SSBCI provides direct support to participants for use in programs designed to increase access to credit for small businesses. Using a formula contained in the Small Business Jobs Act of 2010, Treasury calculated the amount of SSBCI funding for which each of the 50 states, as well as the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, Guam, American Samoa, and the United States Virgin Islands, were eligible to apply. This formula takes into account a state’s job losses in proportion to the aggregate job losses of all states. In addition to states, the act granted permission to municipalities to apply directly for funding under SSBCI in the event that their state did not apply for funding. Municipalities in Alaska, North Dakota, and Wyoming used this option. Participants are expected to use their SSBCI funds to leverage private financing and investment that is at least 10 times the amount of their SSBCI allocation (a leverage ratio of 10-to-1) by December 31, 2016. Forty-seven states; the District of Columbia; the Commonwealth of Puerto Rico; the Commonwealth of the Northern Mariana Islands; Guam; American Samoa; the United States Virgin Islands; Anchorage, Alaska; Carrington, North Dakota; Mandan, North Dakota; and Laramie, Wyoming, currently participate in the program. The act allowed Treasury to provide SSBCI funding for two program categories: capital access programs (CAP) and other credit support programs (OCSP). For both CAPs and OCSPs, the act requires that lenders have a meaningful amount of their own capital at risk. Loan terms, such as interest and collateral, are typically negotiated between the lender and the borrower, although in some cases loan terms are subject to SSBCI participant approval and, in many cases, the SSBCI participant and lender will discuss and negotiate loan terms and guarantee options prior to reaching agreement to approve the loan and issue a guarantee. A CAP is a loan portfolio insurance program wherein the borrower and lender, such as a small business owner and a bank, contribute to a reserve fund held by the lender. Under a CAP, when a participating lender originates a loan, the lender and borrower combine to contribute an amount equal to a percentage of the loan to a loan reserve fund, which is held by the lender. Under SSBCI, the contribution must be from 2 percent to 7 percent of the amount borrowed. Typically, the contribution ranges from 3 percent to 4 percent. The SSBCI participant then matches the combined contribution and sends that amount to the lender, which deposits the funds into the lender-held reserve fund. Under SSBCI, approved CAPs are eligible to receive federal contributions to the reserve funds held by each participating financial institution in an amount equal to the total amount of the contributions paid by the borrower and the lender on a loan-by-loan basis. In addition, the following OCSPs are examples of types of programs eligible to receive funding under the act: Collateral support programs. A collateral support program is designed to enable financing that might otherwise be unavailable due to a collateral shortfall. It provides pledged cash collateral to lenders to enhance the collateral coverage of individual loans. The SSBCI participant and lender negotiate the amount of cash collateral to be pledged by the participant. Loan participation programs. SSBCI participants may structure a loan participation program in two ways: (1) through purchase transactions, also known as purchase participations, in which the SSBCI participant purchases a portion of a loan originated by a lender, or (2) by participating in a loan as a co-lender, where a lender originates a senior loan and the SSBCI participant originates a second loan to the same borrower that is usually subordinate to the lender’s senior loan should a default occur. SSBCI loan participation programs encourage lending to small businesses because the lender is able to reduce its potential loss by sharing its exposure to loan losses with the SSBCI participant. Loan guarantee programs. These programs enable small businesses to obtain a term loan or line of credit by providing the lender with the necessary security in the form of a partial guarantee. In most cases, the SSBCI participant sets aside funds in a dedicated reserve or account to collateralize the guarantee of a specified percentage of each approved loan. The guarantee percentage is determined by the participants and lenders but, under SSBCI, may not exceed 80 percent of loan losses. Venture capital programs. These programs provide investment capital to create and grow start-ups and early-stage businesses, often in one of two forms: (1) a SSBCI participant-run venture capital fund (which may include other private investors) that invests directly in businesses, or (2) a fund of funds, which is a fund that invests in other venture capital funds that in turn invest in individual businesses. Direct loan programs. Although Treasury does not consider these programs to be a separate SSBCI program type, it acknowledges that some participants may identify programs that they plan to support with SSBCI funds as direct loan programs. The programs that some SSBCI participants label as direct loan programs are viewed by Treasury as co-lending programs categorized as loan participation programs, which have lending structures that are allowable under the statute. OCSPs approved to receive SSBCI funds are required to target small businesses with an average size of 500 or fewer employees and to target support towards loans with an average principal amount of $5 million or less. In addition, these programs cannot lend to borrowers with more than 750 employees or make any loans in excess of $20 million. After their applications were approved, SSBCI participants entered into Allocation Agreements with Treasury before they received their funds. SSBCI Allocation Agreements are signed by Treasury and participants, and they outline how participants are to comply with program requirements. The act requires that each participant receive its SSBCI funds in three disbursements or tranches of approximately one-third of its approved allocation. As part of its request to receive the second and third disbursements, a participant must certify that it has expended, transferred, or obligated 80 percent or more of the previous disbursement. When participants request subsequent disbursements, Treasury reviews the request and certification for completeness. Treasury may also review a sample of the participant’s transactions for compliance with SSBCI requirements. All SSBCI Allocation Agreements will expire on March 31, 2017. Treasury may terminate any portion of a participant’s allocation that Treasury has not yet transferred to the participant within 2 years of the date on which its SSBCI Allocation Agreement was signed. Treasury may also reduce or terminate a participant’s allocation at any time during the term of the Allocation Agreement upon an event of default under the agreement. Under the act, participants are required to submit quarterly and annual reports on their use of SSBCI funds. Changes to participants’ Allocation Agreements generally must be approved by Treasury through a program modification. For example, participants must submit a program modification to Treasury for approval in order to use SSBCI funds for a new program that was not originally approved by Treasury, to materially change the scope or purpose of an approved program, or to reapportion and transfer allocated SSBCI funds among approved programs when the cumulative amounts transferred exceed 10 percent of the participant’s total SSBCI allocation. Treasury has procedures for participants to apply for modifications and for its processing of modification approval requests. In general, the procedures require participants to submit, among other things, justification of the need for the modification and the impact of the change on program performance, including the 10-to-1 private leverage expectation. As of June 30, 2013, Treasury had approved 32 modifications of SSBCI participants’ programs. The act requires Treasury’s OIG to conduct audits of participants’ use of their SSBCI allocations. As of November 8, 2013, Treasury’s OIG has conducted 12 audits of SSBCI participants’ use of SSBCI funds. Between June 30, 2012, and June 30, 2013, SSBCI participants nearly quadrupled their overall use of SSBCI funds, but individual participants continue to use their funds at varying rates and for different types of programs. SSBCI participants faced challenges using their SSBCI funds in the early stages of the program. For example, because Treasury initially implemented the program without issuing final policies and procedures, some SSBCI participants experienced delays in receiving subsequent disbursements of funds. While initial challenges have mostly been addressed, participants continue to face ongoing challenges with using SSBCI funds, including reluctance from large banks to participate in the program. As of June 30, 2013, SSBCI participants had used a total of about $549 million in SSBCI funds, which represents about 38 percent of the $1.5 billion allocated for the program. As shown in figure 1, usage of SSBCI funds by participants has nearly quadrupled since June 30, 2012, when participants had used about $150 million. In 2012, we found that participants had used their SSBCI funds at different rates. As of June 30, 2013, SSBCI participants were continuing to use their SSBCI allocations at varying rates, as shown in figure 2. Fifty- five of the 57 participants had used some portion of their allocation as of June 30, 2013. Idaho had used the highest percentage of its allocated funds, approximately 94 percent of the $13 million it was allocated. Two territories—American Samoa and Northern Mariana Islands—had not used any of their allocation, which, according to Treasury officials, is because both territories have limited small business credit and investment markets.