It’s time for the second installment.
That’s basically what Greg Cole said about the news that the state of Maryland has received its second infusion of $7,598,484 in State Small Business Credit Initiative (SSBCI) funds from the U.S. Department of the Treasury (DOT), which gives small businesses access to the capital they need to grow and create jobs.
Cole, director of the Office of Finance Programs for the state Department of Business and Economic Development (DBED), said this second installment won’t take as long to distribute as the first, which was presented in 2010 — when the country was pulling out of The Great Recession, businesses weren’t expanding rapidly and banks were much less likely to be in a lending mood.
What the start of the second round means is that, to date, more than $15 million in SSBCI funds have been disbursed to Maryland — of an eventual $23 million due to the state — by the DOT, which has also disbursed more than $1.1 billion in SSBCI funds to participating states since the beginning of the program.
The DOT has helped 8,500 businesses nationwide secure $4.1 billion in loans or investments, which is nearly $7 in private capital for every $1 of federal support.
Spurring the Effort
Cole, as one of the state’s contributors to the design of the national SSBCI program at the request of the DOT, explained that it originated as part of President Barack Obama’s 2010 Jobs Act.
“It was created as an avenue for states to acquire federal funding for economic development,” he said, “at a time when many states were out of money.”
The effort was spurred by a letter from then-Gov. Martin O’Malley that was cosigned by 28 additional governors, stressing the importance of conducting economic development efforts from the state level.
“So, [O’Malley] and the others asked for money to fund economic development efforts nationwide — which resulted in $1.5 billion in federal funds being implemented and overseen by the DOT, which allotted the funds based on its view of what each state needed,” said Cole. “That’s how Maryland was designated to receive $23 million. All states were to receive the funding in three installments, over several years.”
The SSBCI program required states to explain how they would allot the money, (e.g., equity investments, loan funds, etc.) and how it was leveraged. For every dollar the government invested, the states were to leverage $10 in private sector funding.
“In other words, the feds wanted to see real effort,” he said, “especially when we were in recovery from the recession and the private sector wasn’t lending much money.”
While Maryland receiving the second installment of funding is news, that news comes with a question: “Why did it take so long?”
“That has to do with how long it took to disperse the money from the first round,” said Cole, “because when we, and many of the other states, initially wrote the applications, we thought if we put all of the money into a loan guaranty program, we could leverage money from the banking community.”
The bulk of the $7.5 million ended up in two state financing programs: the Maryland Industrial Development Financing Authority and the Maryland Small Business Development Financing Authority.
However, as time went on, Maryland’s economy evolved and the original plan did not sync with the market. “The banking industry was slow, but we had a burgeoning tech community,” said Cole, “so we shifted the money from the two aforementioned guarantee programs to the Maryland Venture Fund.”
Today, most of the funding from the second infusion has been placed in the Maryland Venture Fund, though about $500,000 went to DBED’s sister agency, the Department of Housing and Community Development, for its Neighborhood Business Works (NBW) program.
That was also the case during the first round. That money is directed to “really small businesses,” said Cole, “from the early stage startups to the middle-market bank borrowers.”
Daraius Irani, chief economist of the Regional Economic and Studies Institute at Towson University, said these types of programs “are always a good thing,” since small businesses always have challenges in obtaining capital.
“This program also attracts private dollars from the banks as well, with the banks able to use SSBIC as a guarantor of the loans. The government offering the backup on the banks taking the risk is good, because we know that not all small business loans will be paid back,” Irani said.
Walt Townshend, president of the Baltimore Washington Corridor Chamber, concurred. “Any opportunity to provide leverage for capital to businesses is most welcome,” he said, “and DBED has a great track record of using these monies to attract private capital and assist businesses, in retaining jobs and adding jobs.”
With the second round of funding set up during a much healthier economy, Cole thinks the money will deploy quickly, and that that third infusion of $7.5 million “will come soon, because the state has a rapidly growing segment of young technology companies that we are supporting.”
So, all told, Cole sees the success, this time in the near-view mirror.
“This program marked the first time in history that the federal government funded the economic development efforts conducted by state agencies,” he said, “and O’Malley may have been the first governor to approach President Obama with this recommendation. Maryland was a catalyst for the SSBCI.”