1 leverage on initial deployment (before recycling). 

• Reaching underserved communities requires focused marketing through a network 

of lenders connected to targeted communities.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Observations from Venture Capital Programs

Thirty-eight states directed approximately $450 million, or 31 percent of total SSBCI funds, to 

venture capital programs. Market conditions for equity financing vary widely across the country 

so states customized their SSBCI venture capital programs to work locally. 

This report categorizes venture capital programs into four different groups based on the type 

of entity primarily responsible for operating the program: funds, state-supported entities, 

state agencies, and co-investment models. Between 2011 and 2015, venture capital programs 

supported over 1,300 equity investments with $278 million in SSBCI funding, generating $3.1 

billion in new investment. 

• States partnered with specialized third-parties to administer venture capital 

programs: In most cases, states partnered with private investment funds (funds) or 

specialized non-profits (state-supported entities) with expertise to source, structure, 

close, and manage equity investments in small businesses. Funds and state-supported 

entities managed 83 percent of the SSBCI funding allocated to venture capital programs. 

• States tended to target early-stage businesses: Venture capital programs targeted 

high-growth potential businesses in various stages of development: pre-seed and proofof-concept; seed-stage and early-stage; growth stage and later stage; and mezzanine and 

debt investments. About two-thirds of the transactions supported pre-seed and seed 

capital investments where states saw the greatest immediate need.

• States with less access to venture capital tended to use SSBCI for equity programs: 

States outside the historically dominant venture capital hubs were more likely to allocate 

SSBCI funds to venture programs. 

• Measures of success varied with program strategy: States prioritized financial return 

and economic development outcomes differently depending on their program objectives. 

The primary measure of success was leverage – the amount of new investment supported 

by or induced by SSBCI. States also monitored financial return on investment, investee 

contributions to the state tax base, and quality of jobs created, among other outcomes. 

However, because venture investments mature over a long timeframe (typically six to 15 

years), the full extent of outcomes from these investments will not occur or be measured 

until after SSBCI sunsets in 2017. 

• Lessons learned from implementation:

• Selecting partners and establishing new funds may take up to a year.

• A base of local investors, specifically local investment funds, is critical to supporting 

high growth potential businesses. 

• Key operational and compliance considerations include conflicts of interest and the 

ability to track federal funds through to each transaction.
5

Executive Summary

About the Report

This report presents an analysis of SSBCI program activity from 2011 to 2015. Chapters 1 and 

2 provide program background and examine overall outcomes in relation to federal program 

objectives. Chapters 3 and 4 summarize credit support and venture capital program activity 

separately. The report concludes with a synopsis of key findings and conclusions derived by the 

authors from their own experience as well as input provided by state SSBCI program managers. 

A team of consultants under the management of Ken Poole from the Center for Regional 

Economic Competitiveness and Eric Cromwell and Dan Schmisseur of Cromwell Schmisseur 

authored this report. 

The report draws on quantitative data reported to Treasury by the states combined with more 

than 200 telephone interviews with state program managers, several expert practitioner 

working group reports, more than 50 lender and investor interviews, and more than 20 site 

visits conducted between 2012 and 2015. From this data and the cumulative insights gleaned 

from SSBCI staff and consultants retained to provide technical assistance to states, this report 

offers an assessment of program results and lessons for public-supported financing programs 

that impacted every state and territory.

Chapter 1

About SSBCI

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016
In This Chapter

1A. SSBCI in Context...................................................................................................................................... 9

1B. How SSBCI Worked ............................................................................................................................... 10

1C. How States Used SSBCI......................................................................................................................... 11

1D. Private Lenders and Investors.............................................................................................................. 13

1E. Treasury’s Role in Supporting State Programs .................................................................................... 14
9

Chapter 1: About SSBCI

Chapter 1: 

About SSBCI 

1A. SSBCI in Context

The financial crisis and the recession that followed was 

particularly hard on small businesses. At a time when they 

needed capital most, small businesses were shut off from the 

credit they needed to weather the crisis and recover.2

 Between 

2008 and 2010, small business lending (i.e., loans of $1 million 

or less) fell sharply from $712 billion to $652 billion (more 

than 8 percent) (see Figure 1-1) after rising steadily in the prior 

years. Highly reliant on bank lending as a source for debt 

financing, small businesses reduced operations and shed 

jobs, contributing further to the economic crisis. 

The recession also constrained private 

equity investment, another important 

source of capital for some businesses, 

especially those with high-growth 

potential but without sufficient cash 

flow or tangible assets to secure debt 

financing. These businesses look to friends 

and family, high net worth individuals, 

or venture funds for capital to start and 

grow. During the recession, uncertainty 

and falling real estate and stock values 

diminished the availability of such capital. 

In response, Congress and the Obama 

Administration took a number of measures 

to support access to capital for small 

businesses, including establishing SSBCI. 

Through SSBCI, Treasury allocated $1.46 billion to states to support small business financing 

programs. The state programs provided public funds to leverage private sector lending and 

equity investment. SSBCI gave the states the flexibility to design and implement their own set 

of small business finance programs based on basic requirements laid out in the statute. 

2 Gordon-Mills, Karen & McCarthy, Brayden. The State of Small Business Lending: Credit Access During the Recovery and How 

Technology May Change the Game. Harvard Business School. Working Paper 15-004. 22 July 2014. Pages 15, 18.

$500

$550

$600

$650

$700

$750

2005

$601.5

$634.2

$686.8

$711.5 $695.2

$652.2

2006 2007 2008 2009 2010

Source: Federal Deposit Insurance Corporation, Statistics 

on Depository Institutions, June 2005 through June 2010 billions of dollars, nominal

Total Small Business Loans, $1 million or less

in billions of dollars

Figure: 1-1: Total Small Business Loans, $1 million or less 

in billions of dollars
10

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

1B. How SSBCI Worked

SSBCI funded state agencies either administered credit support and investment programs 

directly or partnered with other organizations as program administrators. States designed 

their own program, or portfolio of programs, and developed their own underwriting and 

operating procedures. SSBCI rules required states to target small businesses, develop a plan 

to target underserved communities, and design programs that leverage private sector lending 

and investing. A key SSBCI criteria driving state program design was the expectation that states 

leverage at least $10 of new small business lending or investing for every $1 of public funds 

during the life of the program. Appendix 1 describes SSBCI program eligibility criteria in more 

detail. 

Given this flexibility, states funded 142 different active lending and investing programs, which 

generally fell into one of five types:

• Capital access programs (CAPs) provide a portfolio loan loss reserve 

for which the lender and borrower contribute a share of the loan value (up to 7 

percent) that is matched on a dollar for dollar basis with SSBCI funds. 

• Loan guarantee programs (LGPs) provide an assurance to lenders of partial 

repayment if a loan goes into default once the lender makes every reasonable 

effort to liquidate available collateral and collect on personal guarantees. 

• Collateral support programs (CSPs) provide cash to lenders to boost the 

value of available collateral. 

• Loan participation programs (LPPs) purchase of a portion of a loan that a 

lender makes or make a direct loan from the state in conjunction with a private 

loan (companion loan). The state often subordinates to the lender’s senior loan.

• Venture capital programs (VCPs) provide financing by purchasing an 

ownership interest or providing equity-like loans to enterprises that typically do 

not participate in debt financing markets due to their business stage and structure. 

SSBCI categorized VCPs into four different groups based on how the state engaged 

with the investment process: Funds, State-supported entities, State agencies and 

Co-Investment Models. 

Figure 1-2 illustrates that states employed alternative program designs to achieve different 

goals, provide different products, and help different types of customers. Even though SSBCI 

classified the programs within these five program design models or “program types,” individual 

state programs classified together can often offer different terms and conditions, seek to 

address different capital gaps, or serve different types of customers. 

    

FIVE TYPES OF PROGRAMS

Capital Access Programs 

(CAPs)

Loan Guarantee Programs 

(LGPs)

Collateral Support Programs 

(CSPs)

Loan Participation Programs 

(LPPs)

Venture Captial Programs 

(VCPs)

    
11

Chapter 1: About SSBCI

Figure 1-2: Types of SSBCI Programs and Resource Allocation

Type of Program Primary Purpose Financing Products Typical Customers

Capital access Provide reserve funds to help 

protect lenders from losses Working capital Micro-enterprises (less than 10 

employees or $1 million in sales)

Loan guarantee

Provide repayment guarantee 

for large portion of a loan in the 

event of default after collateral 

recovery efforts by lender have 

failed

Lines of credit, working 

capital, asset purchases, 

commercial real estate

Established businesses or turnaround situations

Collateral support

Supplement collateral when 

borrowers do not otherwise meet 

loan-to-value ratio requirements

Asset purchases, commercial 

real estate; gap financing for 

SBA 504 transactions

Established, growing businesses 

with a collateral shortfall

Loan participation

Provide subordinated or paripassu debt to encourage senior 

lenders to increase loan size or 

reduce borrower interest expense

Asset purchases, commercial 

real estate

Established businesses (i.e., 

more than 3 years of financials) 

with documented cash flow or 

collateral shortfall

Venture capital

Provide risk capital to small 

businesses with high growth 

potential

Seed, early stage, or growth 

capital

Start-ups or emerging small 

businesses (i.e., businesses 

with new products or growing 

markets)

1C. How States Used SSBCI

States used SSBCI to create new small business financing programs, restart legacy programs, 

and to scale existing programs. Over half of the 152 programs proposed by states were newly 

created. Some states had no pre-existing credit and/or equity support programs and developed 

an entirely new organizational infrastructure to support business financing. By the end of 2015, 

states had allocated $574 million to pre-existing programs and $883 million to new programs. 

Programs Supported

All states were eligible to participate and 47 states, the District of Columbia, five territories, and 

four municipalities or consortia of municipalities ultimately applied.3 The municipal consortia 

came together to create initiatives when three states opted not to participate directly. 

Figure 1-3 summarizes SSBCI allocations to 152 programs by type at the end of 2015. Of the 

152 programs, 142 were active and had expended funds to make small business loans and 

investments. 

At the time Congress enacted the Small Business Jobs Act in 2010, CAPs were a widely 

understood credit support program.4 Seventeen states recapitalized an existing CAP and seven 

states created new CAPs. While states initially allocated 20 percent of total funds to CAPs, many 

states saw only limited use by lenders and eventually modified their program allocations, 

reducing CAPs to 3 percent of the total SSBCI allocation.

3 The consortia from North Dakota include 38 municipalities led by the City of Mandan and 36 municipalities led by the City of 

Carrington. In Wyoming, 17 municipalities led by the City of Laramie formed a consortium.

4 Capital Access Programs: A Summary of Nationwide Performance. U.S. Department of the Treasury. November 1999. Web 

accessed. (https://www.treasury.gov/resource-center/sb-programs/Small-Disadvantaged-Business/Documents/cap.pdf).
12

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure: 1-3: SSBCI Allocation by Program Type, through December 31, 2015

Type of Program

Number of 

Approved 

Programs

Number 

of Active 

Programs

Total Funds Allocated 

($ millions)

Average Program 

Allocation 

($ millions)

Capital access (loan loss 

reserve) 24 22 $45 $1.9 

Other credit support

 Loan guarantee 22 20 $232 $10.5 

 Collateral support 17 17 $261 $15.4 

 Loan participation 48 44 $471 $9.8 

Venture capital 41 39 $448 $10.9 

TOTAL 152 142 $1,457 $9.6 

States allocated more than one-third of all SSBCI funds to 48 different LPPs. LPPs took various 

forms. In some cases, the state purchased a portion of a bank’s loan, in other cases, the state 

made a separate loan in conjunction with the lead lender (companion loan). In yet another 

variation, some states committed funds to a CDFI lender, which re-lent the SSBCI dollars 

alongside its own capital. Nineteen states funded LGPs, representing 16 percent of the available 

SSBCI allocations. Finally, of the 17 states with CSPs, 16 were new and modeled after a preexisting Michigan program. States allocated nearly 18 percent of all SSBCI funds to collateral 

support programs. 

Thirty-eight states implemented VCPs, allocating about 31 percent of SSBCI funds to equity 

finance programs. These programs varied widely in their approach to equity financing. 

Reflecting the variety of equity capital needs, states created programs that targeted pre-seed 

and “proof of concept” investments, seed stage and early stage investments, growth stage and 

later stage investments, as well as mezzanine and debt investments. They also took different 

approaches to aggregating and disseminating capital – ranging from making direct investments 

in businesses to a more common approach of investing in or through private investment funds.

Program Management Structures

Participating states administered SSBCI through: (1) the state agency receiving the allocation; 

(2) a quasi-public agency; or (3) a contracted private entity, either for-profit or non-profit 

(see Figure 1-4). These administrators executed all or some portion of program operations 

as determined by the state. The choice of operating model had implications for how states 

designed and implemented their SSBCI programs, as well the states’ ability to recruit staff, 

design flexible decision-making processes, adapt program models, and engage the lending 

and investment community.

Figure 1-4: SSBCI Allocation by Program Administrator Type

Program 

Administrator Type

Number of States Using 

Operating Model SSBCI Allocation

$ millions %

Public agency 31 $674 46%

Quasi-public agency 19 $336 23%

Private 21 $447 31%

TOTAL 71* $1,457 100%

*Does not total to 57 Participating States; several states used multiple program administration models.
13

Chapter 1: About SSBCI

• State Agencies – state agencies most frequently administered programs when expanding 

on existing credit support programs. 

• Quasi-Public Authorities – quasi-public agencies legislatively created, independent 

organizations such as housing or business financing authorities or economic development 

corporations, were well-situated to operate small business finance programs because they 

had existing relationships with private lenders and/or investors.

• Contracted Private Entities – states contracted with a wide array of private entities 

including non-profit CDFIs, for-profit business development corporations (BDCs), and 

SBA CDCs, among others. VCPs contracted with private sector venture capital funds and 

specialized non-profits. 

1D. Private Lenders and Investors

States designed SSBCI programs to expand access to private debt and equity financing. In 

almost all cases, this means a private lender or private investor leads the transaction and SSBCI 

funding fills a gap or provides support to enable the transaction. Private partners are therefore 

essential to the operation of SSBCI-funded programs.

Participating Lenders

Banks, credit unions, and CDFIs were eligible to participate in SSBCI programs subject to each 

state’s review. In addition, if described in the states’ application to Treasury, some alternative 

lenders, such as equipment lenders and trade credit lenders participated. A third category of 

lender included finance authorities themselves using non-public monies to match the SSBCI 

contribution. Community banks, mid-sized banks, and CDFIs were the most active participants, 

accounting for 94 percent of all SSBCI-supported loans. Community banks alone accounted 

for 61 percent of all lending activity by dollar amount. Large national banks tended not to 

participate because of the operational challenges of implementing multiple sets of compliance 

and reporting requirements, which varied from state to state.

Participating Investors

States typically targeted early-stage businesses raising equity financing to develop new 

products or services, often technology related, and introduce these innovative solutions to 

customers. These businesses receive equity financing from “accredited” angel investors and 

venture capital funds. Accredited angel investors are high-net worth individuals, as defined 

by the Securities and Exchange Commission, who invest their own money and time in support 

of small businesses. Venture capital funds receive funding commitments from institutional 

investors – pension funds, endowments, family offices – to invest in high-growth potential 

businesses for financial returns. In most cases, co-investors participating in SSBCI transactions 

were local individual investors or investment funds, however many states had an explicit goal 

of “importing” risk capital by attracting participation from out of state investors. Importantly, 

SSBCI not only leveraged private investment from existing investors but also supported the 

formation of new private investment funds to build additional private investment capacity.
14

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

1E. Treasury’s Role in Supporting State Programs

The Act gave Treasury standard program administration responsibilities such as developing 

program rules, disbursing funds, and monitoring program activity and compliance. This 

responsibility included developing SSBCI program rules that were relevant to a wide variety 

of transactions, ranging from microloans to equity investments. Due to the short timeframe 

allotted for the SSBCI program, states were initiating programs as Treasury finalized the rules. 

SSBCI had to work closely with the states, often on a transaction-by-transaction basis to help 

address specific questions that could have broad implications. 

SSBCI also provided technical assistance and disseminated best practices. Through periodic 

calls and site visits, SSBCI deployed subject matter experts (in the form of staff and consultants) 

to help states refine existing programs and create new ones. Subject matter experts helped 

states market new programs to lending partners and advised states on options for reaching 

new markets or improving the appeal of a program.

As part of these efforts, SSBCI convened the states to share information about their programs. 

The goal was to help states more clearly articulate their challenges, seek solutions, and access 

assistance as they implemented their programs. SSBCI convened three regional meetings and 

six national meetings. These meetings addressed persistent challenges for state programs, 

including how to deepen their reach into targeted communities, how to expand efforts to 

serve businesses operated by women and minorities, or how to develop sustainable program 

models. Additionally, SSBCI convened working groups of program managers to develop “best 

practices” papers in each of the five major program types and to share case studies for using 

SSBCI to expand access to capital to underserved communities. Because of these efforts, many 

states adapted their program models, developed new marketing approaches, and resolved 

implementation issues. 

SSBCI convened three regional meetings and six national 

meetings for states to share information about their programs. 

Because of these efforts, many states adapted their program 

models, developed new marketing approaches, and resolved 

implementation issues. 
Chapter 2

Program-Wide Outcomes

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016
In This Chapter

2A. Small Businesses Assisted .................................................................................................................... 17

2B. Supporting Small Businesses in Underserved Communities ............................................................. 20

2C. Leveraging New Lending and Investing ............................................................................................... 21

2D. Deploying Available Funds ................................................................................................................... 24

2E. Jobs Supported by SSBCI ..................................................................................................................... 27
17

Chapter 2: Program-Wide Outcomes

Chapter 2: 

Program-Wide Outcomes

This chapter examines the outcomes of SSBCI-supported 

lending and investing from 2011 to 2015 in relation to 

federal program objectives by examining several measures: 

characteristics of the businesses assisted; new financing 

leveraged; level of funds expended; and job creation and 

retention. Figure 2-1 presents a summary of interim program 

outcomes through December 31, 2015.5

 

Figure 2-1: Summary of Interim Program Outcomes by Objective, cumulative through December 31, 2015

Objective Interim Program Outcomes 

Support financing of small business

CAP Median FTEs = 2

Mean Median transaction size = $14,800

All other Median FTEs = 6

Mean Median transaction size = $320,500

Expand access to credit to businesses in LMI, 

minority and other underserved communities

42% of SSBCI-supported transactions in LMI areas

34% of SSBCI funds expended in LMI areas

Generate new small business lending or investing

$8.4 billion in new capital to small businesses

$8.02 in new small business lending or investing for each $1 in SSBCI funds 

expended

Expend available SSBCI funding $1.04 billion or 72% expended as of December 31, 2015

Create or retain jobs

190,400 projected jobs created or retained 

(63,891 created, 126,509 retained) within 2 years of loan or investment 

closing as reported by businesses

2A. Small Businesses Assisted

Considering three key measures – employee count, sales revenues, and business age – SSBCI 

programs predominantly supported small businesses. According to the statute, states must 

limit CAP transactions to businesses with fewer than 500 employees and all other transactions 

to businesses with fewer than 750 employees. More than 99 percent of the 16,919 transactions 

assisted businesses with less than 250 workers. Nearly 80 percent of transactions were 

to businesses with fewer than 10 employees (see Figure 2-2). The median size of an SSBCIsupported business was 3 full-time equivalents (FTEs). 

5 As of June 30, 2016, Treasury had disbursed 96 percent of available funding to states, and states reported having expended or 

obligated $1.22 billion, or 84 percent, of available funding.
18

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 2-2: Share of SSBCI Activity by Size of Business (FTEs) - All Programs, cumulative through December 31, 2015

Furthermore, nearly 40 percent of the SSBCI-assisted businesses had revenues of less than 

$100,000 at the time of the transaction and 86 percent had revenues below $2 million (see 

Figure 2-3). 

Figure 2-3: Distribution of the number of SSBCI Transactions by Size of Business (Revenues), cumulative through 

December 31, 2015

0.0 10% 20% 30% 40% 50% 60% 70% 80%

0-10 FTEs

Percent 

11-50 FTEs

51-100 FTEs

101-250 FTEs

>250 FTEs

Percentage of Total 

Transaction Value

Percentage of Number 

of Transactions

43.2%

79.7%

34.5%

16.1%

12.2%

2.7%

8.2%

1.2%

1.9%

0.3%

0

20

40

60

80

100

Type of Program 

Business Revenues

Capital 

Access

Transactions: 

10,561

4,501

(43%)

566

(26%)

316

(27%)

439

(26%)

767 

(58%)

6,589

(39%)

4,870

(29%)

205

(15%)

229

(14%)

224

(19%)

132

(11%)

436

(20%)

3,776

(36%)

583 (27%)

271 (13%)

335 (28%)

143 (8%)

456 (27%)

226 (13%)

130 (10%)

1,728 (10%)

1,052 (10%)

142 (1%)

121 (1%)

969 (9%)

173 (8%)

126 (6%)

91 (8%)

91 (8%) 197 (12%)

145 (11%)

41 (3%)

36 (3%)

2,571 (15%)

564 (3%)

597 (4%)

Loan 

Guarantee

Transactions: 

2,155

<=$100K $101K -$500K $501K - $1M $1.1M - $5M

Collateral 

Support

Transactions: 

1,189

Loan 

Participation

Transactions: 

1,690

Venture 

Capital

Transactions: 

1,324 

All Programs

Transactions: 

16,919

$5.1M-$10M >$10M

Proportion of Number of Transactions (%)
19

Chapter 2: Program-Wide Outcomes

Almost half the businesses supported began 

operating less than five years prior to the 

transactions. As shown in Figure 2-4, these 

transactions represented 48 percent of 

both the number of transactions completed 

and the total principal amount loaned or 

invested. About one-third of the transactions 

(31 percent of the funds) were with wellestablished businesses—those in businesses 

for more than 10 years. 

SSBCI Transactions

California – After turning to merchant cash advances to finance the rapid expansion of Los 

Angeles-based Southern Girl Desserts, the owners faced monthly payments equal to 40 percent 

of the company’s cash flow. They refinanced their high cost debt with the CDFI Opportunity 

Fund through California’s CAP program. The transaction cut their monthly payments by ninety 

percent. 

North Carolina – Healing with CAARE is a North Carolina non-profit that treats veterans and 

others with HIV/AIDs and chronic illnesses. To finance the addition of 16 single rooms in its 

Duhram County housing facility, the organization needed to borrow $600,000. The North 

Carolina Community Development Initiative provided the financing and North Carolina’s loan 

participation program purchased 20 percent of the loan.

Colorado – When the Colorado Mushroom Farm closed its doors in 2013, 270 employees were 

out of work. With cash collateral pledged by the Colorado Housing Finance Agency’s collateral 

support program, First Southwest Bank provided a $1 million loan to Alamosa-based Colorado 

Mushroom Farm enabling this rural business to re-open it doors. 

Florida – Earnest Products, a fabricator of high-quality sheet metal used in manufacturing 

custom metal parts, needed to improve its production capacity to meet customers’ needs. With 

a 50 percent guarantee from the Florida’s loan guarantee program, the business obtained a 

$1,750,000 line of credit from Fifth Third Bank as part of a financing package that enabled it to 

add 25 high-wage skilled manufacturing jobs and position the business for additional growth.

Oklahoma – Dr. Madeleine Cunningham and Dr. Craig Shimasaki founded Moleculera Labs 

to develop a test to help differentiate autism from Pediatric Acute-Onset Neuropsychiatric 

Syndrome (PANS), a more treatable disorder. Moleculera struggled to obtain financing, 

a common experience for early-stage businesses. When i2E, a private non-profit that 

administers Oklahoma’s venture capital program, committed an investment of SSBCI funds, 

Moleculara was able to close a round of angel financing and establish a certified commercial 

laboratory, enhance R&D efforts, and execute on a targeted marketing campaign. Since the 

SSBCI investment, Moleculera raised Series A preferred equity and is currently seeking Series 

B financing. 

Figure 2-4: Share of SSBCI Activity by Age of Business

Age of Business

Percentage 

of Total 

Transaction 

Amount

Percentage 

of Number of 

Transactions

0-1 year 22% 21%

2-5 years 26% 27%

6-10 years 21% 22%

>10 years 31% 30%
20

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

2B. Supporting Small Businesses in Underserved 

Communities

The Act required that states include plans for targeting underserved communities in their 

proposed program designs. Recognizing that economic conditions varied across states, SSBCI 

gave states flexibility to define underserved communities. For example, some programs 

targeted minority or women owned businesses, others economically distressed communities, 

still others rural businesses.6 Given the variety of approaches, Treasury tracked activity using a 

proxy for underserved communities, the location of a business in census tracts defined as lowand moderate-income (LMI). 7 Through 2015, 42 percent of the 16,919 transactions (34 percent 

of total dollar volume) were loans to businesses located in LMI communities.

Figure 2-5 shows the state programs with the highest concentration of transactions in LMI 

communities. Seven of the fifteen programs with over 25 transactions and greater than 40 

percent in LMI areas deployed funds either exclusively or primarily through CDFIs. Five of the 

fifteen are VCPs that invest in startups.

Figure 2-5: State programs with over 25 transactions and more than 40 percent of transactions in LMI Areas, cumulative through December 31, 2015

Approved State Program VCPs that Invest 

in Startups

Funds Deployed 

Mainly through 

CDFIs

Transactions in LMI Areas

# %

Betaspring (RI) Y 45 83%

New York Capital Access Program Y 588 62%

Florida Venture Capital Program Y 27 61%

Craft3 Fund (WA) Y 25 56%

Pennsylvania Community Development Bank Program

Y 49 55%

California Capital Access Program Y 3509 53%

Arizona Expansion Fund 27 52%

Capital Access Program (MN) Y 36 51%

Seed and Angel Capital Network (AR) Y 47 50%

Georgia Funding for CDFIs Y 35 48%

Emerging Entrepreneurs Fund (MN) Y 62 48%

Missouri IDEA Fund Y 38 45%

Kentucky Collateral Support Program 48 43%

Credit Enhancement Fund (OR) 55 40%

INCITE Fund (TN) Y 33 40%

Figure 2-6 shows the percent of transactions with businesses located in LMI areas by program 

type. CAP provided the largest share of loans to businesses located in LMI tracts at 47 percent, 

6 Using the SSBCI Program to Improve Access to Capital in Underserved Communities. U.S. Department of the Treasury. October 

2014. Web accessed. (https://www.treasury.gov/resource-center/sb-programs/Documents/SSBCI%20in%20Underserved%20

Communities%20October%202014.pdf).

7 The definitions used in this analysis are based on the 2010 Census Bureau’s 5-year American Community Survey, in which “low 

income” households are defined as earning less than 50 percent of area median income; “moderate income” households are 

defined as earning between 50 percent and 80 percent of area median income. These standards were set based on the definition 

that the U.S. Department of Housing and Urban Development, Office of Community Planning and Development utilizes for 

low- and moderate-income households. (http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/library/

glossary/l).
21

Chapter 2: Program-Wide Outcomes

followed by venture capital at 36 percent. States that targeted rural businesses implemented a 

plan to facilitate widespread geographic distribution of SSBCI capital within their states. SSBCI 

transactions to businesses located in non-metro8 businesses accounted for 12 percent of all 

transactions. However, certain states that targeted rural businesses had higher concentrations. 

For example, 47 percent of all transactions in Kentucky reached businesses in non-metro 

counties. 

Figure: 2-6: Percent of SSBCI-supported Loans or Investments (by Number) in Low- and Moderate-Income Communities, by Program Type, cumulative through December 31, 2015

2C. Leveraging New Lending and Investing

The Act required states to develop programs that, in aggregate, could reasonably expect to 

generate at least $10 in new small business lending and investing for every $1 in SSBCI funds. 

With one year of activity remaining, states reported $8.02 in new financing for every $1 of SSBCI 

funding expended (see Figure 2-7). 

Figure 2-7: Cumulative Financing Catalyzed by SSBCI (as reported by states through December 31, 2015)

8 The definition of the terms “metro” and “non-metro” as used in this report refer to the Office of Management and Budget (OMB) 

designation of counties containing a core urban area of 50,000 or more in population as metropolitan (“metro”), and all other 

counties (micropolitan or rural) as non-metropolitan (“non-metro”). This definition is borrowed from the U.S. Department of 

Health and Human Services and derived from the U.S. Census Bureau Definition. (http://www.hrsa.gov/ruralhealth/aboutus/

definition.html).

0 10 20 30 40 50

Overall

Percent of Total Number of Loans or Investments

Venture Capital

Loan Participation

Loan Guarantee

Collateral Support

Capital Access

42%

33%

31%

47%

36%

35%

$1.00

SSBCI

$8.02

$6.00

Direct Leverage 

from original 

SSBCI funds

$1.50

Subsequent private 

financing

$0.52

Direct leverage from 

recycled funds
22

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

The level of support offered per transaction and the rate at which the state could recycle repaid 

funds to support new transactions were the primary drivers of a program’s leverage ratio, 

however a number of factors were at play. 

• Level of support – CAP loans on average contribute 4 percent per transaction 

while loan participations account for 19 percent of each transaction on average. 

States determined what level of support to provide and what types and size of 

transactions to target. 

• Recycling – Programs that targeted shorter-term transactions or incentivized 

repayment with annual fees increased their leverage ratio by recycling funds into 

new transactions. States that were slower in initially deploying capital have had 

less time to recycle funds during the program period. 

• Subsequent financing – The SSBCI calculation of leverage took into account 

subsequent private financing enabled by the SSBCI-supported transaction. This 

was particularly a factor in venture capital programs when an initial round of 

investment enabled a future private financing round. 

• Program start-up – New programs often found they initially had to offer 

higher levels of SSBCI support to encourage lenders to participate. This led to 

lower leverage levels.

• Speed of deployment – Some programs strategically prioritized speed of 

deployment, offering higher levels of support to encourage lending during the 

economic recovery. This led to lower leverage levels.

The structure and design of a state’s programs were the primary determinants of the level of 

direct support. To illustrate, CAPs required states to contribute to reserve funds that ranged, 

by definition, from no less than 2 percent to no more than 7 percent of the principal loan 

amount. On average, CAPs provided a 4 percent reserve of public funds, which translated to 

a 25:1 leverage ratio (100 percent divided by 4 percent) of private to public dollars excluding 

public funds used for program administrative expenses (see Figure 2-8). By comparison, direct 

support (on average) for LGPs, LPPs, and CSPs ranged between 16 and 23 percent of the total 

loan, which generated leverage ratios from 5.13 to 6.95. VCPs contributed about 16 percent in 

direct support (on average) to an initial funding round, resulting in a direct leverage ratio of 

about 6.25:1. 

    

FIVE DRIVERS OF 

PROGRAM LEVERAGE 

RATIO

Level of Support

Recycling of Funds

Subsequent Financing

Program Start-up

Speed of Deployment

    
23

Chapter 2: Program-Wide Outcomes

Figure 2-8: Leverage by Program Type

Program Type

SSBCI Funds 

Expended*

($ millions)

Total New Capital 

Leveraged**

($ millions)

Total Subsequent 

Financing

($ millions)

Leverage Ratio

Capital Access $22 $508 $0.0 23.12

Loan Guarantee $158 $1,098 $0.0 6.95

Collateral Support $210 $1,079 $0.0 5.13

Loan Participation $376 $2,612 $254 6.95

Venture Capital $278 $3,082 $1,318 11.08

TOTAL $1,044 $8,378 $1,572 8.02:1

*Includes SSBCI funds expended for program administration.

**Includes subsequent private financing and financing leveraged with recycled SSBCI dollars.

The SSBCI calculation of leverage also took into account subsequent private financing enabled 

by the SSBCI-supported transaction. This was particularly a factor in VCPs where an initial 

round of financing facilitated small business development activities that set the stage for one 

or more future financings. Including subsequent investments, SSBCI VCPs generated $11.08 in 

private financing for every $1 in SSBCI funds.9

In addition to program design, the states’ strategic decisions influenced the level of support 

provided to each transaction. Some states designed programs to hit the 10:1 ratio goal as 

part of the initial deployment of funds, while some initially offered higher levels of support to 

encourage participation in new programs, and subsequently decreased the level of support to 

slow deployment and extend the limited dollars available for credit enhancement. 

9 States reported the initial loan principal or investment supported by SSBCI funding, and the amount of concurrent and 

subsequent private financing enabled by the original transaction. These data were combined and used in calculating the 

leverage ratio. 

SSBCI Funds Expended (in millions)

Total New Capital Leveraged Including 

Subsequent Private Financing (in millions)

23.12

Capital Access

Loan Guarantee

Collateral Support

Loan Participation

Venture Capital

6.95 5.13

11.08

6.95

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$30 $80 $130 $180 $230 $280 $330 $380

$0

Leverage Ratio
24

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

2D. Deploying Available Funds

Most programs finalized their application to Treasury in mid-2011 and started supporting 

transactions in the last quarter of 2011 and first half of 2012. Of the $1.46 billion allocated, 

the states expended nearly $1.04 billion as of December 31, 2015, representing 72 percent 

of available funds. States obligated an additional $113 million to small business loans or 

investments or intermediaries. 

As a short-term program designed to provide investment stimulus, Treasury monitored 

deployment rates. Figure 2-9 illustrates the progress that SSBCI has made in deploying10

funds over time. In 2013 and 2014, the program reached its peak in terms of SSBCI dollar 

volume activity. Some states deployed all of their allocation in 2014 and had to scale back their 

lending activity, relying on repaid funds for new lending and investment activities. Beginning in 

2013, some states recycled funds repaid to the state to support new transactions. By December 

31, 2015, 44 percent of quarterly deployment represented recycled dollars. 

Figure 2-9: States’ Deployment of SSBCI Funds over Time (as reported in the states’ quarterly reports to Treasury)

An assessment of state efforts found that factors influencing the speed of deployment in 

different states included the design of the program, the experience and capacity of staff, and 

market conditions. 

Program Design and Strategy 

Several design and strategy factors influenced deployment of funds. First, the time required 

to start up new programs influenced the rate of deployment. Second, some states modified 

approved programs significantly or replaced them. Adjustments to programs took time to 

complete, influencing the rate of deployment early in the program. Third, some programs 

10 SSBCI funds deployed are those legally expended (used to support loans or investments or for administrative expenses), 

obligated (legally committed to support loans or investments or for administrative expenses), or transferred (to a contracting 

entity as reimbursement of expenses incurred or to fund a loan or investment). Funds deployed does include obligations to 

venture capital funds that are not yet expended in specific small business investments.

EOT refers to SSBCI dollars which have 

been expended, obligated or transferred.

0

50

100

150

$200

June 2011

Millions $

Deployment of SSBCI Funds by Quarter

Sept 2011

Dec 2011

Mar 2012

June 2012

Sept 2012

Dec 2012

Mar 2013

June 2013

Sept 2013

Dec 2013

Mar 2014

June 2014

Sept 2014

Dec 2014

Mar 2015

June 2015

Sept 2015

Dec 2015

Original EOT Recycled EOT
25

Chapter 2: Program-Wide Outcomes

gained more traction with lenders and co-investors than 

others. Lenders and investors more readily accepted 

certain programs because they directly addressed salient 

capital gaps and were designed with private sector input. 

For example, lenders responded positively to collateral 

support programs created to address collateral shortfalls 

due to declining asset values. Not surprisingly, programs 

that provided greater support were more appealing. 

For example, collateral support and loan participation 

programs, because they offered a higher level of support, 

were able to expend funds more quickly as illustrated in 

Figure 2-10. By the end of 2015, collateral support and loan 

participation programs had deployed 80 percent or more of 

their total allocations.

Programs that offered funding for larger transactions were 

often able to use funds more quickly because they required fewer transactions to generate the 

same dollar amount of SSBCI expenditures. States demonstrated this preference by setting 

minimum transaction amounts and by tending toward larger transactions as they faced an 

intermediate Treasury-set deadline in 2013 for the deployment of the first disbursement. 

Figure 2-11 shows that the share of non-CAP transactions larger than $1 million increased from 

18 percent in 2011 to 24 percent by 2013 and 2014.

Figure 2-11 Transaction Sizes by Year (Non-CAP)

0

20

40

60

80

100

Transaction Size

2011

(206 

Transactions)

41

(19.9%)

279

(23.5%)

293

(18.9%)

360

(20.6%)

372

(22.3%)

1,345

(21.2%)

2,473 

(38.9%)

674 

659 (40.4%)

(37.7%)

594 

(38.3%)

465 

(39.1%) 81 

(39.3%)

206 

(17.3%) 280 

(18.1%)

365 

(20.9%)

314 

(18.0%)

283 

(17.0%) 1,129 

(17.8%)

26 (12.6%)

12 (5.8%)

46 

(22.3%)

196 

(16.5%)

42 (3.5%)

318 

(20.5%)

64 (4.1%) 50 (2.9%)

298 

(17.9%)

40 (2.4%)

1,203 

(18.9%)

208 (3.3%)

2012

(1,188 

Transactions)

<=$100K $101K -$500K $501K - $1M $1.1M - $5M

2014

(1,748 

Transactions)

2013

(1,549 

Transactions)

2015

(1,667 

Transactions)

All Years

(6,358 

Transactions)

>$5M

Proportion of Number of Transactions (%)

Figure 2-10: SSBCI Funds Expended by Program Type, cumulative through 

December 31, 2015

 Program Type

SSBCI Funds Expended 

by Program Type*

($ millions)

Percentage of 

Total SSBCI Funds 

Expended

Capital Access $22 49%

Loan Guarantee $158 68%

Collateral Support $210 81%

Loan Participation $376 80%

Venture Capital $278 62%

TOTAL $1,044 72%

*SSBCI Funds Deployed includes weighted Administrative Expenses
26

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Experience and Management Capacity

The factors influencing the speed of deployment that were the most difficult to quantify and 

evaluate (due to limited available data) are those related to state experience and management 

capacity. Observations of state experiences, however, reveal that program staff experience and 

management capacity influenced how rapidly states were able to deploy funds.

Programs with pre-existing relationships with lender and investor networks deployed funds 

more quickly. Some states ramped up more slowly than others because they had to identify 

potential lending partners and determine which were most likely to bring deals to the program. 

States devoted significant resources to outreach efforts to explain new program offerings and 

to tactics aimed at building trust with partners.

States with the most experienced staff were able to conduct these marketing efforts most 

effectively. In addition, they were better prepared to manage the program and design (or 

implement) policies and procedures in ways that inspired confidence in both lending and 

investment partners. Furthermore, these individuals were quicker to recognize the need to 

adapt programs to reflect changing market conditions or respond to customer concerns.

States that experienced a high turnover of these staff, either at the program or management 

level, were more likely to endure delays in deploying funds. 

Market Demand 

A few states reported that lenders received a low volume of applications for credit as regional 

economies lagged. Others, specifically rural states and territories found deployment of funds 

challenging because they had relatively few active banks and relatively few borrowers seeking 

loans. 

States with the most experienced staff were able to conduct 

program marketing efforts most effectively. In addition, they 

were better prepared to manage the program and design (or 

implement) policies and procedures in ways that inspired 

confidence in both lending and investment partners
27

Chapter 2: Program-Wide Outcomes

2E. Jobs Supported by SSBCI

The Act did not set a numeric target for job creation or retention, but its context suggests the 

creation and retention of jobs was a priority. At the transaction closing, businesses reported to 

states the number of jobs retained and projected number of jobs expected to be created within 

two years because of the transaction. By the end of 2015, businesses reported that transactions 

supported by SSBCI would help retain 126,509 existing jobs and help create 63,891 jobs within 

two years, for a total of 190,400.11 

As shown in Figure 2-12, CAP loans, though a small proportion 

of the total SSBCI allocation, represented the largest source of 

reported jobs retained, with nearly 50,000 existing jobs supported. 

This number represented 80 percent of the total employment of 

the small businesses receiving CAP loans. 

Loan participation programs represented the largest source 

of new job creation, with more assistance provided to larger 

businesses that are likely to generate greater near term job 

impacts. Venture capital is the only program type to report more 

jobs created than retained, as recipients were often early stage 

businesses using invested funds to start, develop, and grow. 

Few states have invested in systems to verify whether the projected job creation or retention 

activity actually occurred. This is important for the reader to understand when assessing SSBCI 

job creation and retention impact data.

A few states attempted to verify business claims. For instance, Minnesota conducted a followup survey of its borrowers, but the results were not satisfying due to low response rates. 

Oregon and Louisiana employed data-sharing agreements with their labor market information 

agencies to validate job claims with unemployment insurance wage records of borrowers. 

This approach provides verification of total employment before and after a transaction, but 

does not capture sole proprietorships or how corporate decisions beyond the SSBCI loan or 

investment affect employment levels (both upward and downward).

11 “Jobs Created” include the number of new Full-Time Equivalent (FTE) jobs that the business owner indicated that they expect 

to create as a direct result of the transaction within two years of the closing. “Jobs Retained” is the number of FTE jobs that the 

business indicated are at risk of loss without the support of the transaction.

Figure 2-12: Jobs Created and Retained by SSBCI Credit Support 

Program Type, cumulative through December 31, 2015

 Program Type Jobs Created Jobs Retained

Capital Access 11,202 49,888

Loan Guarantee 13,202 35,366

Collateral Support 10,062 11,273

Loan Participation 18,257 21,330

Venture Capital 11,169 8,652

TOTAL 63,891 126,509
28

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

CASE STUDY

Oregon

Oregon confirms the job creation impact of programs like SSBCI by analyzing data 

businesses report to the Oregon Employment Department (OED) at the time of the 

transaction and in subsequent years.  For the population of SSBCI borrowers from 

January 1, 2012 to June 30, 2015, excluding those that received non-SSBCI support 

from the state and those with fewer than five employees (which do not report to 

OED), Oregon confirmed the number of jobs created within two years of the SSBCI 

transaction. 

The 115 businesses assessed had projected to create 420.5 jobs. The total number of 

jobs created during the period was 507, exceeding projections by 86.5 or 20 percent. 

The average business reported an average of 16.5 FTEs at the time of application and 

averaged 4.4 FTEs created per project.
Chapter 3

Observations from Credit 

Support Programs

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016
In This Chapter

3A. Credit Support Program Strategies and Administrators ...................................................................... 32

3B. Characteristics of Participating Small Businesses for Credit Support Programs ............................... 34

3C. Characteristics of Participating Lenders for Credit Support Programs............................................... 38

3D. Profiles of Credit Support Programs .................................................................................................... 41

3E. Lessons Learned by State Program Managers ..................................................................................... 54
31

Chapter 3: Observations from Credit Support Programs 

Chapter 3: 

Observations from Credit Support 

Programs 

States directed 69 percent of their SSBCI funds to credit 

support programs that supported small business lending, 

namely capital access, loan guarantee, collateral support, 

and loan participation programs. 

This chapter presents the range of strategic objectives for credit support programs, 

characteristics of participating borrowers and lenders, and detailed profiles of each type of 

credit support program. It concludes with a summary of lessons learned by state program 

managers. 

From 2011 to 2015, credit support programs expended $766 million in SSBCI funds to spur $5.3 

billion in new small business loans. Figure 3-1 below presents additional summary metrics for 

SSBCI credit support programs.

Figure 3-1: Summary of Key Metrics for All SSBCI Credit Support Programs, cumulative through December 31, 2015

SSBCI Metrics for All Credit Support Programs

Key Data:

SSBCI Allocation ($ millions) $1,009 

SSBCI Allocation (% of Total Allocation) 69%

Transactions (#) 15,595

*SSBCI Original Funds Expended ($ millions) $766 

 SSBCI Program Funds Expended ($ millions) $743 

 *SSBCI Administrative Funds Expended ($ millions) $23

SSBCI Recycled Funds Expended ($ millions) $118 

Average Principal Loan Size $274,069 

Program Outputs:

Percent Expended 76%

**Total Leveraged Financing ($ millions) $5,296

***Leverage Ratio 6.9:1

Program Outcomes:

Total Jobs Supported 170,579

 Jobs Created 52,722

 Jobs Retained 117,857

SSBCI Loans in LMI Communities (% of total number of transactions) 43%

Top Three Industries Assisted (by number of transactions) Retail Trade

Accomodation and 

Food Services

Manufacturing

* Administrative expenses 

are weighted estimates 

prorated by proportion of 

program transactions to 

total OCSP transactions

** Includes subsequent 

private financing and 

financing leveraged with 

recycled SSBCI dollars

*** Includes weighted 

administrative expenses
32

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

3A. Credit Support Program Strategies and 

Administrators

The states’ economic development agencies typically determined the strategy for deploying 

SSBCI funds taking into account existing programs, gaps in local small business financing, the 

state’s lending community, and local partners. In this way, local economic context and agency 

objectives drove strategy toward one or more of the following overlapping goals: 

1. Address current and/or persistent gaps in small business lending.

• Many states including California and Ohio developed or funded existing programs 

meant to support loans to microbusinesses. 

• States with large rural populations, like Idaho and North Carolina, targeted owneroccupied real estate transactions in rural areas because such transactions are difficult 

to finance due to the lack of comparable properties for appraisers to consider. 

• Florida funded a program that guaranteed loans to export businesses that are too 

small to access SBA and Export Import Bank programs.

2. Benefit underserved communities or targeted geographies with limited access to capital.

• Illinois dedicated a portion of its resources to supporting businesses in Rockford, a 

city that was particularly hard hit by the recession.

• New York funded a guarantee program targeting minority contractors that bid on 

public construction projects. 

• Several states designed programs to expand the reach of CDFIs whose mission is to 

provide access to capital for businesses in underserved geographies.

3. Create second and third order economic benefits by investing in economic base industries 

such as manufacturing or emerging technologies.

• Michigan and Oregon, among other states, limited eligibility for some programs to 

businesses in industries that supply markets outside of the region, because of the 

potential of those industries to expand the local economic base. 

Just as local and regional economic circumstances influenced program design, the availability 

and capacity of local partners also influenced how states administered programs. Some state 

agencies administered programs directly. This was most often the case when the state had 

existing programs to build on. Other states determined a third-party administrator had deeper 

expertise and existing relationships with the lending community to administer programs. Some 

Public agencies managed nearly half of the allocations 

for credit support programs and expended 74 percent of 

allocated funds. 
33

Chapter 3: Observations from Credit Support Programs 

contracted with quasi-public agencies and others with private partners. While advantages 

existed for each approach, the state’s choice of administrator was a matter of matching 

program objectives to the best-situated local partner. The following examples illustrate the 

types of organizations that administered credit support programs.

• State agencies in Oregon, Louisiana, and Illinois expanded existing credit support programs 

using SSBCI. For example, Oregon’s SSBCI funds recapitalized a LGP created in 1994.

• The New Jersey Economic Development Authority, Finance Authority of Maine, and 

Colorado Housing and Finance Authority are examples of quasi-public authorities that 

operated SSBCI programs. Some expanded existing programs. Others launched new 

programs by leveraging relationships with lenders developed during decades of managing 

housing and bond financing activities.

• South Carolina and Massachusetts partnered with for-profit business development 

corporations (BDCs), experienced lenders with strong community bank relationships. 

• Pennsylvania, Georgia, and Montana ran programs through a network of CDFIs and other 

non-profit lenders with broad geographic coverage. In contrast, Washington and Nevada 

funded programs administered by a single CDFI. 

As shown below in Figure 3-2, public agencies managed nearly half of the allocations for credit 

support programs and expended 74 percent of allocated funds. By comparison, quasi-public 

authorities controlled just 16 percent of SSBCI funds, but they expended 97 percent of allocated 

funds. Meanwhile, private entities controlled the remaining 15 percent of SSBCI funds but 

expended 95 percent of allocated funds. Leverage ratios ranged over a relatively narrow band 

of 6.93-7.35.

Figure: 3-2: Percentage of SSBCI Credit Support Program Funds Allocated, Transactions Completed, and Funds Expended by Type of Organization, cumulative through December 31, 2015

Transactions SSBCI Allocation 

Volume

SSBCI Loan Funds 

Expended*

Private Leverage 

Ratio**

Org Type (#) (%) ($ millions) (%) ($ millions) (%)

Public Agency 10,712 69% $471 47% $347 74% 6.93

Quasi-Public Agency 2,344 15% $250 25% $242 97% 7.35

Private Agency 2,539 16% $287 28% $272 95% 7.19

TOTAL 15,595 100% $1,009 100% $861 85% 7.13

*Funds expended includes recycled funds and is shown as a percent of Allocation Volume.

**Does not include Administrative Expenses.
34

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

3B. Characteristics of Participating Small 

Businesses for Credit Support Programs

Business Size and Borrowing Need

One of the most compelling outcomes of SSBCI is its success supporting financing of very small 

businesses. Figure 3-3 shows that businesses with 10 or fewer employees accounted for 80 

percent of SSBCI-supported loans and 38 percent of dollar volume (principal loan amount). 

Figure 3-3: SSBCI Funds Loaned by Size of Business (FTEs) - Credit Support Programs

0% 20% 40% 60% 80%

0-10 FTEs

Percent 

11-50 FTEs

51-100 FTEs

101-250 FTEs

>250 FTEs

Percentage of Total 

Transaction Amount

Percentage of Number 

of Transactions

38.3%

80.3%

37.2%

15.7%

11.5%

2.6%

11.1%

1.2%

1.9%

0.2%

Business size varied by credit support program type, markedly for CAP loans, which reached 

very small borrowers with a median size of two FTES (see Figure 3-4). LPPs reached the largest 

businesses with a median business size of eight employees.

Participating businesses also had a range of borrowing needs. States supported lines of 

credit, equipment, owner-occupied real estate, and construction loans, among others. Figure 

3-4 indicates the range of typical transactions by program type. The median CAP loan was 

approximately $14,800. LPPs supported the largest loans with a median of $495,000, followed 

by CSPs with a median of approximately $305,000, and LGPs with a median of $200,000. Overall, 

the median and average loan sizes for credit support programs were $30,000 and $274,069, 

respectively. 

Figure 3-4: Typical Transactions by Credit Support Program Type

Program

Median 

Transaction 

Size (Principal 

Loan Amount)

Median 

SSBCI 

Support

Median Age 

of Business 

Supported

Median Size 

(FTEs) of 

Business 

Supported

Top 3 Industry Segments

Capital Access $14,800 $700 5 years 2

Retail Trade

Accommodation & Food Services

Transportation & Warehousing

Loan Guarantee

Collateral Support

Loan Participation

$300,000 $62,500 6 years 7

Manufacturing

Accommodation & Food Services

Retail Trade
35

Chapter 3: Observations from Credit Support Programs 

Figure 3-5 shows the distribution of transaction sizes in each program type. 91 percent of 

CAP loans were $100,000 or less. LGPs also had a high concentration of loans $100,000 or less 

(29 percent). In contrast, 15 percent of LPP loans were under $100,000 and half of LPP loans 

were over $500,000. Further research is needed to understand what accounts for the variety 

in distributions among credit support programs. Below are some observations that provide 

insight.

• The primary lending partners for CAPs in California and New York were CDFI micro-lenders. 

These two states accounted for 71 percent of all CAP loans.

• California and Georgia operated LGPs that supported a high volume of smaller lines of 

credit.

• LPPs in North Carolina, South Carolina, and other states supported a relatively high volume 

of owner-occupied real estate transactions, with higher transaction amounts. 

• Loan participations also worked well for larger layered transactions involving multiple 

funding sources.

• SSBCI rules required states to target an average transaction size of $5 million or less.

Figure 3-5: Distribution of SSBCI Transaction Size by Program Type, cumulative through December 31, 2015

0

20

40

60

80

100

Type of Program 

Total Loan or Investment Amount

Capital 

Access

Transactions: 

10,561

9,625

(91%)

618

(29%) 227

(19%)

250

(15%)

250 

(19%)

10,970

(65%)

3,288

(19%)

391

(30%)

597

(35%)

514

(43%)

210

(18%)

971

(45%)

815 (8%) 235 (11%)

313 (15%)

211 (18%)

64 (4%)

410 (24%)

351 (21%) 255 (19%)

1,209 (7%)

41 (0%)

0 (0%)

0 (0%)

80 (1%) 16 (1%)

2 (0%)

21 (2%)

6 (1%) 18 (1%)

347 (26%)

21 (2%)

60 (5%) 1,244 (7%)

161 (1%)

47 (0%)

Loan 

Guarantee

Transactions: 

2,155

<=$100K $101K -$500K $501K - $1M $1.1M - $5M

Collateral 

Support

Transactions: 

1,189

Loan 

Participation

Transactions: 

1,690

Venture 

Capital

Transactions: 

1,324 

All Programs

Transactions: 

16,919

$5.1M-$10M >$10M

Proportion of Number of Transactions (%)
36

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Industry

The top five industries by dollar amount of total financing for SSBCI credit support programs 

were Manufacturing (27 percent), Accommodation and Food Services (14 percent), Retail Trade 

(8 percent), Health Care and Social Assistance (8 percent), and Wholesale Trade (8 percent). 

Industry concentrations by number of transactions are significantly different for CAPs compared 

to other credit support programs. As shown in Figure 3-6, CAP loans were concentrated in the 

top three industries: retail trades (21 percent), accommodation and food services (13 percent) 

and transportation and warehousing (11 percent). Non-CAP lending programs, in contrast, 

were more likely to support manufacturing businesses, which represented 17 percent of all 

transactions and the top three industries accounted for 40 percent of transactions.

Figure 3-6: Top 10 Industries to Receive SSBCI Loans by CAP versus non-CAP Credit Support Programs, cumulative 

through December 31, 2015

CAP non-CAP (LGP, CSP, and LPP)

Industries Assisted # % Industries Assisted # %

Retail Trade 2264 21% Manufacturing 858 17%

Accomodation and Food Services 1392 13% Accomodation and Food Services 591 12%

Transportation and Warehousing 1133 11% Retail Trade 555 11%

Manufacturing 898 9% Health Care and Social Assistance 472 9%

Other Services (except Public 

Administration) 977 9% Construction 470 9%

Construction 744 7% Professional, Scientific, and 

Technical Services 437 9%

Wholesale Trade 618 6% Other Services (except Public 

Administration) 303 6%

Administrative Support and Waste 

Management 586 6% Wholesale Trade 293 6%

Professional, Scientific, and 

Technical Services 543 5% Real Estate and Rental and Leasing 186 4%

Health Care and Social Assistance 458 4% Administrative Support and Waste 

Management 170 3%

Transportation and Warehousing 170 3%
37

Chapter 3: Observations from Credit Support Programs 

Location

As described in Chapter 2, states presented plans to target underserved communities as defined 

by the state. Treasury tracked activity using LMI census tracts as a proxy for underserved 

communities. Over four out of every 10 SSBCI loans were made to businesses in LMI areas.12

Of the four credit support program types, CAP had the highest number of transactions in LMI 

areas – amounting to 47 percent of total transactions in LMI communities.

SSBCI loans financed businesses predominantly in urban areas (88 percent), but many states 

made a concerted effort to facilitate widespread geographic distribution of SSBCI loans within 

their states. For example, 47 percent of Kentucky’s and 29 percent of Idaho’s loans went to 

businesses in non-metro counties (see Figure 3-7). 

No single approach to target underserved communities worked for all programs. Even so, 

focused marketing, especially through networks already connected to targeted communities, 

technical assistance and connections to mission-oriented intermediaries, and the identification 

of specific goals for targeted lending and investment all helped improve SSBCI performance in 

underserved communities.13 For example, some states built on existing loan programs targeted 

to providing capital to minority, rural, or low-income communities in their states. Other states 

partnered with CDFIs or other mission-oriented local or regional economic development 

agencies to provide loans to selected industries or certain types of borrowers. For instance, 

West Virginia worked through their regional economic development network, and Pennsylvania 

and Washington selected CDFIs to manage some portion of their SSBCI allocation.14 

Figure 3-7: Map of Kentucky Showing Location of SSBCI Loans, cumulative through December 31, 2015

Non-Metro LMI All KY Transactions

Value Percent Value Percent Value Percent

Number of Transactions 55 47% 97 83% 117 100%

SSBCI Amount ($ millions) $3.9 40% $5.9 60% $9.8 100%

"Total Transaction Amount $20.5 39% $43.8 83% $53.1 100%

12 Figure calculated from total number of loans or investments made in low- and moderate-income census tracts. 

13 Op. cit., Using the SSBCI Program to Improve Access to Capital in Underserved Communities.

14 Best Practices from Participating States: Partnering with Community Development Financial Institutions (CDFIs). U.S. Department 

of the Treasury, State Small Business Credit Initiative. February 2015. Web accessed. (https://www.treasury.gov/resource-center/

sb-programs/Documents/SSBCI%20CDFI%20Paper%202-27-15%20-%20final.pdf).
38

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

3C. Characteristics of Participating Lenders for 

Credit Support Programs

Small community banks, CDFIs, and credit unions15 accounted for 81 percent of the total number 

of transactions and 61 percent of dollar volume (see Figure 3-8). CDFIs alone accounted for 51 

percent of all transactions and 12 percent of the dollar volume.

Community banks and CDFIs rely on their expertise in the local community and long-term 

relationships with customers to inform credit decisions. They are less likely to rely on credit 

modelling to make lending decisions and flexible enough to incorporate credit support 

products like SSBCI.16 

Credit unions participated in about 160 of 15,595 loan transactions. State program managers 

found that these institutions seldom have a commercial lending focus so few credit unions 

adopted SSBCI. 

Large banks accounted for 6 percent 

of all SSBCI transactions, but several 

regional banks were among the most 

active individual lenders (see Figure 3-8). 

Large banks, especially those with a multistate footprint, were less active because 

they have centralized underwriting and 

compliance processes and were less 

willing to operationalize multiple state 

SSBCI programs with different eligibility, 

compliance, and reporting requirements. 

Large banks were most active in collateral 

support programs where they accounted for 

19 percent of all transactions.

Figure 3-9 shows the top lenders by number 

and dollar amount of loans. Several regional 

and national banks are among the highest 

dollar volume lenders. CDFIs represent 11 of 

the top 25 lenders in terms of the number of 

transactions.

15 This analysis uses the Community Reinvestment Act Asset-Size Thresholds to define small, mid-sized, and large banks where 

small banks have less than $1.22 billion in assets; mid-sized have assets totaling between $1.22 billion to $10 billion; and large 

banks have assets greater than $10 billion.

16 FDIC Community Banking Study. Federal Deposit Insurance Corporation. December 2012. Web accessed. (https://www.fdic.gov/

regulations/resources/cbi/report/CBSI-1.pdf).

0

20

40

60

80

100%

Number

of Loans

81%

13%

6% 14.5%

24.5%

61%

Dollar Amount 

Loaned

Percentage of SSBCI Loans by Lender Asset 

Size Class

Small Mid-Sized Large

Figure 3-8: Percentage of SSBCI Loans by Lender 

Asset Size Class, cumulative through December 31, 

2015
39

Chapter 3: Observations from Credit Support Programs 

Figure 3-9: Top 25 SSBCI Lenders by Number of Transactions and Amount Loaned, cumulative through December 31, 2015

Top 25 Lenders by Amount Loaned Top 25 Lenders by Number of Transactions

Lender

Lender 

Asset Size 

Class

States

Principal 

Amount Loaned 

($ millions)

Lender Lender Asset 

Size Class States # of 

Transactions

Fifth Third Bank Large FL, IL, KY, 

MI, OH $116 Opportunity Fund CDFI CA 4700

Pacific Enterprise Bank Small CA $92 Murphy Bank Small CA 510

Huntington National Bank Large IN, KY, MI, 

OH $77 ACCION San Diego CDFI CA 475

Yadkin Bank Mid-sized NC $73 Renaissance EDC CDFI NY 371

Opportunity Fund CDFI CA $57 Huntington National Bank Large IN, KY, MI, OH 345

Wells Fargo Bank Large CA, NM, 

SD, VA $47 Pacific Enterprise Bank Small CA 216

Zions First National Bank Large ID, UT $47 Trade Credit Guaranty Corp. Small GA 204

Craft3 CDFI WA $47 TMC Development Working 

Solutions CDFI CA 201

NewBridge Bank Mid-sized NC $44 Center for Community 

Development CDFI NY 191

Columbia State Bank Mid-sized OR $40 Chemical Bank Mid-sized MI 166

Bank of Guam Mid-sized CA, GU, MP $39 United Bank Small AL 143

ServisFirst Bank Mid-sized AL $37 BOC Capital Corporation CDFI NY 156

Washington Trust Bank Mid-sized CO, ID $36 Pacific Premier Bank Mid-sized CA 154

The Biltmore Bank of 

Arizona

Small AZ $35 ACCION East, Inc. CDFI FL, NY 125

Pacific Premier Bank Mid-sized CA $35 Fresno CDFI CDFI CA 111

Bridge Bank, N.A. Mid-sized CA $32 Fifth Third Bank Large FL, IL, KY, MI, 

OH

100

TD Bank, N.A. Large NH, NJ, VT $32 Yadkin Bank Mid-sized NC 95

Trade Credit Guaranty Corp. Small GA $31 OBDC Small Business Finance CDFI CA 93

Amarillo National Bank Mid-sized KS $31 Commercial Bank Small KY, MI 85

ACE CDFI GA $30 Independent Bank Mid-sized MI 82

South State Bank Mid-sized GA, SC $30 Mutual Bank Small MA 80

AmericanWest Bank Mid-sized CA, UT $28 FORGE, Inc. CDFI AR 80

mBank Small MI $28 Metropolitan Consortium of 

Community Developers CDFI MN 79

City National Bank Large CA $27 Small Business Credit Coop. Small GA 75

Palmetto Bank Small SC $27 NewBridge Bank Mid-sized NC 74
40

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

The Role of CDFIs

CDFIs played a particularly important role in SSBCI. As of the end of 2015, they completed 

50 percent of all lending transactions (7,889 loans). By dollar volume, CDFI participation was 

concentrated in CAPs so CDFI-led transactions utilized only $81 million in SSBCI funds (or 11 

percent of the total SSBCI dollars expended). CDFIs generated a higher leverage ratio than nonCDFI transactions (8.31 compared with 6.98) and helped to create or retain 24 percent of all 

jobs supported (see Figure 3-10).

Figure 3-10: SSBCI Funds Expended, Leverage Ratio, and Jobs Generated by CDFI vs. Non-CDFI Lenders, cumulative 

through December 31, 2015

Type of Lender Transactions (#) SSBCI Expended 

($ millions) Leverage Ratio* Jobs Supported 

(#)

CDFI 7,889 $81 8.31 41,234

Non-CDFI 7,706 $661 6.98 129,345

TOTAL 15,595 $742 7.13 170,579

*Does not include Administrative Expenses

CDFIs made the smallest loans and served the smallest businesses. About 87 percent of CDFI 

transactions were loans enrolled in CAPs and 93 percent of the businesses that received loans 

through CDFIs had fewer than 10 employees. Furthermore, more than half (53 percent) of the 

businesses that CDFIs helped were located in LMI areas. The businesses receiving loans tended 

to be in retail and services, but a number of these small businesses were in manufacturing as 

well. 

KEY TERM

CDFIs

Community Development Financial Institutions (CDFIs) are financial institutions that 

seek to expand economic opportunity through expanding access to financial products 

and services to businesses and residents in low-income communities. CDFIs can 

be banks, credit unions, loan funds, microloan funds, or venture capital providers. 

There are currently 1,000 CDFIs operating nationwide. These financial institutions 

gained certification as CDFIs by the CDFI Fund operated by the U.S. Department of 

the Treasury, which certifies, invests in, and provides assistance to CDFIs across the 

country.


41

Chapter 3: Observations from Credit Support Programs 

3D. Profiles of Credit Support Programs 

This section presents a detailed profile of each of the four types of credit support programs. 

Capital Access Program

CAP – Typical Transactions/Borrowers

Typical transactions include working capital loans, but CAPs are flexible and simple enough to 

use for a wide range of loan transactions. Primarily lenders used CAP loans to provide credit 

support for younger and smaller businesses or micro-enterprises, including start-ups, whose 

access to financing is limited because the costs associated with making the loan is relatively 

high given the anticipated earnings. 

Businesses with a limited credit history and collateral availability benefited most from CAP 

loans. Banks generally find it difficult to lend to very young businesses, which, by definition, 

cannot provide historical financial statements to demonstrate that the business will have 

sufficient cash flow to service the debt. Banks that extend loans to start-ups often require 

higher levels of collateral and more liquid collateral than they would ask from an established 

borrower with a proven record of accomplishment. CAPs mitigate the higher risks associated 

with younger, smaller businesses and start-ups through the creation of the loan loss reserve 

pool. 

CAPs also enabled some lenders to make loans to businesses with low credit scores and to 

offer small lines of working capital lines or credit to entrepreneurs. In general, CAPs require the 

lender to make a commitment to enroll multiple loans so that it can build a CAP reserve, unlike 

other lending programs (e.g., collateral support or loan participations) in which the credit 

enhancement is applied to each individual transaction.

CAPs – Key Statistics

Of the 15,595 SSBCI loans made through December 31, 2015, CAPs accounted for the greatest 

number of transactions at 10,561 (68 percent) (See Figure 3-11). California was responsible for 

making six of every 10 CAP loans enrolled nationally. 

• Over two-thirds of all SSBCI loans were CAP loans, but states ultimately allocated only 3 

percent of SSBCI funds to CAPs.

• CAPs had the lowest average principal loan size at $42,000 of all the SSBCI credit support 

programs. Enrolled loans ranged in size from $500 to $2.9 million. More than 8,900 of the 

10,561 CAP loans were less than $50,000, but 41 were greater than $1 million.

• Among SSBCI program types, the leverage ratio for CAPs was the highest at 23 to 1.

CAP – DEFINITION

Capital access programs (CAPs) provide a loan loss reserve to which the lender 

and borrower contribute a percentage of the loan value (up to 7 percent) the state 

matches on a dollar for dollar basis with SSBCI funds. In the event of a loss, any 

loan enrolled by a lender in a state’s CAP can be charged off against that lender’s 

CAP loan loss reserve.


42

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

• CAPs had the highest total among SSBCI program types for jobs supported (61,000 jobs) 

as reported by businesses (including both new jobs created and existing jobs retained). 

• Borrowers financed by CAPs had a median of two full-time equivalent employees at the 

time of application. 

• Fifty-five percent of all CAP loans went to businesses that were less than five years old, the 

highest percentage of any SSBCI loan program type. 

• CAPs were also the most widely used program type to support businesses in LMI 

communities. About 47 percent of CAP loans provided funding to the businesses in LMI 

census tracts, the highest rate among the different program types. 

Figure 3-11: Summary of Key SSBCI Metrics for CAPs, cumulative through December 31, 2015

SSBCI Metrics for Capital Access Programs

All States California

All States Except 

California

Key Data:

SSBCI Allocation ($ millions) $45 $20 $25 

SSBCI Allocation (% of Total Allocation) 3% 1% 2%

Transactions (#) 10,561 6,592 3,969

SSBCI Original Funds Expended ($ millions) $22 $12 $10 

SSBCI Program Funds Expended ($ millions) $18 $10 $8 

 SSBCI Administrative Funds Expended ($ 

millions) $4 $2 $2 

SSBCI Recycled Funds Expended $302,554 $275,147 $27,407 

Average Principal Loan Size $42,000 $35,000 $54,000 

Program Outputs:

Percent Expended 47% 62% 39%

*Total Leveraged Financing ($ millions) $507 $237 $270

**Leverage Ratio 23.1:1 19.5:1 27.6:1

Program Outcomes:

Total Jobs Supported 61,090 32,372 28,718

 Jobs Created 11,202 3,341 7,861

 Jobs Retained 49,888 29,031 20,857

SSBCI Loans in LMI Communities (% of total 

number of transactions) 47% 53% 36%

Top Three Industries Assisted (by number of 

transactions): Retail Trade Retail Trade Retail Trade

Accomodation and 

Food Services

Accomodation and 

Food Services

Accomodation and 

Food Services

Transportation and 

Warehousing 

Transportation and 

Warehousing

Other Services 

(except Public 

Administration)

*Includes financing leveraged with recycled SSBCI dollars

**Includes administrative expenses
43

Chapter 3: Observations from Credit Support Programs 

CAP – Observations

Initially, the Act highlighted CAP as a standard for program design and resource allocation. 

Many states already had CAPs in place, and they had previously demonstrated promise in the 

decade before the recession. CAP had a less complicated application process compared with 

other program designs—an important consideration given the relatively short turn-around 

time for SSBCI applications and the option to modify programs after the original approval date. 

In addition, the CAP design readily lent itself to a reasonable expectation of at least a 10:1 

leverage ratio. Large banks initially indicated a high interest in participating in CAPs. The 

standardization of pre-existing CAPs also made for a less intensive eligibility review by Treasury.

When SSBCI became operational, pre-existing CAPs 

in several states were among the quickest to begin 

deploying funds. However, with the notable exception of 

California, they were successful in deploying only small 

amounts. Lenders with pre-existing CAP reserves funded 

through a state program could not merge those reserves 

with SSBCI-funded CAP reserves, requiring the lender 

to create a new program, which was a disincentive. By 

2013, states learned that the market acceptance for 

CAP dollars was limited. While several high volume CDFI 

micro-lenders (especially in California) made great use 

of CAP dollars, traditional bank lenders found the funds 

difficult to deploy. 

Many lenders cited borrowers’ unwillingness to pay CAP fees as an obstacle to deployment. 

Further, bank lenders were reluctant to participate in CAPs because participation required 

enrolling a large volume of loans to build a sufficient loan loss reserve pool to fully offset the 

perceived higher risks of CAP loans. If loan losses are above normal, the loan loss reserve pool 

may not be adequate (as lenders learned from the losses they incurred during the 2008-2009 

financial crisis). Lenders also perceived the level of public match funds available for SSBCI CAPs 

as too low compared with legacy state CAPs, which often matched private sector contributions 

on a $2 for $1 basis.

With little activity occurring in CAPs, some states responded by shifting their funding to other 

programs. CAP originally accounted for 20 percent (or $291 million) of all state allocations. 

As of December 31, 2015, CAP accounted for only 3 percent of state allocations, totaling $45 

million spread across 24 programs, the lowest allocation of all the SSBCI program types. Even 

with this shift, CAPs still have the lowest deployment rate of all program types as well. 

While several high volume CDFI microlenders (especially in California) made 

great use of CAP dollars, traditional 

bank lenders found the funds difficult 

to deploy.
44

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

CAPITAL ACCESS PROGRAM EXAMPLE

California & the Opportunity 

Fund

The California Pollution Control Financing Authority (CPCFA), an independent agency 

chaired by the California State Treasurer, administered three of California’s four credit 

support programs, including the Capital Access Program Loan Loss Reserve (CalCAP), 

a program created in 1994. 

As of the end of 2015, CalCAP had provided $11 million in SSBCI contributions to 

loan loss reserves to provide credit enhancement for 6,592 transactions. These 

investments leveraged $237 million in loans, providing a leverage ratio of almost 20:1 

and helping to create 3,341 jobs and retain 29,031 jobs according to business owners. 

CDFIs have accounted for 86 percent of all CalCAP transactions. The loans made by 

CDFIs, especially non-bank CDFIs, tended to be much smaller (representing only 43 

percent of the total loan loss reserve contributions and about 31 percent of the total 

loan leveraged). 

Opportunity Fund, a CDFI microlender, was the most prolific user of SSBCI CAP 

nationally, accounting for 4,700 transactions in California. Opportunity Fund was 

founded in 1994 to improve the economic well-being of low-wealth, under-capitalized 

entrepreneurs with offices in San Francisco and Los Angeles. It originates micro-loans 

typically for less than $10,000 although its loans have ranged from $500 to $107,560. It 

lends mostly to retail businesses from street vendors to family-run restaurants and dry 

cleaners. In 2015, Opportunity Fund was lending more than $2 million every month 

and helping people save over $1 million each year in micro-savings accounts. In 2015, 

Opportunity Fund originated more than 1,000 loans in a single year and 91 percent of 

the CDFI’s borrowers were minorities. 

CalCAP has been instrumental in helping Opportunity Fund fill two credit gaps. First, 

it allows Opportunity Fund to make loans that are too small for the local banking 

industry. Second, even though Opportunity Fund’s default rate has been relatively low 

at less than 2 percent, CalCAP has been critical in helping Opportunity Fund shore up 

its loan loss reserves and sustain its growth. 
45

Chapter 3: Observations from Credit Support Programs 

Loan Guarantee Program

LGP – Typical Transactions/Borrowers

Typical transactions incorporating loan guarantees include lines of credit, asset purchases, 

and acquisition and construction of owner-occupied commercial real estate. Banks use LGP 

programs to finance established businesses or turn-around situations. Like a CAP, a LGP 

is flexible enough for use across a wide range of lending transactions; however, due to its 

mechanics, it is often not as amenable as CAP for use in loans of less than $50,000. 

LGP – Key Statistics

• Loan guarantees accounted for the second largest number of transactions after CAP with 

2,155, accounting for 13 percent of all SSBCI loans made through 2015 as shown in Figure 

3-12. 

• LGPs accounted for the fourth lowest dollar amount of allocations with 16 percent of total 

SSBCI funding. 

• Loans originated through LGPs had the second lowest average principal loan size at 

$460,000. States have made guarantees on loans as small as $2,600 and as large as $11.9 

million.

• The leverage ratio for LGPs was 7 to 1.

• LGPs were very effective and efficient at creating and retaining jobs with 48,568 jobs 

supported as reported by businesses, the second best performance of all SSBCI programs.

• Borrowers financed by LGPs had a median of six full-time equivalent employees at the time 

of application. 

• Fifty-two percent of all LGP loans went to businesses that were less than five years old. 

• LGPs provided 35 percent of their loans to businesses in LMI census tracts. 

LGP – DEFINITION

Loan guarantee programs (LGPs) partially offset the risk associated with an 

individual loan by providing an assurance to the lender of partial repayment if a 

loan goes into default once the lender makes every reasonable effort to liquidate 

available collateral and collect on personal guarantees. This model involves 

providing a guarantee on only a portion of the loan (and always less than the total 

capital at risk for SSBCI) and reserves a portion of the amount guaranteed in a 

segregated cash account controlled by the state. 


46

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 3-12: Summary of SSBCI Metrics for LGPs, cumulative through December 31, 2015 

SSBCI Metrics for Loan Guarantee Programs

Key Data:

SSBCI Allocation ($ millions) $232 

SSBCI Allocation (% of Total Allocation) 16%

Transactions (#) 2,155

SSBCI Original Funds Expended ($ millions) $158 

SSBCI Program Funds Expended ($ millions) $154 

*SSBCI Administrative Funds Expended ($ millions) $4 

SSBCI Recycled Funds Expended ($ millions) $62 

Average Principal Loan Size $460,000 

Program Outputs:

Percent Expended 68%

**Total Leveraged Financing ($ millions) $1,098

***Leverage ratio 7.0:1

Program Outcomes:

Total Jobs Supported 48,568

 Jobs Created 13,202

 Jobs Retained 35,366

SSBCI Loans in LMI Communities 

(% of total number of transactions) 35%

Top Three Industries Assisted (by number of transactions): Manufacturing

Retail Trade

Construction 

LGP – Observations

Nineteen states used SSBCI to support LGPs. LGPs proved reasonably easy to implement by 

states without pre-existing credit support programs. A guarantee percentage of 50 percent 

seemed to work well for new LGPs to ensure that lenders had enough “skin in the game” and 

minimize the amount of loan re-underwriting required by state program managers or their 

contractors. More established guarantee programs tended to set aside a lower percentage of 

each guarantee in the guarantee reserve fund than new programs. 

A challenge to administering LGPs is that state program managers must be relatively experienced 

lenders. LGPs are not a “mechanical” or formula driven program like CAPs and some collateral 

support programs. Successful LGPs require state managers to exercise judgement, especially 

when a covered loan goes into default. Knowledgeable staffs gain the confidence of lenders if 

they can demonstrate an ability to “talk the talk” and facilitate deals that work for the borrower, 

the lender, and the state. This is particularly challenging for LGPs where the transaction size 

was less than half of that for CSPs and LPPs. This was due to three state programs (Alabama, 

California, and Georgia) that accounted for almost 80 percent of all national LGP transactions 

and provided guarantees for relatively small dollar transactions. The average transaction size 

for Alabama, California, and Georgia transactions was $360,000, whereas for all other states 

the average size was $803,000. 

* Administrative expenses 

are weighted estimates 

prorated by proportion of 

program transactions to 

total OCSP transactions

** Includes financing 

leveraged with recycled 

SSBCI dollars

*** Includes weighted 

administrative expenses
47

Chapter 3: Observations from Credit Support Programs 

LOAN GUARANTEE PROGRAM EXAMPLE

Alabama Community Banks

With an SSBCI allocation of $31.2 million, Alabama created three new credit support 

programs administered by the Alabama Department of Economic and Community 

Affairs (ADECA). Ultimately, one of the three programs, the Alabama Loan Guarantee 

Program (ALGP), was actively adopted by the lending community and almost all of 

the state’s SSBCI funds were re-allocated to AL-LGP. As of the end of 2015, ADECA 

has provided credit enhancements for 387 loans totaling $147 million through the 

guarantee program leveraging $28 million in SSBCI funding. More than 50 percent of 

SSBCI dollars supported retail and wholesale businesses, manufacturing, and other 

business and personal services.

Five community banks, including one that is a CDFI, (Southern States Bank, ServisFirst 

Bank, Peoples Bank of Alabama, South Point Bank, and United Bank) have expended 

more than $18 million in SSBCI guarantee funds, representing nearly two-thirds 

of program expenditures. United Bank, a CDFI, has accounted for 37 percent of the 

guarantee transactions.

Prior to SSBCI, Alabama had no pre-existing credit support programs targeting small 

business. In designing its SSBCI programs, Alabama relied heavily on input from 

community bankers. The five-person committee that designed the programs included 

the President of the Alabama Bankers Association as well as others with deep roots 

in the banking community. ADECA also surveyed local banks with the results guiding 

program design. ADECA enjoyed support from the Governor and Bank Superintendent, 

executive sponsorship that lent the program credibility. Another key factor in AL-LGP’s 

success was the hiring of a former bank lender with more than 30 years of experience 

who could effectively communicate the value proposition of the program and who 

dedicated extensive time to sustained personal outreach.

The AL-LGP worked well for: (1) transactions originated by smaller community 

banks that do not participate in SBA programs; (2) transactions that required credit 

support, but did not justify the 75 percent SBA guarantee level; and (3) promising 

start-up businesses that usually did not meet established bank-lending standards. 

Lenders preferred the program because, from the banker’s perspective, it is much 

easier and cheaper to use than SBA. Bank participants noted that the program is less 

cumbersome in terms of the paperwork required and less costly to the customers in 

terms of fees. Alabama markets AL-LGP providing credit support to businesses such 

as non-profits and start-ups that are prohibited from applying for SBA loans or have 

difficulty obtaining support through SBA programs.
48

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Collateral Support Program

CSP – Typical Transactions/Borrowers

Typical transactions incorporating CSP support include asset purchases and acquisition 

and construction of owner-occupied commercial real estate. States used the CSP to finance 

established, growing businesses, especially those in the manufacturing sector, which 

accounted for 17 percent of CSP transactions.

CSP – Key Statistics

• Allocations to CSPs increased by 58 percent above the initial allocations. CSPs recorded 

1,189 transactions, the lowest amount of all the credit support programs as illustrated in 

Figure 3-13. 

• CSPs received 18 percent of the $1.46 billion allocated to state SSBCI programs. 

• CSPs had the second largest average principal loan size at $748,000.

• CSPs had the lowest leverage ratio of all credit support programs at 5.1 to 1.

• CSPs supported the creation and retention of 21,335 jobs.

• Borrowers financed by CSPs had a median of six full-time equivalent employees, the same 

as LGPs.

• Forty-six percent of all CSP loans went to businesses that were less than five years old.

• Among the SSBCI credit support programs, CSPs provided the lowest share of loans to 

businesses in LMI census tracts at 31 percent. 

CSP – DEFINITION

Collateral support programs (CSPs) provide cash to lenders to boost the value 

of available collateral. CSPs are similar to subordinated loan participations in that 

they address shortfalls in collateral available to support a loan. In both cases, the 

borrower’s cash flow typically meets the lender’s underwriting standards, making 

the collateral shortfall an addressable barrier that would otherwise prevent the 

small business from qualifying for a loan.


49

Chapter 3: Observations from Credit Support Programs 

Figure 3-13: Summary of SSBCI Metrics for CSPs, cumulative through December 31, 2015 

SSBCI Metrics for Collateral Support Programs

Key Data:

SSBCI Allocation ($ millions) $261 

SSBCI Allocation (% of Total Allocation) 18%

Transactions (#) 1,189

SSBCI Original Funds Expended ($ millions) $210 

SSBCI Program Funds Expended ($ millions) $205 

*SSBCI Administrative Funds Expended ($ millions) $5 

SSBCI Recycled Funds Expended ($ millions) $20 

Average Principal Loan Size $748,000

Program Outputs:

Percent Expended 81%

**Total Leveraged Financing ($ millions) $1,079

***Leverage Ratio 5.1:1

Program Outcomes:

Total Jobs Supported 21,335

 Jobs Created 10,062

 Jobs Retained 11,273

SSBCI Loans in LMI Communities 

(% of total number of transactions) 31%

Top Three Industries Assisted (by number of 

transactions): Manufacturing

Accommodation and Food Services

Health Care and Social Assistance

CSP – Observations

CSP is a a mechanism to enhance the value of available collateral by pledging a cash deposit, 

held at the lending bank, as collateral. SSBCI featured many noteworthy experiments by state 

program managers, some of which were replicated in other states. CSP was perhaps the most 

notable example. Sixteen states created new CSPs based in part on the model established by 

the Michigan Economic Development Corporation. CSP loans were used to purchase machinery 

or finance the purchase or construction of commercial real estate. Several banks used CSPs to 

support their participation in the SBA’s 504 program, helping certain SBA deals close. Under 

the 504 program, a bank generally finances 50 percent of an owner occupied real estate or 

equipment loan and the SBA finances 40 percent. The SBA’s participation commences when the 

project is complete, which can be over a year from closing if the project includes construction. 

During the interim, lenders must finance up to 90 percent of total project costs, which exceeds 

most bank loan policies. Some banks utilize SSBCI to reduce their total exposure below their 

loan to value limits. 

Collateral support and subordinated participation products had the added benefit of enabling 

a small business to retain and build its working capital, rather than having to invest it in a 

facility or equipment. These programs also enabled lenders to increase their support for 

equipment and accounts receivable financings, which lenders consider to be weak collateral. 

* Administrative expenses 

are weighted estimates 

prorated by proportion of 

program transactions to 

total OCSP transactions

** Includes financing 

leveraged with recycled 

SSBCI dollars

*** Includes weighted 

administrative expenses
50

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Several lenders spoke about using SSBCI collateral support or subordinated participation 

products to finance specialty equipment or tenant improvements, purposes that often do not 

retain significant value in case of loan foreclosure and the liquidation of collateral. 

CSPs have encountered more challenges than other SSBCI programs in generating recurring 

income streams to sustain program administration costs and to increase program capitalization. 

Revenues for CSPs are limited to fees charged upon application and closing and interest 

earned while the funds are held as collateral for loans. While held as collateral, SSBCI funds are 

generally invested in certificates of deposit and consequently do not generate much income 

in the current interest rate environment. A few states have addressed this issue by charging 

annual renewal fees to create an incentive for lenders to relinquish the SSBCI support once 

collateral values rise above the lender’s loan-to-value ratio requirement. In addition, states 

began reducing the amount of cash that they would keep on deposit by re-evaluating the need 

for the cash deposit as the loan matured. This helped to recycle the funds more quickly.

COLLATERAL SUPPORT PROGRAM EXAMPLE

Michigan’s Collateral Support 

Program

The Michigan Economic Development Corporation (MEDC) met the credit needs facing 

businesses with weak collateral but strong cash flow by creating a CSP in 2009, and 

provided the program with additional funding through SSBCI. Sixteen other states 

emulated this unique approach with their SSBCI funds. Michigan created its program 

to help businesses in a targeted set of “qualified” industries: mining, manufacturing, 

research and development, wholesale and trade, film and digital media productions, 

and office operations, among others. MEDC received high-level support for the 

program from the state banking association, the Governor, and other senior state 

officials, this executive sponsorship gave the program credibility.

The CSP has been the most active of Michigan’s SSBCI lending programs, and 

approximately 29 percent of its funding has recycled as of December 31, 2015. The 

program allows for collateral support up to 49.9 percent of the loan amount with most 

requests in the 33 to 49.9 percent range. The program is easy to use because MEDC 

does not specifically “re-underwrite” the loan. Instead, MEDC relies on the partner 

financial institution’s analysis and identified need for collateral support. By the end 

of 2015, Michigan had made 83 CSP loans from $44 million in SSBCI funding. These 

loans supported the creation of 3,472 new jobs and retention of 472 existing jobs as 

reported by business owners. Michigan’s CSP achieved a 6.7 to 1 leverage ratio.

Michigan found that banks and credit unions of all asset sizes were interested in 

the program because of its unique abilities to address a specific lending gap. Banks 

participating in the program included regional banks such as Huntington and Fifth 

Third as well as large national banks such as Bank of America.
51

Chapter 3: Observations from Credit Support Programs 

Loan Participation Program

LPP – DEFINITION

Loan participation programs (LPPs) involve purchases of a portion of a loan that a 

lender makes or the provision of a companion loan. LPPs can offer either subordinate 

or pari-passu17 financing. Subordinate participations address shortfalls in collateral 

available to support a loan and enables an otherwise creditworthy small business 

to gain access to capital. If a program offers pari-passu financing it is often at a 

reduced interest rate, thus reducing interest expense. LPPs also enable lenders 

to adjust their overall exposure to a borrower and to offer loans larger than their 

institution’s maximum loan amount. Typically, the lender services the entire LPP 

loan including the purchased portion. In some cases, the state purchases a portion 

of the loan at closing, and in others, states made a companion loan directly to the 

borrower in concert with a private lender. In some cases, states co-fund loans in 

partnership with CDFIs.

LPP – Typical Transactions/Borrowers

Typical LPP transactions include asset purchases and acquisition and construction of owneroccupied commercial real estate. LPPs are used to finance established businesses with a cash 

flow or collateral shortfall. LPPs also frequently provide fixed asset financing in larger amounts, 

extending the capacity of community banks that might not otherwise have been able to fund 

the loan.

LPP – Key Statistics

• LPPs recorded 1,690 transactions (see Figure 3-14), more than CSPs and VCPs, but less 

than CAPs and LGPs. 

• Thirty-two percent of the $1.46 billion allocated to the state SSBCI programs was directed 

to LPPs (including direct loan programs), operated by 39 states in 44 active programs.

• LPPs had the highest average principal loan size at $1.2 million. SSBCI helped states to 

participate in loans ranging from $1,000 to $20 million. 

• LPPs leveraged the largest dollar amount of total financing and a leverage ratio of about 

7 to 1. 

• LPPs are credited with creating 18,257 new jobs according to business owners, the most 

among SSBCI program types. LPPs supported 39,587 jobs overall (created or retained).

• Borrowers financed by LPPs had a median of eight full-time equivalent employees at the 

time of application.

• Forty-eight percent of all LPP loans went to businesses that were less than five years old.

• Among SSBCI credit support programs, LPPs provided the third largest share of loans to 

businesses in LMI census tracts at 33 percent. 

17 Pari passu means that all lenders participating in a loan are of equal seniority with respect to payments and collateral.


52

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 3-14: Summary of SSBCI Metrics for LPPs, cumulative through December 31, 2015

SSBCI Metrics for Loan Participation Programs

Key Data:

SSBCI Allocation ($ millions) $471 

SSBCI Allocation (% of Total Allocation) 32%

Transactions (#) 1,690

SSBCI Original Funds Expended ($ millions) $376 

SSBCI Program Funds Expended ($ millions) $366 

*SSBCI Administrative Funds Expended ($ millions) $10 

SSBCI Recycled Funds Expended ($ millions) $36 

Average Principal Loan Size ($ millions) $1.2 

Program Outputs:

Percent Expended 80%

**Total Leveraged Financing ($ millions) $2,612

***Leverage Ratio 7.0:1

Program Outcomes:

Total Jobs Supported 39,587

 Jobs Created 18,257

 Jobs Retained 21,330

SSBCI Loans in LMI Communities 

(% of total number of transactions) 33%

Top Three Industries Assisted (by number of transactions): Manufacturing

Accommodation and Food Services

Health Care and Social Assistance

LPP – Observations

Generally, lenders participating in LPPs had to weigh the advantages of risk mitigation against 

the cost of lower outstanding balances. LPPs were valuable to smaller institutions that may not 

have the capital assets sufficient to handle a larger loan or want to spread the risks associated 

with a particular transaction. Subordinated loan participations also have the advantage of not 

only increasing the collateral value supporting the lender’s share of a loan but also reducing 

the lender’s overall exposure should the loan go into default. That, in turn, reduces the lender’s 

delinquency ratio.

Lenders in the current market tended to prefer the collateral support model over subordinated 

loan participations if given the alternative. Even though LPPs offers similar benefits to CSPs, 

the LPP model requires sharing the loan with other partners at a time when lenders are seeking 

to retain the entirety of the customer relationship. 

The preference for subordinated loan participations or collateral support program models also 

varied with lender financial strength. Lenders with strong liquidity and equity positions tended 

to prefer collateral support over loan participations because collateral support allowed the 

lenders to deploy more of their own funds, producing greater fee income and increasing interest 

income. Loan participations were particularly valuable in larger layered transactions involving 

multiple funding sources, especially for smaller community banks that may be approaching 

their legal lending limit on a particular transaction.

* Administrative expenses 

are weighted estimates 

prorated by proportion of 

program transactions to 

total OCSP transactions

** Includes subsequent 

private financing and 

financing leveraged with 

recycled SSBCI dollars

*** Includes weighted 

administrative expenses
53

Chapter 3: Observations from Credit Support Programs 

LOAN PARTICIPATION PROGRAM EXAMPLE

Advantage Illinois LPP

Illinois used subordinated loan participations to fill the gaps in complicated multilayered transactions with minority-, women-, disabled- and veteran-owned and 

controlled businesses (MWDVs). The Illinois Department of Commerce and Employment 

Opportunity (DCEO), the designated SSBCI implementing organization, operates the 

Advantage Illinois (AI) LPP, a variant of its legacy loan participation program. AI LPP 

uses SSBCI funds to purchase a participation at the lower of 25 percent of project 

costs or 50 percent of the loan amount up to $2 million. The program prices loan 

participations at a below market interest rate and subordinates the participations to 

the lender’s loan position, but receives a pro-rata share of payments.

Illinois targets MWDV businesses through incentives in program design, collaboration 

with stakeholders, and technical assistance. Over 70 percent of AI LPP loans in both 

dollar and number have been made to MWDV businesses. 

The major advantages of the AI LPP include its flexibility, subordinate nature, and 

below market interest rate. Lenders indicated that they use SBA when possible for 

less complicated “plain vanilla” transactions, but on some projects SBA is either not 

enough or the transaction is ineligible (non-profit borrowers and refinancings). This 

is particularly true for transactions that often involve multiple lenders. This reflects 

Illinois’ desired position to serve as a “but for” lender focusing on transactions that 

are not bankable conventionally or with standard credit enhancements. 

As with other states, community banks have been the most active lenders in the AI 

LPP. As of the end of 2015, over 50 community banks, CDFIs, and regional loan funds 

have enrolled in AI lending programs. Village Bank, a subsidiary of WinTrust – a large 

community bank holding company, has been Illinois’ most active LPP lender as 

measured by total loan amount. 

At the end of 2015, Illinois had expended $49 million in SSBCI funds in 166 transactions 

leveraging $394 million in new small business lending, providing a leverage ratio of 

$8.11 in financing for each SSBCI dollar. These investments helped to create 1,883 new 

jobs and retain 1,064 jobs as reported by business owners. The AI LPP was the most 

actively used Illinois program accounting for 86 percent of the state’s SSBCI funds 

expended through the end of 2015.
54

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

3E. Lessons Learned by State Program Managers 

This section focuses on lessons learned based on interviews with program managers about 

the approaches they felt worked best. Those perspectives suggest that the most critical factor 

in implementing a successful program is simplicity in design and responsiveness to standard 

market practices. Four specific factors emerged as critical to SSBCI program success: 

1. Program design and operations align with private sectors practices and market needs; 

2. Effective, focused, and continuous marketing efforts;

3. Emphasis on long-term sustainability; and 

4. Strong and well documented compliance practices. 

The following describes how these factors influenced loan program deployment, leverage, and 

impact.

1) Program design and operations align with private 

sector practices and market needs

When bank representatives were actively involved in helping to design and champion the 

program, states reported better experiences getting their programs off to a quick and successful 

start. These representatives provided states with a better sense of market conditions, helped 

tailor programs to bank needs, identified addressable capital gaps, and served as a readymade pool of potential program participants that were already familiar with the program when 

it launched. Many became repeat users.

Lenders and state SSBCI programs had the same interest in increasing the volume of quality 

credit available to small businesses in their state. State programs were most effective when 

their SSBCI program aligned with lenders’ financial interests. For instance, banks were more 

willing to consider a loan to a business with weak collateral than one with weak cash flow. 

Collateral support and subordinated debt products directly mitigate banker risk with respect 

to collateral. At the same time, subordinated debt products were viewed favorably because 

they can help to improve the lender’s collateral position relative to other types of credit 

enhancement. Lenders also preferred loan participations and collateral support that disbursed 

the credit enhancement directly to the lender at the loan closing rather simply promising pay 

in the event of default or placing a cash deposit in a reserve fund held elsewhere. In addition, 

lenders viewed SSBCI loan guarantees as easier to use when compared with other governmentsponsored guarantee programs, which tend to have separate application and closing processes.

Many state SSBCI programs also tapped their lending partners to take on loan underwriting and 

servicing roles to reduce administrative overhead and to give lenders confidence in the loan 

approval and management process. Because lenders typically prefer to control the business 

relationship with the borrower, many states structured their lending programs with limited 

or no contact with the borrower. This approach helped to reduce paperwork burdens for 

businesses and lenders alike, areas in which lenders are often more experienced and efficient 

than state agencies.

Many states developed a simple master agreement describing terms of lender participation 

and permitting the use of a lenders’ own application and closing documents. This eliminated 

the need for extensive SSBCI-related documentation at each loan closing and reduced the need 
55

Chapter 3: Observations from Credit Support Programs 

for lenders to adapt to the use of non-conforming forms generated for SSBCI only. This allowed 

lenders to align the products with other customary bank offerings and customer expectations 

(i.e., minimizing fees and related costs to the borrower). 

Several lenders noted that SSBCI programs typically engaged actively in reviewing liquidation 

plans and strategies in the event of a borrower default. While this protects SSBCI, lenders 

prefer to control the process to ensure they have to the flexibility to adapt to rapidly changing 

circumstances during a collections process. Lenders sought upfront master agreements with 

SSBCI programs that clearly defined liquidation rights and responsibilities in the event of a 

default rather than waiting to negotiate the issues at loan closing or at the time of a default.

2) Effective, focused, and continuous marketing efforts

Successful state SSBCI programs also had thoughtful, effectively implemented marketing 

plans. State program managers noted that continuous communication with lenders about 

their state’s SSBCI programs needed to reinforce the benefits to the lender. The messages 

had to focus on what each lender was seeking from the program – the ability to help a client, 

the ability to overcome a collateral issue, the ease of use, and the ability to minimize risks. 

States successfully used their lender networks (including the state bankers’ association) as 

well as economic development agency partners to share information about the program with 

potential program participants. 

States frequently reinforced the credibility of their messages by providing examples of 

successful transactions to help lenders understand that their competitors were using the 

program effectively on behalf of their clients. Lenders also found that many states had 

employed staff with significant lending experience, and those staff helped to convey messages 

about the program’s value. 

The most effective marketing path varied based on who or which unit within a lenders’ 

organization would drive the decision to participate. In some institutions, the CEO or chief 

credit officer was the key decision maker. In others, the SBA lending departments or individual 

loan officers active in small business lending influenced the lender’s decision to participate. In 

short, each lender’s culture affected how best to reach the business so state program managers 

had to try each of these avenues in their efforts to engage with potential new lending partners.

Common mechanisms for reaching new lenders included engaging them through their 

state banking association, reinforcing the reputation of the SSBCI managing entity through 

successes, and demonstrating how SSBCI funds would be available as a resource beyond the 

SSBCI program’s sunset date.

3) Emphasis on long-term sustainability

For many state lending programs, the creation of an evergreen source of funding for their 

credit support program(s) was vital to building and maintaining the lending community’s 

commitment to the program and to ensuring that funds would remain available to meet small 

business capital needs in the future. Since recycled funds remain under the control of the 

state, lenders were interested in longer term plans for SSBCI loan programs. Given the costs 

associated with learning and implementing a new program, lenders were less interested in 

participating in a state program with a finite term and limited capital availability.
56

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

States sought to leverage their limited resources by limiting the size of transactions, and 

therefore the dollar amount of credit support, and creating incentives for lenders to release 

SSBCI credit support once a loan had stabilized so the funds could be redeployed. In addition, 

states sought to maintain ongoing deal flow and collect loan fees and interest to generate 

new capital as a way to generate income to cover administrative costs. Through an aggressive 

loan monitoring process and by acting promptly on delinquent accounts as well as applying 

appropriate underwriting and collection practices, states mitigated the risk of losses. 

4) Strong and well documented compliance practices

Ongoing compliance with federal SSBCI rules and regulations is a crucial part of operating a 

successful program. States noted that lenders and borrowers viewed some SSBCI certification 

and reporting requirements as bureaucratic and cumbersome, but clear communication from 

the outset helped to overcome reluctance to work with SSBCI. Program managers described 

several common themes about best practices to ensure consistent compliance.

First, compliance depended on states maintaining expertise in compliance and monitoring 

the most current version of the SSBCI program rules. Many states noted that their success in 

complying with Treasury guidance also depended on making lenders and borrowers aware 

of certification and assurance requirements at the outset as well as vigorously verifying their 

compliance. 

Second, state program managers, lenders, and borrowers consistently expressed concern 

about certain program certification requirements, especially the congressionally mandated 

certification that no party in the transaction has ever been a sex offender against a minor, but 

they noted that these issues were overcome by clear and up-front communications about the 

requirements. Many states developed and used compliance checklists for staff and lenders, 

integrating those requirements into the entire process from loan application to repayment. 

Third, a major early concern was that banking regulations might inhibit the willingness of 

lenders to participate. However, during the course of lender interviews, no lender identified 

any conflicts between SSBCI and banking regulations. States found that they benefited by 

establishing close working relationships with state and federal banking regulators, especially 

during the program design phase. In fact, several lenders reported that regulators had tended 

to view their bank’s participation in the SSBCI program as a positive strategy in mitigating risk. 

Finally, states that were most successful hired staff with compliance expertise. States also 

sought staff with experience managing SBA loans, preparing bank documentation, serving as 

paralegals, or related experience to ensure program compliance. States that contracted for 

program management noted that that they retained responsibility for program compliance and 

closely reviewed contractors’ performance. In addition, states also often engaged experienced 

third parties to review compliance procedures and help with compliance audits. Many opted 

to cross-train staff at every level on compliance requirements and procedures as a way to 

integrate compliance as a part of the marketing and loan negotiation process. These states 

included conducting regular staff meetings on SSBCI program changes and compliance issues.
Chapter 4

Observations from 

Venture Capital Programs

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016
In This Chapter

4A. Why States Support Venture Capital Investment Programs ................................................................ 61

4B. Classifications of SSBCI Venture Capital Programs.............................................................................. 65

4C. SSBCI Venture Capital Program Investment Activities and Characteristics........................................ 72

4D. State Goals and Business Environments Influenced SSBCI VCP Strategies ....................................... 81

4E. Return on Investment Measures Varied Across Venture Capital Programs ......................................... 82

4F. SSBCI Impacts on State Entrepreneurial Ecosystems........................................................................... 83

4G. SSBCI Addressed a Gap in Federal Programs for Equity-Support of Innovation ................................ 85

4H. Program Manager Commentary on VCP Challenges and Lessons Learned........................................ 87
59

Chapter 4: Observations From SSBCI Venture Capital Programs

Chapter 4: 

Observations from Venture Capital 

Programs

More than two-thirds of states allocated SSBCI funds to 48 

venture capital programs (VCPs) designed to stimulate private 

investments in small businesses with high-growth potential. 

The $448 million allocated to VCPs accounted for nearly onethird of total SSBCI funding. 

This chapter summarizes why states undertook VCPs and the various types of VCPs states 

implemented using SSBCI funds. Furthermore, the chapter presents characteristics of small 

businesses attracting venture capital, and the variety of state objectives and business 

environments that influenced program strategies. The chapter ends with feedback from state 

program managers on lessons learned while designing and implementing VCPs.

Figure 4-1 illustrates that states made over 1,300 venture capital investments using $278 million 

in SSBCI funds. The investments leveraged nearly $1.7 billion in co-investment and more than 

$3 billion inclusive of subsequent private financing, for a leverage ratio of 11.1:1. These VCPs 

also supported the creation of almost 11,200 new jobs as projected by businesses at the time 

of investment.

For the purposes of this report, venture capital is broadly defined as financing for private 

businesses where an investment is made in return for an ownership interest (i.e., equity) in 

the business. With venture capital, investors share risk and rewards with other equity owners, 

such as the small business’ founders, key employees, and other investors. In most cases, the 

business receiving equity investment does not provide investment security such as collateral 

or guaranties common to asset-based lending.

According to the State Science and Technology Institute (SSTI), 

three of the primary elements of an innovation or technologybased economy include intellectual infrastructure, an 

entrepreneurial culture, and investment capital.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 4-1: Summary SSBCI Metrics for All VCPs, cumulative through December 31, 2015 

SSBCI Metrics for All Venture Capital Programs

Key Data:

*Number of VC Programs 48

SSBCI Allocation ($ millions) $448 

SSBCI Allocation (% of Total Allocation) 31%

Transactions (#) 1,324

SSBCI Original Funds Expended ($ millions) $278 

SSBCI Program Funds Expended ($ millions) $271 

**SSBCI Administrative Funds Expended ($ millions) $7 

SSBCI Recycled Funds Expended $707,923

Average Investment Size ($ millions) $1.3 

Program Outputs:

Percent Expended 62%

***Total Leveraged Financing ($ millions) $3,081

****Leverage Ratio 11.1:1

Program Outcomes:

Total Jobs Supported 19,821

 Jobs Created 11,169

 Jobs Retained 8,652

SSBCI Investments in LMI Communities (% of total 

number of transactions) 36%

Top 3 Industries Assisted (by number of transactions) Professional, Scientific & Technical 

Services

Information

Manufacturing

Venture capital can be provided by a venture capital fund, an accredited intermediary 

organization, or an individual investor (e.g. an angel investor) at any stage of business 

development. Venture capital investors support small businesses in a wide range of business 

development phases, from formation through expansion, with venture capital commonly 

identified with supporting early-stage, high-growth potential businesses. 

* There are 39 active VCPs, 

however some VCPs have 

transactions that are 

classified in more than 

one of the four program 

categories: Funds, StateSupported Entities (SSEs), 

State Agencies, and CoInvestment (see Section 4B 

for descriptions of the four 

program categories).

** Administrative expenses 

are weighted estimates 

prorated by proportion of 

program transactions to 

total OCSP transactions

*** Includes subsequent 

private financing and 

financing leveraged with 

recycled SSBCI dollars

****Includes weighted 

administrative expenses
61

Chapter 4: Observations From SSBCI Venture Capital Programs

4A. Why States Support Venture Capital Investment 

Programs

SSBCI enabled states to create or expand VCPs. VCPs are part of a broader economic 

development strategy to promote entrepreneurial activity on the theory that innovation 

and entrepreneurship drive long-term economic growth and diversification. Many states 

design and implement “technology-based economic development” strategies to encourage 

entrepreneurial innovation and position their regions as global leaders in emerging industries. 

According to the State Science and Technology Institute (SSTI), three of the primary elements 

of an innovation or technology-based economy include intellectual infrastructure, an 

entrepreneurial culture, and investment capital.18 These elements foster more dynamic 

economies focused on new businesses creating high-wage jobs, generating local wealth, and 

anchoring the development of new industry clusters.

Research has shown that young, high-growth businesses contribute disproportionately to job 

growth and positive spillover effects for regional economies.19 Economic developers aim to 

support these high-growth potential businesses, which often need equity financing to start, 

develop, and grow as the vehicle for commercial innovation.

An obstacle for supporting high-growth small businesses as a state economic development 

strategy is the supply of private sector equity investors, both in terms of the number of 

experienced venture investors and the amount of capital available for venture investments. 

Data shows that the supply and accessibility of privately managed venture capital is far 

more limited for small businesses located outside a small number of geographic regions. For 

example, since 2010, small businesses receiving 80 percent of the $166 billion of venture capital 

investments were headquartered in fewer than 1 percent of U.S. counties.20

Observers of equity capital markets have noted that the “virtuous cycle” of venture-backed 

businesses located close to funding sources has also created a “vicious cycle” for regions with 

few venture capital firms actively investing in local businesses.21 As the profile of the venture 

capital industry has increased in the last 20 years, so has the geographic concentration of the 

industry’s investments (see Figure 4-2). Economic development officials outside of traditional 

venture capital centers view this degree of investment concentration as a constraint on 

innovation development.

18 A Resource Guide for Technology-based Economic Development. State Science and Technology Institute. Prepared for the U.S. 

Department of Commerce, Economic Development Administration. August 2006. Web accessed. (http://ssti.org/sites/default/

files/resourceguidefortbed.pdf).

19 Haltiwanger, John C.,Jarmin, Ron S., & Miranda, Javier. Who Creates Jobs? Small Versus Large Versus Young. National Bureau of 

Economic Research. Working paper 16300. August 2010, revised November 2012. Web accessed. (http://www.nber.org/papers/

w16300.pdf).

20 Bowden, Adley. “The Geography of U.S. Venture Investments.” PitchBook. 27 June 2014. Web accessed. (http://pitchbook.com/

news/articles/thegeographyofu-s-ventureinvestments).

21 Lerner, Josh. “Geography, Venture Capital, and Public Policy.” Harvard Kennedy School. Policy Briefs. March 2010. Web accessed. 

(https://www.hks.harvard.edu/index.php/content/download/68616/1247274/version/1/file/final_lerner_vc.pdf).
62

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 4-2: Increasing Rate of Geographic Concentration in Venture Capital Investments, 1995-201522

0

20

40

60

80

100

1995

22.6%

31.8%

35.0%

39.9%

46.4%

9.7% 7.1%

8.1%

12.4%

11.5% 12.8%

11.1%

10.2%

6.5% 6.4%

7.1%

8.7%

40.5%

38.6% 33.8% 22.2%

6.4%

9.9%

12.5%

48.6%

2000

Silicon Valley (San Francisco)

2005 2010 2015

NY Metro (New York City)

New England (Boston)

Los Angeles / Orange County

All Others

% of Venture Capital Investment

Another challenge for economic developers relates to the relative scarcity of venture capital 

for small businesses at the earliest stages of development. Even though venture capital 

funds are commonly identified as the strategic investors behind early-stage businesses, the 

institutional investors that provide the capital to investment firms have increasingly migrated 

downstream by allocating capital to large investment funds (>$500 million) focused on growthstage financing.23 This increased concentration of capital for the later stages of enterprise 

development creates financing gaps along the capital continuum24 and the need for public and 

private capital formation initiatives to support investment in young, promising businesses.

SSBCI provided an opportunity for many states to supplement existing VCPs, 

revitalize programs lacking sufficient state support, or create new programs where 

state managers perceived unmet needs in evolving entrepreneurial ecosystems. 

In particular, states with lower per capita rates of venture capital investment were 

more likely to allocate SSBCI capital to VCPs. As shown in Figure 4-3, states with small 

businesses that received just 20 percent of U.S. venture capital investments in 2014,25

represented 84 percent of the $448 million of SSBCI VCP allocation.

22 Yearbook 2016. National Venture Capital Association. March 2016. Web accessed. (http://nvca.org/research/stats-studies).

23 2Q U.S. Venture Industry Report. PitchBook. 16 April 2014. Web accessed. (http://pitchbook.com/news/reports/2q-2014-usventure-industry-report).

24 Policies for Seed and Early Stage Finance: Findings from the 2012 OECD Financing Questionnaire. Organisation for Economic 

Co-operation and Development. Directorate for Science, Technology and Industry. Committee on Industry, Innovation and 

Entrepreneurship. 15 November 2013. (http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DSTI/

IND(2013)5/FINAL&docLanguage=En).

25 Per capita percent is calculated as venture capital percent (the category of states’ share of U.S. VC investments) divided by US % 

(the category of states’ share of U.S. population). Data is aggregated from the following sources, numbers taken for 2014 as of 

2015 reports. 

“Population.” U.S. Census Bureau. Web accessed. (http://www.census.gov/topics/population.html)

2015 Yearbook. National Venture Capital Association. 2015. Print. 

“Allocations.” U.S. Department of the Treasury, State Small Business Credit Initiative. Internal reports. Not publicly available. 
63

Chapter 4: Observations From SSBCI Venture Capital Programs

Figure 4-3: State Per Capita Rates of Venture Capital Investment Compared to SSBCI VCP Allocations

0

10

20

30

40

50

60

70

80

<10% 10-20%

SSBCI Capital to VCP U.S. VC Investment

20-50% 50-100% >100%

Per Capita VC Investment Rate

Funds Invested (%)

42.5%

0.8% 2%

35.7%

12.2%

33.9%

5.3%

24.8%

16.2%

79.7%

States Categorized by Per Capita Rate of 

Venture Capital Investment

Per Capita 

VC%

% of U.S. 

Population

% of U.S. VC 

Investment

% of SSBCI 

Capital to VCP

CA, MA, DC, UT, NY, WA (6) >100% 23.8% 79.7% 16.2%

CO, CT, RI, NH, IL (5) 50-100% 7.6% 5.3% 24.8%

MN, VT, MD, PA, VA, TX, GA, OR, FL, AZ, NJ, NC (12) 20-50% 37.5% 12.2% 33.9%

DE, MO, TN, OH, MI, NE, KS, NV (8) 10-20% 13.4% 2.0% 35.7%

WI, ME, ND, KY, LA, SC, IN, IA, AR, NM, SD, OK, AL, ID, 

WV, HI, MS, MT, AK, WY (20) <10% 17.7% 0.8% 42.5%

U.S. Territories 19.6%

Totals 100.0% 100.0% 31.1%
64

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Missouri is an example of a state that used its SSBCI allocation to address challenges to 

small businesses accessing venture capital. From 2005 to 2009, Missouri small businesses 

saw their market share of U.S. venture capital investments decline 75 percent.26 The 

Missouri Technology Corporation (MTC), a state-sponsored non-profit, had previously 

struggled to secure consistent state government funding support for VCPs. 

With its $26.9 million SSBCI allocation, Missouri allocated 89 percent, or $24 million, to 

the MTC to manage the Missouri IDEA Fund,27 a VCP that could lead investment rounds in 

Missouri small businesses or co-invest alongside angel investors or venture capital funds. 

Missouri rapidly implemented the program with $7 million of SSBCI capital obligated for 

investments in 2011 and another $10 million obligated in 2012-13.28

Through December 31, 2015, Missouri’s total of $21 million in VCP investments had been 

matched more than 10 to 1 by $289 million of new capital investment. The program’s 

success and regional impact led to a substantial increase in the state’s budget for MTC to 

continue its investment and venture capital development programs.29

26 Op. cit., 2016 Yearbook. National Venture Capital Association.

27 “Commercialization Programs.” Missouri Technology Corporation. Web accessed. (http://www.missouritechnology.com/

commercialization-programs).

28 “Quarterly Reports.” U.S. Department of the Treasury, State Small Business Credit Initiative. Not publicly available. 

29 Altman, Maria. “Nixon celebrated funding for Missouri Technology Corporation.” St. Louis Public Radio. 20 May 2015. Web 

accessed. (HYPERLINK “http://news.stlpublicradio.org/post/nixon-celebrates-funding-missouri-technology-corporation” \l 

“stream/0” http://news.stlpublicradio.org/post/nixon-celebrates-funding-missouri-technology-corporation#stream/0). (In May 

2015, the Missouri Legislature approved $16 million for MTC for the following year’s budget).

(http://news.stlpublicradio.org/post/nixon-celebrates-funding-missouri-technology-corporation#stream/0)
65

Chapter 4: Observations From SSBCI Venture Capital Programs

4B. Classifications of SSBCI Venture Capital 

Programs

For this report, SSBCI categorized state VCPs primarily by how the state engaged with the 

investment process, resulting in four program categories: Funds, State-Supported Entities 

(SSEs), State Agencies, and Co-Investment (see Figure 4-4). 

Figure 4-4: Classifications of SSBCI Venture Capital Programs

VCP Category Investment Management Investment Terms ROI Measures

State Agencies Staff at state agency or a contractor, 

often with an external investment 

committee.

States directly engage in transactions 

and receive returns based on the 

investment contract.

Financial ROI and other 

economic development 

considerations.

Co-Investment 

Models

Eligible investors or funds identify 

qualifying investments for state 

participation on a formulaic basis.

States invest directly or through an 

intermediary. Principal and proceeds 

on individual investments are returned 

to the state or intermediary.

Financial ROI and other 

economic development 

consideration.

State-Supported 

Entities

State supported entities aligned 

with public benefit (private 

non-profit corporation, quasi-state 

entity).

State-funded intermediaries invest in 

companies. Investment principal and 

gains return to the intermediary to be 

reinvested.

Financial ROI and other 

economic development 

considerations.

Funds The general partner or staff at the 

fund.

Funds invest in companies. Investment 

principal and gains on the investment 

portfolio return to state minus fees and 

carried interest.

Financial ROI.

In Figure 4-5, the SSBCI allocation amounts are shown for each VCP category. 

The following sections provide a detailed description of the categories used in this report to 

categorize VCPs. We have included state implementation examples from each category and the 

primary metrics used to measure performance. 

Figure 4-5: SSBCI Allocations by VCP Category

VCP Category SSBCI Allocation 

($ millions)

State Agencies $27.5

Co-Investment Models $48.2

State Supported Entities $166.4

Funds $205.3

 TOTAL $ 448.1 

Funds (46%)

State Supported Entities (37%)

Co-Investment Models (11%)

State Agencies (6% )
66

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Funds

Programs in the Funds category empower private investment fund managers to manage 

SSBCI funds – they perform due diligence, make investment recommendations and/or 

decisions, and monitor investment portfolios. Investment managers in the Funds category are 

not otherwise associated with state governments or engaged to manage economic development 

functions of the state. Managers seek to maximize financial returns from investments within 

the parameters of the program, as financial returns on invested capital is the predominant 

measure by which private investors, pension funds and endowments measure venture fund 

performance. 

To engage private fund managers, states selected funds through a competitive review and 

selection process managed either internally by a state agency or by a contracted private entity 

serving as the fund-of-funds manager. States engaged the private funds in one of the two ways 

listed below.

1. States engaged more than one investment fund manager to administer the state’s 

allocation (VCPs in Alaska-Anchorage, Arkansas, Hawaii, Louisiana, North Carolina, New 

Jersey, New York, Texas, and Wisconsin), commonly referred to as a “Fund-of-Funds” 

program; and

2. States contracted with a single investment fund manager to administer the state’s 

allocation (VCPs in Florida, Michigan, New Hampshire, North Dakota-Carrington, Rhode 

Island, Washington, and Wyoming-Laramie). 
67

Chapter 4: Observations From SSBCI Venture Capital Programs

Figure 4-6: SSBCI Metrics for the Funds VCP Category, cumulative through December 31, 2015

SSBCI Metrics for VCPs with Funds Strategy

Key Data:

Number of VCPs w/Funds Strategy 16

SSBCI Allocation ($ millions) $205 

SSBCI Allocation (% of Total Allocation) 46%

Transactions (#) 661

SSBCI Original Funds Expended ($ millions) $122 

SSBCI Program Funds Expended ($ millions) $119 

*SSBCI Administrative Funds Expended ($ millions) $4 

SSBCI Recycled Funds Expended $0 

Average SSBCI Support $179,500

Average Investment Size ($ millions) $1.3 

Program Outputs:

Percent Expended 60%

**Total Leveraged Financing ($ millions) $1,425

***Leverage Ratio 8.5:1

Program Outcomes:

Total Jobs Supported 7,628

 Jobs Created 3,950

 Jobs Retained 3,678

SSBCI Investments in LMI Communities (% of total 

number of transactions) 33%

Top 3 Industries Assisted (by number of transactions) Information

Professional, Scientific & Technical 

Services

Manufacturing

Investments managed by funds can span the full spectrum of development stages from preseed to mezzanine financings. In aggregate, investments managed by funds recorded a slightly 

higher leverage ratio as funds managed a greater proportion of later stage and debt/mezzanine 

investments across the SSBCI portfolio. See Figure 4-6 for SSBCI program metrics for VCPs that 

used the Funds strategy. The following state program summaries provide examples of various 

approaches taken by programs in the Funds category:

• New Hampshire – To stimulate institutional capital investment in an in-state venture 

capital fund investing in seed and early stage technology businesses, the state 

implemented a variation of a “first-loss” program in which the state VCP participates pari 

passu on fund profits but agrees to absorb the first 15 percent of fund losses via an adverse 

liquidation preference. Analogous to many lending programs, the goal was to lower the 

risk of loss for pension funds and university endowments that might otherwise perceive 

greater performance risk by investing in a venture capital fund limited to investing in New 

Hampshire small businesses.

* Administrative expenses are 

weighted estimates prorated 

by proportion of program 

transactions to total VCP 

transactions

** Includes subsequent private 

financing

*** Includes weighted 

administrative expenses
68

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

• Washington – The creation of the $19 million “W Fund” was anchored by $5 million of 

SSBCI capital. The structure facilitated seed and early stage investments in technology 

businesses developed from intellectual property licensed from in-state universities. 

• Texas – The second phase of the “Jobs 4 Texas” program supported the development of new 

venture capital funds developed by angel investor groups or first-time fund managers. The 

innovative program agreements restricted SSBCI capital to in-state investments while enabling 

the state to profit from out-of-state investments that deliver returns to fund co-investors, and 

granted above-market profits interests to fund managers in exchange for no management fees 

on SSBCI capital and priority distributions to accelerate the return of principal to the VCP. 

State-Supported Entities (SSEs)

SSEs are non-profit or quasi-governmental entities that serve as the primary 

investment agents to manage SSBCI funds – they perform due diligence, make investment 

recommendations and/or decisions, and monitor investment portfolios. Entities in this 

category managing SSBCI capital under contracts with state programs include development 

finance authorities and venture development organizations that have public benefit missions 

aligned with state economic development interests. See Figure 4-7 for SSBCI program metrics 

for VCPs that used the SSE strategy.

Figure 4-7: SSBCI Metrics for the State-Supported Entities VCP Category, cumulative through December 31, 2015

SSBCI Metrics for VCPs with State-Supported Strategy

Key Data:

Number of VCPs w/SSE Strategy 23

SSBCI Allocation ($ millions) $166 

SSBCI Allocation (% of Total Allocation) 37%

Transactions (#) 482

SSBCI Original Funds Expended ($ millions) $99 

SSBCI Program Funds Expended ($ millions) $96 

*SSBCI Administrative Funds Expended ($ millions) $3 

SSBCI Recycled Funds Expended $707,923

Average SSBCI Support $199,600

Average Investment Size ($ millions) $1.1 

Program Outputs:

Percent Expended 57%

**Total Leveraged Financing ($ millions) $1,260

***Leverage Ratio 12.7:1

Program Outcomes:

Total Jobs Supported 8,538

 Jobs Created 5,374

 Jobs Retained 3,164

SSBCI Investments in LMI Communities 

(% of total number of transactions) 41%

Top 3 Industries Assisted 

(by number of transactions):

Professional, Scientific & Technical Services

Manufacturing

Information

* Administrative expenses are 

weighted estimates prorated 

by proportion of program 

transactions to total VCP 

transactions

** Includes subsequent private 

financing

*** Includes weighted 

administrative expenses
69

Chapter 4: Observations From SSBCI Venture Capital Programs

Deals managed by SSEs also run the full spectrum of the small business development stages. 

SSE-managed programs included VCPs in Arkansas, Indiana, Maine, Maryland, Missouri, 

Nebraska, Nevada, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, Virginia, West Virginia, 

and Wisconsin. The following state program summaries provide a snapshot of the SSE program 

category:

• Oklahoma – i2E (innovation to Enterprise) is a state-created and state-sponsored 501(c)

(3) organization responsible for managing Oklahoma’s entire SSBCI allocation via a 

contract with the Oklahoma Department of Commerce. Aligned with existing state-funded 

initiatives, i2E created the Accelerate Oklahoma! Fund with SSBCI funding to support 

technology businesses at multiple stages of development through mentoring services, 

leading investment rounds and supporting the syndication of investments from angel 

investors or out-of-state funds. i2E identified three gaps to address with SSBCI support: 

1) post proof-of-concept “accelerator” investments ranging from $100,000 to $250,000 

2) growth stage investments in established businesses needing greater than $1 million 

in new capital to expand product offerings or acquire new customers, and 3) “any stage” 

investments up to $500,000 designed to enhance angel investment activity in Oklahoma.

• Pennsylvania – Pennsylvania’s Department of Community and Economic Development 

allocated $5 million of the state’s $29.2 million allocation to a VCP. Seven state-supported 

non-profit organizations served as contracting entities for investing the funds: four regional 

Ben Franklin Technology Partners (BFTP) nonprofit organizations and three regionallyfocused Life Science Greenhouses. These established programs have been leading seed 

and early stage equity investments in Pennsylvania small businesses for more than 32 years 

and 14 years, respectively. With SSBCI capital, the new program focused on supporting 

follow-on rounds in existing portfolio businesses that have achieved early milestones and 

need private capital to continue their development.

• Virginia – The CIT GAP Fund is a program managed by the Center for Innovation Technology 

(CIT), a state-sponsored non-profit organization. The Virginia Small Business Financing 

Authority (VSBFA) contracted with CIT to manage the $3 million CIT Gap Fund. The CIT 

GAP Fund invests in science- and technology-based startups with high-growth potential, 

and in many cases, CIT will lead or co-lead small equity investment rounds in seed stage 

businesses with the potential to develop and raise much larger follow-on investment 

rounds.

State Agencies

A small number of states engage directly in transactions in the State Agency category–

they rely on state agency staff or contractors to source deals, perform due diligence, and 

recommend investment transactions. They typically make investment decisions based on 

input from an investment committee that includes private sector representatives. The model 

has nearly disappeared, partly due to concerns that government agencies may not meet the 

SEC’s technical definition of an “accredited investor,” which could potentially impose regulatory 

burdens on private businesses with state agencies as investors. 

In addition, state agencies are more likely to face constitutional limitations on private equity 

participation, often creating investment scenarios where the state program cannot benefit 

from successful investments while accepting downside risk of investments. See Figure 4-8 for 

SSBCI program metrics for VCPs that used the state agencies strategy.
70

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 4-8: SSBCI Metrics for the State Agencies VCP Category, cumulative through December 31, 2015

SSBCI Metrics for VCPs with State Agencies

Key Data:

Number of VCPs w/State Agency Strategy 4

SSBCI Allocation ($ millions) $28 

SSBCI Allocation (% of Total Allocation) 6%

Transactions (#) 58

SSBCI Original Funds Expended ($ millions) $22 

SSBCI Program Funds Expended ($ millions) $22 

*SSBCI Administrative Funds Expended $331,700

SSBCI Recycled Funds Expended $0 

Average SSBCI Support $380,900

Average Investment Size ($ millions) $1.5 

Program Outputs:

Percent Expended 81%

**Total Leveraged Financing ($ millions) $157

***Leverage Ratio 7.0:1

Program Outcomes:

Total Jobs Supported 1,227

 Jobs Created 794

 Jobs Retained 433

SSBCI Investments in LMI Communities (% of total 

number of transactions) 21%

Top 3 Industries Assisted (by number of 

transactions):

Professional, Scientific & Technical 

Services

Manufacturing

Information

States initially implementing a VCP managed by a state agency but then modifying their 

program strategy included Maryland, Illinois, Iowa, Ohio, and Alaska-Anchorage. Of these, 

Maryland subsequently transferred program responsibility to a SSE; Illinois deactivated its 

VCP when the program manager left for a private sector opportunity; Iowa engaged a for-profit 

venture advisory firm to effectively manage program operations; Ohio deactivated its VCP in 

favor of an established lending program; and Alaska-Anchorage shifted its allocated capital to 

an approved fund-of-funds program.30

30 The Municipality of Anchorage approved only one investment transaction through its State Agency program model. 

* Administrative expenses are 

weighted estimates prorated 

by proportion of program 

transactions to total VCP 

transactions

** Includes subsequent private 

financing

*** Includes weighted 

administrative expenses
71

Chapter 4: Observations From SSBCI Venture Capital Programs

Co-Investment Model

Co-Investment states set defined criteria for eligible investments and automatically 

match eligible private investments on a formulaic basis. These programs do not commit 

SSBCI funds to any entity for managing the investment process, a distinguishing feature from 

Funds and State-Supported Entities, where the state has entered into a contract with one or 

more entities to actively manage investment processes. See Figure 4-8 for SSBCI program 

metrics for VCPs that used the co-investment strategy. 

Figure 4-9: SSBCI Metrics for the Fixed Ratio Co-Investment VCP Category, cumulative through December 31, 2015

SSBCI Metrics for VCPs with Co-Investment Models

Key Data:

Number of VCPs w/Co-Investment Strategy 5

SSBCI Allocation ($ millions) $49 

SSBCI Allocation (% of Total Allocation) 11%

Transactions (#) 123

SSBCI Original Funds Expended ($ millions) $35 

SSBCI Program Funds Expended ($ millions) $34 

*SSBCI Administrative Funds Expended $703,500 

SSBCI Recycled Funds Expended $0 

Average SSBCI Support $277,800

Average Investment Size ($ millions) $1.7 

Program Outputs:

Percent Expended 71%

**Total Leveraged Financing ($ millions) $239 

***Leverage Ratio 6.7:1

Program Outcomes:

Total Jobs Supported 2,428

 Jobs Created 1,052

 Jobs Retained 1,376

SSBCI Investments in LMI Communities (% of total 

number of transactions) 37%

Top 3 Industries Assisted (by number of transactions): Information

Manufacturing

Professional, Scientific & Technical 

Services

Co-Investment programs create an opportunity for more passive investment of SSBCI funds 

alongside private capital investors whether they use state agencies or state-supported entities 

as legal intermediaries. Co-Investment programs establish a process to define and approve the 

qualifications of small businesses or investors that are eligible to participate and apply for coinvestment. A subjective review by the state program manager may or may not be part of the 

investment decision process as outlined below:

* Administrative expenses are 

weighted estimates prorated 

by proportion of program 

transactions to total VCP 

transactions

** Includes subsequent private 

financing

*** Includes weighted 

administrative expenses
72

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

1. States implementing a Co-Investment VCP without subjective review include 

Tennessee, Indiana, and the District of Columbia.

2. States implementing a Co-Investment VCP with subjective review include Kansas and 

Minnesota.

4C. SSBCI Venture Capital Program Investment 

Activities and Characteristics

This section highlights observations about SSBCI venture capital investment activities from 

aggregate investment data reported by state program managers. Readers should note these 

observations relate to the SSBCI VCPs in aggregate and do not necessarily reflect the unique 

characteristics of each investment strategy implemented by states because of the variability in 

program design and local business environments. Primary observations include:

• VCPs deployed (expended or obligated) 69 percent of allocated capital through 2015.

• VCPs provided capital to small businesses in various stages of development, but particularly 

early-stage.

• VCPs supported small, young businesses.

• VCPs facilitated private investment leverage at time of initial and subsequent financings.

• VCP investments were concentrated in a small number of industry sectors.

• VCP investments were focused in urban areas.

VCPs deployed more than two-thirds of allocated SSBCI 

capital between 2011 and 2015

Through December 31, 2015, VCPs had expended $266.7 million and obligated another $61.4 

million either to small businesses or to venture capital funds obligated to invest the committed 

funds in small businesses. The VCPs started investing in 2011 and ramped up investing as 

approved programs established partnerships, sourced deals, and facilitated private investment 

(see Figure 4-10).

Figure 4-10: VCP Investment Activity by Year

SSBCI VC 

Investments

Number of 

Investments

*SSBCI Funds Expended 

($ millions)

2011 25 $8.0

2012 215 $58.3

2013 339 $78.7

2014 383 $65.6

2015 362 $60.5

TOTAL 1,324 $271.1

*Does not include administrative expenses 

$ millions

SSBCI VCP Investments by Year

2011 2012 2013 2014 2015

0

20

40

60

80
73

Chapter 4: Observations From SSBCI Venture Capital Programs

Co-Investment and State Agency programs expended a higher percent of VCP allocations 

than Fund and State-Supported Entities through 2015 (see figure 4-11). One possible factor 

contributing to this observation is simply the lower allocation amounts states made to these 

program categories (17 percent of the total VCP allocation). Also, the requirements to create 

legal structures to execute certain fund investment strategies impacted the speed of capital 

deployment. 

The structural characteristics of certain types of investment strategies can influence how quickly 

capital can be deployed to small businesses. One objective of states implementing the Funds 

strategy was to establish new investment funds with a local presence to support small business 

capital needs. However, the process to raise a new fund and secure capital commitments is 

long, creating a timing obstacle between states providing support to new funds and those 

funds disbursing capital to small businesses. In addition, many Funds programs legally obligate 

capital to investment funds through contractual agreements prior to the funds expending 

capital via investments in small businesses. The legal obligation occurs when the funds are 

contractually engaged to manage committed capital, and expenditures occur typically over 

a 3- to 4-year investment period, with some funds held in reserve for follow-on investment 

rounds in the fund’s portfolio businesses. Furthermore, the time required of states to manage 

the fund selection and contracting process, as well as the time required for new investment 

funds to “close” on capital commitments, can result in funds deploying more slowly.

In the case of SSEs, the SSEs may obligate capital to small businesses in advance of closing an 

investment round (expending the funds) for the purpose of enabling the small businesses to 

raise private capital co-investments. The time allowed between SSE commitment and required 

completion of the investment round varies by program from 90 days to one year. 

Figure 4-11: SSBCI Investment Activity by VCP Category

0

100

300

500

700

Transactions (#)

SSBCI Funds Expended Remaining Allocation Transactions

State Agency State Supported 

Entities

Co-Investment Fund

250

200

150

100

50

0

Millions ($)

71%

60%

57%

81%

VCP Category Number of 

Investments

SSBCI Funds 

Expended 

($ millions)

Allocation

Percent of 

Allocation 

Expended

State Agency 58 $22 $28 81%

Co-Investment 123 $35 $49 71%

SSE 482 $99 $166 57%

Fund 661 $122 $205 60%

TOTAL 1,324 $278 $448 62%
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

VCPs supported small businesses in various stages of 

development, particularly early-stage

SSBCI managers described their VCP investment strategies as focusing on small businesses 

in specific stages of development (although several made clear their intentions to invest in 

businesses at “any stage”), with the potential to generate financial and economic development 

returns. 

The venture capital industry commonly uses terms such as “seed,” “early,” “growth” and “later” 

to describe the development stages of small businesses receiving venture capital investments;31

 however, stages of small business development are not always easily defined. State program 

managers used a wider range of investment stage definitions to characterize VCP strategies 

in their SSBCI applications. Typical small business investments reported by state VCPs vary 

primarily by these stages of business development rather than a characteristic of the program 

model, but information on stage of investment was not collected at the transaction level.

As illustrated in Figure 4-12, SSBCI VCPs developed strategies to support small businesses in 

various stages of development and particularly seed- and early-stage businesses, which 

represented 63 percent of proposed activities. By comparison, the NVCA reports that just 36 

percent of venture capital investments are invested in seed and early stage businesses.32

Readers should note that SSBCI transaction data systems did not 

require states to report the development stage of small businesses, 

so data is not available to make precise statements about the 

development stages of businesses supported by SSBCI investments. 

However, the age of small businesses at the time of an investment, on 

a portfolio basis, serves as a reasonable proxy for concluding that state 

forecasts in their applications generally correlated to the actual small 

business investment activities. The following summaries of stagebased investments intended to be general descriptions of typical 

investments to help readers understand the diversity of investees.

Pre-seed or “proof of concept” investments

Prior to forming a business or at the time of business formation, 

many inventors seek small investments to prove technical concepts 

that demonstrate the potential value of their intellectual property. 

Also, “accelerator” programs may offer small capital investments, alongside mentoring and 

technical assistance services, to idea-stage entrepreneurs to help develop their business plans 

and working prototypes that may attract future investors. 

Investments in pre-seed stage small businesses were most often from accelerators co-investing 

less than $50,000 or from angel investors. The risk of failure at this stage is high, so many small 

businesses struggle to find private capital to match the program’s investment. With small 

businesses launched through accelerator programs, the value of the SSBCI capital investment 

and the private capital co-investment was often standardized for all program participants. With 

seed stage investments, the business value determination is sometimes deferred until a future 

31 Op. cit., 2016 Yearbook. National Venture Capital Association.

32 Ibid. Page 13. 

Figure 4-12: VCP Investment Transactions by Stage of 

Business/Investee*

Seed/Early 63% 

Any 25%

Growth 2%

Late 3% 

Pre-seed 6% 
75

Chapter 4: Observations From SSBCI Venture Capital Programs

“institutional” investment round through the use of a convertible note structure, in which the 

loan value can be converted to equity with the same terms as the other investors.

Seed stage and early stage investments

Small businesses that have the founding team working to develop product prototypes or 

business model concepts are generally described as “seed stage” businesses.  “Early stage” 

businesses are developing ventures with a strengthened management team and a proven 

concept or product ready for market introduction, but early-stage businesses are typically not 

generating positive cash flows from operating activities.

The terms of early stage investment transactions will vary by region.  Small businesses raising 

early stage capital in regions with significant venture capital industry activity are far more likely 

to raise investment rounds of $1 million to $5 million.  The vast majority of SSBCI VCP capital 

was invested outside these regions, so the typical early stage investment deal was less than $1 

million.

State program managers confirmed that angel investors were important co-investors in early 

stage SSBCI investments and that SSBCI funds generally accounted for a higher percentage of 

each round, resulting in lower private capital match ratios than later stage investments.  The 

convertible note structure is also used in early stage investments, but transactions were more 

likely to be structured as priced equity rounds, typically as preferred stock rather than the 

common stock held by founders and employees of the small businesses.  The valuation of the 

business is determined by the amount of capital invested and related percentage of ownership 

purchased by the investors.

Growth stage investments

Small businesses that have already received one or more rounds of equity investment and are 

generating significant revenues from one or more products are described as “growth stage,” 

implying that their products or services are proven to have market viability and that invested 

capital will help them scale their business.

Many VCPs targeting seed and early stage investments had the flexibility to participate 

opportunistically in growth stage investment rounds, where the small businesses raised 

investment rounds of greater than $1 million after having achieved certain development 

milestones with capital from pre-SSBCI seed and early stage investors. Again, the size of rounds 

in this investment stage for many SSBCI investments is significantly lower than in regions with 

substantial VC activity, where growth stage investment rounds are often greater than $5 million.

Many SSEs used SSBCI capital to invest in follow-on rounds in small businesses in which they 

had invested in seed or early stage rounds with pre-SSBCI state capital. The terms of growth 

stage investments typically provide investors with preferred stock at specified valuations. The 

initial private capital ratios are higher for growth stage investments. 

The median number of full-time equivalent employees at a 

business receiving SSBCI VCP investment was four, and more 

than 75 percent of the businesses supported were less than 

five years old.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Late stage investments

“Later stage” businesses have proven scalability during the growth stage and need capital to 

gain additional market share, diversify product lines, and prepare for a “liquidity event” that 

will enable equity investors to realize returns on invested capital. They include maturing small 

businesses with cash flows to service debt but other risk factors that disqualify them for bank 

loans, such as not having sufficient collateral or a track record of generating positive cash flows 

for a sufficient length of time. Note that while mezzanine and debt investments are excluded 

from the venture capital investment data reported by Thomson Reuters and published by PwC 

Moneytree and the National Venture Capital Association, these types of investments were 

reported as VCPs for SSBCI as they generally included equity components, such as warrants, 

to supplement the returns of the loans. States that opted for VCPs in this category appeared to 

place greater emphasis on near-term job creation than the majority of VCPs stimulating private 

capital investments in seed and early stage small businesses.

A small number of VCPs focused on later stage equity investments or debt/mezzanine 

investments in small businesses that were entering growth phases but not positioned to 

access debt markets. The typical size of a later stage or debt/mezzanine investment was 

greater than $5 million. VCPs typically structured later stage equity investments as preferred 

stock at specified valuations. Debt/mezzanine investments were typically structured as loans 

with stock warrants or royalties based on revenues.

VCPs supported small, young businesses with equity 

investment support

As shown in Figure 4-13, SSBCI VCPs reached small, young businesses. The median number of 

full-time equivalent employees at a business receiving SSBCI VCP investment was four, and 

more than 75 percent of the businesses supported were less than five years old. Furthermore, 

92 percent of all VCP investment transactions involved businesses with 50 employees or less.

Figure 4-13: Business Age by SSBCI Investment Round Size

0

20

40

60

80

100

0-$50K

117

(81.3%)

75

(55.6%)

58

(36.9%)

61

(27.9%)

63

(25.4%)

75

(17.8%)

207 

(49.2%)

124

(50%)

115

(52.5%)

75

(47.8%)

43

(31.9%)

22 (15.3%)

15 (11.1%) 16 (10.2%) 33 

(15.1%) 45

(18.1%) 111 

(26.4%)

3 (2.1%)

2(1.4%) 2 (1.5%) 8 (5.1%) 10 (4.6%) 16 (6.5%) 28 (6.7%)

$51K-$100K

0-1 yr 2-5 yr 6-10 yr >10 yr

$101K-$250K $251K-$500K $501K-$1M >1M

Round Size

Proportion of Number of Transactions (%)
77

Chapter 4: Observations From SSBCI Venture Capital Programs

VCPs facilitated investment at the time of initial and 

subsequent financings

The ability of state VCPs to attract significant amounts of investment helped states 

implementing VCPs, and SSBCI overall, work to achieve the target private leverage goal of 10 to 

1 across all approved programs. With few exceptions, SSBCI VCPs required at least a 50 percent 

co-investment from private investors on investment terms generally driven by the usual and 

customary terms of private investors.

The different VCP strategies demonstrated variability in the amount of private leverage 

generated from private co-investment, but all VCP categories attracted average private leverage 

of at least twice the SSBCI funding (see Figure 4-14). 

Figure 4-14: SSBCI Investment and Direct Leveraged Financing by VCP Category

0 100 200 300 400 500 600 700 800 900 1000

Fund

millions

State Supported 

Entity

Co-Investment

State Agency

SSBCI Funds Used Co-Investment

7.1:1

5.5:1

5.7:1

3.8:1

Direct Leveraged Financing does include financing leveraged with 

recycled SSBCI dollars, but does not include subsequent private financing

At the time of the initial investment transaction, Fund and Co-Investment strategies generated 

the highest private investment leverage at nearly double the private leverage amount 

achieved by the other program categories (see Figure 4-15). A likely reason for this outcome 

is the way states designed Co-Investment strategies to exclusively match private investment 

from qualified funds (e.g., minimum fund size in Tennessee). By defining eligibility criteria 

for qualified co-investors to include investment funds and exclude individual investors, 

Co-Investment transactions were similar to Fund transactions. Furthermore, with a more 

prescriptive approach to defining eligible transactions, including required ratios of private 

investment to SSBCI support, Co-Investment generated the highest median private investment 

leverage. State Agency and SSE strategies were more likely to attract investment leverage from 

individual investors, resulting in lower initial leverage calculations. 

It is a customary practice for private investors leading seed or early stage investment rounds to 

reserve capital and plan to participate in future financing rounds as small businesses achieve 

milestones and require additional capital to continue developing. Many private investors also 

leverage personal networks to identify new investors managing larger pools of capital to lead 

follow-on rounds. All models have the potential to support investments that attract significant 

private investment across multiple financing events. This potential is reflected in the high 

maximum private leverage ratios across all program, with the SSE category having the highest 

overall leverage.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Figure 4-15: Private Investment Leverage for Initial and Subsequent Financings

0

5

10

15

20

Fund State Agency SSE Co-Investment

Average Median Subsequent Private Financing

Private Leverage Ratio

Contracted private investment managers in the Funds category tend to invest in larger rounds 

of financing. Factors contributing to this observation include the ability of venture capital 

funds to attract other investors to co-invest in deals, and the tendency for funds to focus on 

growth-oriented investments.

The nearly 1,300 investment transactions across the SSBCI VCP portfolio indicate that that 

average SSBCI support was approximately 15 percent of the average investment round 

(see Figure 4-16). However, there was variation among program categories that reflects the 

differences in investment strategies, activities, and sources of private co-investment. SSEs 

and State Agencies tended to invest SSBCI funds at a higher proportion to private investment. 

Possible contributing factors include the focus of SSEs on earlier-stage businesses raising 

smaller investment rounds from angel investors and seed funds. States implementing Funds 

and Co-Investment strategies tended to support larger investment rounds requiring less SSBCI 

support in each transaction.
79

Chapter 4: Observations From SSBCI Venture Capital Programs

Figure 4-16: SSBCI Support as Proportion of Average Investment

VCP Category Average Investment 

Size ($ in millions)

Average SSBCI 

Support 

SSBCI as % of 

Investment

State Agencies $1.5 $380,900 26%

Co-Investment Models $1.7 $277,800 16%

State Supported Entities $1.1 $199,600 18%

Funds $1.3 $179,500 14%

Investments were concentrated in a small number of 

industry segments

In varying order, all VCP categories supported small business investments in the same top three 

industries of Professional, Scientific & Technical Services, Information, and Manufacturing. 

Figure 4-17 shows the top three industries assisted by SSBCI VCPs account for 80 percent of all 

investment transactions. These industries are increasingly driven by technology development 

and adoption, making them likely industry classifications for small businesses seeking equity 

investment. For small businesses in these categories, risk capital is often needed to perform 

the early work of identifying market opportunities and developing products or services before 

revenue can be generated.

$ (Thousands)

Funds

State Supported 

Entities

Co-Investment 

Models

State Agencies

SSBCI Funds Average Investment Size

0 500 1000 1500

Average Investment Size and SSBCI Portion

18%

26%

14%

16%
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

The more detailed breakdown of industry sector distribution of SSBCI provided in Figure 4-18, 

which illustrates investments in technology-driven sectors accounting for the majority of VCP 

transactions.

VCP transactions were primarily in urban areas

VCPs distributed investments across 33 diverse states; however, the investing environment 

for the full portfolio of SSBCI VCPs was mostly urban. Approximately 94 percent of all SSBCI 

venture capital investment transactions are made in urban areas. 

State efforts to increase the availability and accessibility of risk capital often benefit 

metropolitan areas, where some level of concentration of entrepreneurial talent, academic 

institutions, corporate headquarters, and professional service resources exists. Developing 

small businesses, especially in the seed and early stages, are more likely to hire contractors 

and rent specialized equipment or facilities that serve multiple small businesses, so locating 

in urban areas is more efficient while they focus on achieving development milestones. 

Furthermore, sources of private capital required to match equity investments are more likely 

to be located in and around urban areas.

One objective of VCPs is to improve regional entrepreneurial and investment ecosystems so 

that they can better compete in attracting resources of talent and capital. Of the SSBCI VCP 

program categories, the Co-Investment strategy was most active in supporting non-metro 

investments, accounting for approximately 15 percent of the total co-investment transactions 

and 26 percent of the total non-metro investments made across all state VCPs. This observation 

driven by the geography of states and employing Co-Investment programs and the flexibility of 

Co-Investment programs to match investment from qualified investors wherever the investor 

identifies an eligible investment.

0%

10%

20%

30%

Professional, Scientific 

& Technical Services

InformationManufacturing

Figure 4-17: Top Three Industries Assisted by SSBCI 

VC Programs

0%

6%

12%

18%

Commercial 

Services

SowareMediaDevices and 

Supplies

RetailPharma & 

Biotech

Figure 4-18: Industry Sectors Most Supported by SSBCI 

VC Programs
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Chapter 4: Observations From SSBCI Venture Capital Programs

4D. State Goals and Business Environments 

Influenced SSBCI VCP Strategies 

States employed a range of strategies to invest SSBCI funds through state VCPs, with each 

state’s unique objectives influenced by the demand for equity financing and the presence of 

private investors. Program managers viewed these venture capital “demand” and “supply” 

considerations as critically important to achieving the expected outcomes of different VCP 

strategies. Regional business environments vary greatly – both between states and also within 

states – in their preparedness to attract private investment, so states worked to inventory the 

necessary components of their entrepreneur and investment ecosystems to implement the 

right corresponding strategy or combination of strategies.

On the investment demand-side of the equation, states worked to identify a realistic baseline 

of the estimated amount of venture capital investment resident businesses could attract if 

capital accessibility was improved. For example, states collected information from investment 

solicitation filings by businesses with the Securities and Exchange Commission, from interviews 

with small business founders/executives about fundraising needs, and by working with venture 

development organizations that assist small businesses with attracting risk capital investment. 

Based on this information and other data points, such as sponsored research expenditures and 

patent filings, states estimated how much capital the entrepreneurial ecosystem could absorb. 

On the investment supply-side, states examined the availability and accessibility of equitybased capital from different types of investors in their target markets. With SSBCI requiring 

private investment match alongside the federal funding, taking inventory of the likely sources 

of private investment was viewed as a high priority by state program managers. Importantly, 

the types of private investors and the amount of capital available in states is not uniform. In 

mature investment ecosystems, the different but complementary investor classes are present 

and engaged at different points along the capital continuum. State VCPs worked to identify 

and support private investors in two primary classes: institutional venture capital funds and 

individual “angel” investors.

Venture capital funds with a presence in a state, whether resident to the state or serving 

the state through a branch office, are essential partners for supporting high-potential small 

businesses from early through growth stages of development. Because venture capital funds 

are concentrated geographically, states with more developed investment ecosystems were 

more likely to implement a program that contracted with a third party investment manager 

(the Funds model) or a Co-Investment program targeting qualified fund investors. States with 

few to no active venture capital funds located in their regions were less likely to implement a 

Funds model, opting instead for different strategy.

State VCPs worked to identify and support private investors 

in two primary classes: institutional venture capital funds 

and individual “angel” investors.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Individual “angel” investors can be found in most regions across the country. Angel investors 

are critically important in the start-up and early stages and in regions with few active venture 

capital firms. Angel investors supported over 7,000 deals contributing to more than $41 billion 

in investment in 2015.33 In many cases, state VCPs looked to angel investors as the primary coinvestors with SSBCI funding. 

In some markets, angel investors actively collaborated through a network approach, often 

relying upon “lead investors” to conduct due diligence for the group or even contract with 

staff to manage the investment process with the members participating individually. In several 

states, SSBCI capital facilitated the formation of angel funds that allow individual angel 

investors to commit capital to a fund for more active investment management and portfolio 

diversification. 

A large number of states have well-established state-sponsored organizations chartered with 

the mission to support the development of technology businesses for economic development 

purposes. Many of these entities, commonly referred to as Technology-Based Economic 

Development (TBED) or Venture Development Organizations (VDOs), have managed successful 

pre-seed, seed and early stage business investment programs for many years pre-dating 

SSBCI. Furthermore, these economic development entities not only make equity investments 

by managing VCPs, but also offer technical assistance to small businesses to help stimulate 

demand for investment. For example, i2E, a venture development organization in Oklahoma, 

uses a team of advisors to help entrepreneurs identify product/market fit for new concepts, 

develop business plans and investor presentations, and access non-dilutive and other sources 

of capital as appropriate. The organization has even authored its own book as a guide to 

entrepreneurial growth.34

In summary, states designed investment strategies and selected implementation partners 

based on each program manager’s fundamental understandings of the entrepreneurial culture, 

supply of innovation, and maturity of small business investment ecosystems in each state.

4E. Return on Investment Measures Varied Across 

Venture Capital Programs

Beyond designing program structures to best fit the unique market environments of their 

states, state VCP managers also made an important determination in the program design 

phase – whether the VCP would strive to maximize financial returns from investments or 

prioritize other economic development metrics ahead of, but balanced with, financial return 

expectations.

Some VCPs prioritized financial returns on investment (ROI) as a leading performance metric 

and outcome necessary to build sustainable investment capacity. Proponents of this “ROI” 

approach recognized that profitable investments on the portfolio as a whole would eventually 

replenish the VCP’s capital and enable it to continue investing on an “evergreen” basis, 

thereby furthering the reach of its economic development mission. The most cited benefit 

33 2015 Annual HALO Report. Willamette University, Angel Resource Institute. 2015. Web accessed. (http://www.

angelresourceinstitute.org/Research/Halo-Report/Halo-Report.aspx).

34 The Entrepreneur’s Path: A Handbook for High-growth Companies. I2E, Inc. 2010. Web accessed. (http://i2e.org/publication/theentrepreneurs-path/).
83

Chapter 4: Observations From SSBCI Venture Capital Programs

for prioritizing financial returns is the alignment of priorities with the private sector investors. 

However, because of the long time horizon of realizing profits from equity-based investments 

that will exceed the life of SSBCI, it is not possible to calculate, or even estimate, the financial 

return on investment of the VCPs.

Other VCPs invested with an expectation of financial returns from each transaction but also 

with the realization that the portfolio of equity investments in pre-seed, seed, and early stage 

small businesses may be challenged to generate a profit on invested capital. VCP managers 

with this perspective on financial returns viewed their programs as focusing resources on 

investments that could remove risk factors for follow-on investors. By choosing not to reserve 

VCP capital for participation in follow-on investments, managers of these programs willingly 

sacrificed the prospects for greater profits in order to provide more capital for small businesses 

needing assistance at the earliest development stages. 

SSEs were most likely to consider other economic development considerations when making 

investment decisions, including but not limited to geographic or demographic diversity, 

leveraging intellectual property developed in universities, and complementary state economic 

development priorities. As a state-supported entity with a more than 30-year history, the 

Ben Franklin Technology Partners (BFTP) of Pennsylvania provides an interesting look into 

the strategies, considerations, and impacts of these venture development organizations.35

 When assessing their own performance, BFTP takes account of financial return as well as state 

tax receipts and jobs to be created. 

With few exceptions, SSBCI VCPs were managed as state assets expected to generate financial 

returns in addition to stimulating private sector investments and related economic impacts. 

None of the VCPs granted capital to small businesses or their investors, although several VCPs 

provided various financial incentives to participating investors in the form of above-market 

carried interest or non-standard risk mitigation, such as accepting an adverse liquidation 

preference. 

4F. SSBCI Impacts on State Entrepreneurial 

Ecosystems

Interviews with program managers yielded a number of common themes about the positive 

externalities of higher levels of venture investing due in part to SSBCI. Venture development 

35 “Executive Summary: Achievement in Uncertain Times: The Economic Impact of Ben Franklin Technology Partners [2007-2011].” 

Pennsylvania Economy League. A Continuing Record of Achievement. 2013. Web accessed. (http://nep.benfranklin.org/wpcontent/uploads/2013/06/BF_exec-summary_rvsd052313.pdf).

An important determination in the program design phases 

was whether the VCP would strive to maximize financial 

returns from investments or prioritize other economic 

development metrics ahead of, but balanced with, financial 

return expectations. 
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

and human capital development were supported through the investment process of state 

VCPs. VCPs and their statewide partners address an important need in providing aspiring 

entrepreneurs with access to mentoring and connections to potential investors. 

Furthermore, quasi-state and nonprofit organizations managed many of these small business 

investment programs, frequently with the help of private sector professionals. These 

organizations promote entrepreneurship programs, support technology transfer programs 

at research universities, host pitch competitions and angel investor conferences, mentor 

entrepreneurs, lead small investment rounds in early-stage businesses, and syndicate 

investment rounds with local and regional investors. It is not uncommon for these organizations 

to review 500 or more business plans for every 15 to 20 investments made. With each plan 

reviewed, the organization is helping to educate entrepreneurs in ways that improve business 

plans or refocus efforts toward more viable new ventures.

SSBCI helped revitalize state venture development efforts 

A common theme highlighted by VCP managers was the timeliness of SSBCI allocations given 

the cutbacks or indefinite program deferrals that resulted from state budget cutbacks in 2010. 

In the broad scope of economic development programs, VCPs take a comparatively long period 

of time to result in tangible job creation, and the state fiscal environment created uncertainty 

in numerous programs, including long-standing efforts in states like Arkansas, West Virginia, 

Oklahoma, Missouri and Rhode Island. With the SSBCI capital infusion, these states and others 

were able to reinvigorate these programs, helping them retain or grow their capacity and create 

a larger pool of capital for future small business investments.

Venture Capital Programs support long-term job creation 

and economic growth

Venture capital is commonly cited as a significant driver of economic growth, 

innovation development, and job creation. For example, data from a recent 

academic study shows that 38 percent of the 8.1 million employees in public 

companies founded in the past 40 years were employed by companies that 

received venture capital investments during their early development stages. 

Venture-backed firms represented 43 percent of similarly aged public companies 

and accounted for 58 percent of the market capitalization and 83 percent of R&D 

expenditures by their peer group.36

Many state VCPs had these ultimate outcomes in mind when they projected 

substantial job creation data for their programs – 49,000 jobs by 2016 from the 

$366 million of capital allocated to VCPs at the SSBCI program’s outset. But, it is 

important to note that job creation is the most difficult outcome to forecast from 

venture capital investments, especially when the portfolio is comprised mostly 

of seed and early stage investments. States with substantial experience managing statesponsored VCPs were typically more conservative in their job creation projections. 

States report the number of full-time equivalent employees at small businesses at the time 

36 Gornall, Will, & Strebulaev, Ilya .A. The Economic Impact of Venture Capital: Evidence from Public Companies. Stanford University 

Graduate School of Business Research. Paper number 15-55. 1 November 2015. Page 6, Table 3. Web accessed. (http://papers.

ssrn.com/sol3/papers.cfm?abstract_id=2681841).

    

VENTURE CAPITAL 

SUPPORTS

Economic Growth

Innovation Development

Job Creation

    
85

Chapter 4: Observations From SSBCI Venture Capital Programs

of the SSBCI investment and the small business owners’ projections about the number of 

jobs expected to be created within two years of the investment. Most early-stage businesses 

attracting venture capital do not have sufficient track record nor enough information about their 

future markets to truly know what the impact will be on their employment needs. Furthermore, 

even if the businesses could make a reliable projection, it is highly uncertain which businesses 

will actually be successful and create the jobs they estimated and which businesses will survive 

to the next phase of their development. 

Taking into consideration modifications that increased the total VCP allocation to $448 million, 

investees reported jobs created or retained through December 31, 2015, as 19,191, or 39 percent 

of the cumulative projections. With few exceptions, state managers view VCPs as a long-term 

strategy to create jobs. 

4G. SSBCI Addressed a Gap in Federal Programs for 

Equity-Support of Innovation

The federal government provides support for technology-based economic development in a 

variety of ways. Federal support for innovation infrastructure is provided through competitive 

grants to research institutions from federal agencies such as the National Science Foundation 

($7.5 billion annual budget37) and the National Institutes of Health ($32 billion annual 

budget38). Innovation development support is provided through Small Business Innovation 

Research (SBIR) grants from eleven federal agencies that foster technology commercialization 

partnerships with small businesses ($2.2 billion39). To provide financial support for small 

business, the federal government supports subsidized growth capital through the SBA Small 

Business Investment Company (SBIC) debentures program that loans capital to qualified 

investment managers with matching private investment.40 Credit enhancement programs are 

administered by more than one federal agency, including a portfolio of SBA loan programs41

and the Department of Agriculture.42

In addition to providing capital for small business investment through the SBIR and SBIC 

programs, the federal government also invests in building regional entrepreneurial capacity by 

supporting venture development organizations and related initiatives. For example, regional 

entrepreneurial development is encouraged through regional innovation grants from the 

Economic Development Administration (EDA) within the Department of Commerce. The EDA’s 

Regional Innovation Strategies Program,43 authorized through the America COMPETES Act 

of 2010 and appropriated funding in 2014, offers grant funding opportunities to strengthen 

regional communities and provide technical assistance for developing plans for seed 

investment funds.

37 “NSF at a Glance.” National Science Foundation. Web accessed. (http://www.nsf.gov/about/glance.jsp). 

38 “Budget.” National Institutes of Health. Web accessed. (http://www.nih.gov/about-nih/what-we-do/budget). 

39 “About SBIR.” U.S. Small Business Administration, Small Business Innovation Research Program. Web accessed. (https://www.

sbir.gov/about/about-sbir). 

40 “SBIC.” U.S. Small Business Administration, Small Business Investment Corporation. Web accessed. (https://www.sba.gov/sbic/

general-information/program-overview). 

41 “Loans & Grants.” U.S. Small Business Administration, Small Business Investment Corporation. Web accessed. (https://www.sba.

gov/loans-grants/see-what-sba-offers/sba-loan-programs).

42 “Programs & Services.” U.S. Department of Agriculture, Rural Development. Web accessed. (http://www.rd.usda.gov/programsservices). 

43 “Regional Innovation Strategies Program (RIS).” U.S. Department of Commerce, Economic Development Administration. Web 

accessed. (https://www.eda.gov/oie/ris/).
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

To a much lesser degree, the federal government has supported equity investments in small 

businesses. The SBIC Participating Securities program that encouraged equity-oriented 

investing ended in 2004,44 with SBICs since that time structured to support later-stage 

investments. The more recent efforts by the SBA to encourage early-stage investing through 

“Early Stage” SBICs45 is an important program, with five licensed funds, but the program's 

loan repayment terms remain a challenge to supporting early-stage business investment 

opportunities due to the long-term, illiquid nature of early stage investing.

In contrast, more robust capital formation experiments with equity support initiatives have 

been conducted at the state level, with some states allocating funds to equity finance programs 

nearly continuously for more than 30 years.46 Other states have experimented intermittently 

with various venture development and equity support programs.47

As shown in Figure 4-19, while innovation and venture development are supported nationally 

by federal programs – SBIR grant funding to small businesses for innovation development 

at the seed stage and SBIC funding support for growth-stage financing – a critical gap exists 

for federal support along the capital continuum for early-stage equity investment. It is at this 

critical early stage equity financing gap that many states used SSBCI funds to support state 

VCPs designed to stimulate private financing in high-growth potential small businesses.

Figure 4-19: Equity-based Capital Continuum for High-Growth Businesses

Private Sources of 

Capital

Angel Investors, Accelerator 

and Seed Funds Venture Capital Funds Public Markets

Direct Federal 

Support (Equity)

 – –

SBA SBIC 

USDA RBIC

Other Federal 

Support (Grants)

SBIR / STTR,

Commerce EDA Commerce EDA, SBA – –

44 Dahlstrom, Timothy R. “The Rise and Fall of the Participating Securities SBIC Program: Lessons in Public Venture Capital 

Management.” Perspectives in Public Affairs. Vol. 6, No. 1. Pages 64-83. Arizona State University. 26 May 2009. Web accessed. 

(http://www.academia.edu/8114631/The_Rise_and_Fall_of_the_Participating_Securities_SBIC_Program_Lessons_in_Public_

Venture_Capital_Management_-_Perspectives_in_Public_Affairs_Vol._6_No._1_pp._51-68_Spring_2009).

45 “Office of Investment and Innovation: SBIC Early Stage Innovation Program.” U.S. Small Business Administration, Office of 

Investment and Innovation. January 2016. Web accessed. (https://www.sba.gov/sites/default/files/articles/OII_Early_Stage_

Slide_Deck_January_2016.pdf).

46 “About.” Ben Franklin Technology Partners. Web accessed. (http://cnp.benfranklin.org/about/).

47 “Resources.” Economic Development Partnership of North Carolina. Web accessed. (http://www.thrivenc.com/businessservices/

financing-and-capital).

Cash 

Flow

Pre-Seed Seed Stage Early Stage 

Equity

Later Stage 

Equity, Debt 

(Series C to 

Mezzanine)

IPO / Secondary 

Oering

Time
87

Chapter 4: Observations From SSBCI Venture Capital Programs

4H. Program Manager Commentary on VCP 

Challenges and Lessons Learned

This section summarizes reflections from state program managers about the challenges and 

lessons learned during the implementation of SSBCI. State managers had the flexibility to 

create their own programs, but they had to fit within federal rules and guidelines that did not 

always align with common publicly supported venture management practices. As a result, 

some SSBCI requirements resulted in states needing to adjust investment processes that were 

already in place for existing programs. The basic realities of equity financings – subjective 

investment decisions, pooling of capital into fund partnerships from multiple sources, extended 

timeframes for fundraising, investment and liquidations – create unique challenges and risks 

for managers of equity support programs.

State program managers raised a variety of issues for states to consider when designing and 

implementing VCPs.

• Program managers recommended defining conflicts of interest policies at the outset 

of any federal or state program. During the implementation of SSBCI, the federal rules 

on conflicts of interest evolved to better align with the standard operating procedures of 

venture capital investors.48 However, changes during the program created uncertainty and 

disrupted the pace of deployment as some states adjusted their processes.

• Program managers recommended setting realistic expectations on the amount 

of time required to establish new VCPs. This advice is especially relevant for a Fund 

strategy that uses third party contractors for managing the investment process and might 

be dependent on raising capital from outside sources. In some states, like New York, the 

process to competitively select and engage private investment managers (i.e., finalize 

partnership agreements) took longer than originally estimated and delayed the starting 

point for investing SSBCI funds. In other states, like Washington and New Hampshire, 

the amount of time needed for the selected fund managers to raise the target amount of 

private capital and “close” the investment funds took longer than anticipated.

• When accepting federal funds to support small business financing programs, states 

accepted the responsibility to account for the federal funds at all times. Accounting for 

SSBCI funds in VCPs was generally viewed as straightforward for the program categories of 

State-Supported Entity, State Agency, and Co-Investment programs. However, some Fund 

state VCPs opted to invest SSBCI funds as a “Limited Partner” in fund partnerships, having 

an ownership position in the total fund and not restricted to the in-state investments. 

States investing in the full partnership created new challenges to track and account for 

the flow of SSBCI funds once the capital became fungible alongside other funding. By 

comparison, other Fund state VCPs established isolated “side car” funds for investment 

managers to use for in-state investments.

48 Initially, SSBCI conflicts of interest rules prohibited investments in businesses controlled by an SSBCI insider (e.g., someone 

involved in the investment decision or relatives of that person) Treasury guidance referred to definitions in Banking Regulation 

O. However, applying Regulation O definitions for “control” and “insider” to VCPs created serious implementation challenges 

for state program managers. First, and most importantly, using the banking regulation definitions created the unintended 

consequence of prohibiting follow-on investments by SSBCI-funded VC programs, which is a standard, beneficial practice in 

equity-based financing. Second, the process of determining control was overly complicated and burdensome for program 

managers and program contractors.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

• Sufficient staff capacity to sustainably manage VCPs was viewed by states as a critical 

success factor, a challenge made more difficult by the cap on allowable administration 

fees. State VCPs often faced competing priorities for attention from program managers, as 

well as turnover by key staff. This was documented for all program categories, with State 

Agency and State-Supported Entity categories being most impacted by staff capacity issues. 

Furthermore, with VCPs, states assume significant program management responsibilities 

after the initial investment, because equity investments can be held for many years before 

a liquidation event.

• State program managers reflected on the importance of designing flexibility into state 

program rules in accordance with the federal requirements. In other words, establishing 

small business investment parameters at the state level that are overly prospective or 

confining can delay fund deployment to small businesses. States can balance flexibility 

in setting appropriate investment parameters with both federal policy mandates and 

state program objectives (e.g., supporting early-stage businesses). Furthermore, states 

considered how to creatively manage VCPs when the federal requirements resulted in 

management obstacles. For example, the administration fee structure allowed by SSBCI 

did not align with market expectations of private investment fund managers. Most states 

implementing Fund programs had to design alternative compensation agreements to 

engage investment managers, such as increasing the profit share in exchange for lower 

annual administration fees charged.
Chapter 5

Concluding Comments

Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

Center for Regional Economic Competitiveness & Cromwell Schmisseur

OCTOBER 2016
In This Chapter

5A. Key Program Outcomes ......................................................................................................................... 91

5B. Lessons Learned from Credit Support Programs ................................................................................. 92

5C. Lessons Learned from Venture Capital Programs ................................................................................ 94
91

Chapter 5: Concluding Comments

Chapter 5: 

Concluding Comments 

In implementing SSBCI, states experimented with different 

program models and various terms and conditions to address 

barriers small business owners and entrepreneurs face in 

obtaining capital to start and grow their businesses. SSBCI 

provided state program managers with broad discretion 

in deciding how to deploy capital to small businesses and 

leverage private capital. 

While SSBCI defined rules in areas such as administrative cost limits, use of proceeds, and 

conflict of interest policies, states were otherwise encouraged to either support existing 

successful programs or innovate to address small business capital needs with new programs. 

This chapter summarizes the consultants’ conclusions and general observations about what 

SSBCI has accomplished and what lessons it offers in informing future federal or state small 

business financing programs.

5A. Key Program Outcomes

• SSBCI implemented a federal-state-private economic development collaboration 

that state leaders described as an effective model. States gained greatest attention 

from lenders and investors by building on their capacity to understand local markets and 

by remaining flexible in providing state-specific solutions. 

• SSBCI provided states with the flexibility to design customized small business 

capital support programs for meeting unique business financing needs. States are 

better positioned than the federal government to identify local capital needs, create an 

integrated businesses assistance system, and manage programs with local partners.

• Most states received all of their funds from Treasury and expect to deploy them by 

before the Allocation Agreements expire in 2017. Out of 57 participants, 55 received 

their second disbursements and 46 received their third and final disbursements by 

December 31, 2015. The states that deployed their SSBCI funds quickly were more likely 

to have developed products that capital markets valued and that met the needs of small 

businesses. Many also had pre-existing relationships with lenders and investors that 

helped to adapt the products to market needs. 

• States were able to expend their funds more rapidly if they had existing management 

capacity to implement financing programs and adapt to market needs. States that 

implemented programs accepted readily by the market tended to have experienced staff 

in place. For other states, the process of identifying personnel and formulating program 

guidelines delayed initial progress. Even so, many states that created new programs were 

also effective because they were able to attract experienced staff.
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

• Treasury’s role as a convener was instrumental in promoting state-defined best 

practices and sharing new state program models. SSBCI created a large collection of 

state experiments in both lending and equity-based capital formation that provides the 

opportunity to share information on evolving state program models, program principles, 

and best practices. State leaders have limited resources available to them when 

considering capital program options, and this information should be viewed as a resource 

and made easily accessible for review in the future. 

5B. Lessons Learned from Credit Support Programs

Program Design

• States endeavored to design credit support programs that addressed specific local 

credit gaps and responded to local market needs. The program designs reflected 

economic realities, adapted to local capital needs and state banking practices, and used 

flexible program designs and terms. For example, several states implemented CSPs in 

response to declining business asset values that are typically used as collateral for loans. 

Throughout the country, community banks and CDFIs used SSBCI to address unique 

borrower needs and to finance start-ups and nonprofits. 

• The most widely used programs incorporated input from local banking and non-bank 

financial institutions in the design process. Lender input during both the design and 

implementation stages tended to influence key program features and increase lender 

interest in the program. States most commonly engaged community banks and CDFIs. 

Financial institutions with an identified commercial lending core were most active. CDFIs 

were particularly important in supporting investment in low- and moderate-income areas. 

• Objectives changed in response to evolving economic conditions. Successful states 

designed multiple programs to meet a spectrum of small business credit needs as they 

evolved in the aftermath of the recession. For example, some states designed programs 

to support businesses of varying sizes, at different stages of development, or serving 

specific industries. Many states reallocated funds as new capital gaps emerged or market 

conditions changed. Even as the economy recovered, states continued actively using 

SSBCI, suggesting that states sought to fill important structural capital needs beyond 

those required for stimulus.

• Credit support programs that subordinated the state’s position on collateral to 

the lender achieved faster market acceptance than pari-passu programs. Lenders 

appreciate programs that focus on filling the collateral gap in small business lending 

because it allowed them to honor financing commitments even if a collateral appraisal is 

lower than expected; this was a particular challenge immediately after the recession when 

collateral values were unusually depressed. Even so, successful programs ensured that 

lenders were sufficiently at risk to maintain the full integrity of their underwriting process. 

• Expectations for private leverage shifted. Many states struggled with achieving the 

overall 10:1 leverage ratio when measured only through initial deployment of funds. Aside 

from CAPs, the other program models relied on recycled funds to achieve their targets. 

SSBCI’s authors envisioned CAPs as an important part of the program and leverage 
93

Chapter 5: Concluding Comments

ratios above 20:1 were relatively common for CAP. However, ultimately that program 

type did not appeal in the marketplace and many states had to rely on alternative credit 

enhancement programs that were more likely to leverage new lending at a rate of 6:1 or 

7:1. New programs designed to meet current market needs often had even lower leverage 

ratios. This information provides a good benchmark for future lending and investment 

program support that reflects what banks and other lenders require to address the credit 

gaps associated with otherwise creditworthy borrowers.

Operations and Compliance

• The choice of administrative agent impacted performance. States had the option to 

select partners to help implement their SSBCI financing programs. States with legacy credit 

programs had a head start in identifying partners, but states that created new programs 

experimented with new types of partners and delivery systems. For example, several large 

states with dispersed populations and those with no legacy programs chose to work with 

or through statewide non-bank CDFIs and BDCs. Even so, states with quasi-public agencies 

already in place were the most active in deploying funds rapidly while also adapting their 

programs quickly. 

• Continuous and consistent marketing drove success. All programs, but especially states 

without legacy programs, benefited from reaching out to active small business lenders 

in their market on a continuous basis using a broad range of means including through 

state bankers’ associations, small business development centers, regulatory agencies, 

websites, newsletters, and others. 

• Reaching underserved communities required a robust program, network of partner 

lenders, and consistent marketing. No single approach to targeting underserved 

communities worked for all programs. Focused marketing, especially through networks 

already connected to targeted communities, technical assistance to mission-oriented 

intermediaries, and the identification of specific goals for targeted lending and investment 

helped to improve SSBCI performance in underserved communities.

• State programs sought to incorporate design elements aligned with market practices. 

State programs that adapted their processes and procedures to local capital market needs 

and state banking practices appealed to lenders. Market-responsive processes, provisions, 

and terms helped programs to fulfill their objectives of leveraging private capital for small 

business lending, especially in low- and moderate-income areas. Successful programs 

reduced paperwork by allowing lenders to use their own forms and closing documents, 

minimized the need for re-underwriting of credit decisions, and reduced the time for 

processing loan applications made through lending partners.

• Small banks and CDFIs originated the largest share of loans under SSBCI. Although 

there were hundreds of CDFIs and small banks that participated in the program, “power 

users” accounted for a significant number and dollar volume of SSBCI transactions. 

Engaging these committed lenders drove the program’s success providing capital to 

small businesses. CDFIs tended to represent smaller loans and had high leverage ratios, 

especially because they engaged with CAPs, particularly and the California CAP which 

represented nearly three-quarters of all CDFI loan transactions nationwide. While small 

lenders made more loans, large banks had difficulty adjusting their products, credit 

underwriting, and compliance programs to state specific SSBCI requirements. 
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Program Evaluation of the U.S. Department of Treasury State Small Business Credit Initiative

5C. Lessons Learned from Venture Capital Programs

Program Design

• Many states customized SSBCI VCPs to work within local market conditions for equity 

investors, which can vary significantly from state to state and region to region. The 

success of VCPs depended on the ability of state program managers to accurately identify 

and address risk capital financing gaps within the unique entrepreneurial and investment 

ecosystems of their particular state. States vary greatly in terms of both entrepreneurial 

capacity (which creates demand for equity financing) and private investment capacity 

(which provides the local supply of capital), creating the need for customized VCP 

strategies.

• States often worked to develop a portfolio or “continuum” of state small business 

finance programs to address capital needs across the investment/development stages 

of high-growth potential businesses. States that developed a complementary portfolio 

of small business finance programs communicated the need to support businesses from 

the early-stage through the growth stages to increase the likelihood of success and keeping 

the business in state. 

• Establishing a base of local investors, specifically local venture capital funds, was 

a critical success factor for supporting high-growth entrepreneurship, innovation 

development, and regional economic diversification. SSBCI helped stimulate 

investment from different types of private investors, with many states intentionally 

supporting the formation of new investment funds or local offices for existing out-of-state 

investment funds.

• State program managers shared experiences and collaborated on developing best 

practices for designing and operating VCPs. Equity support programs are an emerging 

field of practice in economic development, and SSBCI has contributed valuable program 

experiments, data and lessons learned that improve understandings at the state and 

federal levels. This national network of experienced venture capital program managers as 

well as state agency and state-sponsored nonprofit leaders designing and implementing 

capital programs not only helped make SSBCI successful but also improved this field of 

economic development by making more information available on the processes, practices 

and structures of state VCPs that will benefit future programs.

• Equity investors welcomed states and SSBCI resources as partners. State engagement 

not only helped to increase capital available for equity financing, but it was also seen as 

critical in developing the entrepreneurial ecosystem. Investors considered it important 

that state staff learn about local venture capital networks, local ecosystems that could 

serve the small business equity market, and potential private-sector partners within their 

states.
95

Chapter 5: Concluding Comments

Operations and Compliance

• States vary widely in their available institutional infrastructure to design, manage 

and/or oversee equity investment programs. While some states operated small business 

investment programs consistently or continuously for many years prior to SSBCI, many 

states either had no preexisting programs or had funded them inconsistently. The federal 

government is better positioned to address economic challenges if states maintain a base 

level of small business investment programs and are prepared to deploy capital to small 

business development ecosystems. The right infrastructure – legal entities, personnel, 

and processes – is necessary to efficiently and effectively implement VCPs.

• For VCPs, effective marketing and outreach strategies varied by the type of program. 

In State Agency and Co-Investment programs, the state maintained primary responsibility 

for communicating the benefits of program participation to both potential funding 

recipients and private co-investors. With models using third party entities – non-profit or 

for-profit – to manage the program’s investment process, the external investment manager 

maintained the responsibility for effectively attracting investees with support from the 

state administrator. Many states actively marketed their programs through regional and 

statewide economic development partners, with an online informational resource guide 

and contact point to make it easy for interested parties to learn more and apply for funding.

• States were often challenged to clarify expectations about what outcomes should be 

achieved and when, including how to measure and report results at different points 

during program duration. While job creation is a traditional economic development 

measure, equity investments typically require many years before businesses begin their 

longer-term employment growth phase that generates financial and economic returns. 

Instead, the private investment leverage ratio is a more relevant metric in monitoring 

impacts within the control of program managers. Also, equity program managers should 

emphasize measuring outcomes on a portfolio basis, understanding that many individual 

businesses will ultimately fail and a small number of highly successful small businesses 

will be responsible for the vast majority of economic development returns.

• A valuable byproduct of SSBCI was the creation of a national network of practitioners 

interested in documenting and sharing detailed information on capital formation 

program experiments. This network consists of experienced venture capital program 

managers as well as state agency and state-sponsored nonprofit leaders designing and 

implementing first-time capital programs. Creating this network of practitioners not only 

helped make SSBCI successful but also improved this niche field of economic development 

by making more information available on the processes, practices, and structures of state 

VCPs that will benefit future programs.
PROGRAM EVALUATION OF THE US DEPARTMENT OF TREASURY 

STATE SMALL BUSINESS CREDIT INITIATIVE 

OCTOBER 2016

PREPARED BY

CENTER FOR REGIONAL ECONOMIC COMPETITIVENESS

CROMWELL SCHMISSEUR