1

SSBCI Policy Guidelines

Revised April 16, 2014

Guidelines for State Small Business Credit Initiative

(Originally posted October 21, 2011, Revised April 16, 2014) 

I. Overview

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 

2010 (the “Act”) to help increase credit availability for small businesses. The Act created the 

State Small Business Credit Initiative (SSBCI) and appropriated $1.5 billion to be used by the 

U.S. Department of the Treasury (“Treasury”) to provide direct support to states for use in 

programs designed to increase access to credit for small businesses. Pursuant to the Act, 

Treasury allocated funds to all fifty states along with the District of Columbia, the 

Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands, Guam, 

American Samoa, and the United States Virgin Islands according to a statutory formula that 

takes into account a state’s job losses in proportion to the aggregate job losses of all states. 

Under the Act, each state or territory was guaranteed a minimum allocation of 0.9 percent of 

the $1.5 billion.

II. Eligible Programs

The SSBCI provides funding for two state program categories: capital access programs

(“CAPs”) and other credit support programs (“OCSPs”). 

CAPs provide portfolio insurance for business loans based on a separate loan loss 

reserve fund for each participating financial institution. The reserve fund will be used to provide

portfolio insurance for all loans enrolled in the CAP by participating financial institutions. To 

enroll a loan in the CAP, both the lender and the borrower of the loan make insurance premium 

payments to the reserve fund. The state also must make a payment to the reserve fund for each 

loan to match the insurance premium. Under the Act, states may use the federal funds 

allocated to them under the Act to make their matching contributions to the reserve fund. 

Under the Act, for a loan to be eligible for enrollment in the CAP, the borrower must have 500 

employees (as defined in 13 C.F.R. Part 121.106) or less and the loan cannot exceed $5 million. 

OCSPs include collateral support programs, loan participation programs,

state-sponsored venture capital programs, loan guarantee programs, or similar programs.

1

 

1

 Collateral support programs help viable businesses that are struggling to get credit because the value of the 

collateral they hold has fallen, possibly due to the decline in commercial real estate values. These programs – which 

set aside funds to augment collateral the borrower already holds – provide banks greater confidence in extending 

credit to these borrowers, particularly in some of the communities hardest hit by the economic downturn. Loan 

participation programs entail risk sharing among financial institution lenders and the participating state. Statesponsored venture capital programs typically entail joint public-private investment programs focused on “seeding” 

small businesses with high-growth-potential.

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Under the Act, OCSPs must target an average borrower or investee size of 500 employees (as 

defined in 13 CFR Part 121.106) or less and cannot extend credit support to borrowers with 

more than 750 employees. The OCSP must target loans or investments with an average principal

amount of $5 million or less and cannot provide credit or investment support if a given 

transaction exceeds $20 million. For loan programs, the $20 million restriction applies to the 

principal amount of the loan directly supported by SSBCI, plus all other loans for the same loan 

purpose that close on or about the same date. For equity investment programs, the $20 million 

restriction applies to a single investment round that includes an SSBCI-funded investment, 

including all classes of equity instruments that close on or about the same date. 

OCSPs also include qualifying loan or swap funding facilities, which are contractual 

arrangements between a participating state and a private financial entity. Under such facilities, 

the state delivers funds to the private financial entity as collateral; that entity, in turn, provides 

funding to the state. The full amount resulting from the arrangement, less any fees or other 

costs of the arrangement, is contributed to, or for the account of, an approved state program.

III. Allocations

Each state that is approved for participation in the SSBCI will receive its allocation of 

funds in three disbursements as follows: 33 percent, 33 percent and 34 percent. As a 

precondition to receipt of the second and third disbursements, the state must, among other 

things, certify to Treasury that it has expended, transferred or obligated 80 percent or more of 

the last-disbursed one-third disbursement of allocated funds to or for the account of one or 

more approved state programs. The certification must be signed by an official of the state with 

oversight responsibility for the approved state program(s). 

The requirement that the federal funds be disbursed in three increments, and the 

related certification requirement, will not apply with respect to federal funds used for a 

qualifying loan or swap funding facility. 

IV. Approving States for Participation

Before a state’s program is approved for participation in the SSBCI, the applicant must 

demonstrate that all actions required under state law have been taken to delegate 

administrative responsibility for the program to a specific department, agency or political 

subdivision of the state. The term “agency” includes state government corporations and other 

instrumentalities of the state. The applicant will be required to submit a short narrative 

statement from the governor of the state, or chief executive of the territory, describing such 

actions and attach any relevant documentation in support of that statement. The narrative 

statement will need to be signed by the governor of the state or chief executive of the territory

and an official of the state with oversight responsibility for the state program(s) for which 

federal funds are being requested. 

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V. Municipalities

The Act provides municipalities of a state special permission to apply directly for funding 

under the SSBCI if: (1) that state did not file a notice of intent by November 26, 2010; or (2) that 

state filed a notice of intent by November 26, 2010, but does not submit a complete application 

for approval of a state program by close of business on June 27, 2011. For municipalities in 

states that did not submit a timely notice of intent to participate, Treasury will begin accepting 

applications at the same time as states. Municipalities in states that do not submit a timely 

application must submit their applications no later than close of business on 

September 27, 2011, pursuant to the Act. The same approval criteria and program

requirements that are applicable to a state will generally apply to each municipality that is 

granted special permission. 

VI. Approving State CAPs

a. Federal Contribution -- Under the Act, approved CAPs are eligible for federal 

contributions to their reserve fund in an amount equal to the amount of the insurance 

premiums paid by the borrower and the financial institution lender to the reserve fund as 

calculated on a loan-by-loan basis. A participating state may use the federal contribution to 

make its contribution to the reserve fund. Accordingly, the federal contribution may be used to 

match the borrower/lender contribution at a level of 1:1. The state may supplement the

federal contribution with state and/or private funds if it chooses. The state may allow lenders

to use premiums from loans subsequently enrolled in the state’s SSBCI CAP portfolio to pay prior

losses on loans enrolled in the SSBCI CAP portfolio. However, federal support to state CAPS may

only be used to pay losses on loans originated and enrolled after the effective date of the 

Allocation Agreement. 

b. CAP Program Requirements

i. Experience and Capacity – Each state should exercise due care to determine that 

financial institutions participating in the SSBCI possess sufficient commercial lending 

experience, financial and managerial capacity, and operational skills to meet the objectives as 

set forth in the Act. Each state shall apply the same standards for participation in the SSBCI 

program to all classes of lenders. As required by the Act, states shall consult with the 

appropriate federal banking agency or, as appropriate, the Community Development Financial 

Institution Fund. The following documents and certifications may be used by states to 

determine adequacy of financial and managerial capacity for all classes of private lenders:

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TYPE OF

INSTITUTION

RATINGS AND

REGULATORY REPORTS PERFORMANCE REPORTS

SELFCERTIFICATION

Banks 

(including 

CDFI banks)

• Uniform Banking 

Performance Report 

(UBPR) showing that 

commercial loans and 

leases comprise a 

significant part of the 

institution’s assets.

• A UBPR peer group 

analysis showing that 

the institution’s 

percentage of noncurrent loans and 

leases does not exceed 

its peer group average 

(UBPR reports may be 

obtained for any bank 

online on the public 

website

www.ffiec.gov/UBPR.h 

tm for no charge.)

Self-certification 

that the financial 

institution is not 

operating under 

any supervisory 

enforcement 

action.

Credit Unions

(including 

CDFI Credit 

Unions)

• Financial Performance 

Reports (FPRs) from 

the NCUA.

Self-certification

that the institution is

not operating under

any supervisory 

enforcement action.

Community

Development 

Financial 

Institutions 

(excluding 

banks and 

credit unions)

• A review of the CDFI’s

CARS ratings.

• Annual Report with 

audited financial 

statements.

ii. Lender Capital at Risk – Section 3005(e)(4) of the Act requires that for any loan 

enrolled in a CAP, the financial institution lender must have a meaningful amount of its own 

capital at risk in the loan. Treasury has determined that because of how CAPs operate, each 

lender has a meaningful amount of its own capital resources at risk since the lender cannot 

know whether the CAP reserve fund will have sufficient funds to cover a loss on any particular 

loan if and when a default occurs.

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iii. Loan Purpose Requirements and Prohibitions – As required by Section 3005(e)(7) 

of the Act, for each loan enrolled in a state CAP, the participating state shall require the 

financial institution lender to obtain an assurance from each borrower stating that the loan 

proceeds will not be used for an impermissible purpose under the SSBCI Program.

Each financial institution lender must obtain an assurance from the borrower affirming:

1. The loan proceeds must be used for a “business purpose.” A business purpose 

includes, but is not limited to, start up costs, working capital, business procurement, 

franchise fees, equipment, inventory, as well as the purchase, construction 

renovation or tenant improvements of an eligible place of business that is not for 

passive real estate investment purposes. The definition of business purpose excludes 

activities that relate to acquiring or holding passive investments such as commercial 

real estate ownership, the purchase of securities; and lobbying activities as defined 

in Section 3 (7) of the Lobbying Disclosure Act of 1995, P.L. 104-65, as amended. 

2. The loan proceeds will not be used to: 

a. repay a delinquent federal or state income taxes unless the borrower has a 

payment plan in place with the relevant taxing authority; or 

b. repay taxes held in trust or escrow, e.g. payroll or sales taxes; or 

c. reimburse funds owed to any owner, including any equity injection or 

injection of capital for the business’ continuance; or 

d. purchase any portion of the ownership interest of any owner of the business.

3. The borrower is not: 

a. an executive officer, director, or principal shareholder of the financial 

institution lender; or 

b. a member of the immediate family of an executive officer, director, or 

principal shareholder of the financial institution lenders; or 

c. a related interest of an such executive officer, director, principal shareholder, 

or member of the immediate family. 

For the purposes of these three borrower restrictions, the terms “executive officer”, 

“director”, “principal shareholder”, “immediate family”, and “related interest” refer to 

the same relationship to a financial institution lender as the relationship described in 

part 215 of title 12 of the Code of Federal Regulations, or any successor to such part.

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4. The borrower2 is not: 

a. a business engaged in speculative activities that develop profits from 

fluctuations in price rather than through normal course of trade, such as 

wildcatting for oil and dealing in commodities futures, unless those activities 

are incidental to the regular activities of the business and part of a 

legitimate risk management strategy to guard against price fluctuations 

related to the regular activities of the business; or 

b. a business that earns more than half of its annual net revenue from 

lending activities; unless the business is a non-bank or non-bank holding 

company certified as a Community Development Financial Institution 

(CDFI)

3

 ; or 

c. a business engaged in pyramid sales, where a participant's primary

incentive is based on the sales made by an ever-increasing number of 

participants; or 

d. a business engaged in activities that are prohibited by federal law or 

applicable law in the jurisdiction where the business is located or 

conducted. (Included in these activities is the production, servicing, or 

distribution of otherwise legal products that are to be used in connection 

with an illegal activity, such as selling drug paraphernalia or operating a 

motel that knowingly permits illegal prostitution); or 

e. a business engaged in gambling enterprises, unless the business earns 

less than 33% of its annual net revenue from lottery sales.

5. No principal of the borrowing entity has been convicted of a sex offense against a 

minor (as such terms are defined in section 111 of the Sex Offender Registration 

and Notification Act (42 U.S.C. 16911)). For the purposes of this certification, 

“principal” is defined as “if a sole proprietorship, the proprietor; if a partnership, 

each managing partner and each partner who is a natural person and holds a 20% 

or more ownership interest in the partnership; and if a corporation, limited liability 

company, association or a development company, each director, each of the five 

most highly compensated executives or officers of the entity, and each natural

 

2

 Note: Permissible borrowers include state-designated charitable, religious, or other non-profit or eleemosynary 

institutions, government-owned corporations, consumer and marketing cooperatives, and faith-based organizations 

provided the loan is for a “business purpose” as defined above. 3 When a Participating State makes a loan to an eligible CDFI, the CDFI may re-lend the funds to other entities. If a

CDFI re-lending transaction is eligible and meets all SSBCI program requirements, including obtaining all required 

assurances and certifications, the Participating State may include private financing caused by and resulting from the 

re-lending transaction in the state’s private leverage ratio. 

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person who is a direct or indirect holder of 20% or more of the ownership stock or 

stock equivalent of the entity.” 

Each participating state must obtain an assurance from the financial institution lender 

affirming:

1. The loan has not been made in order to place under the protection of the approved 

state CAP prior debt that is not covered under the approved state CAP and that is or 

was owed by the borrower to the financial institution lender or to an affiliate of the 

financial institution lender.

2. The loan is not a refinancing of a loan previously made to that borrower by the 

financial institution lender or an affiliate of the financial institution lender. 

No principal of the financial institution lender has been convicted of a sex offense 

against a minor (as such terms are defined in section 111 of the Sex Offender 

Registration and Notification Act (42 U.S.C. 16911)). For the purposes of this 

certification, “principal” is defined as “if a sole proprietorship, the proprietor; if a 

partnership, each partner; if a corporation, limited liability company, association or a 

development company, each director, each of the five most highly compensated 

executives, officers, or employees of the entity, and each direct or indirect holder of 

20% or more of the ownership stock or stock equivalent of the entity.” 

iv. Relationship to Small Business Administration (SBA) Lending Programs - Under 

the SSBCI Program, eligible state CAPs may not enroll any portion of an SBA-guaranteed loan 

without the express, prior written consent of the Treasury. 

v. Capital Access in Underserved Communities - The Act requires that each 

application contain a report detailing how the state plans to use the federal contributions to 

the reserve fund to help provide access to capital for small businesses in low- and moderateincome, minority, and other underserved communities, including women- and minority-owned 

small businesses. The design of each state’s strategy is left to its discretion. While there is no 

one single approach to what should be in a state’s plan, the plans should be sufficient to allow 

Treasury to evaluate whether the plan is substantive and relevant to local market conditions. 

The state’s plan should include a method for the state to monitor the status of its plans. 

Treasury will provide further commentary and examples of strategies proposed by states 

on www.treasury.gov/ssbci. 

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VII. Approving OCSPs

a. 10:1 Leveraging - Under the Act, for OCSPs to be eligible for federal funding, a 

state must demonstrate a “reasonable expectation” that, when considered with all other all 

approved state programs under the SSBCI, such programs together have the ability to use

federal contributions to such programs to generate small business lending at least 10 times 

the new federal contribution amount.

Treasury refers to this ratio of small business lending to the federal contribution 

amount as the private leverage ratio. Treasury defines the “private leverage ratio” as the 

“private financing” caused by and resulting from the SSBCI investment, divided by the “SSBCI 

funds used”. “Private financing” means private financing across all approved state programs

and includes all loans or investments from a private source to an eligible borrower or eligible 

portfolio company, whether occurring at or subsequent to loan/investment closing (subject to 

the provisions of Annex 7 of the Allocation Agreement), and whether funded or unfunded. It 

encompasses equity investments, written commitments of future equity investments, term

loans, lines of credit, and any new infusions of cash by the borrower.4

“SSBCI funds used” are those SSBCI funds that have been (a) deposited with a lender to 

cover the SSBCI contributions to a CAP reserve fund, (b) disbursed or committed to a specific 

borrower as part of a loan participation, collateral support, or direct lending program, (c) set 

aside to cover obligations arising from individual loan guarantees, loan participations, or 

collateral support agreements to specific borrowers, or (d) invested or committed to be 

invested in specific businesses, pursuant to a venture capital investment. In the event that the 

sum of (a) plus (b) plus (c) plus (d) exceeds the participating state’s original total allocation 

(because some of the funds invested have generated program income that has been added to 

allocated funds), the “SSBCI funds used” shall be the participating state’s requested total 

allocation. SSBCI funds used are distinguishable from funds considered obligated, expended, 

or transferred. 

The “private leverage ratio” can be calculated over three distinct time horizons, at

the election of the state: 

• First, the “private leverage ratio” may be calculated for a given calendar year. This 

calculation considers private financing attracted, and SSBCI funds used, only in the 

calendar year specified. When a state expects that it will be unable to achieve the 

expected 10:1 “private leverage ratio” by the end of the first annual reporting period 

following approval for SSBCI funding, the state may elect to provide a projected 

“private leverage ratio” for each calendar year, in addition to providing a projected 

 

4

 As noted above in section VI.b.iii.4.b., when a Participating State makes a loan to an eligible CDFI, the CDFI may relend the funds to other entities. If a CDFI re-lending transaction is eligible and meets all SSBCI program

requirements, including obtaining all required assurances and certifications, the Participating State may include 

private financing caused by and resulting from the re-lending transaction in the state’s private leverage ratio. 

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“private leverage ratio” for the entire allocation time period, in order to 

demonstrate how the state will achieve the 10:1 “private leverage ratio” over the

6 years of the allocation time period. 

• Second, the “private leverage ratio” may be calculated as a cumulative ratio to 

reflect all private financing attracted, and all SSBCI funds used, from the approval

of SSBCI funding through a specified date, selected by the state. Treasury refers

to this ratio as the “cumulative private leverage ratio,” and this ratio is calculated 

each year for the annual report. 

• Third, the “private leverage ratio” may be calculated as a cumulative ratio to 

reflect all private financing attracted, and all SSBCI funds used, from the approval

of SSBCI funding through December 31, 2016, the period covered by the last

annual report. Treasury refers to this ratio as the “allocation time period private 

leverage ratio.” States should provide this projected “allocation time period 

private leverage ratio,” along with the projected “private leverage ratios” for each 

calendar year of the allocation time period, if applicable, in their SSBCI application 

(Note: For the sake of simplicity, the examples provided below generally show the 

calculation of the overall “allocation time period private leverage ratio,” but do 

not show how the “private leverage ratio” for each calendar year accumulates to 

this “allocation time period private leverage ratio. The annual ratios are; 

however, shown in the example for loan guarantee programs). 

When a state proposes multiple programs for SSBCI funding, the state must present the 

“allocation time period private leverage ratio” as a weighted average that takes into account 

the amount of “private financing” attracted over the allocation time period and the amount of 

“SSBCI funds used” over the allocation time period. Although the 10:1 private leverage ratio

requirement does not apply to states with CAPs only, states with OCPS and CAPs should 

include, the projected “allocation time period private leverage ratio” in the application, 

including the leverage expected to be achieved by any state CAPs proposed for SSBCI funding.

The following example demonstrates this weighted average calculation of a

projected “allocation time period private leverage ratio”:

OCSP -

CAP Loan guarantee Total

Private Financing $100,000,000 $96,000,000 $196,000,000

SSBCI Funds Used $4,000,000 $12,000,000 $16,000,000

Private Leverage Ratio 25:1 8:1 12.25:1

The remainder of this section provides additional information about some of the 

nuances involved in estimating the “allocation time period private leverage ratio” for 

specific types of SSBCI-eligible programs.

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CAPs 

In the context of CAP programs, Treasury defines the “allocation time period private 

leverage ratio” as the “private financing” disbursed or committed to businesses at the CAP

loan closing (i.e. funds committed or disbursed by the financial institution enrolling the loan), 

from the time of allocation through December 31, 2016, divided by the participating state’s

total SSBCI contributions to CAP reserve funds from the time of allocation through

December 31, 2016. States have the option of reporting borrower cash infusions at the time of 

closing plus any additional private financing that closes at the time of the CAP loan. As an 

example, if a CAP program enrolls just two loans with the characteristics shown below, the 

“allocation time period private leverage ratio” for the CAP program would be 30:1, which 

would be derived as follows:

Loan A Loan B Total

SSBCI Contribution to Reserve Fund $4,000 $6,000 $10,000

Private Financing $100,000 $200,000 $300,000

Private Leverage Ratio 25:1 33.3:1 30:1

In its application, a state may estimate leverage for the CAP program as 1/(the average 

SSBCI contribution for each loan in percentage terms). For example, if the participating state 

anticipates that, on average, the total amount of the borrower and lender contribution for 

each loan will be 4 percent (and therefore the SSBCI contribution also must be 4 percent, since, 

under the Act, CAPs are eligible for federal contributions to their reserve fund “in an 

amount equal to” the amount of the insurance premium paid by the borrower and the 

financial institution lender), the expected private leverage will be 1/.04, or 25:1. 

States that have active CAPs may rely on historical data. States that do not have 

active CAPs may present estimates based on historical data from other states’ programs that

are being used as models for new CAPs. States establishing new programs also will be 

required to provide detailed assumptions for their estimates of total enrolled loans, total loan 

amounts, and the estimated total federal contributions over the lifespan of the SSBCIassisted program.

State-Sponsored Venture Capital Programs

In the context of state-sponsored venture capital programs, Treasury considers

the following to constitute “private financing”:

• Equity investments by private sector venture capital funds, seed capital funds, or 

angel investor networks disbursed or committed to the business as part of the same 

transaction at closing; plus 

• Transaction-level debt from any private sector source disbursed or committed to 

the business at the closing of the investment using SSBCI funds; plus

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• Subject to the provisions in Annex 7 of the Allocation Agreement, subsequent 

private sector equity or transaction-level debt investments in the businesses 

receiving SSBCI-supported investment and any borrower cash infusions, provided 

that these subsequent investments are caused by and resulting from the SSBCI 

investment. Annex 7 of the Allocation Agreement lays out the factors the state may

consider in deciding whether subsequent private sector financing should be included

in the private leverage calculation. 

As an example, if a state-sponsored venture capital program expects to make 20 

venture capital investments to businesses with the aggregate investment profile shown below, 

the resulting projected “allocation time period private leverage ratio” would be 10:1. This 

calculation would be derived as follows:

SSBCI Funds Used under the Participating State’s

Venture Capital Program $1,000,000

Other Private Equity Investment at Closing Of 

SSBCI-Supported Transaction $3,000,000 

Other Private Transaction-Level Debt at Closing Of 

SSBCI-Supported Transaction $3,000,000 

Subsequent Private Sector Investment5 $4,000,000

Total Private Financing $10,000,000

Private Leverage Ratio 10:1 

As with all OCSP programs, states should present a projected “allocation time period 

private leverage ratio” in their application based on the weighted average of leverage expected 

to be achieved by all of its OCSP programs, as well as any CAP program proposed for SSBCI 

funding.

Loan Participation Programs

In the context of loan participation programs, SSBCI considers the total private financing 

for the loans and any borrower cash infusions to constitute “total private financing”, and the 

aggregate federal portion of the loans to constitute the “SSBCI funds used”. Subject to the 

provisions in Annex 7 of the Allocation Agreement, subsequent private sector equity or 

transaction-level debt investments in the business receiving SSBCI-supported investment may 

count towards “private financing”, provided that these subsequent investments are caused by 

and resulting from the SSBCI investment. The following is an example of a private leverage 

 

5 Subsequent private sector investment must be caused or resulting from the SSBCI-supported transaction. See 

Annex 7 of the Allocation Agreement for further details.

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calculation for a loan participation program:

SSBCI Funds Used (aggregate federal participation) $20,000,000 

Private Financing $60,000,000

Private Leverage Ratio 3:1

Treasury recognizes that loan participation programs will rarely achieve 10:1 leverage 

based only on the original loan participation. For this reason, states are allowed to 

demonstrate how the state will use the allocated funds, combined with funds from principal 

repayments and program income, to achieve the required 10:1 private leverage ratio by the 

end of the allocation period. In addition, as with all OCSP programs, states should present a 

projected “allocation time period private leverage ratio” in their application based on the 

weighted average of leverage expected to be achieved by all of its OCSPs, as well as any CAP 

proposed for SSBCI funding.

Loan Guarantees

In the context of loan guarantee programs, SSBCI considers the total loan originations 

and any borrower cash infusions to constitute “private financing”, and the aggregate federal 

contributions to support guarantees to constitute the “SSBCI funds used”. The following is an 

example of a projected “allocation time period private leverage ratio” for a loan guarantee 

program:

Total Loan Originations $60,000,000

Amount Guaranteed (Assumes 50% Guarantee) $30,000,000

SSBCI Funds Used To Support Guarantees $6,000,000 

Private Leverage Ratio 10:1 

States that have credit guarantee programs in place may rely on historical data. States 

that plan to enact new programs may rely on data from other analogous state loan guarantee 

programs to provide a reasonable estimate of future leverage. 

Treasury recognizes that state credit guarantee programs are often subject to

state-imposed regulations requiring the program to set aside a specific amount of funds to 

cover the guarantee obligation. In some cases, these regulations make it difficult for the state 

to achieve the 10:1 leverage ratio in the early years of the program. (The example above 

assumes that loans are guaranteed for 50% of the principal amount and that the state must set 

aside 20% of the value of the guarantee in a cash reserve). When this occurs, the state can 

demonstrate how the state program will use the allocated funds, combined with funds newly 

available when loan guarantees expire or the underlying loans are repaid, as well as program 

income, to achieve the 10:1 private leverage ratio by December 31, 2016. 

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The following hypothetical example is provided for illustrative purposes only. The 

hypothetical assumes that a state is eligible for a $13 million allocation, and that the state 

intends to use all of these funds for a loan guarantee program: 

Line Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

1

New SSBCI funds 

used to support 

guarantees $2,000,000 $4,000,000 $4,000,000 $3,000,000 $0 $0

2

SSBCI funds

released due to 

loan repayments 

and SSBCI 

program income 

used to support 

guarantees $0 $500,000 $800,000 $1,500,000 $2,000,000 $2,500,000

3

Total funds 

available to 

support 

guarantees (line

1+ line 2) $2,000,000 $4,500,000 $4,800,000 $4,500,000 $2,000,000 $2,500,000

4

Amount

guaranteed 

(assumption: the 

state must set 

aside 25% of the 

amount 

guaranteed in 

cash reserves) 

(line 3/.25) $8,000,000 $18,000,000 $19,200,000 $18,000,000 $8,000,000 $10,000,000

5

Loan originations 

(assumption: 

lenders require a

50% guarantee 

on average to 

enroll a loan in 

the program) 

(line 4/.5) $16,000,000 $36,000,000 $38,400,000 $36,000,000 $16,000,000 $20,000,000

6

Cumulative loan

originations 

(line 5 

cumulative) $16,000,000 $52,000,000 $90,400,000 $126,400,000 $142,400,000 $162,400,000

7

Cumulative

SSBCI funds used 

(line 1 

cumulative) $2,000,000 $6,000,000 $10,000,000 $13,000,000 $13,000,000 $13,000,000

8

Private leverage

ratio for the year

(x:1) (line

5/line 1) 8.00 9.00 9.60 12.00

undefined 

(denominator 

is zero)

undefined 

(denominator 

is zero)

9

Cumulative 

leverage ratio to 

date (x:1)

(line 6/line 7) 8.00 8.67 9.04 9.72 10.95 12.49

As with all OCSP programs, states should present a projected “allocation time period 

private leverage ratio” in their application based on the weighted average of leverage expected 

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to be achieved by all of its OCSP programs, as well as any CAP program proposed for SSBCI 

funding.

Collateral Support Programs

In the context of collateral support programs, Treasury considers the total loan 

originations and any borrower cash infusions to constitute “private financing”, and the 

aggregate federal contributions to fund the state’s collateral support obligations as the “SSBCI 

funds used”. The following is an example of a private leverage calculation for a collateral 

support program:

Total Loan Originations $50,000,000

SSBCI Funds Used (Collateral pledged by the state) $25,000,000

Private Leverage Ratio 2:1

States that have collateral support programsin place may rely on historical data. States 

that plan to enact new programs may rely on data from other analogous state programs to 

provide a reasonable estimate of future leverage. 

Treasury recognizes that many collateral support programs may not, by themselves, 

achieve the desired 10:1 private leverage ratio. When this occurs, states should demonstrate 

how the state program will use the SSBCI funds when combined with funds newly available 

when collateral support obligations expire or are repaid, as well as program income, contribute 

to the required 10:1 private leverage ratio by December 31, 2016. In addition, states should 

present a projected “allocation time period private leverage ratio” in their application based on 

the weighted average of leverage expected to be achieved by all of its OCSP programs, as well 

as any CAP program proposed for SSBCI funding.

b. 1:1 Leveraging -- Section 3006(c) of the Act requires that each OCSP of a 

participating state, “demonstrate that, at a minimum, $1 of public investment by the state 

program will cause and result in $1 of new private credit.” Participating states calculate their 

leveraging for purposes of demonstrating the statutorily required 1:1 private leverage ratio 

within an individual OCSP according to the following formula: 

Cumulative private leverage ratio = [total cumulative private financing generated by the 

individual approved state OCSP]/[SSBCI funds used by the individual approved state 

OCSP] 

Unlike the 10:1 leveraging expectation described above, this 1:1 leveraging is an 

eligibility requirement. As a result, Treasury approves OCSPs with the expectation that the 

design of the program meets the 1:1 leveraging eligibility requirement. 

c. Lender and Investor Capital at Risk – The state shall require financial institution 

lenders or investorsthat receive any form of credit support pursuant to an OCSP that is 

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supported by the SSBCI to have “a meaningful amount of their own capital at risk” in the loan or 

other credit assistance. For the purposes of SSBCI, Treasury requires that private lenders or 

investors bear 20 percent or more of the risk of loss in any transaction. This means that OCSPs 

in which private lenders or investors bear 20 percent or more of the risk of loss from a default 

will satisfy the requirement. OCSPs for which the government (state and/or federal) bears

more than 80 percent of the risk of any loss must articulate exceptional circumstances as to 

why the private sector is unable to bear a greater share of the risk. Treasury will consider any 

enhancements that Congress extends to the SBA Section 7(a) Loan Guarantee Program in which 

financial institution lenders may bear less than 20 percent of the risk as analogously applicable 

to OSCPs that are loan guarantees under SSBCI. Under such circumstances, an approved loan 

guarantee program under the SSBCI may allow financial institution lenders to bear the same 

amount of risk as similarly situated financial institution lenders under the SBA Section 7(a) Loan 

Guarantee Program. In addition, the state shall require venture capital funds and angel 

investor networks receiving SSBCI funds to have a “meaningful amount” of their own capital 

resources at risk. OCSP venture capital or angel investor networks in which the fund or network 

making the investment decision in the eligible small business bears at least 20 percent of the 

risk of loss will satisfy this requirement. This requirement applies at the level of the fund that 

makes the investment in small business, not at the level of a “fund of funds.” 

d. Loan or Investment Purpose -- Consistent with Section 3006(f)(2) of the Act, 

Treasury may prescribe limitations and prohibitions on loan purposes or investment purposes. 

For each loan or investment resulting from an approved OCSP, the participating state shall 

require the financial institution lender or investor to obtain an assurance from each borrower 

or investee stating that the loan or investment proceeds will not be used for an impermissible 

purpose under the SSBCI Program.

Each financial institution or non-financial institution lender must obtain an assurance from 

the borrower or investee affirming:

1. The loan or investment proceeds must be used for a “business purpose.” A business 

purpose includes, but is not limited to, start up costs, working capital, business 

procurement, franchise fees, equipment, inventory, as well as the purchase, 

construction renovation or tenant improvements of an eligible place of business that 

is not for passive real estate investment purposes. The definition of business

purpose excludes acquiring or holding passive investments such as commercial real 

estate ownership, or the purchase of securities; and lobbying activities (as defined in 

Section 3 (7) of the Lobbying Disclosure Act of 1995, P.L. 104-65, as amended). 

2. The loan or investment proceeds will not be used to: 

a. repay a delinquent federal or state income taxes unless the borrower has a 

payment plan in place with the relevant taxing authority; or 

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b. repay taxes held in trust or escrow, e.g. payroll or sales taxes; or

c. reimburse funds owed to any owner, including any equity injection or 

injection of capital for the business’ continuance; or 

d. purchase any portion of the ownership interest of any owner of the business.

3. If the business is receiving the benefit of SSBCI funds through an OCSP other than an 

SSBCI Venture Capital Program, the borrower is not: 

a. an executive officer, director, or principal shareholder of the financial 

institution lender or non-financial institution lender; or 

b. a member of the immediate family of an executive officer, director, or 

principal shareholder of the financial institution lender or nonfinancial institution lender; or 

c. a related interest of an such executive officer, director, principal shareholder, 

or member of the immediate family. 

For the purposes of these three borrower restrictions, the terms “executive officer”, 

“director”, “principal shareholder”, “immediate family”, and “related interest” refer to 

the same relationship to a financial institution lender or non-financial institution lender

as the relationship described in part 215 of title 12 of the Code of Federal Regulations,

or any successor to such part.

If the business is receiving the benefit of SSBCI funds through an OCSP that is an 

SSBCI Venture Capital Program, no “SSBCI insider” has a “personal financial interest” 

in the business as those terms are defined in the SSBCI National Standards for 

Compliance and Oversight.

4. The borrower or investee6 is not:

a. a business engaged in speculative activities that develop profits from 

fluctuations in price rather than through normal course of trade, such as 

wildcatting for oil and dealing in commodities futures, unless those activities 

are incidental to the regular activities of the business and part of a legitimate 

risk management strategy to guard against price fluctuations related to the 

regular activities of the business; or 

 

6 Permissible borrowers or investees include state-designated charitable, religious, or other non-profit or 

eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and faith-based 

organizations provided the loan is for a “business purpose” as defined above.

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b. a business that earns more than half of its annual net revenue from lending 

activities; unless the business is a non-bank or non-bank holding company 

Community Development Financial Institution; or

c. a business engaged in pyramid sales, where a participant's primary incentive 

is based on the sales made by an ever-increasing number of participants; or 

d. a business engaged in activities that are prohibited by federal law or 

applicable law in the jurisdiction where the business is located or conducted. 

(Included in these activities is the production, servicing, or distribution of 

otherwise legal products that are to be used in connection with an illegal 

activity, such as selling drug paraphernalia or operating a motel that 

knowingly permits illegal prostitution); or 

e. a business engaged in gambling enterprises, unless the business earns less 

than 33% of its annual net revenue from lottery sales.

5. No principal of the borrowing entity or investee has been convicted of a sex offense 

against a minor (as such terms are defined in section 111 of the Sex Offender 

Registration and Notification Act (42 U.S.C. 16911)). For the purposes of this 

certification, “principal” is defined as “if a sole proprietorship, the proprietor; if a 

partnership, each partner; if a corporation, limited liability company, association or a 

development company, each director, each of the five most highly compensated 

executives, officers, or employees of the entity, and each direct or indirect holder of 

20% or more of the ownership stock or stock equivalent of the entity.”

Each participating state must obtain an assurance from the financial institution lender or 

investor affirming:

1. The loan has not been made in order to place under the protection of the approved 

State OCSP prior debt or investment that is not covered under the approved OCSP and 

that is or was owed by the borrower or investee to the financial institution lender or 

investor or to an affiliate of the financial institution lender or investor.

2. The loan or investment is not a refinancing of a loan or investment previously made to 

that borrower or investee by the financial institution lender or investor or an affiliate of 

the financial institution lender or investor.

3. No principal of the financial institution lender or investor has been convicted of a sex 

offense against a minor (as such terms are defined in section 111 of the Sex Offender 

Registration and Notification Act (42 U.S.C. 16911)). For the purposes of this 

certification, “principal” is defined as “if a sole proprietorship, the proprietor; if a 

partnership, each partner; if a corporation, limited liability company, association or a 

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development company, each director, each of the five most highly compensated 

executives, officers, or employees of the entity, and each direct or indirect holder of 

20% or more of the ownership stock or stock equivalent of the entity.” 

e. Relationship to SBA Lending Programs --Under the SSBCI, eligible state OCSPs 

may not enroll any portion of an SBA-guaranteed loan without the express, prior written 

consent of Treasury. 

f. Capital Access in Underserved Communities - The Act mandates that the 

Secretary of the Treasury consider the same eligibility criteria for OCSPs as for CAPs to the 

extent the Secretary determines applicable and appropriate. Accordingly, a state’s application 

for an OCSP must contain a report detailing how the state plans to use the federal contributions

to the approved program to help provide access to capital for small businesses in low- and 

moderate-income, minority, and other underserved communities, including women- and 

minority-owned small businesses. While there is no one single approach to what should be in a 

state’s plan, the plans should be sufficient to allow Treasury to evaluate whether the plan is 

substantive and relevant to local market conditions. The state’s plan should include a method 

for the state to monitor the status of its plans. Treasury will provide further commentary and 

examples of strategies proposed by states at www.treasury.gov/ssbci. 

VIII. Additional Considerations for Approving OCSPs

The following metrics are intended to guide states in demonstrating that an OCSP meets 

reasonable standards of public benefit, sound program design, operational and managerial 

capacity and financial integrity. 

a. In describing the anticipated benefits to the state, its businesses, and its 

residents to be derived from the federal contributions, applicants should focus on, but not limit 

their discussion to, the following measures. Estimates may cover the anticipated allocation 

time period. 

1. The projected permanent, full-time workers hired by small business borrowers as a 

result of receiving SSBCI supported small business loans and investments through 

the OCSP. 

2. The projected number and amount of SSBCI supported small business loans 

and/or investments closed through the OCSP, including all forms of financing 

funded, guaranteed or insured by OCSPs including leases, credit lines and 

investments.

3. The projected increases in state or local sales, income or other tax revenues 

resulting from SSBCI supported small business loans and/or investments through the

OCSP. These estimates may include taxes paid by both permanent and temporary 

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workers hired as a result of SSBCI support small business loans through the OCSP. 

b. The operational capacity, skills, and experience of the management team of the 

state or OCSP can be demonstrated by any or all of the following metrics:

1. Qualifications and experience of senior management. The OCSP’s senior 

management may include people who have significant credit underwriting or risk 

management experience with private credit institutions such as banks, commercial 

finance companies, rating agencies, or insurance companies.

2. Experience of senior management in operating public credit support or capital 

access programs. The OCSP may demonstrate that it employs personnel with 

underwriting or credit risk management experience in federal, state, or local small 

business credit programs (e.g., SBA or state development finance authorities). 

3. Adoption of industry best practices. The OCSP may demonstrate that as an 

organization, it employs industry best practices, such as those listed in Section XI. 

The adoption of best practices helps to demonstrate the industry knowledge and 

sophistication of the OCSP management. 

c. The capacity of the OCSP to manage increases in the volume of its small 

business lending or investing can be demonstrated through: 

1. Financial strength. An applicant must demonstrate that it possesses adequate 

financial resources to support the staffing increases and “infrastructure” 

improvements needed to undertake a significantly increased number of financing 

transactions.

2. Operational capacity. An applicant must demonstrate that the OCSP has systems, 

policies and procedures in place to accommodate a significant increased transaction 

volume. 

d. Reasonable assurances that the OCSP has internal accounting and administrative 

controls systems to guard against waste, loss, unauthorized use, or misappropriation can be 

demonstrated by the following:

1. Evidence that management conducts, or in the case of a new OCSP, intends to 

conduct, periodic internal audits.

2. A requirement for annual independent audits (including management letters). 

e. The soundness of an OCSP’s program design and implementation plan can be 

demonstrated by:

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1. For both new and existing OCSPs, the adoption of established business models and 

strategies demonstrates soundness of program design. Adoption and use of wellproven approaches to managing the various risks associated with making, insuring or 

guaranteeing small business strategies and models can be construed as evidence of 

sound program design.

2. For an existing OCSP, the absence of material weakness or deficiency findings by 

external auditors demonstrates soundness of program design. Soundness of 

program design can also be shown through operating results. For example, a 

management letter citing no significant operational or financial weaknesses can be 

employed as evidence of appropriate program design. 

IX. Reports

Participating states are required to submit the following reports to Treasury: 

a. Quarterly reports - Within 30 days after the end of each quarterly reporting 

period), the state shall deliver to Treasury a quarterly report, which will describe the use of 

allocated funds for each approved state program on both a quarterly and a cumulative basis, 

including the total amount of allocated funds used for direct and indirect administrative costs, 

the total amount of allocated funds used, the amount of program income generated, and the 

amount of charge-offs against the federal contributions to the reserve funds set aside for any 

approved CAP. 

b. Annual reports - By March 31 of each year, beginning March 31, 2012, the 

participating state shall submit to Treasury an annual report, for the prior calendar year ending 

December 31st. This annual report must contain transaction-level data for each loan or 

investment made with SSBCI funds for that year and must also provide information on 

subsequent private financing for OCSP loans and investments made in prior years when 

required by Annex 7 of the SSBCI Allocation Agreement. The annual report must also provide 

information on any qualifying loan or swap funding facility, if applicable.

c. SF-425 Federal Financial Reports – SF-425 Federal Financial Reports are to be 

submitted on an annual basis.

d. Performance Results - A summary of the performance results of the participating 

state’s allocation, to be submitted with the participating state’s final annual report. 

X. Administrative Costs

The SSBCI is governed by the cost standards for state and local governments as 

proscribed in OMB Circular A-87, “Cost Principles for State, Local, and Indian Tribal 

Government,” (2 C.F.R. Part 225). The OMB circular contains criteria that must be used to 

establish chargeable costs (allowable, allocable, and reasonable), and specific information on 

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allowable costs in various cost categories. Participating states will be required to report on 

their administrative costs on a quarterly basis pursuant to the allocation agreement. 

XI. Implementation and Administration

Among its program management and implementation responsibilities, Treasury is 

required to establish standards for, provide technical assistance to and disseminate best 

practices to state programs. Knowledge of techniques and strategies applicants currently use in 

managing their insurance and guarantee programs will be helpful to Treasury in establishing 

national standards for CAPs and OCSPs, in organizing suitable technical assistance programs,

and in recommending best practices designed to improve performance. Thus, Treasury 

encourages applicants to describe in the application whether and how the following “best 

practices” for managing credit risk have been explored, tested, or adopted.

a. Risk-based pricing of loans or insurance premiums - Setting loan interest rates 

and insurance premiums to reflect a potential borrower’s probability of default is

well-established practice for most lenders and insurers. State CAPs and OCSPs often use cash

and high quality securities to collateralize guarantees and insurance contracts. Risk-based 

pricing can help ensure that insurance payments and reserve funds accurately reflect the credit 

risk of enrolled loan portfolios. Among other benefits, the rationalization of pricing can allay 

lender fears that changes in underwriting practices will not be adequately reflected in the 

amount of cash backing a program.

b. Credit scoring - Many lenders, both public and private, have employed credit 

scores—a statistically sound and empirically derived measure of creditworthiness—to 

standardize processes, control risk and reduce the cost of underwriting. In addition, credit 

scoring can serve as the common language providing a basis for performance monitoring across 

programs. For CAPs, using scores to determine the size of borrower/lender CAP premium 

payments will ensure that loan-loss reserve accounts are adequately funded. For OCSPs, credit 

scoring can be employed to determine how much capital—in trust accounts or reserve funds— 

needs to be set aside to cover each guaranteed loan. 

c. Financial modeling - Shifting economic conditions or changes in lenders, 

borrowers and credit products can dramatically affect how enrolled loans perform. Financial 

modeling can help CAP and OCSPs evaluate their performance under various scenarios, 

including catastrophic increases in loan defaults. Knowledge gained through such "stress

testing" can reveal the need for changes in the underwriting, pricing or management of 

credit risk. 

d. Risk-based capital adequacy standards - Bank regulators require banks to hold 

capital based on the risk of their assets. For example, small business loans require more capital 

than Treasury securities. Similarly, under federal law, Congress must appropriate the present 

value of expected losses for SBA and other federal credit programs. For CAPs and OCSPs, 

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establishing such standards can accurately align the amount of capital that an organization 

holds with the actual credit risk of enrolled loans. Once again, this can help make sure that 

programs are neither undercapitalized (and thus unable to meet their obligations) nor 

overcapitalized (thus unnecessarily limiting credit support capacity). 

e. Reinsurance or other credit risk transfers - Commercial lenders and insurers can 

also manage credit risk by transferring it to third parties through reinsurance contracts and 

other credit risk transfer agreements. Reinsuring or transferring risk offers a major benefit 

because it allows a CAP or OCSP to increase its capacity without an increase in capitalization. 

f. Standardized reporting - The collection of detailed transaction-level data allows 

credit grantors and guarantors to generate reports and analyses by which performance may be 

evaluated across segments of interest (i.e., geography, type of business, etc.). For CAPs and 

OCSPs, standardized reporting of transaction-level data will improve lender oversight 

(e.g., weaker lenders can be identified and assisted) and provide the basis for needed changes 

in underwriting, pricing, and managing risk. 

XII. Limitation to New Extensions of Credit

Funds made available to states under the SSBCI will be permitted only for new 

extensions of credit or new investments. That is, funds made available to states pursuant to 

the SSBCI shall not be used to support existing extensions of credit or financing – including but 

not limited to prior loans, lines of credit or other borrowing –that were previously made 

available as part of a state small business credit enhancement program.

XIII. Waiver Policy

Treasury reserves the right, at its discretion, to waive or modify any provision of these 

Policy Guidelines in any case or class of cases. Treasury may do so only with the prior approval 

of the Under Secretary for Domestic Finance or designated delegate for such purpose, if such 

action is not inconsistent with law and will not subject the United States to substantial expense 

or liability. 

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