STATE SMALL BUSINESS CREDIT INITIATIVE

WEBINAR SERIES:

PROGRAM 

SUSTAINABILITY
SSBCI Webinar Series: Program Sustainability 1

SSBCI Webinar Series: Program 

Sustainability

SSBCI hosted a series of webinars on the sustainability of lending programs in May and June of 2017. 

The webinars featured the following presenters:

• Capital Access Programs: Rachael Dubin, New York and Renee Webster-Hawkins, California;

• Loan Guarantee Programs: Howard Willis, Alabama and Nancee Trombley, California; 

• Collateral Support Programs: Chris Cook, Michigan and Cory Phelps, Idaho; and

• Loan Participation Programs: John Saris, Oregon and Tom Wall, North Carolina.

The following summarizes each webinar organizing content by recurring themes that included: 

• Recycle capital as quickly as possible; 

• Manage risk to minimize loss; 

• Maximize capital availability;

• Market the program effectively to generate deal flow and fee income;

• Maintain a flexible program design capable of adapting to changing lender and business 

needs;

• Leverage outside funding resources; and

• Build state stakeholder support.
2 SSBCI Webinar Series: Program Sustainability

Strategies for Capital Access Program 

Sustainability

Representatives from California and New York, Reneé Webster-Hawkins (Executive Director, California 

Pollution Control Financing Authority) and Rachel Dubin (Senior Director-Community Economic 

Development, Empire State Development), discussed sustainability strategies for capital access 

programs (CAPs) during a webinar on May 17, 2017.

CAPs have been in use for decades as a means of using small amounts of scarce public resources to 

leverage large amounts of private capital. The focus of these programs is to build a loan loss reserve 

for each participating CAP lender through small contributions from the state, lender and borrower on 

each CAP loan. The size of a lender’s reserve is directly proportional to the dollar volume of CAP loans 

that lender originates, less any claims on the reserve to cover losses on enrolled loans. Historically, 

states funded CAPs with budget appropriations and the interest earned on CAP reserve. 

The presenters offered the following points of discussion: 

Recycle Capital as Quickly as Possible 

Manage lender expectations regarding reserve account recapture. 

From the outset CAP administrators should develop policies that help manage lender expectations 

about the circumstances under which a reserve account will be recaptured. For example, if a lender is 

inactive for a certain amount of time, CAP program policies should allow for the recapture of reserves 

no longer needed for matured loans. These funds can help support new loans or administrative costs. 

In situations in which CAP policies are expected to change or in which the state anticipates that funds 

would ultimately be returned to the state, the CAP program manager will need to develop a process 

through which program participants “buy in” to the change in policy.

Adopt a trigger to allow excess CAP reserves to be recycled to support new CAP loans. 

To the extent a lender is holding “excessive” CAP reserves, resources are not being efficiently utilized. 

How each state defines what “excessive” means varies by state. In some states the recapture is focused 

solely on the state’s contributions. In other states the recapture applies to the entire CAP reserve 

(including borrower and lender contributions). In California a dialogue with lenders on the state’s 

plans for recapturing CAP reserves began in 2015 and included lender roundtables, one-on-one 

meetings with several stakeholders, and a public stakeholder symposium to solicit sustainability 

ideas. As a result of that dialogue California submitted emergency regulations to make their CAP more 

sustainable by allowing the state to recapture its contribution on matured CAP loans and on CAP 

loans that have been enrolled in the program for five or more years. Lenders would have the choice of 

continuing to enroll loans in the program and be subject to the annual recapture or to maintain their 

CAP reserve to service their existing CAP portfolio and forgo the ability to enroll additional loans in the 

program. (The emergency regulations discussed in the webinar were officially adopted in August of 

2017).
SSBCI Webinar Series: Program Sustainability 3

Communicate changes in program parameters clearly and directly. 

To develop a more sustainable program a state may choose to reduce the maximum size loan 

that may be enrolled into its CAP. As state funding replaces federal funding, a state may decide 

to reduce the CAP contribution rate for state-funded CAP contributions to extend their program 

resources further. States that have engaged their lenders through roundtables and other means of 

direct communication have found it to be an effective means of managing lender expectations and 

generating lender support for the changes. 

Maximize capital availability

Product design. 

New York maximizes the use of its CAP funds by limiting eligibility (borrower must be a New York 

State small business that otherwise finds it difficult to obtain regular or sufficient bank financing, is 

independently owned and operated, and has no more than 100 employees); loan size (maximum loan 

that may be enrolled in the program is $500,000); and utilization (no borrower may have more than $1 

million in CAP loans outstanding at one time).

You can access both of the PowerPoints for the webinar here. If you have any questions 

regarding this material you may contact the presenters directly for further information. For 

additional thoughts and best practices for CAP sustainability, please refer to the 2015 report on 

CAP best practices here.
4 SSBCI Webinar Series: Program Sustainability

Strategies for Loan Guarantee Program 

Sustainability

Howard Wills (SSBCI Unit Chief, Alabama Department of Economic and Community Affairs) and 

Nancee Trombley (Chief Deputy Executive Director, California IBank) discussed sustainability strategies 

for loan guarantee programs (LGPs) during a webinar on May 23, 2017.

LGPs are the most widely used program structure among state economic development agencies. 

Many states adopted them before SSBCI to respond to underserved local business credit needs. Banks 

that did not have SBA lending capacity or that planned to retain the loan on their books were more 

likely to use state LGPs. 

Alabama’s LGP was created as a result of SSBCI and thus had no prior track record in the state. Its 

development required extensive outreach to lenders for feedback on program design. In response, the 

state provided lenders with broad freedom to handle their own due diligence, servicing of loans, and 

other administrative tasks. California’s program has been around for four decades and has a network 

of state-chartered financial development corporations to reach lenders and borrowers on a regional 

basis and handle underwriting, servicing, and other administrative issues. Both programs emphasize 

the importance of building stakeholder engagement, including positive state legislative perceptions 

about the program’s impacts. 

The presenters offered the following points of discussion:

Recycle capital as quickly as possible 

Redeploy excess reserve funds quickly. 

Both California and Alabama periodically review outstanding loan balances to determine the amount 

of cash that may be used to support new guarantees. By putting these “idle” reserve funds to work 

program managers are able to maximize the use of LGP funds and program impact. 

Leverage the guarantee trust reserve.

States like Alabama, who created new LGPs, generally funded their initial guarantees at 100%. As 

Alabama has reviewed the performance of its guarantee loan portfolio it has determined that it no 

longer requires a dollar in reserve for every dollar of guarantee outstanding. This has allowed Alabama 

to increase the guarantees outstanding to a prudent multiple of its actual reserve. California, with four 

decades of experience, has a 5:1 leverage on its guarantee reserve and legislation has been signed 

into law allowing the program to increase to 10:1 in the future. States should constantly evaluate the 

performance of their guarantee pool to determine the appropriate level of leverage. 
SSBCI Webinar Series: Program Sustainability 5

Maintain a flexible program design capable of adapting to changing lender and 

business needs 

Adapt the LGP design to ensure that it remains useful and relevant to lenders and small 

businesses. 

Credit markets continuously change as interest rates rise and fall, lender regulations change, and 

market conditions shift. LGPs that are unique can help address the problems of small business but they 

may be less interesting to banks not interested in servicing the loans for the long term. For instance, 

Alabama found that continuous program improvement and marketing were key to maintaining lender 

participation. Alabama and California both noted that community and regional banks were more 

likely to participate than large banks (with their centralized credit processing systems and SBA lending 

capabilities). 

Market the program effectively to generate deal flow and fee income

Keep all stakeholders informed of the successes of your LGP. 

There is a cost associated with the need for on-going communications with smaller banks and other 

key partners that may not be as familiar with a small state program. Both California and Alabama 

program managers maintained weekly contacts with potential lenders to promote their program to 

keep the LGP at top of mind as they review potential deals. Communication with partner lenders and 

key investors (including state economic development policy makers) is the optimal way to keep lender 

participation high. 

Cultivate lender ownership of programs to encourage engagement and continued 

participation by reducing unnecessary administrative costs.

While both Alabama and California underwrite their guarantees, they allow lenders to use their own 

loan underwriting templates, determine the extent of collateralization, and use their own loan closing 

forms. This differs significantly from SBA and other government LGPs. Each state has structured its LGP 

to meet specific business needs – Alabama provides a maximum 50% guarantee designed to primarily 

assist existing businesses while California’s maximum guarantee of 80% allows for the financing of 

start-up businesses. Both states focus on timely response and can provide a lender with a decision on 

a loan in less than 10 days. 

Manage risk to minimize loss 

Diversify borrowers to enhance sustainability. 

Alabama and California welcome applications from a broad range of businesses. A diversified 

borrower base can help overcome potential economic cycles that affect specific industry sectors. While 

providing guarantees to smaller loans may require more administrative resources per dollar loaned, 

this expansion and diversification of the borrower base can help mitigate potential losses. Both states 

have limits on the maximum guarantee they will provide, however, they do not have a minimum. 
6 SSBCI Webinar Series: Program Sustainability

Build state stakeholder support

Build sustainability into your marketing. 

Marketing to build a broader base of lending partners is a vital element of any state’s strategy. 

Relying on a few lenders can be problematic if the lender decides to shift strategies and forego 

lending to SSBCI-qualified businesses. California noted that its efforts to attract numerous lenders 

have supported program sustainability. The state has a broader number of lending partners, thus 

diversifying the source of new loans, increasing the number of reviewers, and extending the pipeline 

of potential deals. This larger customer base means that California has a large pool of potential 

returning lender relationships. Meanwhile, Alabama’s LGP provides support for lines of credit, which 

provides a unique loan niche for lenders compared to most other government LGPs. 

Maintain a proactive dialogue with the legislature. 

Both state program managers noted the importance of helping legislators recognize the value of 

the LGP so that reserve funds remain available to support ongoing lending initiatives. The presenters 

recommended informing key legislators of success stories and sharing those stories with the public 

as often as possible. Highlighting how the program has impacted local community or “Main Street” 

businesses is an important part of demonstrating the value of the program. 

You can access both of the PowerPoints for the webinar here. If you have any questions 

regarding this material you may contact the presenters directly for further information. For 

additional thoughts and best practices for LGP sustainability, please refer to the 2015 report on 

LGP best practices here.
SSBCI Webinar Series: Program Sustainability 7

Strategies for Collateral Support Program 

Sustainability

Cory Phelps (Vice President, Idaho Housing Finance Agency) and Chris Cook (Director-Capital Access, 

Michigan Economic Development Corporation) discussed sustainability strategies for collateral 

support programs (CSPs) during a webinar on May 25, 2017.

CSPs are a recent innovation in state-supported lending programs with very few states having such 

programs before 2011. In most states, these programs do not have a track record of state support 

before SSBCI’s creation so their long-term sustainability and ability to attract state public investment is 

uncertain. 

Idaho’s CSP was created with SSBCI funding, relies heavily on community and regional banks, and 

places a priority on lender feedback and leadership. The demand for the program is so great that it has 

forced Idaho to develop innovative strategies to meet the needs of borrowers. Michigan’s program 

(the first in the nation), was created by the state to address the collapse of collateral values as a result 

of the financial crisis. 

The presenters offered the following points of discussion:

Recycle capital as quickly as possible 

Monitor outstanding loan balances and amounts in collateral deposit account.

Both Idaho and Michigan periodically review lender loan balances to ensure that that the collateral 

support does not significantly exceed the contract percentage. Michigan contacts participating banks 

on a quarterly basis to monitor deposit-to-outstanding loan balance ratios on its entire portfolio. If the 

ratio is above the contracted amount for a loan Michigan will “claw-back” that portion of the collateral 

deposit in excess of the contracted amount if the difference is at least $10,000.

Leverage CSP funds for short term loans. 

Idaho and Michigan both aggressively price and structure their collateral support products to 

encourage short-term uses. Michigan found that an annual fee not only discourages lenders from 

over-collateralizing loans, but also encourages lenders and borrowers to have discussions about 

whether full or partial collateral support is needed, and whether a portion can be returned. Idaho’s 

closing fee is based on the length of the transaction, the longer the term the greater the fee. Idaho 

also reduces the maximum amount of collateral support provided based on the term of the loan (up to 

$1,000,000 for terms of less than 1 year, but only $250,000 for terms in excess of five years).
8 SSBCI Webinar Series: Program Sustainability

Maintain a flexible program design capable of adapting to changing lender and 

business needs 

Engage participating lenders before implementing any program changes.

Lender input can help in making changes that improve program performance and help increase 

loan volume and related program activity. For instance, industry discussions have allowed Idaho to 

incentivize short term loans and develop an innovative strategy for stretching capital further while 

addressing lender concerns about loans at risk of default. 

Communicate honestly about resource availability. 

Keeping lenders informed about the program’s loss rate, especially at the level of the chief credit 

officer, is reassuring and encourages use of the program. Lenders prefer to work with reliable programs 

that will have funding available when they need it and that will not be withdrawn inconveniently.

Market the program effectively to generate deal flow and fee income

Target community lenders for CSP participation. 

Community-focused lenders are more interested in CSPs because these lenders will work with 

businesses that can demonstrate an ability to repay the loan but may have inadequate collateral 

to secure a loan. Idaho found that community-focused lenders are more likely to work with smaller 

businesses to meet their unique credit needs.

An annual fee can generate needed program income and encourage better communications 

with lenders.

If CSP operations are not being subsidized by the state, an annual fee on CSP transactions can be 

an important source of program income to support operations and replace any CSP loan losses. 

The fee also becomes an important communications channel for an annual conversation with each 

participating lender on program issues and changing lender/borrower needs. 

Maximize capital availability

Use partial deposits.

In 2015, Idaho restructured their program into a “quasi-guarantee” structure. In this model, the state 

deposits 50% of the cash collateral when a loan closes with a promise to deposit the other 50% if the 

borrower defaults on their loan payments. A reserve is maintained to permit the state to respond 

quickly to any calls on cash collateral that may occur. This practice allows Idaho to stretch their 

program funds approximately 50% further.

Use federal funds to leverage state funds. 

Idaho’s CSP is housed in the state Housing Finance Agency (IHFA). The CSP has been able to “borrow” 

agency deposits by guaranteeing that any lender calls on cash collateral would be covered by SSBCI 

funds. This practice of insuring the agency against any loss has allowed Idaho’s CSP to further expand 
SSBCI Webinar Series: Program Sustainability 9

the resources it has available to meet borrower needs without any permanent capital injection into 

the program.

Target specific industries.

Michigan decided early on in their program that they did not have enough money to adequately meet 

every collateral need in the state so they have targeted their program on specific industry groups that 

generate the highest economic return to the state. Michigan has an LGP and CAP for other companies, 

but the focus of their CSP is primarily manufacturing. This “economic gardening” approach has allowed 

the state to adequately meet sector demand and increased support for the program in the legislature 

and governor’s office.

You can access both of the PowerPoints for the webinar here. If you have any questions 

regarding this material you may contact the presenters directly for further information. For 

additional thoughts and best practices for CSP sustainability, please refer to the 2015 report on 

CSP best practices here. 
10 SSBCI Webinar Series: Program Sustainability

Strategies for Loan Participation Program 

Sustainability

John Saris (Finance Manager, Business Oregon) and Tom Wall (Director, Small Business Credit Initiative, 

North Carolina Rural Center) discussed sustainability strategies for loan participation programs (LPPs) 

during a webinar on June 8, 2017.

North Carolina’s LPP was new and placed a priority on marketing both at the outset of the program 

and in daily operations. The state’s contractor, the North Carolina Rural Center, worked closely with 

the local bankers, the state bankers association, and the business community to market the program 

and held 11 convenings across the state. North Carolina program does a risk assessment and baddebt reserve analysis based on bank underwriting and a bad-debt reserve calculation to maximize the 

capital available to be recycled. 

Oregon has a 34-year-old LPP that frequently offers loans directly to businesses. The state relies on inhouse expertise to underwrite risk, assist struggling businesses, and provide the appropriate level of 

lending support to businesses. As part of its ongoing marketing activity, Oregon provides incentives to 

economic development partners to source loans. 

The presenters offered the following points of discussion:

Recycle capital as quickly as possible

Create a consistent flow of funds from existing loans to new loans. 

Lenders are sometimes averse to loan prepayment, but prepayment may be desirable for the state 

to ensure the availability of sufficient funds to support new loans. North Carolina and Oregon do not 

require prepayment fees making the prepayment decision easier for the lender and/or borrower. 

Oregon policy requiring Automated Clearing House (ACH) payments directly from borrowers not 

only accelerated the recycling of funds but also reduced loan delinquency by approximately 15%. 

Oregon has also adopted the practice of reallocating recycled funds as necessary among all its credit 

enhancement and direct loan programs to meet current demand. This allocation flexibility helps 

ensure that its programs are not dependent upon legislative appropriations.

Monitor the mergers and acquisitions of local banks. 

Changes in lender ownership offer opportunities to review and revisit loan purchases made from 

those institutions. For instance, mergers of several community banks in North Carolina resulted in the 

early repurchase of loan participations increasing recycled capital for LPP relending.
SSBCI Webinar Series: Program Sustainability 11

Manage risk to minimize loss 

Manage risk aggressively through loan structuring, routine monitoring of loan portfolios, and 

creating a sufficient loan loss reserve. 

If the state is not comfortable with the risk profile of a borrower it has options. It can always say “no” 

to the deal or the state can use a last-in-first-out (priority lien) or a shared security position (paripassu) structure instead of either passing on the loan or taking a riskier subordinate position. Oregon 

periodically rates all loan participations as to the risk associated with the loan to determine the 

adequacy of its loan loss reserves. Both North Carolina and Oregon have funded loan loss reserves 

from program income.

Hire staff with commercial underwriting experience. 

Having staff with the appropriate credentials ensures quality due diligence of potential deals and 

helps build credibility with lenders that will accelerate program acceptance. Staff with relevant 

experience can be vital in helping to source deals as they leverage prior relationships. When working 

with a diverse group of lending partners, in-house expertise can lessen the difficulties arising from 

inconsistences in underwriting capabilities among lenders.

Create work out and liquidation plans.

Effective LPP managers are typically willing to structure work outs for businesses encountering 

financial difficulties. Yet, managers are clear that if the work out is not successful, then they create a 

plan for liquidation as a fall back. For instance, Oregon will work closely with troubled businesses by 

deferring or restructuring payments, reducing interest rates, releasing collateral (when appropriate), 

and being otherwise creative to avoid foreclosure. In the event of default on a subordinate loan 

participation, the state will frequently work with the senior lender to ensure that the liquidation 

plan appropriately protects its position. If the state is unsure about whether its ability to be repaid is 

appropriately protected, the agency should consider the benefit of buying out a senior lender. In paripassu transactions, since the state receives a pro-rata share of the proceeds, it may rely on the senior 

lender to handle the liquidation process.

Market the program effectively to generate deal flow and fee income

Share fees with lenders to generate deal flow. 

Fees are an important source of funds for sustaining a program’s operations, but a program that shares 

the fees with lenders and economic development partners helps to strengthen those partnerships. In 

North Carolina’s case, the Rural Center often allows lenders to keep all origination fees collected from 

borrowers to enhance the lender’s yield and to compensate the lender for servicing 100% of the loan. 

In Oregon, the program will pay a referral fee to local and regional economic development partners on 

closed loans that originate from these sources. These fees provide a significant incentive for economic 

development agencies to partner with the state.
12 SSBCI Webinar Series: Program Sustainability

Leverage outside funding resources

Leverage returns from other programs to support the LPP program. 

Program managers should explore multiple avenues for raising capital for loan participation and 

other lending programs. The North Carolina the Rural Center participates in the USDA intermediary 

relending program to increase the capital available for its LPP. 

You can access both of the PowerPoints for the webinar here. If you have any questions 

regarding this material you may contact the presenters directly for further information. For 

additional thoughts and best practices for LPP sustainability, please refer to the 2015 report on 

LPP best practices here.
www.treasury.gov/ssbci