State Small Business Credit Initiative: Implementation and Funding Issues

Changes from March 1, 2021 to March 23, 2021

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with ~~red strikethrough~~ and textual matter added in the later version is indicated with blue.

State Small Business Credit Initiative:
March March 123, 2021 , 2021
Implementation and Funding Issues
Robert Jay Dilger
Congressional interest in small business access to capital has always been high, primarily Congressional interest in small business access to capital has always been high, primarily
Senior Specialist in Senior Specialist in
because small businesses are viewed as a means to stimulate economic activity and create jobs, because small businesses are viewed as a means to stimulate economic activity and create jobs,
American National American National
but it has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) but it has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19)
Government Government
pandemic’s widespread adverse economic impact on the national economy. pandemic’s widespread adverse economic impact on the national economy.

Grant A. Driessen
In recognition of small business’s current economic difficulties, Congress In recognition of small business’s current economic difficulties, Congress ~~is currently~~passed budget
Specialist in Public Finance Specialist in Public Finance
~~considering budget~~ reconciliation legislation (reconciliation legislation (~~H.R. 1319~~P.L. 117-2, the American Rescue Plan Act of 2021) , the American Rescue Plan Act of 2021)

that includes an that includes an appropriation of $10 billion for another round of funding for the State Small appropriation of $10 billion for another round of funding for the State Small
Business Credit Initiative (SSBCI). The SSBCI was originally authorized by P.L. 111-240,Business Credit Initiative (SSBCI). The SSBCI was originally authorized by P.L. 111-240, the ~~the~~

Small Business Small Business Jobs Act of 2010, as a means to assist small businesses following the Great Jobs Act of 2010, as a means to assist small businesses following the Great
Recession (2007-2009). The $1.5 billion program was administered by the Secretary of the Treasury from 2010 through Recession (2007-2009). The $1.5 billion program was administered by the Secretary of the Treasury from 2010 through
September 27, 2017. September 27, 2017.
The original SSBCI provided funding, allocated by formula and distributed in one The original SSBCI provided funding, allocated by formula and distributed in one -third increments, to states, territories, and -third increments, to states, territories, and
eligible municipalities (hereinafter referred to as states) to expand existing or create new state small business investment eligible municipalities (hereinafter referred to as states) to expand existing or create new state small business investment
programs, including state capital access programs, collateral support programs, loan participation programs, loan guarantee programs, including state capital access programs, collateral support programs, loan participation programs, loan guarantee
programs, and venture capital programs. In most instances, the initial round of funding (called a tranche) took place in programs, and venture capital programs. In most instances, the initial round of funding (called a tranche) took place in
FY2011.FY2011. Most states received their second tranche during FY2013. As of December 31, 2016 (the latest available data), 98% Most states received their second tranche during FY2013. As of December 31, 2016 (the latest available data), 98%
of total allocated funding had been disbursed to the states and all 57 participants had received their first tranche, 56 had of total allocated funding had been disbursed to the states and all 57 participants had received their first tranche, 56 had
received at least two tranches, and 53 had received their third and final tranche. received at least two tranches, and 53 had received their third and final tranche.
SSBCI participants were expected to leverage their SSBCI funds to generate new small business lending that is at least 10 SSBCI participants were expected to leverage their SSBCI funds to generate new small business lending that is at least 10
times the amount of their SSBCI funds. As of December 31, 2016,times the amount of their SSBCI funds. As of December 31, 2016, SSBCI participants had leveraged $8.95 in new financing SSBCI participants had leveraged $8.95 in new financing
for every $1 in SSBCI funds. Forty-seven states; American Samoa; the District of Columbia; Guam; the Northern Mariana for every $1 in SSBCI funds. Forty-seven states; American Samoa; the District of Columbia; Guam; the Northern Mariana
Islands; Puerto Rico; the U.S. Virgin Islands; Anchorage, Alaska; two consortiums of municipalities in North Dakota; and a Islands; Puerto Rico; the U.S. Virgin Islands; Anchorage, Alaska; two consortiums of municipalities in North Dakota; and a
consortium of municipalities in Wyoming participated in the program. consortium of municipalities in Wyoming participated in the program.
The Obama Administration recommended in its FY2015, FY2016, The Obama Administration recommended in its FY2015, FY2016, and FY2017 budget requests that another $1.5 billion and FY2017 budget requests that another $1.5 billion
round of funding take place, with $1 billion competitively awarded to states and $500 millionround of funding take place, with $1 billion competitively awarded to states and $500 million awarded “by a needawarded “by a need -based -based
formula based on economic factors such as job losses and pace of economic recovery.” Legislation with provisions similar to formula based on economic factors such as job losses and pace of economic recovery.” Legislation with provisions similar to
the Obama Administration’s proposal was introduced during the 113th Congress (H.R. 4556 and S. 2285),the Obama Administration’s proposal was introduced during the 113th Congress (H.R. 4556 and S. 2285), the 114th Congress the 114th Congress
(S. 1901,(S. 1901, H.R. 5144,H.R. 5144, and H.R. 5672), the 115th Congress (S. 1897), and the 116th Congress (S. 3551). and H.R. 5672), the 115th Congress (S. 1897), and the 116th Congress (S. 3551).
This report examines the SSBCI and its implementation, including Treasury’s response to initial program audits conducted This report examines the SSBCI and its implementation, including Treasury’s response to initial program audits conducted
by the U.S. Government Accountability Office (GAO) and Treasury’s Office of Inspector General (OIG). These initial audits by the U.S. Government Accountability Office (GAO) and Treasury’s Office of Inspector General (OIG). These initial audits
suggest that SSBCI participants generally met the statute’s requirements, but there were some compliance problems. They suggest that SSBCI participants generally met the statute’s requirements, but there were some compliance problems. They
also indicate that Treasury’s program oversight could have been improved and that performance measures were also indicate that Treasury’s program oversight could have been improved and that performance measures were ~~n eeded~~needed to to
assess the program’s efficacy. assess the program’s efficacy.
Congressional Research Service Congressional Research Service

State Small Business Credit Initiative: Implementation and Funding Issues

Overview
Congressional interest in Congressional interest in ~~smal~~ small business access to capital has always been high, primarily because business access to capital has always been high, primarily because
~~smal~~ small businesses are viewed as a means to stimulate economic activity and create jobs, but it has businesses are viewed as a means to stimulate economic activity and create jobs, but it has
become become ~~especial y~~especially acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s acute in the wake of the Coronavirus Disease 2019 (COVID-19) pandemic’s
widespread adverse economic impact on the national economy. widespread adverse economic impact on the national economy.
In recognition of In recognition of ~~smal~~ small business’s current economic difficulties, Congress business’s current economic difficulties, Congress ~~is currently considering~~
passed budget reconciliation legislationbudget reconciliation legislation ~~(H.R. 1319~~ (P.L. 117-2, the American Rescue Plan Act of 2021) that includes , the American Rescue Plan Act of 2021) that includes
an appropriation of $10 an appropriation of $10 ~~bil ion~~ billion for another round of funding for the State for another round of funding for the State ~~Smal~~ Small Business Credit Business Credit
Initiative (SSBCI). The SSBCI was Initiative (SSBCI). The SSBCI was ~~original y~~originally authorized by P.L. 111-240, the authorized by P.L. 111-240, the ~~Smal~~ Small Business Business
Jobs Act of 2010, as a means to assist Jobs Act of 2010, as a means to assist ~~smal~~ small businesses following the Great Recession (2007-businesses following the Great Recession (2007-
2009). The $1.5 2009). The $1.5 ~~bil ion~~billion program was administered by the Secretary of the Treasury from 2010 program was administered by the Secretary of the Treasury from 2010
through September 27, 2017.1through September 27, 2017.1
The original SSBCI provided funding, The original SSBCI provided funding, ~~al ocated~~allocated through a statutorily created formula and through a statutorily created formula and
distributed in one-third increments (distributed in one-third increments (~~cal ed~~called tranches), to states, the District of Columbia, eligible tranches), to states, the District of Columbia, eligible
territories, and eligibleterritories, and eligible ~~municipalities~~ municipalities (hereinafter states) to expand existing or create new state (hereinafter states) to expand existing or create new state
~~smal~~ small business investment programs, including capital access programs, collateral support business investment programs, including capital access programs, collateral support
programs, loan participation programs, loan guarantee programs, and venture capital programs. In programs, loan participation programs, loan guarantee programs, and venture capital programs. In
most instances, states received their initialmost instances, states received their initial tranche in FY2011, with more than $366 tranche in FY2011, with more than $366 ~~mil ion~~ million in in
SSBCI funds transferred to states.2 At that time, Treasury anticipated providing another $859 SSBCI funds transferred to states.2 At that time, Treasury anticipated providing another $859
~~mil ion~~ million in SSBCI funds to states in FY2012.3 However, because it took states longer than in SSBCI funds to states in FY2012.3 However, because it took states longer than
anticipated to expend, transfer, or obligate their first tranche of SSBCI funds, Treasury transferred anticipated to expend, transfer, or obligate their first tranche of SSBCI funds, Treasury transferred
less SSBCI funding to states in FY2012 than in FY2011 ($187 less SSBCI funding to states in FY2012 than in FY2011 ($187 ~~mil ion~~million, for a total of $553 , for a total of $553
~~mil ion~~million).4 Treasury transferred $364 ).4 Treasury transferred $364 ~~mil ion~~million in SSBCI funds to states (totaling $917 in SSBCI funds to states (totaling $917 ~~mil ion~~million) in ) in
FY2013, $229 FY2013, $229 ~~mil ion~~ million in FY2014 (totaling $1.146 in FY2014 (totaling $1.146 ~~bil ion~~billion), $216 ), $216 ~~mil ion~~ million in FY2015 (totaling in FY2015 (totaling
$1.362 $1.362 ~~bil ion~~billion), and $50 ), and $50 ~~mil ion~~ million in FY2016 (totaling $1.412 in FY2016 (totaling $1.412 ~~bil ion~~billion).5 ).5
As of December 31, 2016 (the latest available data), Treasury had disbursed $1.43 As of December 31, 2016 (the latest available data), Treasury had disbursed $1.43 ~~bil ion~~billion, or , or
about 98%, of the $1.45 about 98%, of the $1.45 ~~bil ion available~~ billion available to states ($1.5 to states ($1.5 ~~bil ion~~billion minus Treasury’s administrative minus Treasury’s administrative

1 P.L. 111-240, the Small Business1 P.L. 111-240, the Small Business ~~Jobs~~ Jobs Act of 2010, limited Act of 2010, limited ~~T reasury~~Treasury’s role in administrating the State Small Business ’s role in administrating the State Small Business
Credit Initiative (SSBCI)Credit Initiative (SSBCI) program to seven years from enactment (September 27, 2010). As a result, program to seven years from enactment (September 27, 2010). As a result, ~~T reasury~~Treasury role in role in
administering the program sunset on September 27, 2017. administering the program sunset on September 27, 2017.
2 U.S. 2 U.S. Office of Management and BudgetOffice of Management and Budget (OMB), (OMB), Appendix, Budget of the U.S. Government, FY2013: Department of
the Treasury, p. 1061, at http://www.gpo.gov/fdsys/pkg/BUDGET, p. 1061, at http://www.gpo.gov/fdsys/pkg/BUDGET -2013-APP/pdf/BUDGET-2013-APP/pdf/BUDGET -2013-APP.pdf. -2013-APP.pdf.
3 OMB, 3 OMB, Appendix, Budget of the U.S. Government, FY2013: Department of the Treasury, p. 1061. , p. 1061.
4 OMB, 4 OMB, Appendix, Budget of the U.S. Government, FY2014: Department of the Treasury, p. 991, at , p. 991, at
https://www.gpo.gov/fdsys/pkg/BUDGEThttps://www.gpo.gov/fdsys/pkg/BUDGET -2014-APP/pdf/BUDGET-2014-APP/pdf/BUDGET -2014-APP.pdf. -2014-APP.pdf.
5 U.S. 5 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative, FY 2016: President’s Budget, p. 6, at , p. 6, at
http://www.treasury.gov/about/budget-performance/CJ16/18.%20SSBCI%20FY%202016%20CJ.pdf; U.S.http://www.treasury.gov/about/budget-performance/CJ16/18.%20SSBCI%20FY%202016%20CJ.pdf; U.S. Department Department
of the of the ~~T reasury~~Treasury, , State ~~Sm all~~Small Business Credit Initiative: A ~~Sum m ary~~Summary of States’ Quarterly Reports as of ~~Septem ber~~September 30,
2015, p. 1, at https://www.treasury.gov/resource-center/sb-programs/, p. 1, at https://www.treasury.gov/resource-center/sb-programs/~~DocumentsSBLFT ransactions~~DocumentsSBLFTransactions//
SSBCI%20Quarterly%20Report%20Summary%20September%202015_FINAL.pdfSSBCI%20Quarterly%20Report%20Summary%20September%202015_FINAL.pdf ; and U.S.; and U.S. Department of the Department of the
~~T reasury~~Treasury, , State ~~Sm all~~Small Business Credit Initiative: A ~~Sum m ary~~Summary of States’ Quarterly Reports as of ~~Septem ber~~September 30, 2016, p. , p.
1, at https://www.treasury.gov/resource-center/sb-programs/Documents/1, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Quarterly%20Report%20Summary%20September%202016_Final.pdfSSBCI%20Quarterly%20Report%20Summary%20September%202016_Final.pdf . .
Congressional Research Service Congressional Research Service

1 1

State Small Business Credit Initiative: Implementation and Funding Issues

costs).6 As of December 31, 2016, costs).6 As of December 31, 2016, al all 57 participants had received their first tranche, 56 had 57 participants had received their first tranche, 56 had
received their second tranche, and 53 had received their third tranche.7received their second tranche, and 53 had received their third tranche.7
States were expected to leverage their SSBCI funds to generate new States were expected to leverage their SSBCI funds to generate new ~~smal~~ small business lending that is business lending that is
at least 10 times the amount of their SSBCI funds (a leverage ratio of 10:1). As of December 31, at least 10 times the amount of their SSBCI funds (a leverage ratio of 10:1). As of December 31,
2016, SSBCI participants had leveraged $8.95 in new financing for every $1 in SSBCI funds.8 2016, SSBCI participants had leveraged $8.95 in new financing for every $1 in SSBCI funds.8
There were 57 participants: 47 states; American Samoa; the District of Columbia; Guam; the There were 57 participants: 47 states; American Samoa; the District of Columbia; Guam; the
Northern Mariana Islands; Puerto Rico; the U.S. Virgin Islands; Anchorage, Alaska; two Northern Mariana Islands; Puerto Rico; the U.S. Virgin Islands; Anchorage, Alaska; two
consortiums of municipalities in North Dakota; and a consortium of municipalities in Wyoming.consortiums of municipalities in North Dakota; and a consortium of municipalities in Wyoming.
During congressional consideration, advocates argued that the SSBCI would promote economic During congressional consideration, advocates argued that the SSBCI would promote economic
growth and job creation by enhancing growth and job creation by enhancing ~~smal~~ small business access to capital. Opponents argued that the business access to capital. Opponents argued that the
SSBCI did not address the need to stimulate demand for credit by SSBCI did not address the need to stimulate demand for credit by ~~smal~~ small businesses, which, in the businesses, which, in the
opponents’ view, was the core issue affecting the role of opponents’ view, was the core issue affecting the role of ~~smal~~ small business in job creation. They business in job creation. They
argued that “the solutions to America’s economic problems do not lie in more taxpayer-funded argued that “the solutions to America’s economic problems do not lie in more taxpayer-funded
bailouts” and advocated bailouts” and advocated ~~smal~~ small business tax reductions as a more effective means to stimulate job business tax reductions as a more effective means to stimulate job
creation and economic growth.9 For additional discussion of these different approaches to creation and economic growth.9 For additional discussion of these different approaches to
stimulate job creation and economic growth, see CRS Report R40985, stimulate job creation and economic growth, see CRS Report R40985, Small Business: Access to
Capital and Job Creation, by Robert Jay Dilger. , by Robert Jay Dilger.
It is difficult to determine the full extent of the SSBCI’s effect on It is difficult to determine the full extent of the SSBCI’s effect on ~~smal~~ small business lending. As of business lending. As of
December 31, 2016, states had spent or obligated about 88% of the $1.45 December 31, 2016, states had spent or obligated about 88% of the $1.45 ~~bil ion~~billion available available ($1.27 ($1.27
~~bil ion~~ billion of $1.45 of $1.45 ~~bil ion~~billion), which is sufficient to provide an indication of the program’s impact on ), which is sufficient to provide an indication of the program’s impact on
~~smal~~ small business lending.10 However, determining the program’s influence on business lending.10 However, determining the program’s influence on ~~smal~~ small business business
lending is likelylending is likely to be more suggestive than definitive because differentiating the SSBCI’s effect to be more suggestive than definitive because differentiating the SSBCI’s effect
on on ~~smal~~ small business lending from other factors, such as changes in the lender’s local economy, is business lending from other factors, such as changes in the lender’s local economy, is
~~methodological y chal enging, especial y~~methodologically challenging, especially given the relatively given the relatively ~~smal~~ small amount of financing involved amount of financing involved
relative to the national market for relative to the national market for ~~smal~~ small business loans. In 2017, the SSBCI’s $1.5 business loans. In 2017, the SSBCI’s $1.5 ~~bil ion~~billion in in
financing represented about 0.24% of outstanding financing represented about 0.24% of outstanding ~~non-agricultural smal~~ nonagricultural small business loans.11 business loans.11

~~6 U.S.~~ 6 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of ~~Decem ber~~December 31, 2016, p. 1, at https://www.treasury.gov/resource-center/sb-programs/Documents/, p. 1, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Quarterly_Report_Summary_December_2016.pdfSSBCI_Quarterly_Report_Summary_December_2016.pdf . .
7 U.S. 7 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of ~~Decem ber~~December 31, 2016, p. 1. , p. 1.
8 U.S.8 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ 2016 Annual Reports, ,
p. 2, at https://www.treasury.gov/resource-center/sb-programs/Documents/p. 2, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20CompliantSSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant .pdf. .pdf.
9 U.S. 9 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, ~~T o~~To Create the Small Business Create the Small Business Lending FundLending Fund Program to Program to
Direct the Secretary of the Direct the Secretary of the ~~T reasury~~Treasury to make Capital Investments in Eligible to make Capital Investments in Eligible Institutions in order to Increase the Institutions in order to Increase the
Availability of Credit for SmallAvailability of Credit for Small Businesses,Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd
sess.,sess., May 27, 2010, H.Rept. 111-499 (Washington: GPO, 2010), pp. 37, 38. May 27, 2010, H.Rept. 111-499 (Washington: GPO, 2010), pp. 37, 38.
10 U.S.10 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of ~~Decem ber~~December 31, 2016, p. 1, at https://www.treasury.gov/resource-center/sb-programs/Documents/, p. 1, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Quarterly_Report_Summary_December_2016.pdf. In addition, as of December 31, 2016, 34 states reported SSBCI_Quarterly_Report_Summary_December_2016.pdf. In addition, as of December 31, 2016, 34 states reported
that they had spent about $279.9 million for new State Smallthat they had spent about $279.9 million for new State Small ~~Business~~ Business Credit Initiative (SSBCI)Credit Initiative (SSBCI) supported loans and supported loans and
investments using recycled SSBCIinvestments using recycled SSBCI ~~funds~~ funds generated from SSBCIgenerated from SSBCI ~~loan r epayments~~ loan repayments and returns on SSBCI and returns on SSBCI investments. investments.
11 Federal Deposit Insurance Corporation, “Statistics on Depository Institutions,” at https://www5.fdic.gov/sdi/ 11 Federal Deposit Insurance Corporation, “Statistics on Depository Institutions,” at https://www5.fdic.gov/sdi/
main.asp?formname=compare. As of December 31, 2017, there was $627.8 billion in outstanding main.asp?formname=compare. As of December 31, 2017, there was $627.8 billion in outstanding ~~non -agricultural~~
~~small business~~ nonagricultural small business loans (defined as the sum of “total loans secured by nonfarm nonresidential properties of $1,000,000 or loans (defined as the sum of “total loans secured by nonfarm nonresidential properties of $1,000,000 or
less”less” and “total commercial and industrial loans to U.S.and “total commercial and industrial loans to U.S. ~~addressees~~ addressees of $1,000,000 or less”). of $1,000,000 or less”).
Congressional Research Service Congressional Research Service

2 2

link to page link to page 4344 State Small Business Credit Initiative: Implementation and Funding Issues

Treasury has reported that SSBCI funds supported more than 21,000 loans and investments in Treasury has reported that SSBCI funds supported more than 21,000 loans and investments in
~~smal~~ small business amounting to over $10.7 business amounting to over $10.7 ~~bil ion~~billion, with more than 80% of the funds and investments , with more than 80% of the funds and investments
made to made to ~~smal~~ small businesses with 10 or fewer full-time employees. Treasury has also reported that businesses with 10 or fewer full-time employees. Treasury has also reported that
~~smal~~ small business owners indicated that the funds helped them to create or retain 240,669 jobs business owners indicated that the funds helped them to create or retain 240,669 jobs
(79,193 new jobs and 161,476 retained jobs).12(79,193 new jobs and 161,476 retained jobs).12
The Obama Administration recommended in its FY2015, FY2016, and FY2017 budget requests The Obama Administration recommended in its FY2015, FY2016, and FY2017 budget requests
that another $1.5 that another $1.5 ~~bil ion~~ billion round of funding take place. Under their proposal, $1 round of funding take place. Under their proposal, $1 ~~bil ion~~ billion would have would have
been competitively awarded to states “best able to target local market needs, promote inclusion, been competitively awarded to states “best able to target local market needs, promote inclusion,
attract private capital for start-up and scale-up businesses, strengthen regional entrepreneurial attract private capital for start-up and scale-up businesses, strengthen regional entrepreneurial
ecosystems, and evaluate results,” and $500 ecosystems, and evaluate results,” and $500 ~~mil ion~~million awarded “by formula based on economic awarded “by formula based on economic
factors such as job losses and pace of economic recovery.”13 factors such as job losses and pace of economic recovery.”13
Legislation containing provisions similar to the Obama Administration’s proposal was introduced Legislation containing provisions similar to the Obama Administration’s proposal was introduced
during the 113th Congress (H.R. 4556, the during the 113th Congress (H.R. 4556, the ~~Smal~~ Small Business Access to Capital Act of 2014, and S. Business Access to Capital Act of 2014, and S.
2285, its companion 2285, its companion ~~bil~~ bill in the Senate), the 114th Congress (S. 1901, the in the Senate), the 114th Congress (S. 1901, the ~~Smal~~ Small Business Access to Business Access to
Capital Act of 2015, H.R. 5144, the Jumpstart Housing Opportunities UtilizingCapital Act of 2015, H.R. 5144, the Jumpstart Housing Opportunities Utilizing ~~Smal~~ Small Enterprises Enterprises
Act of 2016, and H.R. 5672, the Act of 2016, and H.R. 5672, the ~~Smal~~ Small Business Access to Capital Act of 2016), the 115th Business Access to Capital Act of 2016), the 115th
Congress (S. 1897, the Congress (S. 1897, the ~~Smal~~ Small Business Access to Capital Act of 2017), and the 116th Congress (S. Business Access to Capital Act of 2017), and the 116th Congress (S.
3551, the 3551, the ~~Smal~~ Small Business Access to Capital Act of 2020).14 Business Access to Capital Act of 2020).14
This report examines the current SSBCI This report examines the current SSBCI ~~proposal~~provision and its legislative origins and the and its legislative origins and the
implementation of the original SSBCI, including Treasury’s response to initial program audits implementation of the original SSBCI, including Treasury’s response to initial program audits
conducted by the U.S. Government Accountability Office (GAO) and Treasury’s Office of conducted by the U.S. Government Accountability Office (GAO) and Treasury’s Office of
Inspector General (OIG). These audits suggested that states Inspector General (OIG). These audits suggested that states ~~general y~~generally met the statute’s met the statute’s
requirements, but there were some compliance problems. They also indicated that Treasury’s requirements, but there were some compliance problems. They also indicated that Treasury’s
oversight of the program could have been improved and that performance measures were needed oversight of the program could have been improved and that performance measures were needed
to assess the program’s efficacy. to assess the program’s efficacy.
Legislative Origins
On February 4, 2021, Senator Gary Peters, who sponsored legislation establishing the original On February 4, 2021, Senator Gary Peters, who sponsored legislation establishing the original
SSBCI (see SSBCI (see thethe Appendix for the original SSBCI’s legislativefor the original SSBCI’s legislative origins), introduced S. 258, the origins), introduced S. 258, the

~~12 U.S.~~ 12 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ 2016 Annual Reports, ,
pp. 2, 3, 15, at https://www.treasury.gov/resource-center/sb-programs/Documents/pp. 2, 3, 15, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdfSSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdf . .
13 OMB, 13 OMB, The Appendix, Budget of the United States Government, Fiscal Year 2017: Department of the Treasury, pp. , pp.
1034, 1035, at https://www.gpo.gov/fdsys/pkg/BUDGET1034, 1035, at https://www.gpo.gov/fdsys/pkg/BUDGET -2017-APP/pdf/BUDGET-2017-APP/pdf/BUDGET -2017-APP.pdf. -2017-APP.pdf.
14 H.R. 5144, the Jumpstart HOUSE Act of 2016, added a provision ( 14 H.R. 5144, the Jumpstart HOUSE Act of 2016, added a provision (~~SEC.~~ Section 3. Support for affordable housing3. Support for affordable housing projects) projects)
~~designed~~ designed to facilitate the financing of affordable housing projects: “ ... to develop, acquire, construct, rehabilitate, to facilitate the financing of affordable housing projects: “ ... to develop, acquire, construct, rehabilitate,
maintain, operate, or manage housing projects that provide housing that is affordable for low- or moderate-income maintain, operate, or manage housing projects that provide housing that is affordable for low- or moderate-income
households, as determined by the Secretary, in consultation with the Secretary of Housinghouseholds, as determined by the Secretary, in consultation with the Secretary of Housing and Urban and Urban ~~D evelopment~~Development.” .”
H.R. 5672, the Small Business H.R. 5672, the Small Business Access to Capital Act of 2016, addedAccess to Capital Act of 2016, added a provision (a provision (~~SEC.~~Section 2. New 2. New tranches of capital for tranches of capital for
successfulsuccessful State programs) that wouldState programs) that would have includedhave included competitive award factors designedcompetitive award factors designed to provide preference to to provide preference to
participants based on their plans to (I) leverage private sector capital; (II) create and retain jobs duringparticipants based on their plans to (I) leverage private sector capital; (II) create and retain jobs during the 2the 2 -year period -year period
beginningbeginning on the date of the award;on the date of the award; (III) serve small businesses(III) serve small businesses ~~that~~ that have been incorporated or in operation for not have been incorporated or in operation for not
more than 5 years; (IV) serve low- or moderate-income communities; (V) serve minority- and women-owned small more than 5 years; (IV) serve low- or moderate-income communities; (V) serve minority- and women-owned small
businesses;businesses; and establishand establish or continue a robust self-evaluation of their use of awardedor continue a robust self-evaluation of their use of awarded funds;funds; provide provide ~~non-federal~~nonfederal funds funds
in excess of the amount required; andin excess of the amount required; and the extent to which the participant expended, obligated, or transferred their 2010 the extent to which the participant expended, obligated, or transferred their 2010
allocation. allocation.
Congressional Research Service Congressional Research Service

3 3

State Small Business Credit Initiative: Implementation and Funding Issues

~~Smal~~ Small Business Access to Capital Act of 2021.15 The Business Access to Capital Act of 2021.15 The ~~bil~~ bill would provide $10 would provide $10 ~~bil ion~~ billion for another for another
round of SSBCI funding ($5 round of SSBCI funding ($5 ~~bil ion~~ billion in formula-based in formula-based ~~al ocations~~allocations and an additional $5 and an additional $5 ~~bil ion~~ billion in in
competitive grants for states that have already capitalized the financing received from the 2010 competitive grants for states that have already capitalized the financing received from the 2010
program).16program).16
Several organizations indicated their support for the Several organizations indicated their support for the ~~bil~~ bill. For example, the Council of . For example, the Council of
Development Finance Agencies (CDFA) argued thatDevelopment Finance Agencies (CDFA) argued that
A $10 billion infusion in a reauthorized SSBCI Program would provide immediate access A $10 billion infusion in a reauthorized SSBCI Program would provide immediate access
toto ~~capital for small businesses that desperately need it. The programs created by~~ capital for small businesses that desperately need it. The programs created by states states
under the original SSBCI are still in operation and would be ready to immediately deploy under the original SSBCI are still in operation and would be ready to immediately deploy
capital to businesses in need. There would be no need to create new rules and regulations capital to businesses in need. There would be no need to create new rules and regulations
should this option be enacted. States are prepared to receive an infusion of SSBCI funding should this option be enacted. States are prepared to receive an infusion of SSBCI funding
immediately.17 immediately.17
There were disagreements concerning whether a reauthorization of the SSBCI should be included There were disagreements concerning whether a reauthorization of the SSBCI should be included
in the budget reconciliation in the budget reconciliation ~~bil . General y~~bill. Generally speaking, Democrats argued that the SSBCI should be speaking, Democrats argued that the SSBCI should be
included in the reconciliation included in the reconciliation ~~bil~~ bill because the program because the program
 had a proven track record of assisting  had a proven track record of assisting ~~smal~~ small businesses create and retain jobs; and businesses create and retain jobs; and
 required states to develop programs that targeted the needs of underserved  required states to develop programs that targeted the needs of underserved
communities, which, they argued, had not been adequately addressed by the communities, which, they argued, had not been adequately addressed by the
~~Smal~~ Small Business Administration’s Paycheck Protection Program (PPP), which Business Administration’s Paycheck Protection Program (PPP), which
provides forgivable loans to provides forgivable loans to ~~smal~~ small businesses adversely affected by COVID-19.18 businesses adversely affected by COVID-19.18
Republicans Republicans ~~general y~~generally argued that the SSBCI should not be included in the reconciliation argued that the SSBCI should not be included in the reconciliation ~~bil~~
bill because the program because the program
 was an extraneous matter that did not directly address COVID-19 and would  was an extraneous matter that did not directly address COVID-19 and would
make funding available make funding available for years after the pandemic’s expected duration; for years after the pandemic’s expected duration;
 was duplicative of the PPP, which had, at that time, $140  was duplicative of the PPP, which had, at that time, $140 ~~bil ion~~ billion in lending in lending
authority authority ~~stil~~ still available;available; and and
 had limited  had limited oversight, did not meet oversight, did not meet al all of its statutory objectives, was slow to of its statutory objectives, was slow to
launch and inefficient at deploying capital, and had a questionable effect on job launch and inefficient at deploying capital, and had a questionable effect on job
creation.19creation.19

~~15 Senator~~ 15 Sen. Gary Peters introduced similar legislation (S. Gary Peters introduced similar legislation (S. 3551, the Small Business3551, the Small Business ~~Access~~ Access to Capital Act of 2020) to Capital Act of 2020)
~~during~~ during the 116th Congress. the 116th Congress. ~~T hat~~That bill would bill would have appropriated $3 billion for another round of SSBCIhave appropriated $3 billion for another round of SSBCI ~~funding~~ funding (on March (on March
20, 2020). 20, 2020).
16 Sen. Gary 16 Sen. Gary Peters, “Peters, Stabenow Reintroduce Legislation Providing $10 Billion to Support SmallPeters, “Peters, Stabenow Reintroduce Legislation Providing $10 Billion to Support Small Business Business
Lending,” press release, February 5, 2021, at https://www.peters.senate.gov/newsroom/press-releases/peters-stabenow-Lending,” press release, February 5, 2021, at https://www.peters.senate.gov/newsroom/press-releases/peters-stabenow-
reintroduce-legislation-providing-10-billion-to-support-small-business-lending. reintroduce-legislation-providing-10-billion-to-support-small-business-lending.
17 Council of Development Finance Agencies, “Small Business 17 Council of Development Finance Agencies, “Small Business Access to Capital Act,” at https://www.cdfa.net/cdfa/Access to Capital Act,” at https://www.cdfa.net/cdfa/
cdfaweb.nsf/pages/SSBCI.html. cdfaweb.nsf/pages/SSBCI.html.
18 For further information and analysis of the Paycheck Protection Program, see CRS18 For further information and analysis of the Paycheck Protection Program, see CRS Report R46284, Report R46284, COVID-19 Relief
Assistance to ~~Sm all~~Small Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce, by Robert Jay Dilger, Bruce R. Lindsay, and Sean LowryR. Lindsay, and Sean Lowry . .
19 U.S. 19 U.S. House of Representatives, Committee on Financial Services, “Supporting Small and Minority-Owned House of Representatives, Committee on Financial Services, “Supporting Small and Minority-Owned
BusinessesBusinesses ~~T hrough~~ Through the Pandemic,” majority staff hearing memorandum, February 1, 2021, at https://democrats- the Pandemic,” majority staff hearing memorandum, February 1, 2021, at https://democrats-
financialservices.house.gov/UploadedFiles/020421_NSIDMP_Small_Biz_Hrg_Memo.pdf; U.S.financialservices.house.gov/UploadedFiles/020421_NSIDMP_Small_Biz_Hrg_Memo.pdf; U.S. House of House of
Representatives, Committee on Financial Services, Subcommittee on National Security, International Development and Representatives, Committee on Financial Services, Subcommittee on National Security, International Development and
Monetary Policy, “Supporting Small and Minority-Owned BusinessesMonetary Policy, “Supporting Small and Minority-Owned Businesses ~~T hrough~~ Through the Pandemic,” subcommittee hearing, the Pandemic,” subcommittee hearing,
February 4, 2021, at https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407099; U.S. Senate, February 4, 2021, at https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407099; U.S. Senate,
Committee on Banking, HousingCommittee on Banking, Housing and Urban Affairs, “and Urban Affairs, “~~T he~~The Coronavirus Crisis: Next Steps for Rebuilding Coronavirus Crisis: Next Steps for Rebuilding Main Street,” Main Street,”
committee hearing, February 25, 2021, at https://www.banking.senate.gov/hearings/the-coronavirus-crisis-nextcommittee hearing, February 25, 2021, at https://www.banking.senate.gov/hearings/the-coronavirus-crisis-next -steps--steps-
Congressional Research Service Congressional Research Service

4 4

State Small Business Credit Initiative: Implementation and Funding Issues

During their internal negotiations on the reconciliation During their internal negotiations on the reconciliation ~~bil~~ bill, Democratic congressional leaders , Democratic congressional leaders
amended S. 258 to reserve amended S. 258 to reserve
 $2.5  $2.5 ~~bil ion~~ billion for businesses owned and controlled by for businesses owned and controlled by ~~social y and economical y~~socially and economically
disadvantaged individuals, including minority-owned businesses ($1.5 disadvantaged individuals, including minority-owned businesses ($1.5 ~~bil ion~~billion in in
an initialan initial ~~al ocation~~ allocation, plus $1 , plus $1 ~~bil ion~~ billion for an incentive program for states that for an incentive program for states that
demonstrate “robust support,” as defined by the Secretary of the Treasury, for demonstrate “robust support,” as defined by the Secretary of the Treasury, for
businesses owned and controlled by businesses owned and controlled by ~~social y and economical y~~socially and economically disadvantaged disadvantaged
individuals); individuals);
 $500  $500 ~~mil ion~~ million for tribal governments; for tribal governments;
 at least $500  at least $500 ~~mil ion~~ million for businesses, including independent contractors and sole for businesses, including independent contractors and sole
proprietors, with fewer than 10 employees; and proprietors, with fewer than 10 employees; and
 $500  $500 ~~mil ion~~ million for technical assistance to for technical assistance to ~~smal~~ small businesses that need legal, businesses that need legal,
accounting, financial, and other kinds of advice in applying for accounting, financial, and other kinds of advice in applying for ~~smal~~ small business business
support programs. support programs.
~~Among other things, the amended bil would also require~~Also, like the original SSBCI initiative, the program was provided a sunset date. The Secretary of the Treasury is required to complete all SSBCI disbursements and remaining obligations before September 30, 2030. Any amount that remains unexpended, whether obligated or unobligated, on September 30, 2030, is to be rescinded and deposited into the general fund. Among other things, the amended bill, as developed in the House, would have required states and other jurisdictions to submit a states and other jurisdictions to submit a
plan on how they would expeditiously deliver funds to help plan on how they would expeditiously deliver funds to help ~~smal~~ small businesses respond to and businesses respond to and
recover from the pandemic and a plan to encourage program participation by minority depository recover from the pandemic and a plan to encourage program participation by minority depository
institutions (MDIs) and community development financial institutions (CDFIs). The amended institutions (MDIs) and community development financial institutions (CDFIs). The amended ~~bil~~
~~would also al ow~~bill would have also authorized Treasury to create a multi-state participation program that would Treasury to create a multi-state participation program that would ~~al ow~~allow states to states to
~~automatical y~~automatically deem a person or business eligible for their SSBCI program if that person or deem a person or business eligible for their SSBCI program if that person or
business were already participating in the other state’s SSBCI program.business were already participating in the other state’s SSBCI program.
These provisions were included in the House-passed version of the bill, but were later removed by the Senate. The House Committee on Financial Services included the amended SSBCI The House Committee on Financial Services included the amended SSBCI ~~bil~~ bill language in its language in its
portion of the budget reconciliation portion of the budget reconciliation ~~bil~~ bill (H.R. 1319), which was agreed to (29-24) on February (H.R. 1319), which was agreed to (29-24) on February
10, 2021, and reported to the House Committee on the Budget. The House Committee on the 10, 2021, and reported to the House Committee on the Budget. The House Committee on the
Budget agreed to the budget reconciliation Budget agreed to the budget reconciliation ~~bil~~ bill (19-16), which included the amended SSBCI (19-16), which included the amended SSBCI ~~bil~~
bill language, on February 22, 2021, and reported the language, on February 22, 2021, and reported the ~~bil~~ bill to the full House on February 24, 2021. The to the full House on February 24, 2021. The
House passed H.R. 1319 (219-212) on February 27, 2021. House passed H.R. 1319 (219-212) on February 27, 2021.
On March 6, 2021, the Senate replaced the text of the House-passed bill with S.Amdt. 891, then agreed to a number of additional amendments before passing the measure (50-49). The bill then went back to the House, which voted 220-211 to concur with the Senate amendment (i.e., S.Amdt. 891, as amended) on March 10, 2021. President Biden signed the bill into law on March 11, 2021. SSBCI Programs
The SSBCI provided funding to expand existing or create new state The SSBCI provided funding to expand existing or create new state ~~smal~~ small business investment business investment
programs, including capital access programs, loan participation programs, loan guarantee programs, including capital access programs, loan participation programs, loan guarantee
for-rebuilding-main-street; and Sen. Pat Toomey, “Toomey Opening Statement at Banking Hearing on COVID and Small Businesses,” February 25, 2021, at https://www.banking.senate.gov/newsroom/minority/toomey-opening-statement-at-banking-hearing-on-covid-and-small-businesses. Congressional Research Service 5 State Small Business Credit Initiative: Implementation and Funding Issues programs, collateral support programs, venture capital programs, and any other programs, collateral support programs, venture capital programs, and any other ~~smal~~ small business business
credit or equity support program that meets the SSBCI’s program requirements. credit or equity support program that meets the SSBCI’s program requirements.
State Capital Access Programs
State capital access programs (CAP) are loan portfolio insurance programs that enable “State capital access programs (CAP) are loan portfolio insurance programs that enable “~~smal~~
small businesses to obtain credit to help them grow and expand their business.”20 Under a CAP, when a businesses to obtain credit to help them grow and expand their business.”20 Under a CAP, when a
participating lender originates a loan, the lender and borrower combine to contribute a percentage participating lender originates a loan, the lender and borrower combine to contribute a percentage
of the loan or line of credit into a reserve fund, which is held by the lender. Under the SSBCI, the of the loan or line of credit into a reserve fund, which is held by the lender. Under the SSBCI, the

~~for-rebuilding-main-street ; and Sen. Pat T oomey, “ Toomey Opening Statement at Banking Hearing on COVID and~~
~~Small Businesses,” February 25, 2021, at https://www.banking.senate.gov/newsroom/minority/toomey-opening-~~
~~statement -at-banking-hearing-on-covid-and-small-businesses.~~
~~20 U.S. Department of the T reasury, “SSBCI Program Profile: Capital Access Program,” at http://www.treasury.gov/~~
~~resource-center/sb-programs/Documents/SSBCI_Program_Profile_Capital_Access_Program_FINAL_May_17.pdf .~~
~~Congressional Research Service~~

5

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~contribution must be from 2% to 7% of the amount borrowed. Typical y~~contribution must be from 2% to 7% of the amount borrowed. Typically, the contributions range , the contributions range
from 3% to 4%. The state then matches the combined contribution and sends that amount to the from 3% to 4%. The state then matches the combined contribution and sends that amount to the
lender, who deposits the funds into the lender-held reserve fund. State CAPs encourage lending to lender, who deposits the funds into the lender-held reserve fund. State CAPs encourage lending to
~~smal~~ small businesses because the reserve fund reduces the lender’s risk of losses by being available to businesses because the reserve fund reduces the lender’s risk of losses by being available to
cover any losses on any of the loans in the lender’s CAP portfolio. Interest rates, maturity, cover any losses on any of the loans in the lender’s CAP portfolio. Interest rates, maturity,
collateral, and other loan terms are negotiated between the lender and the borrower.21 collateral, and other loan terms are negotiated between the lender and the borrower.21
Under the SSBCI, approved state CAPs are eligible Under the SSBCI, approved state CAPs are eligible for federal funding equal to the amount of the for federal funding equal to the amount of the
insurance premiums paid by the borrower and the lender into the lender-held reserve fund, as insurance premiums paid by the borrower and the lender into the lender-held reserve fund, as
calculated on a loan-by-loan basis. The state may use SSBCI funding to make its contribution to calculated on a loan-by-loan basis. The state may use SSBCI funding to make its contribution to
the lender-held reserve fund. States may also supplement the federal contribution with state or the lender-held reserve fund. States may also supplement the federal contribution with state or
private funds if they choose to do so.22private funds if they choose to do so.22
Subject to some restrictions, SSBCI state CAP loans may be used for most business purposes, Subject to some restrictions, SSBCI state CAP loans may be used for most business purposes,
“including, but not limited to: start-up costs, working capital, business procurement, franchise “including, but not limited to: start-up costs, working capital, business procurement, franchise
fees, equipment, inventory, and the purchase, construction, renovation, or tenant improvements of fees, equipment, inventory, and the purchase, construction, renovation, or tenant improvements of
an eligiblean eligible place of business that is not for passive real estate investment purposes.”23 In addition, place of business that is not for passive real estate investment purposes.”23 In addition,
the borrower must have 500 employees or fewer at the time that the loan is enrolled in the the borrower must have 500 employees or fewer at the time that the loan is enrolled in the
program and the loan amount may not exceed $5 program and the loan amount may not exceed $5 ~~mil ion~~million.24 .24
State Loan Participation Programs
State loan participation programs enable “State loan participation programs enable “~~smal~~ small businesses to obtain medium to long-term businesses to obtain medium to long-term
financing, financing, ~~usual y~~usually in the form of term loans.”25 States may structure loan participation programs in the form of term loans.”25 States may structure loan participation programs
in two ways: (1) by purchasing a portion of a loan originated by a lender (also known as a in two ways: (1) by purchasing a portion of a loan originated by a lender (also known as a
purchase transaction or purchase participation) or (2) by participating in the loan as a co-lender purchase transaction or purchase participation) or (2) by participating in the loan as a co-lender
(also known as a companion loan). In a companion loan, a lender originates a senior loan and the (also known as a companion loan). In a companion loan, a lender originates a senior loan and the
state originates a second loan, which is state originates a second loan, which is ~~usual y~~usually subordinate to the lender’s senior loan should a subordinate to the lender’s senior loan should a
default occur, to the same borrower. State loan participation programs encourage lending to default occur, to the same borrower. State loan participation programs encourage lending to ~~smal~~
~~businesses because the lender is able to diversify its risk of loss by sharing its exposure to loan~~
~~losses with the state. Interest rates, maturity, collateral, and other loan terms for purchase~~
~~transactions and purchase participations are negotiated between the lender and the borrower,~~
~~although the state may seek to approve the loan terms prior to closing. For companion loans, the~~
~~state and lender negotiate interest rates, maturity, collateral and other loan terms.26~~
~~Subject to some restrictions, loans in SSBCI state loan participation programs may be used for~~
~~most business purposes (start-up costs, working capital, business procurement, franchise fees,~~
~~etc.). In addition, SSBCI state loan participation programs must target an average borrower size~~
~~of 500 employees or fewer and may not extend credit to borrowers with more than 750~~

~~21 U.S. Department of the T reasury~~small 20 U.S. Department of the Treasury, “SSBCI Program Profile: Capital Access Program,” at http://www.treasury.gov/resource-center/sb-programs/Documents/SSBCI_Program_Profile_Capital_Access_Program_FINAL_May_17.pdf. 21 U.S. Department of the Treasury, “SSBCI Program Profile: Capital Access Program.” , “SSBCI Program Profile: Capital Access Program.”
22 U.S.22 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Capital Access Program.” , “SSBCI Program Profile: Capital Access Program.”
23 U.S.23 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Capital Access Program.” State capital access programs , “SSBCI Program Profile: Capital Access Program.” State capital access programs
(CAPs) under the SSBCI(CAPs) under the SSBCI program may not enroll the unguaranteed portions of Small Businessprogram may not enroll the unguaranteed portions of Small Business Association (Association ( SBA) SBA)
guaranteed or other federally guaranteed loans without the express, prior written consent of guaranteed or other federally guaranteed loans without the express, prior written consent of ~~T reasury~~Treasury. Also, restrictions . Also, restrictions
apply to refinancing and other uses. apply to refinancing and other uses.
24 U.S.24 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Capital Access Program.” , “SSBCI Program Profile: Capital Access Program.”
25 U.S.25 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Loan Participation Program,” at , “SSBCI Program Profile: Loan Participation Program,” at
http://www.treasury.gov/resource-center/sb-programs/Documents/http://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Program_Profile_Loan_Participation_FINAL_May_17.pdfSSBCI_Program_Profile_Loan_Participation_FINAL_May_17.pdf .
~~26 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Participation Program.”~~
. Congressional Research Service Congressional Research Service

6 6

State Small Business Credit Initiative: Implementation and Funding Issues

~~employees. They must also target an average loan amount of $5 mil ion or less and may not~~
~~extend credit for any single loan exceeding $20 mil ion.27~~
~~State Loan Guarantee Programs~~
~~State loan guarantee programs enable “smal~~ businesses because the lender is able to diversify its risk of loss by sharing its exposure to loan losses with the state. Interest rates, maturity, collateral, and other loan terms for purchase transactions and purchase participations are negotiated between the lender and the borrower, although the state may seek to approve the loan terms prior to closing. For companion loans, the state and lender negotiate interest rates, maturity, collateral and other loan terms.26 Subject to some restrictions, loans in SSBCI state loan participation programs may be used for most business purposes (start-up costs, working capital, business procurement, franchise fees, etc.). In addition, SSBCI state loan participation programs must target an average borrower size of 500 employees or fewer and may not extend credit to borrowers with more than 750 employees. They must also target an average loan amount of $5 million or less and may not extend credit for any single loan exceeding $20 million.27 State Loan Guarantee Programs State loan guarantee programs enable “small businesses to obtain term loans or lines of credit” by businesses to obtain term loans or lines of credit” by
providing the lender “with the necessary security, in the form of a partial guarantee, for the lender providing the lender “with the necessary security, in the form of a partial guarantee, for the lender
to approve a loan or line of credit.”28 The guarantee percentage is determined by the states and to approve a loan or line of credit.”28 The guarantee percentage is determined by the states and
lenders but, under the SSBCI, may not exceed 80% of loan losses. Also, origination and annual lenders but, under the SSBCI, may not exceed 80% of loan losses. Also, origination and annual
~~utilization~~ utilization fees are determined by each state to defray the program’s cost. Under the SSBCI, fees fees are determined by each state to defray the program’s cost. Under the SSBCI, fees
may range from 0% to 3% of the loan amount. States may range from 0% to 3% of the loan amount. States ~~typical y~~typically establish limits on the amount of establish limits on the amount of
loans any one lender can originate in the program and have a cash reserve to cover anticipated loans any one lender can originate in the program and have a cash reserve to cover anticipated
losses on the guarantees. Interest rates, maturity, losses on the guarantees. Interest rates, maturity, ~~col ateral~~collateral, and other loan terms are , and other loan terms are ~~typical y~~typically
negotiated between the lender and the borrower, although in some cases loan terms are subject to negotiated between the lender and the borrower, although in some cases loan terms are subject to
state approval and, in many cases, the state and lender state approval and, in many cases, the state and lender ~~wil~~ will discuss and negotiate loan terms and discuss and negotiate loan terms and
guarantee options prior to reaching agreement to approve the loan and issue a guarantee.29 guarantee options prior to reaching agreement to approve the loan and issue a guarantee.29
Subject to some restrictions, loans in SSBCI state loan guarantee programs may be used for most Subject to some restrictions, loans in SSBCI state loan guarantee programs may be used for most
business purposes. In addition, SSBCI state loan guarantee programs must target an average business purposes. In addition, SSBCI state loan guarantee programs must target an average
borrower size of 500 employees or fewer and may not guarantee credit to borrowers with more borrower size of 500 employees or fewer and may not guarantee credit to borrowers with more
than 750 employees. They must also target an average loan amount of $5 than 750 employees. They must also target an average loan amount of $5 ~~mil ion~~ million or less and may or less and may
not guarantee credit for any single loan exceeding $20 not guarantee credit for any single loan exceeding $20 ~~mil ion~~million.30 .30
State Collateral Support Programs
State collateral support programs are “designed to enable financing that might otherwise be State collateral support programs are “designed to enable financing that might otherwise be
unavailableunavailable due to a collateral due to a collateral ~~shortfal~~ shortfall.”31 They provide pledged collateral accounts to lenders to .”31 They provide pledged collateral accounts to lenders to
enhance the collateral coverage of individual loans. Lenders are required to have at least 20% of enhance the collateral coverage of individual loans. Lenders are required to have at least 20% of
their own capital at risk in each loan. Interest rates, maturity, collateral, and other loan terms are their own capital at risk in each loan. Interest rates, maturity, collateral, and other loan terms are
negotiated between the lender and the borrower. The state and lender negotiate the amount of negotiated between the lender and the borrower. The state and lender negotiate the amount of
~~cash collateral to be pledged by the state. In practice, state collateral support is rarely provided for~~
~~more than 50% of the loan value.32~~
~~Subject to some restrictions, SSBCI state collateral support program loans may be used for most~~
~~business purposes. In addition, SSBCI state collateral support programs must target an average~~
~~borrower size of 500 employees or fewer and may not support credit to borrowers with more than~~
~~750 employees. They must also target an average loan amount of $5 mil ion or less and may not~~
~~support credit for any single loan exceeding $20 mil ion.33~~

~~27 U.S. Department of the T reasury~~ 26 U.S. Department of the Treasury, “SSBCI Program Profile: Loan Participation Program.” 27 U.S. Department of the Treasury, “SSBCI Program Profile: Loan Participation Program.” , “SSBCI Program Profile: Loan Participation Program.”
28 U.S.28 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Loan Guarantee Program,” at http://www.treasury.gov/, “SSBCI Program Profile: Loan Guarantee Program,” at http://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI_Program_Profile_Loan_Guarantee_FINAL_May_17.pdfresource-center/sb-programs/Documents/SSBCI_Program_Profile_Loan_Guarantee_FINAL_May_17.pdf . .
29 U.S. 29 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Loan Guarantee Program.” , “SSBCI Program Profile: Loan Guarantee Program.”
30 U.S.30 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Loan Guarantee Program.” , “SSBCI Program Profile: Loan Guarantee Program.”
31 U.S.31 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Collateral Support Program,” at http://www.treasury.gov/, “SSBCI Program Profile: Collateral Support Program,” at http://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI_Program_Profile_Collateral_Support_FINAL_May_17.pdfresource-center/sb-programs/Documents/SSBCI_Program_Profile_Collateral_Support_FINAL_May_17.pdf .
~~32 U.S. Department of the T reasury, “SSBCI Program Profile: Collateral Support Program.”~~
~~33 U.S. Department of the T reasury, “SSBCI Program Profile: Collateral Support Program.”~~
~~Congressional Research Service~~

7

~~State Small Business Credit Initiative: Implementation and Funding Issues~~
. Congressional Research Service 7 State Small Business Credit Initiative: Implementation and Funding Issues cash collateral to be pledged by the state. In practice, state collateral support is rarely provided for more than 50% of the loan value.32 Subject to some restrictions, SSBCI state collateral support program loans may be used for most business purposes. In addition, SSBCI state collateral support programs must target an average borrower size of 500 employees or fewer and may not support credit to borrowers with more than 750 employees. They must also target an average loan amount of $5 million or less and may not support credit for any single loan exceeding $20 million.33
State Venture Capital Programs
State venture capital programs provide “investment capital to create and grow start-up and early-State venture capital programs provide “investment capital to create and grow start-up and early-
stage businesses.”34 They come in two forms: a state-run fund, which may include private stage businesses.”34 They come in two forms: a state-run fund, which may include private
investors, that invests directly in businesses and a fund of funds that invests in other venture investors, that invests directly in businesses and a fund of funds that invests in other venture
capital funds that, in turn, invest in individualcapital funds that, in turn, invest in individual businesses.35 In both cases, the day-to-day businesses.35 In both cases, the day-to-day
management of the fund is management of the fund is ~~typical y~~typically outsourced to a professional firm. Investments are outsourced to a professional firm. Investments are ~~typical y~~typically
equity (stock) and hybrid investments, such as preferred equity and subordinated debt. Terms are equity (stock) and hybrid investments, such as preferred equity and subordinated debt. Terms are
negotiated between the business owner and the venture capital fund. The standard life of most negotiated between the business owner and the venture capital fund. The standard life of most
state venture capital funds is 12 years, and individualstate venture capital funds is 12 years, and individual fund investments are fund investments are ~~typical y~~typically for 3 years to for 3 years to
7 years.36 7 years.36
Subject to some restrictions, SSBCI state venture capital program investments may be used for Subject to some restrictions, SSBCI state venture capital program investments may be used for
most business purposes. In addition, SSBCI state venture capital programs must target their most business purposes. In addition, SSBCI state venture capital programs must target their
investments to businesses that have 500 employees or fewer and may not invest in businesses investments to businesses that have 500 employees or fewer and may not invest in businesses
with more than 750 employees. They must also target an average investment of $5 with more than 750 employees. They must also target an average investment of $5 ~~mil ion~~million or less or less
and may not make a single investment exceeding $20 and may not make a single investment exceeding $20 ~~mil ion~~million.37 .37
SSBCI Funding
P.L. 111-240 appropriated $1.5 P.L. 111-240 appropriated $1.5 ~~bil ion~~ billion to the Department of the Treasury for the SSBCI program, to the Department of the Treasury for the SSBCI program,
including the “reasonable costs of administering the program.”38 The 50 states, American Samoa, including the “reasonable costs of administering the program.”38 The 50 states, American Samoa,
the District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, the U.S. Virgin the District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, the U.S. Virgin
Islands, and, in some instances, municipalities were eligibleIslands, and, in some instances, municipalities were eligible for funding, with the amount for funding, with the amount
availableavailable to each state, territory, and municipality determined by a formula contained in the act to each state, territory, and municipality determined by a formula contained in the act
(described later in this section). As mentioned, H.R. 1319 would appropriate $10 (described later in this section). As mentioned, H.R. 1319 would appropriate $10 ~~bil ion for the~~
~~program in FY2021, with the funding available until expended (except that al disbursements and~~
~~remaining obligations on September 30, 2030, “shal be rescinded and deposited into the general~~
~~fund of the Treasury”).~~
~~Application Process~~
~~To receive SSBCI funding, states, American Samoa, the District of Columbia, Guam, Puerto~~
~~Rico, the Northern Mariana Islands, and the U.S. Virgin Islands were required to file a notice of~~
~~intent to apply for funding with Treasury by November 26, 2010. After filing a notice of intent to~~

~~34 U.S. Department of the T reasury~~billion for the 32 U.S. Department of the Treasury, “SSBCI Program Profile: Collateral Support Program.” 33 U.S. Department of the Treasury, “SSBCI Program Profile: Collateral Support Program.” 34 U.S. Department of the Treasury, “SSBCI Program Profile: Venture Capital Program,” at http://www.treasury.gov/, “SSBCI Program Profile: Venture Capital Program,” at http://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI_Program_Profile_Venture_Capital_FINAL_May_17.pdfresource-center/sb-programs/Documents/SSBCI_Program_Profile_Venture_Capital_FINAL_May_17.pdf . .
35 U.S. 35 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Venture , “SSBCI Program Profile: Venture ~~Cap ital~~Capital Program.” Program.”
36 U.S.36 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Venture Capital Program.” , “SSBCI Program Profile: Venture Capital Program.”
37 U.S.37 U.S. Department of the Department of the ~~T reasury~~Treasury, “SSBCI Program Profile: Venture Capital Program.” , “SSBCI Program Profile: Venture Capital Program.”
38 12 U.S.C.38 12 U.S.C. §5708(b). §5708(b). ~~T reasury~~Treasury reports that SSBCI administrative expenses, which include reports that SSBCI administrative expenses, which include the cost of government the cost of government
employee salaries, contract support, and reimbursement to the employee salaries, contract support, and reimbursement to the ~~T reasury~~Treasury OIG for program audits, OIG for program audits, were $5.393 million in were $5.393 million in
FY2011, $4.746 million in FY2012, and $6.431 million in FY2013; and isFY2011, $4.746 million in FY2012, and $6.431 million in FY2013; and is estimated to be $8,299,000 in FY2014. See estimated to be $8,299,000 in FY2014. See
U.S.U.S. Department of the Treasury, Department of the Treasury, State ~~Sm all~~Small Business Credit Initiative: FY2013 President’s Budget ~~Subm ission~~ Submission, pp. 3, , pp. 3,
8, at http://www.treasury.gov/about/budget8, at http://www.treasury.gov/about/budget -performance/Documents/16%20-%20FY%202013%20SSBCI%20CJ.pdf; -performance/Documents/16%20-%20FY%202013%20SSBCI%20CJ.pdf;
U.S.U.S. Department of the Treasury, Department of the Treasury, State ~~Sm all~~Small Business Credit Initiative: FY2014 President’s Budget, pp. 3, 8, at , pp. 3, 8, at
http://www.treasury.gov/about/budget-performance/CJ14/16.%20SSBCI%20CJ%20FINAL%20ok.pdf;http://www.treasury.gov/about/budget-performance/CJ14/16.%20SSBCI%20CJ%20FINAL%20ok.pdf; and U.S. and U.S.
Department of the Department of the ~~T reasury~~Treasury, , State ~~Sm all~~Small Business Credit Initiative: FY2015 President’s Budget, pp. 3, 9, at , pp. 3, 9, at
http://www.treasury.gov/about/budget-performance/CJ15/21.%20SSBCI.pdf. http://www.treasury.gov/about/budget-performance/CJ15/21.%20SSBCI.pdf.
Congressional Research Service Congressional Research Service

8 8

State Small Business Credit Initiative: Implementation and Funding Issues

program in FY2021, with the funding available until expended (except that all disbursements and remaining obligations on September 30, 2030, “shall be rescinded and deposited into the general fund of the Treasury”). Application Process To receive SSBCI funding, states, American Samoa, the District of Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands were required to file a notice of intent to apply for funding with Treasury by November 26, 2010. After filing a notice of intent to apply for funding, they were required to submit to Treasury an application for funding by June 27, apply for funding, they were required to submit to Treasury an application for funding by June 27,
2011.2011.
Municipalities Municipalities ~~were al owed~~ were allowed to apply for funding only in the event their state did not participate to apply for funding only in the event their state did not participate
in the program. Municipalities were eligiblein the program. Municipalities were eligible to apply for funding up to the total amount of their to apply for funding up to the total amount of their
state’s SSBCI state’s SSBCI ~~al otment~~allotment, with the final approved amounts apportioned based on their , with the final approved amounts apportioned based on their
proportionate share of the population of proportionate share of the population of al all approved municipal applicants in that state, based on approved municipal applicants in that state, based on
the most recent available decennial census.39 Eligible municipalities were required to submit to the most recent available decennial census.39 Eligible municipalities were required to submit to
Treasury an application for funding by September 27, 2011. Treasury an application for funding by September 27, 2011.
The application for funding requested information concerning such items as The application for funding requested information concerning such items as
 the amount requested;  the amount requested;
 how the funds are to be used (state capital access program, collateral support  how the funds are to be used (state capital access program, collateral support
program, loan participation program, loan guarantee program, venture capital program, loan participation program, loan guarantee program, venture capital
program, or other program, or other ~~smal~~ small business support program); business support program);
 confirmation that, at a minimum, $1 of public investment  confirmation that, at a minimum, $1 of public investment ~~wil~~ will result in at least $1 result in at least $1
of new private credit; that there is a reasonable expectation the funding of new private credit; that there is a reasonable expectation the funding ~~wil~~ will result result
in new in new ~~smal~~ small business lending of at least 10 times the amount of the SSBCI business lending of at least 10 times the amount of the SSBCI
federal contribution; that the funding targets federal contribution; that the funding targets ~~smal~~ small businesses with 500 businesses with 500
employees or fewer, does not support borrowers that have more than 750 employees or fewer, does not support borrowers that have more than 750
employees, targets loans with an average principal of $5 employees, targets loans with an average principal of $5 ~~mil ion~~ million or less, and does or less, and does
not extend credit support to loans that exceed $20 not extend credit support to loans that exceed $20 ~~mil ion;~~
million;  documentation describing the operational capacity,  documentation describing the operational capacity, ~~skil s~~skills, and experience of the , and experience of the
applicant’s management team in operating capital access and other applicant’s management team in operating capital access and other ~~smal~~
small business capital support programs; business capital support programs;
 documentation describing the internal accounting and administrative control  documentation describing the internal accounting and administrative control
systems used to safeguard against waste, loss, unauthorized use, and systems used to safeguard against waste, loss, unauthorized use, and
misappropriation; and misappropriation; and
 documentation describing how the participant planned to use the funds “to  documentation describing how the participant planned to use the funds “to
provide access to capital for provide access to capital for ~~smal~~ small businesses (1) in low- and moderate-income businesses (1) in low- and moderate-income
communities, (2) in minority communities, (3) in other underserved communities, (2) in minority communities, (3) in other underserved
communities, and to (4) women- and minority-owned communities, and to (4) women- and minority-owned ~~smal~~ small businesses.”40 39 12 U.S.C. ~~businesses.”40~~
~~The Funding Formula~~
~~The SSBCI funding formula took into account the number of jobs and job losses for each state in~~
~~proportion to the aggregate number of jobs and job losses national y. Specifical y, it was based on~~
~~the average of (1) the number of individuals employed in each state in December 2007 compared~~
~~with the number of individuals employed in each state in December 2008 and (2) the number of~~
~~individuals unemployed in each state in December 2009 compared with the number of individuals~~
~~unemployed national y in December 2009. After accounting for Treasury’s anticipated~~

~~39 12 U.S.C.~~ §5703(d)(6). If more than three municipalities or combinations of municipalities from the same state are §5703(d)(6). If more than three municipalities or combinations of municipalities from the same state are
approved, approved, ~~T reasury~~Treasury is required is required to allocate federal fundsto allocate federal funds to the three municipalities (or combination of municipalities) to the three municipalities (or combination of municipalities)
with the largest populations. See 12 U.S.C.with the largest populations. See 12 U.S.C. §5703(d)(5). §5703(d)(5).
40 U.S. 40 U.S. Department of the Department of the ~~T reasury~~Treasury, “State Small Business, “State Small Business Credit Initiative: Application,” at http://www.treasury.gov/Credit Initiative: Application,” at http://www.treasury.gov/
resource-resource-~~cent er~~center/sb-programs/Documents/SSBCI%20Application.pdf. /sb-programs/Documents/SSBCI%20Application.pdf.
Congressional Research Service Congressional Research Service

9 9

State Small Business Credit Initiative: Implementation and Funding Issues
The Funding Formula The SSBCI funding formula took into account the number of jobs and job losses for each state in proportion to the aggregate number of jobs and job losses nationally. Specifically, it was based on the average of (1) the number of individuals employed in each state in December 2007 compared with the number of individuals employed in each state in December 2008 and (2) the number of individuals unemployed in each state in December 2009 compared with the number of individuals unemployed nationally in December 2009. After accounting for Treasury’s anticipated
administrative costs, each participating state was guaranteed a minimum administrative costs, each participating state was guaranteed a minimum ~~al otment~~allotment of 0.9% of of 0.9% of
~~available~~ available funding ($13.168 funding ($13.168 ~~mil ion~~million).41 ).41
H.R. 1319 uses the same H.R. 1319 uses the same ~~al ocation~~allocation formula but replaces December 2007 with December 2019, formula but replaces December 2007 with December 2019,
December 2008 with December 2020, and December 2009 with December 2021. Also, as December 2008 with December 2020, and December 2009 with December 2021. Also, as
mentioned, there would be a separate $500 mentioned, there would be a separate $500 ~~mil ion al ocation~~million allocation for tribal governments “in the for tribal governments “in the
proportion the Secretary determines appropriate including with consideration to available proportion the Secretary determines appropriate including with consideration to available
employment and economic data regarding such tribal government.” employment and economic data regarding such tribal government.”
Funding was (and would be) provided in three Funding was (and would be) provided in three ~~instal ments (cal ed~~installments (called tranches), each approximately tranches), each approximately
one-third of the participant’s approved one-third of the participant’s approved ~~al otment~~allotment. The first tranche was provided “immediately . The first tranche was provided “immediately
following the receipt of the fully signed following the receipt of the fully signed ~~Al ocation~~Allocation Agreement.”42 Agreement.”42 ~~Al otment~~Allotment agreements agreements
described how states were to comply with program requirements and were signed after the state’s described how states were to comply with program requirements and were signed after the state’s
application was approved. application was approved.
Prior to the receipt of the second and third tranches, each state was required to certify that it had Prior to the receipt of the second and third tranches, each state was required to certify that it had
expended, transferred, or obligated at least 80% of the previous disbursement to, or for the expended, transferred, or obligated at least 80% of the previous disbursement to, or for the
account of, one or more approved state programs.43 Treasury was authorized to recoup misused account of, one or more approved state programs.43 Treasury was authorized to recoup misused
funds should the state be found in default of the funds should the state be found in default of the ~~al ocation~~allocation agreement and could terminate any agreement and could terminate any
portion of an portion of an ~~al otment~~allotment that Treasury had not disbursed within two years of the date on which the that Treasury had not disbursed within two years of the date on which the
~~al ocation~~allocation agreement with the state was signed. By statute, agreement with the state was signed. By statute, ~~al SSBCI al ocation~~all SSBCI allocation agreements agreements
expired on March 31, 2017. expired on March 31, 2017.
To encourage states to utilize their funds expeditiously, H.R. 1319 would require states to receive To encourage states to utilize their funds expeditiously, H.R. 1319 would require states to receive
their second tranche (second one-third their second tranche (second one-third ~~al otment~~allotment) within three years and their third and final ) within three years and their third and final
tranche (last one-third tranche (last one-third ~~al otment~~allotment) within six years of their approval date to participate in the ) within six years of their approval date to participate in the
program. States failing to do so, would need to return their remaining SSBCI funds to Treasury, program. States failing to do so, would need to return their remaining SSBCI funds to Treasury,
and Treasury would be required to either return the funds to the general fund or and Treasury would be required to either return the funds to the general fund or ~~real ocate~~reallocate the the
funds to other participating states. funds to other participating states.
State-by-State Allotments
By the original June 27, 2011, application deadline, 48 states, American Samoa, the District of By the original June 27, 2011, application deadline, 48 states, American Samoa, the District of
Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands had Columbia, Guam, Puerto Rico, the Northern Mariana Islands, and the U.S. Virgin Islands had
submitted an application to participate in the program. Collectively, they requested approximately submitted an application to participate in the program. Collectively, they requested approximately
~~$1.4 bil ion~~ $1.4 billion in funding.44 North Dakota and Wyoming did not apply. Alaska later withdrew its in funding.44 North Dakota and Wyoming did not apply. Alaska later withdrew its
~~application. Five municipalities (one in Alaska, two in North Dakota, and two in Wyoming)~~
~~subsequently requested $39.5 mil ion in SSBCI funding.45 Funding was al otted to Anchorage,~~
~~Alaska ($13.168 mil ion); a Laramie, Wyoming, led consortium of 17 municipalities ($13.168~~
~~mil ion); a Mandan, North Dakota, led consortium of 37 municipalities and an Indian tribe~~

~~41 T reasury~~ 41 Treasury anticipated that its total administrative costs over the lifetime of the SSBCI anticipated that its total administrative costs over the lifetime of the SSBCI program wouldprogram would be about $36.85 be about $36.85
million. million.
42 U.S.42 U.S. Department of the Department of the ~~T reasury~~Treasury, “State Small Business, “State Small Business Credit Initiative: Frequently Asked Questions,” at Credit Initiative: Frequently Asked Questions,” at
http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci-faqs.aspx#gen3. http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci-faqs.aspx#gen3.
43 U.S. 43 U.S. Department of the Department of the ~~T reasury, “St ate~~Treasury, “State Small Business Small Business Credit Initiative: Frequently Asked Questions.” Credit Initiative: Frequently Asked Questions.”
44 Applicants were entitled to the funding provided by the SSBCI44 Applicants were entitled to the funding provided by the SSBCI formula. American Samoaformula. American Samoa ~~requested~~ requested $10,418,500. $10,418,500.
~~T he~~The minimum SSBCI minimum SSBCI allotment is $13,168,350. All other applicants requested theallotment is $13,168,350. All other applicants requested the amount provided by the SSBCI amount provided by the SSBCI
~~formula. See U.S. Government Accountability Office (GAO),~~ ~~State Sm all~~ Congressional Research Service 10 link to page 15 link to page 15 State Small Business Credit Initiative: Implementation and Funding Issues application. Five municipalities (one in Alaska, two in North Dakota, and two in Wyoming) subsequently requested $39.5 million in SSBCI funding.45 Funding was allotted to Anchorage, Alaska ($13.168 million); a Laramie, Wyoming, led consortium of 17 municipalities ($13.168 million); a Mandan, North Dakota, led consortium of 37 municipalities and an Indian tribe ($9.711 million ~~Business Credit Initiative, GAO-12-173,~~
~~December 7, 2011, p. 9, at http://www.gao.gov/assets/590/586727.pdf.~~
~~45 GAO, State Small Business Credit Initiative, GAO-12-173, December 7, 2011, p. 9.~~
~~Congressional Research Service~~

10

~~link to page 15 link to page 15~~ ~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~($9.711 mil ion~~); and a Carrington, North Dakota, led consortium of 36 municipalities ($3.458 ); and a Carrington, North Dakota, led consortium of 36 municipalities ($3.458
~~mil ion).~~
million). Table 1 shows the amount of SSBCI funding that was awarded to each state and territory shows the amount of SSBCI funding that was awarded to each state and territory
(hereinafter referred to as states unless otherwise noted) and the types of (hereinafter referred to as states unless otherwise noted) and the types of ~~smal~~ small business business
investment programs supported. As investment programs supported. As ~~shown~~ shown on Table 1, California received the largest California received the largest ~~al otment~~allotment
($167.75 ($167.75 ~~mil ion~~million) and American Samoa, which requested less than the minimum guaranteed ) and American Samoa, which requested less than the minimum guaranteed
~~al otment~~allotment, received the , received the ~~smal est al otment ($10.5 mil ion~~smallest allotment ($10.5 million). ).
States used SSBCI funding to support the following States used SSBCI funding to support the following ~~smal~~ small business investment programs: 23 business investment programs: 23
supported a capital access program, 40 supported a loan participation program, 20 supported a supported a capital access program, 40 supported a loan participation program, 20 supported a
loan guarantee program, 16 supported a collateral support program, and 38 supported a venture loan guarantee program, 16 supported a collateral support program, and 38 supported a venture
capital program. capital program.
Table 1. SSBCI Programs
Capital
Allotment
Access
Loan
Loan
Collateral
Venture
Participant
($ millions) Program Participation
Guarantee
Support
Capital
Alabama Alabama
$31.301 $31.301
X X
X X
X X

Alaska, Alaska,
$13.168 $13.168

X X
Anchorage Anchorage
American American
$10.500 $10.500

X X
Samoa Samoa
Arizona Arizona
$18.204 $18.204

X X

Arkansas Arkansas
$13.168 $13.168
X X
X X
X X

X X
California California
$167.755 $167.755
X X
X X
X X
X X

Colorado Colorado
$17.233 $17.233
X X

X X

Connecticut Connecticut
$13.301 $13.301

X X
Delaware Delaware
$13.168 $13.168
X X
X X

District District of of
$13.168 $13.168

X X

X X
X X
Columbia Columbia
Florida Florida
$97.622 $97.622
X X
X X
X X

X X
Georgia Georgia
$47.808 $47.808
X X
X X
X X

Guam Guam
$13.168 $13.168
X X
X X
X X

~~Hawai~~
Hawaii $13.168 $13.168

X X
Idaho Idaho
$13.168 $13.168

X X

Il inois Il inois
$78.365 $78.365
X X
X X

X X
X X
Indiana Indiana
$34.339 $34.339
X X

X X
~~Iowa~~
~~$13.168~~
X
X

X
~~Kansas~~
~~$13.168~~

X

X
~~Kentucky~~
~~$15.487~~
X
X

X

~~Louisiana~~
~~$13.168~~

X

X
~~Maine~~
~~$13.168~~

X

X
~~Maryland~~
~~$23.025~~

X
X

X
~~Congressional Research Service~~

11

~~link to page 17~~ ~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~Capital~~
~~Allotment~~
~~Access~~
~~Loan~~
~~Loan~~
~~Collateral~~
~~Venture~~
~~Participant~~
~~($ millions) Program Participation~~
~~Guarantee~~
~~Support~~
~~Capital~~
West Virginia West Virginia
$13.168 $13.168

X X
X X
X X
X X
Wisconsin Wisconsin
$22.363 $22.363

X X

X X
Wyoming, Wyoming,
$13.168 $13.168

X X

X X
Laramie Laramie
ConsortiuConsortiumb
Sources: U.S. Department of Treasury,U.S. Department of Treasury, “State Programs“State Programs Funded by SSBCI,” at https://www.treasury.gov/Funded by SSBCI,” at https://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI%20State%20Programs%20and%20Contacts.pdf;resource-center/sb-programs/Documents/SSBCI%20State%20Programs%20and%20Contacts.pdf; and U.S. and U.S.
Government Accountability Office, Government Accountability Office, State ~~Smal~~ Small Business Credit Initiative, GAO-12-173, December, GAO-12-173, December 7, 2011. 7, 2011.
a. The Mandan, North Dakota, led consortium of 37 municipalitiesa. The Mandan, North Dakota, led consortium of 37 municipalities and an Indian tribe was and an Indian tribe was ~~al otted~~allotted $9.711 $9.711
mil ion mil ion to administer a loan participation program. The Carrington, North Dakota, led consortium of 36 to administer a loan participation program. The Carrington, North Dakota, led consortium of 36
municipalitiesmunicipalities ~~was al otted~~ was allotted $3.458 mil ion $3.458 mil ion to administerto administer a col aterala col ateral support program and a venture capital support program and a venture capital
program. program.
b. The Laramie, b. The Laramie, Wyoming,Wyoming, led consortiumled consortium includes 17 municipalities.includes 17 municipalities.
Approximately 32.5% of SSBCI funds were Approximately 32.5% of SSBCI funds were ~~al ocated~~allocated to loan participation programs, 29.5% to to loan participation programs, 29.5% to
venture capital programs, 18.4% to collateral support programs, 16.9% to loan guarantee venture capital programs, 18.4% to collateral support programs, 16.9% to loan guarantee
programs, and 2.7% to capital access programs.46 programs, and 2.7% to capital access programs.46
As mentioned, most states received their initial tranche in FY2011 and, as of December 31, 2016, As mentioned, most states received their initial tranche in FY2011 and, as of December 31, 2016,
al all 57 participants had received their first tranche, 56 had received their second tranche, and 53 57 participants had received their first tranche, 56 had received their second tranche, and 53
had received their third tranche.47 had received their third tranche.47
States were (and would continue to be) States were (and would continue to be) ~~al owed~~allowed to use up to 5% of their initial to use up to 5% of their initial tranche, and up to tranche, and up to
3% of their second and third tranches, for administrative expenses related to implementing an 3% of their second and third tranches, for administrative expenses related to implementing an
approved approved ~~smal~~ small business investment program. They were (and would continue to be) also subject business investment program. They were (and would continue to be) also subject
to several reporting requirements. For example, states had to submit quarterly reports to Treasury to several reporting requirements. For example, states had to submit quarterly reports to Treasury
describing the use of describing the use of ~~al ocated~~allocated funds for each approved program, including the total amount of funds for each approved program, including the total amount of
~~al ocated~~allocated funds used for direct and indirect administrative costs, the total amount of funds used for direct and indirect administrative costs, the total amount of ~~al ocated~~allocated
funds used, the amount of program income generated, and the amount of charge-offs against the 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. States were also federal contributions to the reserve funds set aside for any approved CAP. States were also
required to submit annual reports to Treasury, by March 31 of each year, containing, among other required to submit annual reports to Treasury, by March 31 of each year, containing, among other
things, transaction-level data for each loan or investment made with SSBCI funds for that year. things, transaction-level data for each loan or investment made with SSBCI funds for that year.
~~Audits, Evaluation Reports, and~~
~~Program Adjustments~~
~~P.L. 111-240 required Treasury’s OIG to conduct, supervise, and coordinate audits and~~
~~investigations into the use of SSBCI funds. The act also required GAO to perform an annual audit~~
~~of the SSBCI program. P.L. 113-188, the Government Reports Elimination Act of 2014,~~
~~eliminated this requirement.~~

~~46 U.S.~~ 46 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of ~~Decem ber~~December 31, 2016, p. 10, at https://www.treasury.gov/resource-center/sb-programs/Documents/, p. 10, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Quarterly_Report_Summary_December_2016.pdfSSBCI_Quarterly_Report_Summary_December_2016.pdf . .
47 U.S. 47 U.S. Department of the Department of the ~~T reasury~~Treasury, , State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of ~~Decem ber~~December 31, 2016, p. 1. , p. 1.
Congressional Research Service Congressional Research Service

13 13

State Small Business Credit Initiative: Implementation and Funding Issues
Audits, Evaluation Reports, and Program Adjustments P.L. 111-240 required Treasury’s OIG to conduct, supervise, and coordinate audits and investigations into the use of SSBCI funds. The act also required GAO to perform an annual audit of the SSBCI program. P.L. 113-188, the Government Reports Elimination Act of 2014, eliminated this requirement.
Treasury’s OIG released its first evaluation report of Treasury’s implementation of the SSBCI on Treasury’s OIG released its first evaluation report of Treasury’s implementation of the SSBCI on
August 5, 2011, and its first audit of a state’s use of SSBCI funds (California) on May 24, 2012. It August 5, 2011, and its first audit of a state’s use of SSBCI funds (California) on May 24, 2012. It
completed audits of 24 participants’ use of SSBCI funds (California, Montana, Vermont, completed audits of 24 participants’ use of SSBCI funds (California, Montana, Vermont,
Michigan, Texas, Massachusetts, Delaware, New Jersey, Alabama, Missouri, Washington, Michigan, Texas, Massachusetts, Delaware, New Jersey, Alabama, Missouri, Washington,
Kansas, Florida, West Virginia,Kansas, Florida, West Virginia, ~~Il inois~~ Illinois, South Carolina, American Samoa, North Carolina, Idaho, , South Carolina, American Samoa, North Carolina, Idaho,
Indiana, Tennessee, the North Dakota Mandan consortium, Rhode Island, and New York).48Indiana, Tennessee, the North Dakota Mandan consortium, Rhode Island, and New York).48
GAO released annual audits of the SSBCI program on December 7, 2011, December 5, 2012, GAO released annual audits of the SSBCI program on December 7, 2011, December 5, 2012,
December 18, 2013, and December 11, 2014. December 18, 2013, and December 11, 2014.
GAO’s Audits
The SSBCI was authorized on September 27, 2010. Because the program was new, it took The SSBCI was authorized on September 27, 2010. Because the program was new, it took
Treasury nearly three months to post the initial set of SSBCI policy guidelines and application Treasury nearly three months to post the initial set of SSBCI policy guidelines and application
materials on its website (December 21, 2010).49 The program materials on its website (December 21, 2010).49 The program ~~official y~~officially started in January 2011, started in January 2011,
when Treasury obtained signed when Treasury obtained signed ~~al ocation~~allocation agreements and distributed first agreements and distributed first ~~instal ments~~installments of funds to of funds to
two states.50 However, in response to feedback from states, the SBA, and other federal agencies, two states.50 However, in response to feedback from states, the SBA, and other federal agencies,
Treasury revised its policy guidelines and application paperwork in April 2011 “to better Treasury revised its policy guidelines and application paperwork in April 2011 “to better
articulate what documentation was required for both the application and review processes.”51 The articulate what documentation was required for both the application and review processes.”51 The
two previously approved states were asked to sign an amended two previously approved states were asked to sign an amended ~~al ocation~~allocation agreement that agreement that
incorporated the revisions. incorporated the revisions.
GAO’s first annual audit, issued on December 7, 2011, reported that several states, worried that GAO’s first annual audit, issued on December 7, 2011, reported that several states, worried that
they might be found in noncompliance with Treasury’s rules and regulations, delayed submitting they might be found in noncompliance with Treasury’s rules and regulations, delayed submitting
their SSBCI applications until Treasury finalized its policy guidance, and 37 states waited to their SSBCI applications until Treasury finalized its policy guidance, and 37 states waited to
submit their applications until June 2011, the final month that applications were submit their applications until June 2011, the final month that applications were ~~al owed~~allowed. .
GAO also found that Treasury did not finalize its disbursement procedures for second and third GAO also found that Treasury did not finalize its disbursement procedures for second and third
~~instal ments~~installments of SSBCI funds until the beginning of November 2011. Treasury officials reported of SSBCI funds until the beginning of November 2011. Treasury officials reported
that despite this delay, no state, at that time, had expended 80% of its initialthat despite this delay, no state, at that time, had expended 80% of its initial disbursement to disbursement to
support loans or investments to support loans or investments to ~~smal~~ small businesses. However, GAO noted that one state reported businesses. However, GAO noted that one state reported
that it was ready for its second that it was ready for its second ~~instal ment~~installment before Treasury had finalized the disbursement 48 U.S. Department of the Treasury, Office of Inspector General (OIG), Small Business Lending Fund Program Oversight Office, Small ~~before Treasury had finalized the disbursement~~
~~procedures but was told by Treasury officials that it would have to wait until the disbursement~~
~~procedures were finalized.52~~
~~GAO concluded its 2011 audit by noting that Treasury had not yet developed SSBCI performance~~
~~measures and recommended that the agency do so to enable it to “be in a position to determine~~
~~whether the SSBCI program is effective in achieving its goals.”53~~

~~48 U.S. Department of the T reasury, Office of Inspector General (OIG), Small Business Lending Fund Program~~
~~Oversight Office,~~ ~~Sm all~~ Business Lending Fund Oversight Reports, at https://oig.treasury.gov/Office-of-Small-, at https://oig.treasury.gov/Office-of-Small-
Business-Lending-Fund-Program-OversightBusiness-Lending-Fund-Program-Oversight . An audit of Louisiana’s. An audit of Louisiana’s use of SSBCIuse of SSBCI ~~funds was issued~~ funds was issued on January 9, on January 9,
2014, and removed from the 2014, and removed from the ~~T reasury~~Treasury OIG’s website OIG’s website on February 19, 2015, pending further review. on February 19, 2015, pending further review. ~~T he~~The OIG later OIG later
determined that the work performed wasdetermined that the work performed was not sufficient to support the findings and conclusions in the not sufficient to support the findings and conclusions in the ~~rep ort~~report under under
generally accepted government auditing standards. generally accepted government auditing standards. ~~T he~~The audit report will not be reissued. audit report will not be reissued.
49 U.S. 49 U.S. Government Accountability Office (GAO), Government Accountability Office (GAO), State Small Business Credit Initiative, GAO-12-173, December 7, , GAO-12-173, December 7,
2011, p. 21, at http://www.gao.gov/assets/590/586727.pdf. 2011, p. 21, at http://www.gao.gov/assets/590/586727.pdf.
50 GAO, 50 GAO, State Small Business Credit Initiative, GAO-12-173, p. 14. , GAO-12-173, p. 14.
51 GAO,51 GAO, State Small Business Credit Initiative, GAO-12-173, p. 14. , GAO-12-173, p. 14.
~~52 GAO, State Small Business Credit Initiative, GAO-12-173, p. 16.~~
~~53 GAO, State Small Business Credit Initiative, GAO-12-173, p. 21.~~
~~Congressional Research Service~~

14

~~State Small Business Credit Initiative: Implementation and Funding Issues~~
Congressional Research Service 14 State Small Business Credit Initiative: Implementation and Funding Issues procedures but was told by Treasury officials that it would have to wait until the disbursement procedures were finalized.52 GAO concluded its 2011 audit by noting that Treasury had not yet developed SSBCI performance measures and recommended that the agency do so to enable it to “be in a position to determine whether the SSBCI program is effective in achieving its goals.”53
In response to GAO’s audit, in January 2012, Treasury adopted three performance goals to In response to GAO’s audit, in January 2012, Treasury adopted three performance goals to
measure its administration of the program and four performance indicators to measure SSBCI measure its administration of the program and four performance indicators to measure SSBCI
outcomes. outcomes.
The three administrative performance goals were The three administrative performance goals were
 90% of requests for modifications to  90% of requests for modifications to ~~al ocation~~allocation agreements are approved or agreements are approved or
rejected within 90 days of receiving a final submission; rejected within 90 days of receiving a final submission;
 90% of requests for subsequent disbursements under existing  90% of requests for subsequent disbursements under existing ~~al ocation~~allocation
agreements are approved or rejected within 90 days of receipt of a formal agreements are approved or rejected within 90 days of receipt of a formal
submission; and submission; and
 90% of quarterly reports are received within 5 days of the deadline.54  90% of quarterly reports are received within 5 days of the deadline.54
Treasury tracked these performance goals continuously and reported 12-month data to the Office Treasury tracked these performance goals continuously and reported 12-month data to the Office
of Management and Budget as part of its annual budget submission. of Management and Budget as part of its annual budget submission.
The four performance indicators were The four performance indicators were
 the amount of SSBCI funds used over time, as reported on SSBCI quarterly  the amount of SSBCI funds used over time, as reported on SSBCI quarterly
reports; reports;
 the volume and dollar amounts of loans or investments supported by SSBCI  the volume and dollar amounts of loans or investments supported by SSBCI
funds, as reported on SSBCI annual reports; funds, as reported on SSBCI annual reports;
 the amount of private sector leverage, as reported on SSBCI annual reports; and  the amount of private sector leverage, as reported on SSBCI annual reports; and
 the estimated number of jobs created or retained, as reported on SSBCI annual  the estimated number of jobs created or retained, as reported on SSBCI annual
reports. reports.
Treasury reported this performance data Treasury reported this performance data ~~internal y~~internally to the Assistant Secretary of Financial to the Assistant Secretary of Financial
Institutions on an annual basis.Institutions on an annual basis.
GAO’s second annual SSBCI audit, issued on December 5, 2012, found that states with GAO’s second annual SSBCI audit, issued on December 5, 2012, found that states with
preexisting preexisting ~~smal~~ small business programs distributed their SSBCI funds quicker than other states business programs distributed their SSBCI funds quicker than other states
because the state administrative infrastructure necessary to distribute the funds was already in because the state administrative infrastructure necessary to distribute the funds was already in
place, and lenders were already familiar with the programs. States without preexisting place, and lenders were already familiar with the programs. States without preexisting ~~smal~~
small business programs reported that they had to conduct extensive outreach to lenders to make them business programs reported that they had to conduct extensive outreach to lenders to make them
aware of the programs and encourage them to commit to aware of the programs and encourage them to commit to ~~smal~~ small business lending.55business lending.55
GAO noted that Treasury had, as recommended, created performance measures to help monitor GAO noted that Treasury had, as recommended, created performance measures to help monitor
and measure the SSBCI’s effectiveness.56 However, GAO noted that Treasury “has not yet and measure the SSBCI’s effectiveness.56 However, GAO noted that Treasury “has not yet
~~determined how and when it wil make this information public.”57 GAO argued that this~~
~~information should be made public because “performance information is an important tool for~~
~~policymakers, particularly as Congress reviews and considers programs to assist smal businesses~~
~~going forward.”58~~

~~54 U.S. T reasury~~ 52 GAO, State Small Business Credit Initiative, GAO-12-173, p. 16. 53 GAO, State Small Business Credit Initiative, GAO-12-173, p. 21. 54 U.S. Treasury, “Correspondence with the author,” June 22, 2012. For the first two goals, the measurement period , “Correspondence with the author,” June 22, 2012. For the first two goals, the measurement period
starts once all requiredstarts once all required documentation from the requesting participating state is received. documentation from the requesting participating state is received.
55 GAO,55 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, ,
GAO-13-76, December 5, 2012, p. 22, at http://www.gao.gov/assets/660/650555.pdf. GAO-13-76, December 5, 2012, p. 22, at http://www.gao.gov/assets/660/650555.pdf.
56 GAO, 56 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, p. , p.
~~40.~~
~~57 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, p.~~
40
~~58 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, pp.~~
~~Congressional Research Service~~

15

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Congressional Research Service 15 State Small Business Credit Initiative: Implementation and Funding Issues determined how and when it will make this information public.”57 GAO argued that this information should be made public because “performance information is an important tool for policymakers, particularly as Congress reviews and considers programs to assist small businesses going forward.”58 In response to this recommendation, on September 25, 2013, Treasury officials made SSBCI In response to this recommendation, on September 25, 2013, Treasury officials made SSBCI
performance information publicly availableperformance information publicly available by releasing the first of what would become an by releasing the first of what would become an
annual summary report of performance information drawn from SSBCI participants’ annual annual summary report of performance information drawn from SSBCI participants’ annual
reports.59 The summary report included data related to each of the Treasury’s four performance reports.59 The summary report included data related to each of the Treasury’s four performance
measures (amount of SSBCI funds used over time; volume and dollar amounts or investments measures (amount of SSBCI funds used over time; volume and dollar amounts or investments
supported by SSBCI funds; amount, in dollars, of private-sector leverage; and estimated number supported by SSBCI funds; amount, in dollars, of private-sector leverage; and estimated number
of jobs created or retained). of jobs created or retained).
GAO’s third annual SSBCI audit, issued on December 18, 2013, found that although the pace of GAO’s third annual SSBCI audit, issued on December 18, 2013, found that although the pace of
participant SSBCI spending had increased since the second annual audit, participants were participant SSBCI spending had increased since the second annual audit, participants were ~~stil~~
still facing several facing several ~~chal enges~~challenges in using their SSBCI funds. For example, as of June 30, 2013, Treasury in using their SSBCI funds. For example, as of June 30, 2013, Treasury
had disbursed about $811 had disbursed about $811 ~~mil ion~~ million in SSBCI funds to participants (about 54% of total SSBCI in SSBCI funds to participants (about 54% of total SSBCI
funds). Only 8 participants had received their third and final tranche, 19 funds). Only 8 participants had received their third and final tranche, 19 ~~partic ipants~~participants had received had received
their second tranche, and 30 participants were “their second tranche, and 30 participants were “~~stil~~ still working to use their first disbursement of working to use their first disbursement of
SSBCI funding.”60SSBCI funding.”60
Participants told GAO that Treasury’s delay in finalizing the program’s guidelines and the Participants told GAO that Treasury’s delay in finalizing the program’s guidelines and the
learning associated with implementing a relatively large number of new learning associated with implementing a relatively large number of new ~~smal~~ small business programs business programs
had slowed spending.61 Participants also told GAO the unexpected low demand for some SSBCI had slowed spending.61 Participants also told GAO the unexpected low demand for some SSBCI
capital access programs (CAP) further slowed their SSBCI spending. They explained that it took capital access programs (CAP) further slowed their SSBCI spending. They explained that it took
some time for them to some time for them to ~~real ocate~~reallocate funds from SSBCI programs experiencing low demand to those funds from SSBCI programs experiencing low demand to those
experiencing higher demand.62 Some participants also reported that some large banks were experiencing higher demand.62 Some participants also reported that some large banks were
reluctant to participate in the program due to the variation of SSBCI programs across the nation reluctant to participate in the program due to the variation of SSBCI programs across the nation
and the need to “tailor different processes to each SSBCI participant’s program.”63and the need to “tailor different processes to each SSBCI participant’s program.”63
GAO’s fourth, and final, annual SSBCI audit, issued on December 11, 2014, found that although GAO’s fourth, and final, annual SSBCI audit, issued on December 11, 2014, found that although
the pace of participant SSBCI spending had increased since its third audit, officials from three of the pace of participant SSBCI spending had increased since its third audit, officials from three of
the 10 SSBCI participants it interviewed reported that some banks were the 10 SSBCI participants it interviewed reported that some banks were ~~stil~~ still reluctant to reluctant to
participate in the program because they were unfamiliar with it or perceived that it would increase participate in the program because they were unfamiliar with it or perceived that it would increase
~~scrutiny from regulators.64 Officials from three of the 10 SSBCI participants interviewed also~~
~~indicated that “there continues to be a lack of clarity in Treasury’s guidance regarding the use of~~
~~SSBCI funds for certain transactions.”65~~

~~40-41.~~
~~59 U.S. Department of the T reasury~~ 40. 57 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, p. 40 58 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, pp. 40-41. 59 U.S. Department of the Treasury, , State Small Business Credit Initiative: A Summary of States’ 2012 Annual Reports, ,
September 25, 2013, at http://www.treasury.gov/resource-center/sb-programs/Documents/September 25, 2013, at http://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Summary%20of%20States%202012%20Annual%20Reports%20FINAL.pdf. SSBCI%20Summary%20of%20States%202012%20Annual%20Reports%20FINAL.pdf.
60 GAO, 60 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, GAO-14-97, December 18, 2013, p. 9, at http://www.gao.gov/products/gao-14-97. , GAO-14-97, December 18, 2013, p. 9, at http://www.gao.gov/products/gao-14-97.
61 GAO,61 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, p. 13. , p. 13.
62 GAO, 62 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, p. 16. , p. 16.
63 GAO,63 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, p. 16. , p. 16.
~~64 GAO,~~ ~~Small Business Credit Programs: Treasury Continues to Enhance Performance Measurement and Evaluation~~
~~but Could Better Com m unicate and Update Results, GAO-15-105, December 11, 2014, p. 19, at http://www.gao.gov/~~
~~assets/670/667450.pdf.~~
~~65 GAO,~~ ~~Small Business Credit Programs: Treasury Continues to Enhance Performance Measurement and Evaluation~~
~~but Could Better Com m unicate and Update Results, p. 19.~~
~~Congressional Research Service~~

16

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Congressional Research Service 16 State Small Business Credit Initiative: Implementation and Funding Issues scrutiny from regulators.64 Officials from three of the 10 SSBCI participants interviewed also indicated that “there continues to be a lack of clarity in Treasury’s guidance regarding the use of SSBCI funds for certain transactions.”65 Treasury’s Inspector General Evaluation Reports
On August 5, 2011, Treasury’s OIG issued its first evaluation report examining the SSBCI On August 5, 2011, Treasury’s OIG issued its first evaluation report examining the SSBCI
program.66 After examining Treasury’s policy guidelines and the program.66 After examining Treasury’s policy guidelines and the ~~al ocation~~allocation agreement between agreement between
Treasury and participating states, the OIG made nine recommendations for improvements. For Treasury and participating states, the OIG made nine recommendations for improvements. For
example, the OIG recommended that Treasury improve the understanding of state oversight example, the OIG recommended that Treasury improve the understanding of state oversight
responsibilities by more clearly defining what is meant by terms such as “supervision and responsibilities by more clearly defining what is meant by terms such as “supervision and
oversight and accountability” and by setting “minimum standards for participating state oversight oversight and accountability” and by setting “minimum standards for participating state oversight
of SSBCI recipients, including defining a participating state’s role in overseeing compliance with of SSBCI recipients, including defining a participating state’s role in overseeing compliance with
loan use requirements and restrictions.”67 The OIG also recommended that Treasury require loan use requirements and restrictions.”67 The OIG also recommended that Treasury require
participating states to make a representation that it is aware of, monitoring, and enforcing participating states to make a representation that it is aware of, monitoring, and enforcing
compliance with the policy guidelines and other restrictions applicable to the other participants compliance with the policy guidelines and other restrictions applicable to the other participants
[lenders and borrowers] in the program.”68[lenders and borrowers] in the program.”68
Treasury took several immediate actions to address the OIG’s recommendations. For example, in Treasury took several immediate actions to address the OIG’s recommendations. For example, in
response to the OIG’s recommendation that Treasury more clearly define the terms “supervision response to the OIG’s recommendation that Treasury more clearly define the terms “supervision
and oversight and accountability” and establish minimum standards for participating state and oversight and accountability” and establish minimum standards for participating state
oversight of SSBCI recipients, Treasury revised the SSBCI FAQ document on its website “to oversight of SSBCI recipients, Treasury revised the SSBCI FAQ document on its website “to
combine combine al all applicable oversight requirements in one place” and “elaborate on the specific duty applicable oversight requirements in one place” and “elaborate on the specific duty
that each provision imposes upon the participating state.”69 In addition, Treasury took into that each provision imposes upon the participating state.”69 In addition, Treasury took into
consideration the OIG’s recommendations as it developed its “SSBCI National Standards for consideration the OIG’s recommendations as it developed its “SSBCI National Standards for
Compliance and Oversight” document, which was released on May 15, 2012.70 Compliance and Oversight” document, which was released on May 15, 2012.70
Treasury’s Inspector General Use of SSBCI Funds Audit Reports
On May 24, 2012, Treasury’s OIG released the first of a planned series of audits of state use of On May 24, 2012, Treasury’s OIG released the first of a planned series of audits of state use of
SSBCI funds, starting with California.71 Treasury’s OIG completed audits of 24 participants’ use SSBCI funds, starting with California.71 Treasury’s OIG completed audits of 24 participants’ use
~~of SSBCI funds (California, Montana, Vermont, Michigan, Texas, Massachusetts, Delaware, New~~
~~Jersey, Alabama, Missouri, Washington, Kansas, Florida, West Virginia, Il inois, South Carolina,~~
~~American Samoa, North Carolina, Idaho, Indiana, Tennessee, the North Dakota Mandan~~
~~consortium, Rhode Island, and New York).72 A summary of the OIG’s findings for each state~~
~~follows, starting with California.~~

~~66 U.S. Department of the T reasury, OIG, “State Small Business Credit Initiative: T reasury Needs to Strengthen State~~
~~Accountability for Use of Funds,” August 5, 2011, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/SBLF11002.pdf.~~
~~67 U.S. Department of the T reasury, OIG, “State Small Business Credit Initiative: T reasury Needs to Strengthen State~~
~~Accountability for Use of Funds,” p. 19.~~
~~68 U.S. Department of the T reasury, OIG, “State Small Business Credit Initiative: T reasury Needs to Strengthen State~~
~~Accountability for Use of Funds,” p. 20.~~
~~69 U.S. Department of the T reasury, OIG, “State Small Business Credit Initiative: T reasury Needs to Strengthen State~~
~~Accountability for Use of Funds,” p. 10.~~
~~70 U.S. Department of the T reasury, “SSBCI National Standards~~ 64 GAO, Small Business Credit Programs: Treasury Continues to Enhance Performance Measurement and Evaluation but Could Better Communicate and Update Results, GAO-15-105, December 11, 2014, p. 19, at http://www.gao.gov/assets/670/667450.pdf. 65 GAO, Small Business Credit Programs: Treasury Continues to Enhance Performance Measurement and Evaluation but Could Better Communicate and Update Results, p. 19. 66 U.S. Department of the Treasury, OIG, “State Small Business Credit Initiative: Treasury Needs to Strengthen State Accountability for Use of Funds,” August 5, 2011, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/SBLF11002.pdf. 67 U.S. Department of the Treasury, OIG, “State Small Business Credit Initiative: Treasury Needs to Strengthen State Accountability for Use of Funds,” p. 19. 68 U.S. Department of the Treasury, OIG, “State Small Business Credit Initiative: Treasury Needs to Strengthen State Accountability for Use of Funds,” p. 20. 69 U.S. Department of the Treasury, OIG, “State Small Business Credit Initiative: Treasury Needs to Strengthen State Accountability for Use of Funds,” p. 10. 70 U.S. Department of the Treasury, “SSBCI National Standards for Compliance and Oversight,” May 15, 2012, at for Compliance and Oversight,” May 15, 2012, at
http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci.aspx. http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci.aspx.
71 U.S.71 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, May 24, 2012, at https://oig.treasury.gov/sites/oig/, May 24, 2012, at https://oig.treasury.gov/sites/oig/
files/files/~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIG-SBLF-12-003.pdf. /OIG-SBLF-12-003.pdf.
~~72 U.S. Department of the T reasury, OIG, Small Business Lending Fund Program Oversight Office,~~ ~~Small Business~~
~~Lending Fund Program and State Sm all Business Credit Initiative Oversight Reports, at https://oig.treasury.gov/Office-~~
~~of-Small-Business-Lending-Fund-Program-Oversight .~~
~~Congressional Research Service~~

17

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~In each audit, the OIG reviewed a judgmental sample of smal~~ Congressional Research Service 17 State Small Business Credit Initiative: Implementation and Funding Issues of SSBCI funds (California, Montana, Vermont, Michigan, Texas, Massachusetts, Delaware, New Jersey, Alabama, Missouri, Washington, Kansas, Florida, West Virginia, Illinois, South Carolina, American Samoa, North Carolina, Idaho, Indiana, Tennessee, the North Dakota Mandan consortium, Rhode Island, and New York).72 A summary of the OIG’s findings for each state follows, starting with California. In each audit, the OIG reviewed a judgmental sample of small business loans or investments to business loans or investments to
“determine whether [the loans or investments] complied with program requirements for loan use, “determine whether [the loans or investments] complied with program requirements for loan use,
capital at risk, and other restrictions.”73 Treasury was required to recoup any funds the OIG capital at risk, and other restrictions.”73 Treasury was required to recoup any funds the OIG
identified as identified as ~~intentional y~~ intentionally or recklessly misused.74 Only Texas, New Jersey, West Virginia, and the or recklessly misused.74 Only Texas, New Jersey, West Virginia, and the
North Dakota Mandan consortium were found to be in full compliance with North Dakota Mandan consortium were found to be in full compliance with al all SSBCI SSBCI
requirements.requirements.
California
Treasury’s OIG determined that California had properly used the majority of the $3.6 Treasury’s OIG determined that California had properly used the majority of the $3.6 ~~mil ion~~ million in in
SSBCI loans it examined, but it identified $133,250 in loan loss reserves funded under SSBCI loans it examined, but it identified $133,250 in loan loss reserves funded under
California’s California’s ~~Smal~~ Small Business Loan Guarantee Program that did not comply with SSBCI program Business Loan Guarantee Program that did not comply with SSBCI program
requirements.75 The OIG indicated that these noncompliant expenditures “constitute a ‘reckless’ requirements.75 The OIG indicated that these noncompliant expenditures “constitute a ‘reckless’
misuse of funds as defined by Treasury guidance, which under the provisions of the misuse of funds as defined by Treasury guidance, which under the provisions of the ~~Smal~~
Small Business Jobs Act must be recouped.”76 The OIG also identified $160,988 in administrative Business Jobs Act must be recouped.”76 The OIG also identified $160,988 in administrative
expenses charged to the SSBCI program that were “not adequately supported by actual expenses expenses charged to the SSBCI program that were “not adequately supported by actual expenses
incurred or with proper documentation to validate the costs claimed.”77 In addition, the OIG incurred or with proper documentation to validate the costs claimed.”77 In addition, the OIG
reported that “42 or approximately 58 percent, of the 73 loans [OIG] tested lacked reported that “42 or approximately 58 percent, of the 73 loans [OIG] tested lacked al all of the of the
required borrower and lender assurances.”78 required borrower and lender assurances.”78
Treasury agreed to recoup from California the $133,250 in loan loss reserves identified by the Treasury agreed to recoup from California the $133,250 in loan loss reserves identified by the
OIG as a reckless misuse of funds; required California to provide additionalOIG as a reckless misuse of funds; required California to provide additional supporting supporting
documentation for its SSBCI administrative expenses; and instructed California program officials documentation for its SSBCI administrative expenses; and instructed California program officials
to address missing borrower and lender certifications and assurances. Treasury subsequently to address missing borrower and lender certifications and assurances. Treasury subsequently
noted that any loans noted that any loans ~~stil~~ still missing required assurances and certifications had been unenrolled and missing required assurances and certifications had been unenrolled and
that that al all other certification issues had been resolved.79 72 U.S. Department of the Treasury, OIG, Small Business Lending Fund Program Oversight Office, Small Business Lending Fund Program and State Small Business Credit Initiative Oversight Reports, at https://oig.treasury.gov/Office-of-Small-Business-Lending-Fund-Program-Oversight. 73 U.S. Department of the Treasury~~other certification issues had been resolved.79~~
~~Montana~~
~~Treasury’s OIG found that Montana had misused $2.73 mil ion of the $4.9 mil ion in SSBCI~~
~~funds it examined because the funds were used for passive real estate investments and the~~
~~refinancing of prior debt, which “are prohibited under the Smal Business Jobs Act or SSBCI~~
~~Policy Guidelines.”80 The OIG also found that $3,426 in personnel costs incurred for~~

~~73 U.S. Department of the T reasury~~, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 2. , p. 2.
74 U.S. 74 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 1. , p. 1.
75 U.S. 75 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 3. , p. 3.
76 U.S.76 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 3. , p. 3.
77 U.S. 77 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 3. , p. 3.
78 U.S.78 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, p. 3. , p. 3.
79 U.S. 79 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
~~Program s~~Programs Participating in the State ~~Sm all~~Small Business Credit Initiative, pp. 13-14. , pp. 13-14.
~~80 U.S. Department of the T reasury, OIG,~~ Congressional Research Service 18 State Small Business Credit Initiative: Implementation and Funding Issues Montana Treasury’s OIG found that Montana had misused $2.73 million of the $4.9 million in SSBCI funds it examined because the funds were used for passive real estate investments and the refinancing of prior debt, which “are prohibited under the Small Business Jobs Act or SSBCI Policy Guidelines.”80 The OIG also found that $3,426 in personnel costs incurred for administering SSBCI funds were not allowable or allocable because the costs were not properly ~~Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, September 27, 2012, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF12006.pdf.~~
~~Congressional Research Service~~

18

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~administering SSBCI funds were not al owable or al ocable because the costs were not properly~~
supported as required by OMB Circular A-87.81 supported as required by OMB Circular A-87.81
The OIG “did not find the misuse of funds to be intentional or reckless as Montana sought The OIG “did not find the misuse of funds to be intentional or reckless as Montana sought
guidance from Treasury before enrolling the loans.”82 The OIG reported that Treasury officials guidance from Treasury before enrolling the loans.”82 The OIG reported that Treasury officials
did not provide definitivedid not provide definitive guidance on the permissibility of passive real estate loans and informed guidance on the permissibility of passive real estate loans and informed
Montana that refinancing prior debt to the same lender was Montana that refinancing prior debt to the same lender was ~~al owable~~allowable if the prior debt had if the prior debt had
matured and new underwriting had occurred. The OIG noted that Treasury attempted to clarify matured and new underwriting had occurred. The OIG noted that Treasury attempted to clarify
the the ~~Smal~~ Small Business Job Act’s prohibition on the refinancing of prior debt by definingBusiness Job Act’s prohibition on the refinancing of prior debt by defining refinancing, ,
which is not defined in the act. The OIG which is not defined in the act. The OIG ~~chal enged~~challenged Treasury’s conclusion “that the statutory Treasury’s conclusion “that the statutory
prohibition on refinancing the same lenders’ loans pertained only to existing debt that had not yet prohibition on refinancing the same lenders’ loans pertained only to existing debt that had not yet
matured and that refinancing debt after it matures constitutes ‘refunding,’ a permitted use.”83 The matured and that refinancing debt after it matures constitutes ‘refunding,’ a permitted use.”83 The
OIG noted that there were no references in the OIG noted that there were no references in the ~~Smal~~ Small Business Jobs Act or in Treasury’s SSBCI Business Jobs Act or in Treasury’s SSBCI
policy guidelines concerning “re-funding.”84 policy guidelines concerning “re-funding.”84
Treasury agreed to notify participating states that loans for passive real estate are considered a Treasury agreed to notify participating states that loans for passive real estate are considered a
misuse of funds and encourage them to review their loan enrollments to ensure compliance with misuse of funds and encourage them to review their loan enrollments to ensure compliance with
guidance that was in place at the time the loans were made.85 Treasury also agreed to “provide a guidance that was in place at the time the loans were made.85 Treasury also agreed to “provide a
clear and rigorous analysis documenting how Treasury concluded that some refinancing of clear and rigorous analysis documenting how Treasury concluded that some refinancing of
existing debt from the same lender, or ‘re-funding,’ is consistent with the statutory language, or existing debt from the same lender, or ‘re-funding,’ is consistent with the statutory language, or
amend the program procedural guidance to remove that possibility.”86 Treasury also found that amend the program procedural guidance to remove that possibility.”86 Treasury also found that
Montana was unable to provide the necessary documentation for the $3,426 in personnel costs Montana was unable to provide the necessary documentation for the $3,426 in personnel costs
cited by the OIG in its review of the state’s SSBCI administrative expenses and that those costs cited by the OIG in its review of the state’s SSBCI administrative expenses and that those costs
would be would be ~~disal owed.87~~
~~Vermont~~
~~Treasury’s OIG examined 26 loans issued under Vermont’s four SSBCI programs and found that~~
~~Vermont’s interest rate subsidy program ($931,000 in SSBCI funding) did not comply with the~~
~~requirements established by its al ocation agreement with Treasury.88 Because the state estimated~~
~~its interest rate subsidies, the OIG found that Vermont’s quarterly reports to Treasury “do not~~
~~reflect the State’s actual use of funds for the program” and, therefore, “the State cannot provide~~
~~Treasury with accurate information for measuring the leverage achieved with SSBCI funds.”89~~

~~81 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, pp. 2, 6.~~
~~82 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, pp. 2, 9.~~
~~83 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, p. 3.~~
~~84 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, p. 12.~~
~~85 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, p. 16.~~
~~86 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, p. 16.~~
~~87 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Montana’s Use of Funds Received~~
~~from the State Sm all Business Credit Initiative, p. 18.~~
~~88 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Vermont’s Use of Federal Funds for~~
~~Capital Access and Credit Support Program s, November 30, 2012, p. 2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF13001.pdf.~~
89 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
~~Congressional Research Service~~

19

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~The OIG recommended that Treasury require Vermont to provide a subaccounting of al funds~~
~~transferred in connection with the interest rate subsidy program as wel as program income~~
~~generated from the use of such funds. In addition, the OIG recommended that Treasury determine~~
~~whether Vermont “is in general default of its Al ocation~~disallowed.87 80 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, September 27, 2012, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF12006.pdf. 81 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, pp. 2, 6. 82 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, pp. 2, 9. 83 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, p. 3. 84 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, p. 12. 85 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, p. 16. 86 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, p. 16. 87 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Montana’s Use of Funds Received from the State Small Business Credit Initiative, p. 18. Congressional Research Service 19 State Small Business Credit Initiative: Implementation and Funding Issues Vermont Treasury’s OIG examined 26 loans issued under Vermont’s four SSBCI programs and found that Vermont’s interest rate subsidy program ($931,000 in SSBCI funding) did not comply with the requirements established by its allocation agreement with Treasury.88 Because the state estimated its interest rate subsidies, the OIG found that Vermont’s quarterly reports to Treasury “do not reflect the State’s actual use of funds for the program” and, therefore, “the State cannot provide Treasury with accurate information for measuring the leverage achieved with SSBCI funds.”89 The OIG recommended that Treasury require Vermont to provide a subaccounting of all funds transferred in connection with the interest rate subsidy program as well as program income generated from the use of such funds. In addition, the OIG recommended that Treasury determine whether Vermont “is in general default of its Allocation Agreement due to its non-compliance Agreement due to its non-compliance
with accounting and lender/borrower assurance requirements, and whether future funding to the with accounting and lender/borrower assurance requirements, and whether future funding to the
State should be reduced, suspended, or terminated.”90 The OIG also found that $216,820 in State should be reduced, suspended, or terminated.”90 The OIG also found that $216,820 in
administrative expenses charged to the SSBCI program did not comply with program guidance.91 administrative expenses charged to the SSBCI program did not comply with program guidance.91
Treasury agreed to require Vermont to provide a subaccounting of Treasury agreed to require Vermont to provide a subaccounting of al all the funds transferred in the funds transferred in
connection with the interest rate subsidy program as connection with the interest rate subsidy program as ~~wel as al~~ well as all program income generated from program income generated from
the use of such funds.92 Treasury also agreed to determine whether “there has been a general the use of such funds.92 Treasury also agreed to determine whether “there has been a general
event of default under Vermont’s event of default under Vermont’s ~~Al ocation~~Allocation Agreement resulting from the Agreement resulting from the ~~State’s non-~~
~~compliance~~ state’s noncompliance with the grants management common rule or lender/borrower assurance requirements with the grants management common rule or lender/borrower assurance requirements
[and], if such an event has occurred and has not been adequately cured, determine whether it [and], if such an event has occurred and has not been adequately cured, determine whether it
warrants a reduction, suspension, or termination of future funding to the State.”93 In addition, warrants a reduction, suspension, or termination of future funding to the State.”93 In addition,
Treasury agreed to Treasury agreed to ~~disal ow~~disallow the $216,820 in administrative expenses charged to the SSBCI the $216,820 in administrative expenses charged to the SSBCI
program by Vermont unless the state provides supporting documentation in accordance with program by Vermont unless the state provides supporting documentation in accordance with
OMB Circular A-87.94 OMB Circular A-87.94
Michigan
Treasury’s OIG found that Michigan had used the majority of the $38.5 Treasury’s OIG found that Michigan had used the majority of the $38.5 ~~mil ion~~million in SSBCI loans it in SSBCI loans it
examined properly, but it identified “approximately $2.524 examined properly, but it identified “approximately $2.524 ~~mil ion~~million in misuse, of which $2.5 in misuse, of which $2.5
~~mil ion~~ million was used to finance lender purchase transactions that did not involve extensions of was used to finance lender purchase transactions that did not involve extensions of
additional credit to borrowers; $3,000 supported a partner buy-out, a prohibited use; and $21,000 additional credit to borrowers; $3,000 supported a partner buy-out, a prohibited use; and $21,000
was used to pay the CAP insurance premium on a loan closed and funded prior to Michigan’s was used to pay the CAP insurance premium on a loan closed and funded prior to Michigan’s
~~acceptance into the SSBCI program and Treasury’s al ocation of funds to the State.”95 The OIG~~
~~determined that the $21,000 used to pay the CAP insurance premium was a “reckless” misuse of~~
~~funds that must be recouped. Although the OIG did not find the $2.5 mil ion used to finance~~
~~lender purchase transactions that did not involve extensions of additional credit to borrowers to be~~
~~a similarly reckless misuse of funds, it did question whether the purchase transactions were~~
~~“consistent with the intent of the [Smal Business Jobs] Act to help smal businesses expand,~~
~~grow, and create jobs.”96 It recommended that Treasury develop guidance for such transactions. In~~
~~addition, the OIG found $8,506 in administrative expenses charged to the SSBCI program that~~

Capital Access and Credit Support Program s, pp. 2-3.
~~90 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ 88 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for Capital Access and Credit Support Programs, November 30, 2012, p. 2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13001.pdf. 89 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for Capital Access and Credit Support Programs, pp. 2-3. 90 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support ~~Program s~~Programs, pp. 3-4. , pp. 3-4.
91 U.S. 91 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support ~~Program s~~Programs, p. 3. , p. 3.
92 U.S.92 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support ~~Program s~~Programs, p. 15. , p. 15.
93 U.S. 93 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support ~~Program s~~Programs, p. 15. , p. 15.
94 U.S.94 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support ~~Program s, p. 14.~~
~~95 U.S. Department of the T reasury, OIG,~~ Programs, p. 14. Congressional Research Service 20 State Small Business Credit ~~Initiative: Michigan’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, December 13, 2012, pp. 2-3, at https://oig.treasury.gov/sites/oig/~~
~~files/Audit_Reports_and_T estimonies/OIGSBLF13002.pdf.~~
~~96 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Michigan’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 3.~~
~~Congressional Research Service~~

20

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Initiative: Implementation and Funding Issues acceptance into the SSBCI program and Treasury’s allocation of funds to the State.”95 The OIG determined that the $21,000 used to pay the CAP insurance premium was a “reckless” misuse of funds that must be recouped. Although the OIG did not find the $2.5 million used to finance lender purchase transactions that did not involve extensions of additional credit to borrowers to be a similarly reckless misuse of funds, it did question whether the purchase transactions were “consistent with the intent of the [Small Business Jobs] Act to help small businesses expand, grow, and create jobs.”96 It recommended that Treasury develop guidance for such transactions. In addition, the OIG found $8,506 in administrative expenses charged to the SSBCI program that were incurred prior to the date Michigan was approved to participate in the program and notified were incurred prior to the date Michigan was approved to participate in the program and notified
of its SSBCI of its SSBCI ~~al ocation~~allocation. The OIG recommended that those expenses be . The OIG recommended that those expenses be ~~disal owed.97~~
disallowed.97 Treasury agreed to issue guidance to address the conditions under which loan purchase Treasury agreed to issue guidance to address the conditions under which loan purchase
transactions would be permitted.98 Treasury also agreed to recoup the $21,000 used to pay the transactions would be permitted.98 Treasury also agreed to recoup the $21,000 used to pay the
CAP insurance premium on a loan closed and funded prior to Michigan’s acceptance into the CAP insurance premium on a loan closed and funded prior to Michigan’s acceptance into the
SSBCI program and Treasury’s SSBCI program and Treasury’s ~~al ocation~~allocation of funds to the state and to of funds to the state and to ~~disal ow~~disallow the $8,506 in the $8,506 in
administrative expenses that were incurred prior to the date Michigan was approved to participate administrative expenses that were incurred prior to the date Michigan was approved to participate
in the program and notified of its SSBCI in the program and notified of its SSBCI ~~al ocation~~allocation.99 .99
Texas
Treasury’s OIG examined five investments, totaling $6.3 Treasury’s OIG examined five investments, totaling $6.3 ~~mil ion~~million, financed by the Texas , financed by the Texas ~~Smal~~
Small Business Venture Capital Program and $105,000 of administrative costs that the state charged Business Venture Capital Program and $105,000 of administrative costs that the state charged
against SSBCI funds. The OIG found the program in full compliance with against SSBCI funds. The OIG found the program in full compliance with al all SSBCI SSBCI
requirements. The OIG credited the state’s “success in ensuring full compliance with SSBCI requirements. The OIG credited the state’s “success in ensuring full compliance with SSBCI
requirements” to Texas’s “use of a checklist to evaluate compliance with program requirements requirements” to Texas’s “use of a checklist to evaluate compliance with program requirements
prior to the completion of each transaction.”100prior to the completion of each transaction.”100
Massachusetts
Treasury’s OIG contracted with an independent certified public accounting firm to audit Treasury’s OIG contracted with an independent certified public accounting firm to audit
Massachusetts’s use of SSBCI funds. As of June 30, 2012, Massachusetts had obligated or spent Massachusetts’s use of SSBCI funds. As of June 30, 2012, Massachusetts had obligated or spent
approximately $6.6 approximately $6.6 ~~mil ion~~ million of the SSBCI funds disbursed, including $4 of the SSBCI funds disbursed, including $4 ~~mil ion~~ million for the for the
Massachusetts Growth Capital Corporation (MGCC) loan participation program, $2.1 Massachusetts Growth Capital Corporation (MGCC) loan participation program, $2.1 ~~mil ion~~million for for
the Massachusetts Business Development Corporation (MBDC) loan participation program, and the Massachusetts Business Development Corporation (MBDC) loan participation program, and
$211,000 for the $211,000 for the ~~Massachuset s~~Massachusetts Capital Access Program (MCAP). Massachusetts also incurred Capital Access Program (MCAP). Massachusetts also incurred
~~approximately $321,000 in administrative costs.~~
~~The accounting firm reviewed the state’s administrative costs and a randomly selected sample of~~
~~35 state SSBCI transactions (3 loan participation loans and 32 capital access loans) to determine~~
~~their compliance with SSBCI requirements. The audit found that Massachusetts charged $200,000~~
~~in administrative costs to the SSBCI program that did not comply with program guidance and that~~
~~the state did not include in its quarterly reports to Treasury $51,248 of program income. The audit~~
~~also found that 34 of the 35 transactions were in compliance with program requirements. The~~
~~accounting firm noted that a transaction for $237,000 made by the MBDC loan participation~~
~~program appeared to be prohibited by SSBCI policy guidelines because it involved an SBA-~~
~~guaranteed loan. Massachusetts officials reportedly “believed that the loan in question was~~
~~compliant with program requirements because Treasury’s SSBCI Policy Guidelines prohibit the~~
~~enrollment of only the unguaranteed portions of federal y-guaranteed loans. Therefore, they~~
reasonably believed the prohibition on credit enhancement did not pertain to the guaranteed

~~97 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Michigan’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 3.~~
~~98 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Michigan’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 13.~~
~~99 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Michigan’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, pp. 15-16.~~
~~100 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Texas’ Use of Federal Funds for~~
~~Other Credit Support Program s, January 29, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies~~approximately $321,000 in administrative costs. 95 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Michigan’s Use of Federal Funds for Capital Access and Other Credit Support Programs, December 13, 2012, pp. 2-3, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13002.pdf. 96 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Michigan’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 3. 97 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Michigan’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 3. 98 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Michigan’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 13. 99 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Michigan’s Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 15-16. 100 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Texas’ Use of Federal Funds for Other Credit Support Programs, January 29, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13003.pdf. /OIGSBLF13003.pdf.
Congressional Research Service Congressional Research Service

21 21

State Small Business Credit Initiative: Implementation and Funding Issues

~~portion of federal y~~ The accounting firm reviewed the state’s administrative costs and a randomly selected sample of 35 state SSBCI transactions (3 loan participation loans and 32 capital access loans) to determine their compliance with SSBCI requirements. The audit found that Massachusetts charged $200,000 in administrative costs to the SSBCI program that did not comply with program guidance and that the state did not include in its quarterly reports to Treasury $51,248 of program income. The audit also found that 34 of the 35 transactions were in compliance with program requirements. The accounting firm noted that a transaction for $237,000 made by the MBDC loan participation program appeared to be prohibited by SSBCI policy guidelines because it involved an SBA-guaranteed loan. Massachusetts officials reportedly “believed that the loan in question was compliant with program requirements because Treasury’s SSBCI Policy Guidelines prohibit the enrollment of only the unguaranteed portions of federally-guaranteed loans. Therefore, they reasonably believed the prohibition on credit enhancement did not pertain to the guaranteed portion of federally-guaranteed loans.”101 In addition, the audit found that Massachusetts did not -guaranteed loans.”101 In addition, the audit found that Massachusetts did not
obtain complete borrower and lender assurances for 89% of the loans reviewed by the time of obtain complete borrower and lender assurances for 89% of the loans reviewed by the time of
loan closing.102 loan closing.102
The OIG recommended that Treasury “revise its program guidance to make the enrollment of The OIG recommended that Treasury “revise its program guidance to make the enrollment of
~~federal y~~federally-guaranteed loans a clear prohibition, -guaranteed loans a clear prohibition, ~~disal ow~~disallow $200,000 in administrative expenses $200,000 in administrative expenses
unless the Commonwealth can provide adequate support for such costs, and require the unless the Commonwealth can provide adequate support for such costs, and require the
Commonwealth to demonstrate that it has a compliant system for Commonwealth to demonstrate that it has a compliant system for ~~al ocating~~allocating administrative administrative
costs.”103 The OIG also recommended that Treasury “determine whether there has been a general costs.”103 The OIG also recommended that Treasury “determine whether there has been a general
event of default of the event of default of the ~~Al ocation~~Allocation Agreement resulting from Massachusetts’s non-compliance Agreement resulting from Massachusetts’s non-compliance
with lender/borrower assurance requirements, with lender/borrower assurance requirements, ~~material y~~materially inaccurate certifications, and failure to inaccurate certifications, and failure to
report program income.”104report program income.”104
In response to the OIG’s recommendations, Treasury indicated it was in the process of revising its In response to the OIG’s recommendations, Treasury indicated it was in the process of revising its
program guidance on the enrollment of program guidance on the enrollment of ~~federal y~~federally guaranteed loans. It also stated that it guaranteed loans. It also stated that it ~~wil~~
will determine whether Massachusetts has adequately cured its noncompliance with program determine whether Massachusetts has adequately cured its noncompliance with program
requirements and whether additional action is warranted. Massachusetts clarified that although it requirements and whether additional action is warranted. Massachusetts clarified that although it
reported $200,000 in administrative expenses; it did not charge the SSBCI fund for these reported $200,000 in administrative expenses; it did not charge the SSBCI fund for these
expenses and does not intend to seek reimbursement from SSBCI for them. Massachusetts also expenses and does not intend to seek reimbursement from SSBCI for them. Massachusetts also
reported that many of the transactions examined during the audit “were made in the early stage of reported that many of the transactions examined during the audit “were made in the early stage of
the SSBCI program, before suggested reporting forms were promulgated by Treasury.”105the SSBCI program, before suggested reporting forms were promulgated by Treasury.”105
Delaware
Treasury’s OIG found that as of September 30, 2012, Delaware had obligated or spent Treasury’s OIG found that as of September 30, 2012, Delaware had obligated or spent
approximately $4.1 approximately $4.1 ~~mil ion~~ million of its first SSBCI disbursement of $4.3 of its first SSBCI disbursement of $4.3 ~~mil ion~~million—$80,883 for 36 loans —$80,883 for 36 loans
enrolled in the Delaware Access Program and approximately $4 enrolled in the Delaware Access Program and approximately $4 ~~mil ion~~million for 14 loans enrolled in 101 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds for Capital Access and Other Credit Support Programs, May 14, 2013, p. 7, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13007.pdf. 102 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 1-3. 103 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 3. 104 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 3. 105 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 19. Congressional Research Service 22 State Small Business Credit Initiative: Implementation and Funding Issues the Delaware Strategic Fund (DSF) Loan Program. The OIG reviewed a random sample of 26 loans (19 from the Delaware Access Program and 7 from the DSF Loan Program) that were enrolled as of September 30, 2012, to determine if they were in compliance with program requirements.106 The OIG did not identify any instances of intentional or reckless misuse of funds. However, it did find that although Delaware obtained most borrower and lender assurances at loan closing, these assurances did not contain all required affirmations.107 Several assurances were also missing ~~for 14 loans enrolled in~~
~~the Delaware Strategic Fund (DSF) Loan Program. The OIG reviewed a random sample of 26~~
~~loans (19 from the Delaware Access Program and 7 from the DSF Loan Program) that were~~
~~enrolled as of September 30, 2012, to determine if they were in compliance with program~~
~~requirements.106~~
~~The OIG did not identify any instances of intentional or reckless misuse of funds. However, it did~~
~~find that although Delaware obtained most borrower and lender assurances at loan closing, these~~
~~assurances did not contain al required affirmations.107 Several assurances were also missing~~

~~101 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds~~
~~for Capital Access and Other Credit Support Program s, May 14, 2013, p. 7, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF13007.pdf.~~
~~102 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds~~
~~for Capital Access and Other Credit Support Program s, pp. 1-3.~~
~~103 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds~~
~~for Capital Access and Other Credit Support Program s, p. 3.~~
~~104 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds~~
~~for Capital Access and Other Credit Suppo rt Program s, p. 3.~~
~~105 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Massachusetts’ Use of Federal Funds~~
~~for Capital Access and Other Credit Support Program s, p. 19.~~
~~106 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Delaware’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, March 29, 2013, p. 11, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF13006.pdf.~~
~~107 Participating states must 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. For example, the loan~~
~~Congressional Research Service~~

22

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

signatures or dates. In addition, the OIG found that Treasury became aware of Delaware’s signatures or dates. In addition, the OIG found that Treasury became aware of Delaware’s
noncompliance with the assurance requirements in May 2012, but it was not until October 2012 noncompliance with the assurance requirements in May 2012, but it was not until October 2012
that Treasury directed Delaware’s officials to obtain the missing assurances for each loan. By that Treasury directed Delaware’s officials to obtain the missing assurances for each loan. By
November 2012, Delaware had retroactively obtained these assurances. November 2012, Delaware had retroactively obtained these assurances.
The OIG recommended that Treasury “examine the reasons why appropriate and timely actions The OIG recommended that Treasury “examine the reasons why appropriate and timely actions
were not taken to address Delaware’s compliance and certification issues, and take appropriate were not taken to address Delaware’s compliance and certification issues, and take appropriate
actions to strengthen its compliance monitoring and enforcement of program requirements.”108 In actions to strengthen its compliance monitoring and enforcement of program requirements.”108 In
response to this recommendation, Treasury reported that it “is in the process of adjusting the response to this recommendation, Treasury reported that it “is in the process of adjusting the
quarterly certification process to cover circumstances where a participating state has a known quarterly certification process to cover circumstances where a participating state has a known
unresolved item of noncompliance.”109 Also, Delaware officials reported that they had unresolved item of noncompliance.”109 Also, Delaware officials reported that they had
implemented “additionalimplemented “additional precautions, including random audits of SSBCI loans, to ensure precautions, including random audits of SSBCI loans, to ensure
compliance with use of proceeds, capital-at-risk, and assurance requirements.”110 compliance with use of proceeds, capital-at-risk, and assurance requirements.”110
New Jersey
Treasury’s OIG contracted with an independent certified public accounting firm to audit New Treasury’s OIG contracted with an independent certified public accounting firm to audit New
Jersey’s use of SSBCI funds.111 The accounting firm found that as of June 30, 2012, New Jersey Jersey’s use of SSBCI funds.111 The accounting firm found that as of June 30, 2012, New Jersey
had spent about $2.9 had spent about $2.9 ~~mil ion~~million of its first SSBCI disbursement of $11.1 of its first SSBCI disbursement of $11.1 ~~mil ion—$1.76 mil ion for~~
million—$1.76 million for two loan participations, $675,000 for a credit guarantee, and $500,000 for a direct loan.112two loan participations, $675,000 for a credit guarantee, and $500,000 for a direct loan.112
The accounting firm reviewed The accounting firm reviewed al all four transactions and determined that New Jersey complied four transactions and determined that New Jersey complied
with with al all program requirements in administering the $2.9 program requirements in administering the $2.9 ~~mil ion~~million in SSBCI funds. The OIG in SSBCI funds. The OIG
concluded that New Jersey’s “success in ensuring full compliance was attributable to several best concluded that New Jersey’s “success in ensuring full compliance was attributable to several best
~~practices that the New Jersey Economic Development Authority [which administers New Jersey’s~~
~~SSBCI program] employed to enhance its program oversight,” including the use of an “SSBCI~~
~~Application Eligibility Criteria Checklist that listed each of the required SSBCI assurances and~~
~~specific SSBCI program requirements” and that had to be completed and signed prior to each~~
~~transaction.113~~
~~Alabama~~
~~Treasury’s OIG contracted with an independent certified public accounting firm to audit~~
~~Alabama’s use of SSBCI funds. The accounting firm reviewed al 14 loans enrolled in Alabama’s~~

~~proceeds must be used for an approved “business purpose” and they cannot be used to repay delinquent federal or state~~
~~income taxes, unless the borrower has a payment plan in place with the relevant taxin g authority; repay taxes held in~~
~~trust or escrow; reimburse funds owed to any owner, including any equity injection or injection of capital for the~~
~~business’s continuance; or purchase any portion of the ownership interest of any owner of the business.~~
~~108 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Delaware’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 3.~~
~~109 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Delaware’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 4.~~
~~110 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Delaware’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, pp. 3-4.~~
~~111 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: New Jersey’s Use of Federal Funds~~
~~for Other Credit Support Program s, February 27, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF13005.pdf.~~
~~112 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: New Jersey’s Use of Federal Funds~~
~~for Other Credit Support Program s, p. 4.~~
~~113 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: New Jersey’s Use of Federal Funds~~
~~for Other Credit Support Program s, p. 8.~~
~~Congressional Research Service~~

23

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~loan guarantee program, totaling approximately $3.8 mil ion, made between the signing of the~~
~~SSBCI al ocation agreement on August 24, 2011, and June 30, 2012. The accounting firm also~~
~~reviewed the $45,172 in administrative expenses Alabama charged against SSBCI funds during~~
~~that time period to ensure these expenses were al owable, reasonable, and al ocable.~~
~~The audit found that Alabama complied with al program requirements in administering the $3.8~~
~~mil ion~~ 106 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Delaware’s Use of Federal Funds for Capital Access and Other Credit Support Programs, March 29, 2013, p. 11, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13006.pdf. 107 Participating states must 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. For example, the loan proceeds must be used for an approved “business purpose” and they cannot be used to repay delinquent federal or state income taxes, unless the borrower has a payment plan in place with the relevant taxing authority; repay taxes held in trust or escrow; reimburse funds owed to any owner, including any equity injection or injection of capital for the business’s continuance; or purchase any portion of the ownership interest of any owner of the business. 108 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Delaware’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 3. 109 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Delaware’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 4. 110 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Delaware’s Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 3-4. 111 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New Jersey’s Use of Federal Funds for Other Credit Support Programs, February 27, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF13005.pdf. 112 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New Jersey’s Use of Federal Funds for Other Credit Support Programs, p. 4. Congressional Research Service 23 State Small Business Credit Initiative: Implementation and Funding Issues practices that the New Jersey Economic Development Authority [which administers New Jersey’s SSBCI program] employed to enhance its program oversight,” including the use of an “SSBCI Application Eligibility Criteria Checklist that listed each of the required SSBCI assurances and specific SSBCI program requirements” and that had to be completed and signed prior to each transaction.113 Alabama Treasury’s OIG contracted with an independent certified public accounting firm to audit Alabama’s use of SSBCI funds. The accounting firm reviewed all 14 loans enrolled in Alabama’s loan guarantee program, totaling approximately $3.8 million, made between the signing of the SSBCI allocation agreement on August 24, 2011, and June 30, 2012. The accounting firm also reviewed the $45,172 in administrative expenses Alabama charged against SSBCI funds during that time period to ensure these expenses were allowable, reasonable, and allocable. The audit found that Alabama complied with all program requirements in administering the $3.8 million of SSBCI funds used as of June 30, 2012. The OIG attributed “the state’s success in of SSBCI funds used as of June 30, 2012. The OIG attributed “the state’s success in
ensuring full compliance” to the Alabama Department of Economic and Community Affairs’ ensuring full compliance” to the Alabama Department of Economic and Community Affairs’
requirement that a checklist containing SSBCI requirements be completed prior to each loan requirement that a checklist containing SSBCI requirements be completed prior to each loan
enrollment to ensure the loan was in full compliance with SSBCI requirements.114 The audit also enrollment to ensure the loan was in full compliance with SSBCI requirements.114 The audit also
found that Alabama had overstated the amount of SSBCI funds used by approximately $1 found that Alabama had overstated the amount of SSBCI funds used by approximately $1 ~~mil ion~~million
in its March 31, 2012, quarterly report and by approximately $4 in its March 31, 2012, quarterly report and by approximately $4 ~~mil ion~~million in its June 30, 2012, in its June 30, 2012,
quarterly report. The OIG indicated that the errors occurred because Alabama incorrectly included quarterly report. The OIG indicated that the errors occurred because Alabama incorrectly included
private-lender contributions to loan loss reserves for loans guaranteed with SSBCI funds. private-lender contributions to loan loss reserves for loans guaranteed with SSBCI funds.
However, because Treasury identified and corrected the inaccuracies prior to the audit, the OIG However, because Treasury identified and corrected the inaccuracies prior to the audit, the OIG
made no recommendations concerning the errors.115 made no recommendations concerning the errors.115
Missouri
Treasury’s OIG contracted with an independent certified public accounting firm to audit Treasury’s OIG contracted with an independent certified public accounting firm to audit
Missouri’s use of SSBCI funds. The accounting firm reviewed Missouri’s use of SSBCI funds. The accounting firm reviewed al all 17 SSBCI transactions between 17 SSBCI transactions between
the signing of the SSBCI the signing of the SSBCI ~~al ocation~~allocation agreement on May 23, 2011, and March 31, 2012. These agreement on May 23, 2011, and March 31, 2012. These
transactions included 16 investments, totaling $6.6 transactions included 16 investments, totaling $6.6 ~~mil ion~~million, by the Missouri Innovation, , by the Missouri Innovation,
Development, and Entrepreneurship Advancement (IDEA) Fund and one loan, totaling $511,135, Development, and Entrepreneurship Advancement (IDEA) Fund and one loan, totaling $511,135,
by the Grow Missouri Loan Fund. The accounting firm also reviewed the $151,568 in by the Grow Missouri Loan Fund. The accounting firm also reviewed the $151,568 in
administrative expenses Missouri charged against SSBCI funds during that time period to ensure administrative expenses Missouri charged against SSBCI funds during that time period to ensure
these expenses were these expenses were ~~al owable~~allowable, reasonable, and , reasonable, and ~~al ocable~~allocable. Because the audit of the IDEA Fund . Because the audit of the IDEA Fund
revealed a prohibited party relationship, the audit’s scope was expanded to include seven revealed a prohibited party relationship, the audit’s scope was expanded to include seven
additional IDEA Fund transactions made between April 1, 2012, and September 30, 2012, “to additional IDEA Fund transactions made between April 1, 2012, and September 30, 2012, “to
~~determine whether additional prohibited party relationships existed.”116~~
~~The OIG found that Missouri “properly used over 96% of the $7.3 mil ion in SSBCI funds~~
~~expended, and that al related administrative costs were compliant with program requirements.”117~~
~~However, the audit revealed that a $240,000 venture capital investment made by the IDEA Fund~~
~~“constituted a reckless misuse of funds, as defined by Treasury” because a director of the board~~
~~that approved the investment “had a prohibited party relationship with the company that received~~
~~the investment based on the director’s control ing interest in the investee.”118 The director had~~
~~recused herself from the vote approving the investment. The OIG noted that the board should~~

~~114 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ determine whether additional prohibited party relationships existed.”116 113 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New Jersey’s Use of Federal Funds for Other Credit Support Programs, p. 8. 114 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Alabama’s Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, June 4, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/, June 4, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF13008.pdf. /OIGSBLF13008.pdf.
115 U.S. 115 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Alabama’s Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, pp. 1-2. , pp. 1-2.
116 U.S.116 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for
Other Credit ~~Support Program s~~ Support Programs, July 24, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/, July 24, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies/OIGSBLF13009.pdf.~~
~~117 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 3.~~
~~118 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 3.~~
~~Congressional Research Service~~

24

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~have known that prohibited party relationships are not al owed because the SSBCI policy~~
~~guidelines~~ Congressional Research Service 24 State Small Business Credit Initiative: Implementation and Funding Issues The OIG found that Missouri “properly used over 96% of the $7.3 million in SSBCI funds expended, and that all related administrative costs were compliant with program requirements.”117 However, the audit revealed that a $240,000 venture capital investment made by the IDEA Fund “constituted a reckless misuse of funds, as defined by Treasury” because a director of the board that approved the investment “had a prohibited party relationship with the company that received the investment based on the director’s controlling interest in the investee.”118 The director had recused herself from the vote approving the investment. The OIG noted that the board should have known that prohibited party relationships are not allowed because the SSBCI policy guidelines “require every borrower and investee receiving funds to certify that such a relationship “require every borrower and investee receiving funds to certify that such a relationship
did not exist.”119 The OIG recommended that Treasury recoup the $240,000 investment. Missouri did not exist.”119 The OIG recommended that Treasury recoup the $240,000 investment. Missouri
disagreed with the OIG’s finding that it “recklessly misused funds,” arguing that the board was in disagreed with the OIG’s finding that it “recklessly misused funds,” arguing that the board was in
compliance with its own conflict-of-interest policy and that the relationship with the “compliance with its own conflict-of-interest policy and that the relationship with the “~~potential y~~potentially
interested director” was “disclosed repeatedly in the application materials which were provided to interested director” was “disclosed repeatedly in the application materials which were provided to
the Board” and that the investment “was made on the merits through a rigorous and independent the Board” and that the investment “was made on the merits through a rigorous and independent
process.”120 Nonetheless, Missouri took measures “to remedy the situation and prevent similar process.”120 Nonetheless, Missouri took measures “to remedy the situation and prevent similar
issues in the future.”121 For example, the board administering the IDEA Fund “replenished the issues in the future.”121 For example, the board administering the IDEA Fund “replenished the
SSBCI program account in the amount of the misused funds and unenrolled the transaction,” SSBCI program account in the amount of the misused funds and unenrolled the transaction,”
amended its conflict-of-interest policy to comply with the SSBCI guidelines on conflicts of amended its conflict-of-interest policy to comply with the SSBCI guidelines on conflicts of
interest, and created a checklist to ensure that each transaction supported by SSBCI funds is in interest, and created a checklist to ensure that each transaction supported by SSBCI funds is in
compliance with the SSBCI guidelines on conflicts of interest.122compliance with the SSBCI guidelines on conflicts of interest.122
Treasury agreed to recoup the $240,000 from Missouri. Treasury also agreed to “determine Treasury agreed to recoup the $240,000 from Missouri. Treasury also agreed to “determine
whether Missouri has adequately cured its whether Missouri has adequately cured its ~~non-compliance~~noncompliance with the related party prohibition, with the related party prohibition,
requirements for assurances, and certification filings” and if further action is warranted.123 requirements for assurances, and certification filings” and if further action is warranted.123
Washington
Treasury’s OIG contracted with an independent certified public accounting firm to audit Treasury’s OIG contracted with an independent certified public accounting firm to audit
Washington’s use of SSBCI funds. The accounting firm reviewed Washington’s use of SSBCI funds. The accounting firm reviewed al all of the state’s $5.3 of the state’s $5.3 ~~mil ion~~million in in
SSBCI loans issued by Washington’s Enterprise Cascadia Loan Participation Program and SSBCI loans issued by Washington’s Enterprise Cascadia Loan Participation Program and al all of of
the $1.7 the $1.7 ~~mil ion~~ million in investments issued by the state’s W Fund Venture Capital Program between in investments issued by the state’s W Fund Venture Capital Program between
the signing of the SSBCI the signing of the SSBCI ~~al ocation~~allocation agreement on October 31, 2011, and June 30, 2012. The agreement on October 31, 2011, and June 30, 2012. The
accounting firm also reviewed the $92,291 in administrative expenses Washington charged accounting firm also reviewed the $92,291 in administrative expenses Washington charged
~~against SSBCI funds during that time period to ensure these expenses were al owable, reasonable,~~
~~and al ocable.124~~
~~The audit determined that al $7.1 mil ion in loans and venture capital investments “complied~~
~~with SSBCI program requirements and restrictions, and that borrower and lender assurances were~~
~~complete and timely.”125 However, the audit found that the $92,291 in administrative expenses~~
~~reported to Treasury “was overstated by $5,779 as a result of an accounting change [comprised of~~
~~payroll costs for administration of the SSBCI program that were incurred during the reporting~~
~~period, but subsequently transferred to an alternative funding source] that was not reflected in the~~

~~119 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 3.~~
~~120 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 26.~~
~~121 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 22.~~
~~122 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 22.~~
~~123 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Missouri’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 22.~~
~~124 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Washington’s Use of Federal Fun ds~~
~~for Capital Access and Other Credit Support Program s, August 15, 2013, pp. 1, 2, at https://oig.treasury.gov/sites/oig/~~
~~files/Audit_Reports_and_T estimonies/OIG-SBLF-13-011.pdf.~~
~~125 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Washington’s Use of Federal Funds~~
~~for Capital Access and Other Credit Support Program s, p. 2.~~
~~Congressional Research Service~~

25

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Audit_Reports_and_Testimonies/OIGSBLF13009.pdf. 117 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 3. 118 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 3. 119 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 3. 120 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 26. 121 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 22. 122 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 22. 123 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Missouri’s Use of Federal Funds for Other Credit Support Programs, p. 22. Congressional Research Service 25 State Small Business Credit Initiative: Implementation and Funding Issues against SSBCI funds during that time period to ensure these expenses were allowable, reasonable, and allocable.124 The audit determined that all $7.1 million in loans and venture capital investments “complied with SSBCI program requirements and restrictions, and that borrower and lender assurances were complete and timely.”125 However, the audit found that the $92,291 in administrative expenses reported to Treasury “was overstated by $5,779 as a result of an accounting change [comprised of payroll costs for administration of the SSBCI program that were incurred during the reporting period, but subsequently transferred to an alternative funding source] that was not reflected in the state’s SSBCI Quarterly Report.”126 When the auditors brought the overstatement to their state’s SSBCI Quarterly Report.”126 When the auditors brought the overstatement to their
attention, Washington officials notified Treasury of the need to adjust their SSBCI Quarterly attention, Washington officials notified Treasury of the need to adjust their SSBCI Quarterly
Report to reflect the cost transfer. Treasury “advised Washington that it would authorize the Report to reflect the cost transfer. Treasury “advised Washington that it would authorize the
adjustment upon completion of the OIG’s audit.”127 adjustment upon completion of the OIG’s audit.”127
Kansas
Treasury’s OIG contracted with an independent certified public accounting firm to audit Kansas’s Treasury’s OIG contracted with an independent certified public accounting firm to audit Kansas’s
use of SSBCI funds. The accounting firm reviewed use of SSBCI funds. The accounting firm reviewed al all of the state’s $1.53 of the state’s $1.53 ~~mil ion~~million in SSBCI loans in SSBCI loans
issued by the Kansas Capitalissued by the Kansas Capital ~~Multiplier~~ Multiplier Loan Fund and the $696,950 in investments issued by the Loan Fund and the $696,950 in investments issued by the
Kansas Capital MultiplierKansas Capital Multiplier Venture Fund between the signing of the SSBCI Venture Fund between the signing of the SSBCI ~~al ocation~~allocation agreement agreement
on June 28, 2011, and March 31, 2012. The accounting firm also reviewed the $14,585 in on June 28, 2011, and March 31, 2012. The accounting firm also reviewed the $14,585 in
administrative expenses Kansas charged against SSBCI funds during that time period to ensure administrative expenses Kansas charged against SSBCI funds during that time period to ensure
these expenses were these expenses were ~~al owable~~allowable, reasonable, and , reasonable, and ~~al ocable~~allocable. .
The audit found that Kansas “appropriately used most of the SSBCI funds it had expended” but The audit found that Kansas “appropriately used most of the SSBCI funds it had expended” but
questioned three $250,000 loans that were issued to affiliated entities as part of a $31 questioned three $250,000 loans that were issued to affiliated entities as part of a $31 ~~mil ion~~million
aggregate financial arrangement.128 The OIG noted that there is a $20 aggregate financial arrangement.128 The OIG noted that there is a $20 ~~mil ion~~ million cap on SSBCI loans cap on SSBCI loans
made under other credit support programs (OCSPs) and that Treasury’s guidance “does not made under other credit support programs (OCSPs) and that Treasury’s guidance “does not
address how the cap should be applied when funds are used to make companion loans comprising address how the cap should be applied when funds are used to make companion loans comprising
a larger financial package or where multiple loans are made to affiliated entities.”129 The OIG a larger financial package or where multiple loans are made to affiliated entities.”129 The OIG
recommended that Treasury clarify the requirement that SSBCI funds not be used to support loans recommended that Treasury clarify the requirement that SSBCI funds not be used to support loans
that exceed a principal amount of $20 that exceed a principal amount of $20 ~~mil ion~~million. Treasury agreed to revise the SSBCI policy . Treasury agreed to revise the SSBCI policy
guidelines to clarify the requirement.130guidelines to clarify the requirement.130
~~The audit also found that Kansas inaccurately reported in its March 31, 2012, SSBCI quarterly~~
~~report a $173,822 advance for administrative costs issued to NetWork Kansas (a nonprofit entity~~
~~that, among other activities, administers the Kansas Capital Multiplier Loan Fund and the Kansas~~
~~Capital Multiplier Venture Fund) as a loan and that $29,247 of that advance was not subsequently~~
~~reported as administrative expenses in the state’s June 30, 2012, SSBCI quarterly report because~~
~~those spent funds were previously incorrectly reported as a loan.131 In addition, the audit found~~
~~that $13,181 of the $29,247 should be disal owed by Treasury because the funds were used to pay~~

~~126 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ 124 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Washington’s Use of Federal Funds for Capital Access and Other Credit Support Programs, August 15, 2013, pp. 1, 2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIG-SBLF-13-011.pdf. 125 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Washington’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 2. 126 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Washington’s Use of Federal Funds
for Capital Access and Other Credit Support ~~Program s~~Programs, p. 2. , p. 2.
127 U.S. 127 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Washington’s Use of Federal Funds
for Capital Access and Other Credit Support ~~Program s~~Programs, p. 7. , p. 7.
128 U.S.128 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, September 5, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/, September 5, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIG-SBLF-13-013.pdf. /OIG-SBLF-13-013.pdf.
129 U.S. 129 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, p. 2. , p. 2.
130 U.S.130 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, p. 18. Kansas officials explained that the three , p. 18. Kansas officials explained that the three ~~lo ans~~loans in question were in question were “ “made to made to
separate legal entities which wereseparate legal entities which were operated as separate businessesoperated as separate businesses at separate locations, but whoat separate locations, but who sold product to a sold product to a
common buyer [and] not contrived to avoid the $20 million cap on loans.” Officials also explained that “while the common buyer [and] not contrived to avoid the $20 million cap on loans.” Officials also explained that “while the
~~similarity in names and inadvertent language in the applications make the independence of the loans more difficult to~~
~~ascertain, review of the facts shows SSBCI loan support was not to a single loan in excess of $20 million. Rather,~~
~~SSBCI funds were used to support separate loans to separate businesses.” See U.S. Department of the T reasury, OIG,~~
State Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other Credit Support Programs, p. 20.
~~131 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Kansas’ Use of Federal Funds for~~
~~Other Credit Support Program s, pp. 3, 12, 13.~~
~~Congressional Research Service~~

26

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~audit and tax consulting costs that were not properly al ocated through a cost al ocation~~ Congressional Research Service 26 State Small Business Credit Initiative: Implementation and Funding Issues The audit also found that Kansas inaccurately reported in its March 31, 2012, SSBCI quarterly report a $173,822 advance for administrative costs issued to NetWork Kansas (a nonprofit entity that, among other activities, administers the Kansas Capital Multiplier Loan Fund and the Kansas Capital Multiplier Venture Fund) as a loan and that $29,247 of that advance was not subsequently reported as administrative expenses in the state’s June 30, 2012, SSBCI quarterly report because those spent funds were previously incorrectly reported as a loan.131 In addition, the audit found that $13,181 of the $29,247 should be disallowed by Treasury because the funds were used to pay audit and tax consulting costs that were not properly allocated through a cost allocation plan or an plan or an
indirect cost proposal as required by OMB Circular A-87.132 Treasury agreed to work with Kansas indirect cost proposal as required by OMB Circular A-87.132 Treasury agreed to work with Kansas
“to correct its quarterly statements, remove the $13,181 in “to correct its quarterly statements, remove the $13,181 in ~~disal owed~~disallowed audit and tax consulting audit and tax consulting
costs from the State’s quarterly reports, and review Kansas’ cost costs from the State’s quarterly reports, and review Kansas’ cost ~~al ocation~~allocation plan for administrative plan for administrative
costs.”133 costs.”133
Florida
Treasury’s OIG reviewed Treasury’s OIG reviewed al all 7 SSBCI venture capital investments, totaling $37 7 SSBCI venture capital investments, totaling $37 ~~mil ion,~~ million, issued by issued by
the Florida Venture Capital Program and the Florida Venture Capital Program and al all 17 SSBCI loans, totaling approximately $14.6 17 SSBCI loans, totaling approximately $14.6
~~mil ion,~~ million, issued by the Florida Loan Participation Program (11 loans, totaling $9.75 issued by the Florida Loan Participation Program (11 loans, totaling $9.75 ~~mil ion~~million); );
Florida Direct Loans Program (1 loan, totaling $3.5 Florida Direct Loans Program (1 loan, totaling $3.5 ~~mil ion~~million); Florida Loan Guarantee Program (3 ); Florida Loan Guarantee Program (3
loans, totaling $1.37 loans, totaling $1.37 ~~mil ion~~million); and Florida Capital Access Program (2 loans, totaling $780 for ); and Florida Capital Access Program (2 loans, totaling $780 for
portfolio insurance) between the signing of the SSBCI portfolio insurance) between the signing of the SSBCI ~~al ocation~~allocation agreement on August 24, 2011, agreement on August 24, 2011,
and December 31, 2012.134 The OIG also reviewed the $378,634 in administrative expenses and December 31, 2012.134 The OIG also reviewed the $378,634 in administrative expenses
Florida charged against SSBCI funds during that time period to ensure these expenses were Florida charged against SSBCI funds during that time period to ensure these expenses were
~~al owable~~allowable, reasonable, and , reasonable, and ~~al ocable~~allocable. .
The OIG found that Florida “properly used the majority (92%) of the SSBCI funds it expended” The OIG found that Florida “properly used the majority (92%) of the SSBCI funds it expended”
and that “23 of the 24 transactions ... sampled were compliant with program guidelines related to and that “23 of the 24 transactions ... sampled were compliant with program guidelines related to
prohibited relationships, maximum transaction amounts, use-of-proceeds, capital-at-risk, and prohibited relationships, maximum transaction amounts, use-of-proceeds, capital-at-risk, and
other restrictions noted in the [other restrictions noted in the [~~Smal~~ Small Business Jobs] Act and SSBCI Guidelines.”135 The Business Jobs] Act and SSBCI Guidelines.”135 The
questionable transaction involved the use of $4 questionable transaction involved the use of $4 ~~mil ion~~ million in SSBCI funds in a $34.7 in SSBCI funds in a $34.7 ~~mil ion~~million
investment “that involved multipleinvestment “that involved multiple equity instruments, which ... exceeded the $20 million similarity in names and inadvertent language in the applications make the independence of the loans more difficult to ascertain, review of the facts shows SSBCI loan support was not to a single loan in excess of $20 million. Rather, SSBCI funds were used to support separate loans to separate businesses.” See U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other Credit Support Programs, p. 20. 131 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other Credit Support Programs, pp. 3, 12, 13. 132 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other Credit Support Programs, p. 13. 133 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other Credit Support Programs, p. 19. Treasury also agreed to inform Kansas “that the State is required to obtain lender assurances ~~equity instruments, which ... exceeded the $20 mil ion~~
~~restriction in the [Smal Business Jobs] Act intended [to] be placed on the amount of credit~~
~~support that may be extended to a recipient.”136 The OIG concluded that “although two equity~~
~~instruments were involved [$4 mil ion from the SSBCI and $30.7 mil ion from private capital],~~
~~the transaction constituted one investment package because if the business were to fail, both~~
~~equity instruments would be affected.”137 The OIG recommended that Treasury “revise the SSBCI~~
~~Policy Guidelines to clarify how the $20 mil ion restriction on credit support should be applied~~

~~132 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Kansas’ Use of Federal Funds for~~
~~Other Credit Support Program s, p. 13.~~
~~133 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Kansas’ Use of Federal Funds for~~
~~Other Credit Support Program s, p. 19. T reasury also agreed to inform Kansas “ that the State is required to obtain~~
~~lender assurances~~ from relevant companion lenders in future transactions, but agrees with Kansas that retroactively from relevant companion lenders in future transactions, but agrees with Kansas that retroactively
collecting companion lender assurancescollecting companion lender assurances [as was[as was recommended by the OIG] is impractical and unnecessary.” Seerecommended by the OIG] is impractical and unnecessary.” See U.S. U.S.
Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State ~~Sm all~~Small Business Credit Initiative: Kansas’ Use of Federal Funds for Other
Credit Support ~~Program s~~Programs, p. 18. , p. 18. ~~T reasury~~Treasury agreed to clarify the “ agreed to clarify the “SSBCI ~~SSBCI~~ National Standards for Compliance and National Standards for Compliance and
Oversight” document to specify whichOversight” document to specify which companion lenders must submitcompanion lenders must submit assurances. assurances.
134 U.S.134 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, November 15, 2013, pp. 1, 13, at https://oig.treasury.gov/sites/oig/, November 15, 2013, pp. 1, 13, at https://oig.treasury.gov/sites/oig/
files/files/~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF14002R.pdf. /OIGSBLF14002R.pdf.
135 U.S.135 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s, p. 7.~~
~~136 U.S. Department of the T reasury, OIG,~~ Programs, p. 7. Congressional Research Service 27 State Small Business Credit ~~Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 7.~~
~~137 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, pp. 7, 8.~~
~~Congressional Research Service~~

27

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~when an investment involves multiple equity instruments.”138 Treasury agreed to revise the~~
~~program’s guidance concerning the $20 mil ion~~ Initiative: Implementation and Funding Issues restriction in the [Small Business Jobs] Act intended [to] be placed on the amount of credit support that may be extended to a recipient.”136 The OIG concluded that “although two equity instruments were involved [$4 million from the SSBCI and $30.7 million from private capital], the transaction constituted one investment package because if the business were to fail, both equity instruments would be affected.”137 The OIG recommended that Treasury “revise the SSBCI Policy Guidelines to clarify how the $20 million restriction on credit support should be applied when an investment involves multiple equity instruments.”138 Treasury agreed to revise the program’s guidance concerning the $20 million credit support restriction.139 credit support restriction.139
The OIG also found that Florida had overstated its administrative expenses by approximately The OIG also found that Florida had overstated its administrative expenses by approximately
$55,000. Florida officials indicated that the overstatement “occurred because of incorrect $55,000. Florida officials indicated that the overstatement “occurred because of incorrect
selection criteria used to pull administrative cost information from the state accounting system” selection criteria used to pull administrative cost information from the state accounting system”
following the merger of several state agencies. Florida officials informed Treasury of the error following the merger of several state agencies. Florida officials informed Treasury of the error
and made adjustments to the state’s administrative expenses to account for the error in their and made adjustments to the state’s administrative expenses to account for the error in their
March 31, 2013, SSBCI quarterly report.140 March 31, 2013, SSBCI quarterly report.140
In addition, the OIG found that Florida had “overstated by approximately $23 In addition, the OIG found that Florida had “overstated by approximately $23 ~~mil ion~~ million the amount the amount
of SSBCI funds that had been obligated because it included FLVCP [Florida Venture Capital of SSBCI funds that had been obligated because it included FLVCP [Florida Venture Capital
Program] reserves that were set aside for future follow-on investments to existing investees.”141 Program] reserves that were set aside for future follow-on investments to existing investees.”141
Florida officials asserted that their reporting of these funds was in compliance with the definitions Florida officials asserted that their reporting of these funds was in compliance with the definitions
provided in the SSBCI policy guidelines and FAQ documents at the time that the funds were provided in the SSBCI policy guidelines and FAQ documents at the time that the funds were
reported.142 However, state officials also noted that Treasury had informed them in February 2013 reported.142 However, state officials also noted that Treasury had informed them in February 2013
that Florida’s “reserve commitment letters did not meet Treasury’s criteria for designation as that Florida’s “reserve commitment letters did not meet Treasury’s criteria for designation as
obligated funds” and that the state had submitted an updated disbursement request with its second obligated funds” and that the state had submitted an updated disbursement request with its second
tranche of funding, which was received in June 2013.143 Subsequently, “Florida adjusted its tranche of funding, which was received in June 2013.143 Subsequently, “Florida adjusted its
quarterly statements for June 30, 2012, September 30, 2012, and December 31, 2012, to exclude quarterly statements for June 30, 2012, September 30, 2012, and December 31, 2012, to exclude
amounts shown as obligated pursuit to the FLVCP reserve commitment letters.”144 Treasury also amounts shown as obligated pursuit to the FLVCP reserve commitment letters.”144 Treasury also
agreed to determine whether Florida has adequately addressed its reporting of obligated funds and agreed to determine whether Florida has adequately addressed its reporting of obligated funds and
~~whether additional action is warranted.145~~
~~West Virginia~~
~~Treasury’s OIG reviewed a random sample of 28 SSBCI loans and investments, totaling~~
~~approximately $9.5 mil ion, made by West Virginia’s four SSBCI programs (13 from the Seed~~
~~Capital Co-Investment Fund, 11 from the West Virginia Collateral Support Program, 3 from the~~
~~Subordinated Debt Program, and 1 from the West Virginia Loan Guarantee Program) issued~~
~~between the signing of the al ocation agreement on November 18, 2011, and June 30, 2013. The~~
~~OIG also examined a sample ($170,533) of West Virginia’s $181,784 in SSBCI administrative~~
~~costs. The program was found to be in full compliance with al SSBCI requirements.146~~

~~138 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds fo r~~
~~Capital Access and Other Credit Support Program s, p. 11.~~
~~139 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, pp. 12, 15.~~
~~140 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 9.~~
~~141 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 4.~~
~~142 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 19.~~
~~143 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 19.~~
~~144 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 20.~~
~~145 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Florida’s Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, p. 15.~~
146 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: West Virginia’s Use of Federal Funds
~~Congressional Research Service~~

28

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~Illinois~~
~~Treasury’s OIG examined a random sample of 48 SSBCI loans and investments, totaling $34.5~~
~~mil ion, issued by five SSBCI programs in Il inois (35 from the Il inois Participation Loan~~
~~Program, 8 from the Invest Il inois Venture Fund, 3 from the Il inois Capital Access Program, 1~~
~~from the Collateral Support Program, and 1 from the Conditional Direct Loan Program) between~~
~~the signing of the al ocation agreement on July 26, 2011, and March 31, 2013. The OIG also~~
~~examined a sample ($589,882) of the state’s $1.03 mil ion in SSBCI administrative costs and~~
~~found the sampled administrative expenses to be in full compliance with SSBCI requirements.147~~
~~The OIG found that “Il inois appropriately used most of the $34.5 mil ion~~whether additional action is warranted.145 136 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 7. 137 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 7, 8. 138 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 11. 139 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 12, 15. 140 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 9. 141 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 4. 142 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 19. 143 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 19. 144 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 20. 145 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Florida’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 15. Congressional Research Service 28 State Small Business Credit Initiative: Implementation and Funding Issues West Virginia Treasury’s OIG reviewed a random sample of 28 SSBCI loans and investments, totaling approximately $9.5 million, made by West Virginia’s four SSBCI programs (13 from the Seed Capital Co-Investment Fund, 11 from the West Virginia Collateral Support Program, 3 from the Subordinated Debt Program, and 1 from the West Virginia Loan Guarantee Program) issued between the signing of the allocation agreement on November 18, 2011, and June 30, 2013. The OIG also examined a sample ($170,533) of West Virginia’s $181,784 in SSBCI administrative costs. The program was found to be in full compliance with all SSBCI requirements.146 Illinois Treasury’s OIG examined a random sample of 48 SSBCI loans and investments, totaling $34.5 million, issued by five SSBCI programs in Illinois (35 from the Illinois Participation Loan Program, 8 from the Invest Illinois Venture Fund, 3 from the Illinois Capital Access Program, 1 from the Collateral Support Program, and 1 from the Conditional Direct Loan Program) between the signing of the allocation agreement on July 26, 2011, and March 31, 2013. The OIG also examined a sample ($589,882) of the state’s $1.03 million in SSBCI administrative costs and found the sampled administrative expenses to be in full compliance with SSBCI requirements.147 The OIG found that “Illinois appropriately used most of the $34.5 million in SSBCI funds it had in SSBCI funds it had
expended as of March 31, 2013, but spent $105,000 to participate in a loan that was used to expended as of March 31, 2013, but spent $105,000 to participate in a loan that was used to
purchase the stock of a company representing its entire ownership interest, which is prohibited by purchase the stock of a company representing its entire ownership interest, which is prohibited by
the SSBCI Policy Guidelines.”148 The OIG also identified 22 other transactions “that did not fully the SSBCI Policy Guidelines.”148 The OIG also identified 22 other transactions “that did not fully
comply with lender sex offender certification requirements” and found that “comply with lender sex offender certification requirements” and found that “~~Il inois~~Illinois neglected to neglected to
execute lender certifications on the State’s behalf as prescribed in the National Standards” for execute lender certifications on the State’s behalf as prescribed in the National Standards” for
direct loans and state-run venture capital investments.149 Also, the OIG determined that direct loans and state-run venture capital investments.149 Also, the OIG determined that ~~Il inois~~
~~unintentional y~~ Illinois unintentionally overstated, in the state’s 2012 annual report, the amount of private financing overstated, in the state’s 2012 annual report, the amount of private financing
associated with a loan in which the state participated by $4.7 associated with a loan in which the state participated by $4.7 ~~mil ion~~million. This occurred because the . This occurred because the
financing structure of the transaction was changed without the state’s knowledge.150 financing structure of the transaction was changed without the state’s knowledge.150
Treasury informed the OIG that it Treasury informed the OIG that it ~~wil~~ will recoup from recoup from ~~Il inois~~Illinois the $105,000 expenditure identified the $105,000 expenditure identified
by the OIG as being prohibited, require by the OIG as being prohibited, require ~~Il inois~~Illinois to modify any master agreements with lenders to modify any master agreements with lenders
that do not include required language mandating that lenders notify the state of changes in the that do not include required language mandating that lenders notify the state of changes in the
sex-offender status of their principals, and require sex-offender status of their principals, and require ~~Il inois~~Illinois to provide lender certifications when it to provide lender certifications when it
is acting as a direct lender under the SSBCI program. Treasury also indicated that it is acting as a direct lender under the SSBCI program. Treasury also indicated that it ~~wil work~~
~~with Il inois to adjust the $4.7 mil ion overstatement in the state’s 2012 annual report and~~
~~determine whether a general default has occurred as a result of the OIG findings.151~~
~~South Carolina~~
~~Treasury’s OIG examined a random sample of 38 SSBCI loans issued by South Carolina’s two~~
~~SSBCI programs (10 from the South Carolina Capital Access Program and 28 from the South~~
~~Carolina Loan Participation Program), totaling $11.4 mil ion, between the signing of the~~
~~al ocation agreement on July 6, 2011, and June 30, 2013. The OIG also examined South~~
~~Carolina’s $136,449 in SSBCI administrative costs.152~~

~~for Other Credit Support Program s~~will work 146 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: West Virginia’s Use of Federal Funds for Other Credit Support Programs, March 19, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/, March 19, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF14004R.pdf. /OIGSBLF14004R.pdf.
147 U.S.147 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, March 26, 2014, p. 17, at https://oig.treasury.gov/sites/oig/files/, March 26, 2014, p. 17, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIG-SBLF-14-005R%20%28for%20web%29.pdf. /OIG-SBLF-14-005R%20%28for%20web%29.pdf.
148 U.S. 148 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, pp. 2-3. , pp. 2-3.
149 U.S.149 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, p. 3. , p. 3.
150 U.S. 150 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support ~~Program s~~Programs, pp. 12-13. , pp. 12-13.
~~151 U.S. Department of the T reasury, OIG,~~ Congressional Research Service 29 State Small Business Credit Initiative: Implementation and Funding Issues with Illinois to adjust the $4.7 million overstatement in the state’s 2012 annual report and determine whether a general default has occurred as a result of the OIG findings.151 South Carolina Treasury’s OIG examined a random sample of 38 SSBCI loans issued by South Carolina’s two SSBCI programs (10 from the South Carolina Capital Access Program and 28 from the South Carolina Loan Participation Program), totaling $11.4 million, between the signing of the allocation agreement on July 6, 2011, and June 30, 2013. The OIG also examined South Carolina’s $136,449 in SSBCI administrative costs.152 ~~Initiative: Illinois’ Use of Federal Funds for~~
~~Capital Access and Other Credit Support Program s, pp. 19-20.~~
152 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
~~Congressional Research Service~~

29

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

The OIG found that South Carolina appropriately used most of its SSBCI funds “but misused The OIG found that South Carolina appropriately used most of its SSBCI funds “but misused
$427,500 to participate in a loan that was used to finance the building of a new church sanctuary $427,500 to participate in a loan that was used to finance the building of a new church sanctuary
and make renovations to the existing sanctuary, which is prohibited by the SSBCI Policy and make renovations to the existing sanctuary, which is prohibited by the SSBCI Policy
Guidelines.”153 The OIG noted, however, that although South Carolina misused those funds, the Guidelines.”153 The OIG noted, however, that although South Carolina misused those funds, the
misuse was “not reckless or intentional because SSBCI Policy Guidelines do not misuse was “not reckless or intentional because SSBCI Policy Guidelines do not ~~explic itly~~explicitly
prohibit the use of SSBCI funds for non-secular purposes.”154 The OIG also identified eight other prohibit the use of SSBCI funds for non-secular purposes.”154 The OIG also identified eight other
transactions “that did not comply with the National Standards because the State did not verify that transactions “that did not comply with the National Standards because the State did not verify that
the borrower and lender assurances were complete and duly executed prior to the transfer of the borrower and lender assurances were complete and duly executed prior to the transfer of
SSBCI funds.”155 South Carolina’s administrative charges were found to be in full compliance SSBCI funds.”155 South Carolina’s administrative charges were found to be in full compliance
with with al all SSBCI requirements. SSBCI requirements.
Treasury informed the OIG that it Treasury informed the OIG that it ~~wil~~ will publish guidance to clarify that using SSBCI funds to publish guidance to clarify that using SSBCI funds to
support transactions with a support transactions with a ~~non-secular~~nonsecular identity is not a permitted business purpose and determine identity is not a permitted business purpose and determine
whether a general event of default has occurred as a result of South Carolina’s not fully whether a general event of default has occurred as a result of South Carolina’s not fully
complying with borrower and lender assurance requirements.156 South Carolina informed complying with borrower and lender assurance requirements.156 South Carolina informed
Treasury that it had added an additional line item to its internal control compliance checklist to Treasury that it had added an additional line item to its internal control compliance checklist to
ensure that ensure that al all borrower and lender assurance requirements are signed and dated prior to the borrower and lender assurance requirements are signed and dated prior to the
transfer of SSBCI funds.157 transfer of SSBCI funds.157
American Samoa
American Samoa was awarded $10.5 American Samoa was awarded $10.5 ~~mil ion~~million in SSBCI funds on January 12, 2012, and received in SSBCI funds on January 12, 2012, and received
its first disbursement of $3.465 its first disbursement of $3.465 ~~mil ion~~million later that month. Treasury’s OIG found that American later that month. Treasury’s OIG found that American
Samoa had not obligated or spent any SSBCI funds for credit support as of September 30, 2013. Samoa had not obligated or spent any SSBCI funds for credit support as of September 30, 2013.
As a result, the OIG’s audit focused on whether American Samoa’s $50,307 in SSBCI As a result, the OIG’s audit focused on whether American Samoa’s $50,307 in SSBCI
~~administrative costs was “reasonable, whether the territory was fully positioned to extend credit,~~
~~and whether the territory was in compliance with the program’s reporting and certification~~
~~requirements.”158~~
~~The OIG “identified $49,155 in unsupported personnel and travel expenses that should be~~
~~disal owed,” and found that “American Samoa has not provided Treasury with records that would~~
~~al ow the Department to determine whether the Territory is ‘fully positioned’ to provide credit~~
~~support to smal businesses, as required by its Al ocation Agreement.”159 The OIG also found that~~

~~Funds for Capital Access and Other Credit Support Program s~~ 151 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for Capital Access and Other Credit Support Programs, pp. 19-20. 152 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal Funds for Capital Access and Other Credit Support Programs, March 26, 2014, p. 12, at https://oig.treasury.gov/sites/, March 26, 2014, p. 12, at https://oig.treasury.gov/sites/
oig/files/oig/files/~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIG-SBLF-14-006.pdf. /OIG-SBLF-14-006.pdf.
153 U.S. 153 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 2-3. , pp. 2-3.
154 U.S. 154 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, p. 3. , p. 3.
155 U.S.155 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, p. 3. , p. 3.
156 I U.S. 156 I U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 13-14. , pp. 13-14.
157 U.S.157 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s, p. 16.~~
~~158 U.S. Department of the T reasury, OIG,~~ Programs, p. 16. Congressional Research Service 30 State Small Business Credit Initiative: Implementation and Funding Issues administrative costs was “reasonable, whether the territory was fully positioned to extend credit, and whether the territory was in compliance with the program’s reporting and certification requirements.”158 The OIG “identified $49,155 in unsupported personnel and travel expenses that should be disallowed,” and found that “American Samoa has not provided Treasury with records that would allow the Department to determine whether the Territory is ‘fully positioned’ to provide credit support to small businesses, as required by its Allocation Agreement.”159 The OIG also found that ~~Initiative: American Samoa’s Administrative~~
~~Expenses and Reporting, March 26, 2014, p. 1, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIG-SBLF-14-007.pdf.~~
~~159 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: American Samoa’s Administrative~~
~~Expenses and Reporting, p. 2.~~
~~Congressional Research Service~~

30

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

American Samoa “did not obtain Treasury’s prior approval for three changes to the entity American Samoa “did not obtain Treasury’s prior approval for three changes to the entity
designated to administer the SSBCI funds; did not submit two of its quarterly reports or its 2012 designated to administer the SSBCI funds; did not submit two of its quarterly reports or its 2012
annual report to Treasury on time, causing Treasury to declare a general event of default of annual report to Treasury on time, causing Treasury to declare a general event of default of
American Samoa’s American Samoa’s ~~Al ocation~~Allocation Agreement; and incorrectly certified the accuracy of two quarterly Agreement; and incorrectly certified the accuracy of two quarterly
reports to Treasury and did not certify the accuracy of three other quarterly reports.”160 Based on reports to Treasury and did not certify the accuracy of three other quarterly reports.”160 Based on
its findings, the OIG recommended that Treasury its findings, the OIG recommended that Treasury ~~disal ow~~disallow the $49,155 in unsupported the $49,155 in unsupported
administrative expenses, “determine whether a reduction, suspension, or termination of future administrative expenses, “determine whether a reduction, suspension, or termination of future
funding to the Territory is warranted,” and, if funding is not terminated, “require that the Territory funding to the Territory is warranted,” and, if funding is not terminated, “require that the Territory
first comply with the terms of its first comply with the terms of its ~~Al ocation~~Allocation Agreement, and approve the agreement Agreement, and approve the agreement
modifications, before disbursing additional funds.”161modifications, before disbursing additional funds.”161
Treasury informed the OIG that it Treasury informed the OIG that it ~~wil disal ow~~will disallow the $49,155 in unsupported administrative costs, the $49,155 in unsupported administrative costs,
determine whether American Samoa has again defaulted on its determine whether American Samoa has again defaulted on its ~~al ocation~~allocation agreement, and agreement, and
determine what form of remedy may be appropriate.162 Treasury also indicated that if American determine what form of remedy may be appropriate.162 Treasury also indicated that if American
Samoa’s funding is not terminated, Treasury “Samoa’s funding is not terminated, Treasury “~~wil~~ will not disburse additional funds before requiring not disburse additional funds before requiring
that the Territory first comply with the terms of the that the Territory first comply with the terms of the ~~Al ocation~~Allocation Agreement.”163 Agreement.”163
Officials with American Samoa’s Department of Commerce agreed with the recommendation to Officials with American Samoa’s Department of Commerce agreed with the recommendation to
~~disal ow~~disallow the questioned SSBCI administrative expenses, which, they noted, were made by a the questioned SSBCI administrative expenses, which, they noted, were made by a
previous American Samoa administration. However, they also noted that they were “somewhat previous American Samoa administration. However, they also noted that they were “somewhat
taken aback with the harshness and severity of the positions taken” in the OIG’s audit.164 They taken aback with the harshness and severity of the positions taken” in the OIG’s audit.164 They
pointed out that the OIG report did not reflect the “significant organizational issues facing the pointed out that the OIG report did not reflect the “significant organizational issues facing the
Governor which necessitated his decision with respect to the location and management of this Governor which necessitated his decision with respect to the location and management of this
vital program” and that “to the best of [their] knowledge Treasury SSBCI supported the decision vital program” and that “to the best of [their] knowledge Treasury SSBCI supported the decision
made by the Governor.”165 They also noted that since the audit they had filed with Treasury made by the Governor.”165 They also noted that since the audit they had filed with Treasury al
all missing quarterly and annual reports, hired consultants to design and implement a compliance missing quarterly and annual reports, hired consultants to design and implement a compliance
~~program for American Samoa’s SSBCI program, and sent, in February 2014, a modified~~
~~al ocation agreement for Treasury’s review. They requested that Treasury approve the program~~
~~modification changes this modified agreement requested and maintained that American Samoa’s~~
~~SSBCI program now “complies with al Treasury regulations and guidance and is fully positioned~~
~~to provide smal businesses with credit assistance.”166~~
~~North Carolina~~
~~Treasury’s OIG examined a random sample of 45 SSBCI loans issued by North Carolina’s three~~
~~SSBCI programs (31 were from the North Carolina Capital Access Program, 9 were from the~~

~~160 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ 158 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative Expenses and Reporting, March 26, 2014, p. 1, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIG-SBLF-14-007.pdf. 159 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, , ~~pp. 2-3.~~
~~161 U.S.~~ p. 2. 160 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, , ~~p. 13.~~
~~162 U.S.~~ pp. 2-3. 161 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. , p. 1713. .
~~163~~162 U.S. U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 17. , p. 17.
~~164~~ 163 U.S. U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. , p. 1917. .
~~165~~164 U.S. U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 19. , p. 19.
~~166~~165 U.S. U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, , ~~pp. 14, 19-24~~p. 19. .
Congressional Research Service Congressional Research Service

31 31

State Small Business Credit Initiative: Implementation and Funding Issues

program for American Samoa’s SSBCI program, and sent, in February 2014, a modified allocation agreement for Treasury’s review. They requested that Treasury approve the program modification changes this modified agreement requested and maintained that American Samoa’s SSBCI program now “complies with all Treasury regulations and guidance and is fully positioned to provide small businesses with credit assistance.”166 North Carolina Treasury’s OIG examined a random sample of 45 SSBCI loans issued by North Carolina’s three SSBCI programs (31 were from the North Carolina Capital Access Program, 9 were from the North Carolina Loan Participation Program, and 5 were from the North Carolina Venture Capital North Carolina Loan Participation Program, and 5 were from the North Carolina Venture Capital
Fund-of-Funds Program), totaling $4.9 Fund-of-Funds Program), totaling $4.9 ~~mil ion~~million, between the signing of the , between the signing of the ~~al ocation~~allocation agreement agreement
on May 23, 2011, and December 31, 2012. The OIG also reviewed 46 of the state’s SSBCI on May 23, 2011, and December 31, 2012. The OIG also reviewed 46 of the state’s SSBCI
administrative cost transactions, totaling $720,257.167administrative cost transactions, totaling $720,257.167
The OIG found that North Carolina appropriately used most of its SSBCI funds “but [due to The OIG found that North Carolina appropriately used most of its SSBCI funds “but [due to
misrepresentations by a lender] contributed $6,690 to a reserve fund under the Capital Access misrepresentations by a lender] contributed $6,690 to a reserve fund under the Capital Access
Program for a loan that refinanced one previously made to the borrower by the same lender.”168 Program for a loan that refinanced one previously made to the borrower by the same lender.”168
The OIG noted that “such refinancings are prohibited by the [The OIG noted that “such refinancings are prohibited by the [~~Smal~~ Small Business Jobs] Act and Business Jobs] Act and
constitute a misuse of funds” but not an intentional or reckless misuse of funds due to the lender’s constitute a misuse of funds” but not an intentional or reckless misuse of funds due to the lender’s
misrepresentations.169misrepresentations.169
The OIG also found that North Carolina did not obtain fully compliant lender sex-offender The OIG also found that North Carolina did not obtain fully compliant lender sex-offender
assurances for 19 (or 42%) of the 45 transactions tested, as required.170 The OIG noted that North assurances for 19 (or 42%) of the 45 transactions tested, as required.170 The OIG noted that North
Carolina chose to rely on annual lender certifications of compliance with this requirement, which Carolina chose to rely on annual lender certifications of compliance with this requirement, which
is permitted, but it neglected to require lenders to notify the state should an event occur that is permitted, but it neglected to require lenders to notify the state should an event occur that
rendered the certifications obsolete. rendered the certifications obsolete.
In addition, North Carolina “inaccurately reported to Treasury the total amount of an enrolled In addition, North Carolina “inaccurately reported to Treasury the total amount of an enrolled
investment on three separate occasions because it misreported the private investor’s contribution investment on three separate occasions because it misreported the private investor’s contribution
to the investment” and “reported $10.3 to the investment” and “reported $10.3 ~~mil ion~~million in capital commitments with SSBCI funds to four in capital commitments with SSBCI funds to four
angel investment funds as obligated funds even though only $2.9 angel investment funds as obligated funds even though only $2.9 ~~mil ion~~ million had been pledged to had been pledged to
investees.”171 The OIG expressed concern that “while obligating funds on a multi-year basis investees.”171 The OIG expressed concern that “while obligating funds on a multi-year basis
~~general y~~generally is an accepted practice,” using capital commitments to angel investment funds with is an accepted practice,” using capital commitments to angel investment funds with
multiyear investment horizons “to measure performance and qualifying a state for additional multiyear investment horizons “to measure performance and qualifying a state for additional
transfers of SSBCI funds is inappropriate and does not meet the intent of the transfers of SSBCI funds is inappropriate and does not meet the intent of the ~~Smal Business Jobs~~
~~Act.”172 The OIG found that al 46 administrative cost transactions it reviewed were in full~~
~~compliance with SSBCI guidelines.173~~
~~The OIG recommended that Treasury (1) verify, as North Carolina had reported, that $6,690 in~~
~~SSBCI funds has been withdrawn from the prohibited loan and that the SSBCI account has been~~
~~reimbursed for the same amount; (2) determine whether there has been a general event of default~~
~~under North Carolina’s al ocation agreement resulting from the state’s failure to fully comply~~
~~with the lender assurance requirements and for inaccurate reporting of venture capital investment~~
~~amounts; (3) revise the definition of funds obligated for venture capital programs to inc lude only~~
~~funds that have been designated for specific investees; (4) require participants to distinguish in~~

~~167 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ Small Business Jobs 166 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative Expenses and Reporting, pp. 14, 19-24. 167 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, March 27, 2014, pp. 1-2, 16, at https://oig.treasury.gov/, March 27, 2014, pp. 1-2, 16, at https://oig.treasury.gov/
sites/oig/files/sites/oig/files/~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF14009.pdf. /OIGSBLF14009.pdf.
168 U.S. 168 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 3, 8-9. , pp. 3, 8-9.
169 U.S.169 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 3, 8-9. , pp. 3, 8-9.
170 U.S. 170 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 10-11. , pp. 10-11.
171 U.S.171 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s, pp. 3-4.~~
~~172 U.S. Department of the T reasury, OIG,~~ Programs, pp. 3-4. Congressional Research Service 32 State Small Business Credit Initiative: Implementation and Funding Issues Act.”172 The OIG found that all 46 administrative cost transactions it reviewed were in full compliance with SSBCI guidelines.173 The OIG recommended that Treasury (1) verify, as North Carolina had reported, that $6,690 in SSBCI funds has been withdrawn from the prohibited loan and that the SSBCI account has been reimbursed for the same amount; (2) determine whether there has been a general event of default under North Carolina’s allocation agreement resulting from the state’s failure to fully comply with the lender assurance requirements and for inaccurate reporting of venture capital investment amounts; (3) revise the definition of funds obligated for venture capital programs to include only funds that have been designated for specific investees; (4) require participants to distinguish in ~~Initiative: North Carolina’s Use of Federal~~
~~Funds for Capital Access and Other Credit Support Program s, p. 14.~~
~~173 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: North Carolina’s Use of Federal~~
~~Funds for Capital Access and Other Credit Support Program s, p. 16.~~
~~Congressional Research Service~~

32

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

their quarterly reports the venture capital funds previously reported as obligated to specific their quarterly reports the venture capital funds previously reported as obligated to specific
investees from that obligated to angel funds but not yet disbursed to investees; and (5) adopt a investees from that obligated to angel funds but not yet disbursed to investees; and (5) adopt a
standard definition of standard definition of funds used for for al all program-reporting purposes instead of defining program-reporting purposes instead of defining funds
used differently for different purposes.174 differently for different purposes.174
Treasury informed the OIG that it Treasury informed the OIG that it ~~wil~~ will (1) verify that North Carolina has withdrawn SSBCI funds (1) verify that North Carolina has withdrawn SSBCI funds
from the prohibited loan and replenished the SSBCI account; (2) determine whether a general from the prohibited loan and replenished the SSBCI account; (2) determine whether a general
event of default has occurred; (3) change its disbursement procedures to confirm prior to making event of default has occurred; (3) change its disbursement procedures to confirm prior to making
a disbursement that states are not holding excess idle cash that is not likely to be expended, a disbursement that states are not holding excess idle cash that is not likely to be expended,
obligated, or transferred to obligated, or transferred to ~~smal~~ small businesses within a reasonable time period; (4) explain in the businesses within a reasonable time period; (4) explain in the
summary quarterly reports that funds “expended, obligated, or transferred” include obligations to summary quarterly reports that funds “expended, obligated, or transferred” include obligations to
venture capital funds not yet linked to specific venture capital funds not yet linked to specific ~~smal~~ small business investments; and (5) make every business investments; and (5) make every
effort to follow the definition of effort to follow the definition of funds used in the SSBCI policy guidelines.175 in the SSBCI policy guidelines.175
Idaho
Treasury’s OIG examined a random sample of 30 SSBCI loans enrolled in the Idaho Collateral Treasury’s OIG examined a random sample of 30 SSBCI loans enrolled in the Idaho Collateral
Support Program (ICSP), totaling $50.3 Support Program (ICSP), totaling $50.3 ~~mil ion~~million, for which Idaho provided $7.6 , for which Idaho provided $7.6 ~~mil ion~~million in in
collateral and 12 loans committed for enrollment into the ICSP, totaling $10.8 collateral and 12 loans committed for enrollment into the ICSP, totaling $10.8 ~~mil ion~~million, for which , for which
Idaho had reserved $2 Idaho had reserved $2 ~~mil ion~~million in collateral as of September 30, 2013. Treasury had previously in collateral as of September 30, 2013. Treasury had previously
reviewed Idaho’s administrative expenses from January 2012 to September 2012 and had reduced reviewed Idaho’s administrative expenses from January 2012 to September 2012 and had reduced
Idaho’s final Idaho’s final ~~al otment~~allotment by $31,806 for expenses that were not adequately supported in accordance by $31,806 for expenses that were not adequately supported in accordance
with OMB Circular A-87. Subsequent to that review, Idaho had reported an additional $272,744 with OMB Circular A-87. Subsequent to that review, Idaho had reported an additional $272,744
in administrative expenses as of September 30, 2013. The OIG reviewed these additional in administrative expenses as of September 30, 2013. The OIG reviewed these additional
administrative expenses for compliance with SSBCI guidelines.176 administrative expenses for compliance with SSBCI guidelines.176
The OIG found that Idaho appropriately used the $9.6 The OIG found that Idaho appropriately used the $9.6 ~~mil ion~~million in collateral support that was in collateral support that was
reviewed but “mistakenly overstated by $111,923 the total principal for 3 of [the] 42 loans ... reviewed but “mistakenly overstated by $111,923 the total principal for 3 of [the] 42 loans ...
reviewed because the amounts reported were not based on the final loan documents.”177 The OIG reviewed because the amounts reported were not based on the final loan documents.”177 The OIG
~~also noted that Idaho “inaccurately reported $781,000 as Treasury-approved subsequent private~~
~~financing,” but Treasury acknowledged the mistake “was due to inconsistent guidance to the~~
~~State.”178~~
~~Idaho was provided a copy of the OIG’s audit prior to its deadline for submitting its 2013 SSBCI~~
~~annual report to Treasury. As a result, the state was able to correct its report prior to submitting it~~
~~to Treasury to account for two of the three loan principal amounts that were overstated. The state~~
~~also indicated that it had implemented new controls in February 2014 that “require a copy of the~~
~~Bank’s promissory note to verify the actual/final loan origination amount prior to funding the~~
~~collateral support account on the enrolled loan” to ensure the amount reported is the actual~~

~~174 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ 172 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 14. 173 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal Funds for Capital Access and Other Credit Support Programs, p. 16. 174 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, p. 17. , p. 17.
175 U.S. 175 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support ~~Program s~~Programs, pp. 18, 22-23. , pp. 18, 22-23.
176 U.S.176 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its
Collateral Support Program , May 19, 2014, pp. 2, 10, at https://oig.treasury.gov/sites/oig/files/, May 19, 2014, pp. 2, 10, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF14010R.pdf. /OIGSBLF14010R.pdf.
177 U.S. 177 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its
~~Collateral Support Program~~ ~~, p. 3.~~
~~178 I U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its~~
~~Collateral Support Program~~ ~~, p. 3.~~
~~Congressional Research Service~~

33

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

~~amount of the executed loan.179 In addition, Idaho noted that it “wil~~ Congressional Research Service 33 State Small Business Credit Initiative: Implementation and Funding Issues also noted that Idaho “inaccurately reported $781,000 as Treasury-approved subsequent private financing,” but Treasury acknowledged the mistake “was due to inconsistent guidance to the State.”178 Idaho was provided a copy of the OIG’s audit prior to its deadline for submitting its 2013 SSBCI annual report to Treasury. As a result, the state was able to correct its report prior to submitting it to Treasury to account for two of the three loan principal amounts that were overstated. The state also indicated that it had implemented new controls in February 2014 that “require a copy of the Bank’s promissory note to verify the actual/final loan origination amount prior to funding the collateral support account on the enrolled loan” to ensure the amount reported is the actual amount of the executed loan.179 In addition, Idaho noted that it “will work with Treasury to rectify work with Treasury to rectify
the erroneous inclusion of subsequent private financing and incorrect loan origination amounts in the erroneous inclusion of subsequent private financing and incorrect loan origination amounts in
their 2012 report.”180 Treasury informed the OIG that it would work with Idaho to resolve the their 2012 report.”180 Treasury informed the OIG that it would work with Idaho to resolve the
issues identified in the audit.181issues identified in the audit.181
Idaho’s $272,744 in administrative expenses reported since Treasury’s earlier audit were found to Idaho’s $272,744 in administrative expenses reported since Treasury’s earlier audit were found to
be in full compliance with SSBCI guidelines.182 be in full compliance with SSBCI guidelines.182
Indiana
At the request of Treasury SSBCI program officials, Treasury’s OIG was asked to determine At the request of Treasury SSBCI program officials, Treasury’s OIG was asked to determine
whether two investments made by the Indiana Angel Network Fund (IANF) under Indiana’s whether two investments made by the Indiana Angel Network Fund (IANF) under Indiana’s
Venture Capital Program complied with SSBCI policy guidelines. The OIG found that the two Venture Capital Program complied with SSBCI policy guidelines. The OIG found that the two
IANF investments, one totaling $499,986 and the other totaling $300,000, involved transactions IANF investments, one totaling $499,986 and the other totaling $300,000, involved transactions
between the board chairman of Elevate Ventures and the investees.183 Elevate Ventures manages between the board chairman of Elevate Ventures and the investees.183 Elevate Ventures manages
the IANF’s investments on behalf of the Indiana Economic Development Corporation (IEDC), the IANF’s investments on behalf of the Indiana Economic Development Corporation (IEDC),
and it approved and executed the two investments in question. and it approved and executed the two investments in question.
The OIG found that the $499,986 investment constituted an “intentional” misuse of funds because The OIG found that the $499,986 investment constituted an “intentional” misuse of funds because
the board chairman of Elevate Ventures had a controlling interest and voting stock ownership of the board chairman of Elevate Ventures had a controlling interest and voting stock ownership of
more than 10% in the investee, which created a “prohibited related party interest.”184 The OIG more than 10% in the investee, which created a “prohibited related party interest.”184 The OIG
~~noted that “SSBCI Policy Guidelines prohibit an investee receiving SSBCI funds from a related~~
~~interest of any such executive officer, director, principal shareholder or immediate family.”185~~
~~Intentional misuse of funds “is defined as a use of al ocated funds that the participating state or its~~
~~administering entity knew was unauthorized or prohibited.”186~~
~~The $300,000 investment was found to be in compliance with SSBCI guidelines. However, the~~
~~OIG noted that the closeness of the relationship between the Elevate board chairman and the~~
~~applicant (the board chairman’s adult son was the company’s chief executive officer), although~~

~~179 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ Collateral Support Program, p. 3. 178 I U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its Collateral Support Program, p. 3. 179 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its
Collateral Support Program , pp. 16-17. , pp. 16-17.
180 U.S.180 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its
Collateral Support Program , p. 14. , p. 14.
181 U.S. 181 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Idaho’s Use of Federal Funds for its
Collateral Support Program , p. 14. , p. 14.
182 182 ~~T he~~The OIG also identified five loans, totaling approximately $9.8 million and supported by $1.3 million in SSBCI OIG also identified five loans, totaling approximately $9.8 million and supported by $1.3 million in SSBCI
collateral, that provided interim financing of real estate acquisitions, construction projects, or equipment purchases that collateral, that provided interim financing of real estate acquisitions, construction projects, or equipment purchases that
had been approved for the SBA’shad been approved for the SBA’s 504/Certified Development Company (CDC) loan guaranty program. 504/Certified Development Company (CDC) loan guaranty program. ~~T he~~The OIG OIG
expressed concern that expressed concern that ~~T reasury~~Treasury’s reporting of jobs created or retained by’s reporting of jobs created or retained by recipients of SSBCIrecipients of SSBCI supported loans may supported loans may
potentially duplicate the SBA’s reporting of jobs created or retained by 504/CDC loan program recipients. potentially duplicate the SBA’s reporting of jobs created or retained by 504/CDC loan program recipients. ~~T reasury~~Treasury
agreedagreed to explain clearly in the summary of to explain clearly in the summary of ~~st ates~~states’ annual reports that there is a possibility for duplicate reporting of ’ annual reports that there is a possibility for duplicate reporting of
job creation and retention figures in such circumstances. Seejob creation and retention figures in such circumstances. See U.S. Department of the U.S. Department of the ~~T reasury~~Treasury, OIG, , OIG, State ~~Sm all~~Small
Business Credit Initiative: Idaho’s Use of Federal Funds for its Collateral Support Program , pp. 5-7, 11, 15. , pp. 5-7, 11, 15.
183 U.S.183 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, June 18, 2014, pp. 2, 6-10, at https://oig.treasury.gov/sites/oig/files/, June 18, 2014, pp. 2, 6-10, at https://oig.treasury.gov/sites/oig/files/
~~Audit_Reports_and_T estimonies~~Audit_Reports_and_Testimonies/OIGSBLF14011.pdf. /OIGSBLF14011.pdf.
184 U.S.184 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
~~Other Credit Support Program s, p. 6.~~
~~185 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Indiana’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 6.~~
~~186 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Indiana’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 1.~~
~~Congressional Research Service~~

34

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Congressional Research Service 34 State Small Business Credit Initiative: Implementation and Funding Issues noted that “SSBCI Policy Guidelines prohibit an investee receiving SSBCI funds from a related interest of any such executive officer, director, principal shareholder or immediate family.”185 Intentional misuse of funds “is defined as a use of allocated funds that the participating state or its administering entity knew was unauthorized or prohibited.”186 The $300,000 investment was found to be in compliance with SSBCI guidelines. However, the OIG noted that the closeness of the relationship between the Elevate board chairman and the applicant (the board chairman’s adult son was the company’s chief executive officer), although not prohibited, “may raise the appearance of partiality and should be addressed by SSBCI Policy not prohibited, “may raise the appearance of partiality and should be addressed by SSBCI Policy
Guidelines.”187 Guidelines.”187
The OIG recommended that (1) Treasury recoup the $499,986 of federal funds “ The OIG recommended that (1) Treasury recoup the $499,986 of federal funds “~~intentional y”~~
intentionally” misused and declare a specific event of default of its misused and declare a specific event of default of its ~~al ocation~~allocation agreement with Indiana; (2) agreement with Indiana; (2)
determine whether the state’s funding should be reduced, suspended or terminated as a result of determine whether the state’s funding should be reduced, suspended or terminated as a result of
the specific event of default; and (3) require the state to ensure that IEDC reviews each IANF the specific event of default; and (3) require the state to ensure that IEDC reviews each IANF
investment decision going forward.188investment decision going forward.188
Treasury agreed with Treasury agreed with al all three recommendations but indicated that it “would not characterize [the three recommendations but indicated that it “would not characterize [the
$499,986] investment as an ‘intentional’ misuse of funds based on the facts set forth in the report” $499,986] investment as an ‘intentional’ misuse of funds based on the facts set forth in the report”
because “intentional misuse requires knowledge that the use of the funds is contrary to the because “intentional misuse requires knowledge that the use of the funds is contrary to the
program rules, and action taken must be in a knowing effort to violate those rules.”189program rules, and action taken must be in a knowing effort to violate those rules.”189
Indiana reported that it had completed an independent audit of the remainder of its SSBCI Indiana reported that it had completed an independent audit of the remainder of its SSBCI
investments and did not find any other prohibited party transactions or other violations. The state investments and did not find any other prohibited party transactions or other violations. The state
also noted that the board chairman of Elevate Ventures had resigned, effective December 31, also noted that the board chairman of Elevate Ventures had resigned, effective December 31,
2013; that the $499,986 investment had been repaid with a 15% return on February 6, 2014; and 2013; that the $499,986 investment had been repaid with a 15% return on February 6, 2014; and
that the investment “had led to the creation of numerous new jobs for the people of Indiana.”190 In that the investment “had led to the creation of numerous new jobs for the people of Indiana.”190 In
addition, Indiana reported that it “addition, Indiana reported that it “~~wil~~ will independently review any future potential investment independently review any future potential investment
~~conflict.”191~~
~~Tennessee~~
~~Treasury’s OIG examined a random sample of 20 SSBCI investments made by Tennessee’s~~
~~INCITE Co-Investment Fund, a venture capital program, totaling $13.5 mil ion. The sample was~~
~~drawn from the 43 investments made by the fund between October 4, 2011 (the signing of the~~
~~state’s SSBCI al ocation agreement), and September 30, 2013. The OIG also reviewed a sample~~
~~of the state’s SSBCI administrative expenses ($483,254 out of $685,880) that had been incurred~~
~~as of September 30, 2013.192~~
~~The OIG found that Tennessee had appropriately used al $13.5 mil ion in SSBCI funds that were~~
~~reviewed but that “investor use-of-proceeds assurances were missing for al 20 transactions~~

~~187 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Indiana’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 10. T he OIG noted that “ the son is not considered an immediate family member~~
~~because he does not reside with his father nor is he a minor. T herefore~~conflict.”191 Other Credit Support Programs, p. 6. 185 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for Other Credit Support Programs, p. 6. 186 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for Other Credit Support Programs, p. 1. 187 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for Other Credit Support Programs, p. 10. The OIG noted that “the son is not considered an immediate family member because he does not reside with his father nor is he a minor. Therefore, while the investment constituted a related party , while the investment constituted a related party
transaction, it did not meet the criteria needed to establish it as a prohibited related party interest. transaction, it did not meet the criteria needed to establish it as a prohibited related party interest. ~~T he~~The conflict of conflict of
interest existing for [the $300,000 investment] ... was disclosedinterest existing for [the $300,000 investment] ... was disclosed to the Board of Elevate Ventures in accordance with to the Board of Elevate Ventures in accordance with
Elevate Venture’s conflictElevate Venture’s conflict -of-interest policy, and the Board approved the investment without any review by the State.” -of-interest policy, and the Board approved the investment without any review by the State.”
SeeSee U.S.U.S. Department of the Treasury, OIG, Department of the Treasury, OIG, State ~~Sm all~~Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit ~~Support Program s~~ Support Programs, p. 9. , p. 9.
188 U.S.188 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, p. 10. , p. 10.
189 U.S. 189 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, pp. 10-11, 14. , pp. 10-11, 14.
190 U.S.190 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit ~~Support Program s~~ Support Programs, pp. 16-17. , pp. 16-17.
191 U.S. 191 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit Support ~~Program s~~Programs, pp. 16-17. , pp. 16-17.
~~192 U.S. Department of the T reasury, OIG,~~ Congressional Research Service 35 State Small Business Credit ~~Initiative: Tennessee’s Use of Federal Funds for~~
~~its Venture Capital Program~~ ~~, August 20, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF14012.pdf.~~
~~Congressional Research Service~~

35

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Initiative: Implementation and Funding Issues Tennessee Treasury’s OIG examined a random sample of 20 SSBCI investments made by Tennessee’s INCITE Co-Investment Fund, a venture capital program, totaling $13.5 million. The sample was drawn from the 43 investments made by the fund between October 4, 2011 (the signing of the state’s SSBCI allocation agreement), and September 30, 2013. The OIG also reviewed a sample of the state’s SSBCI administrative expenses ($483,254 out of $685,880) that had been incurred as of September 30, 2013.192 The OIG found that Tennessee had appropriately used all $13.5 million in SSBCI funds that were reviewed but that “investor use-of-proceeds assurances were missing for all 20 transactions reviewed, and investor sex offender assurances had not been executed prior to the transfer of reviewed, and investor sex offender assurances had not been executed prior to the transfer of
SSBCI funds for 12 of the transactions.”193 As a result, the OIG determined that the state had SSBCI funds for 12 of the transactions.”193 As a result, the OIG determined that the state had
inaccurately certified that it was in compliance with inaccurately certified that it was in compliance with al all SSBCI requirements in several quarterly SSBCI requirements in several quarterly
reports. reports.
With the OIG’s consent, Treasury provided Tennessee a draft copy of the OIG’s findings. With the OIG’s consent, Treasury provided Tennessee a draft copy of the OIG’s findings.
Tennessee indicated that it “was made aware of possible inadequacies in their assurances after Tennessee indicated that it “was made aware of possible inadequacies in their assurances after
attending the SSBCI annual training conference in 2012, and has since corrected their process to attending the SSBCI annual training conference in 2012, and has since corrected their process to
ensure that assurances meet program guidelines.” The state claimed that “its assurances are now ensure that assurances meet program guidelines.” The state claimed that “its assurances are now
100% complete.”194100% complete.”194
The OIG found that The OIG found that al all of Tennessee’s sampled administrative expenses were reasonable, of Tennessee’s sampled administrative expenses were reasonable,
~~al owable, and al ocable~~allowable, and allocable to the program.195 to the program.195
North Dakota Mandan Consortium
Treasury’s OIG examined a sample of 15 SSBCI loans made by the Mandan consortium’s Loan Treasury’s OIG examined a sample of 15 SSBCI loans made by the Mandan consortium’s Loan
Participation Program, totaling $8.6 million of the $8.9 Participation Program, totaling $8.6 million of the $8.9 ~~mil ion~~ million obligated or spent as of March 31, obligated or spent as of March 31,
2014. The sampled loans were made between August 31, 2012 (the signing of the consortium’s 2014. The sampled loans were made between August 31, 2012 (the signing of the consortium’s
SSBCI SSBCI ~~al ocation~~allocation agreement), and March 31, 2014. The OIG also reviewed the consortium’s agreement), and March 31, 2014. The OIG also reviewed the consortium’s
$194,101 in SSBCI administrative expenses.196 $194,101 in SSBCI administrative expenses.196
The OIG found that the Mandan consortium used The OIG found that the Mandan consortium used al all of the loan funds it reviewed appropriately. of the loan funds it reviewed appropriately.
The OIG also determined that the consortium’s administrative expenses were reasonable, The OIG also determined that the consortium’s administrative expenses were reasonable,
~~al owable, and al ocable~~allowable, and allocable to the program.197 192 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for its Venture Capital Program, August 20, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF14012.pdf. 193 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for its Venture Capital Program, pp. 3, 5-7. 194 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for its Venture Capital Program, p. 10. 195 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for its Venture Capital Program, p. 8. 196 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Dakota Mandan Consortium’s Use of Federal Funds for its Loan Participation Program, August 29, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF14013R.pdf. 197 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: North Dakota Mandan Consortium’s Use of Federal Funds for its Loan Participation Program, p. 7. Congressional Research Service 36 State Small Business Credit Initiative: Implementation and Funding Issues Rhode Island (Slater Technology Fund) At the request of Treasury SSBCI program officials, the OIG audited Rhode Island’s Slater Technology Fund. Treasury had informed the OIG that the Slater Technology Fund was potentially in noncompliance with SSBCI program rules. A separate audit of Rhode Island’s second capital venture program (Betaspring) is underway and will be reported at a later date.198 The OIG examined all six investments made by the Slater Technology Fund, totaling $1.5 million in SSBCI funds, made between the signing of the allocation agreement on September 6, 2011, and December 31, 2012. The OIG found that the Slater Technology Fund “properly used most of the $1.5 million in SSBCI funds it had expended as of December 31, 2012, but misused $350,000 ~~to the program.197~~
~~Rhode Island (Slater Technology Fund)~~
~~At the request of Treasury SSBCI program officials, the OIG audited Rhode Island’s Slater~~
~~Technology Fund. Treasury had informed the OIG that the Slater Technology Fund was~~
~~potential y in noncompliance with SSBCI program rules. A separate audit of Rhode Island’s~~
~~second capital venture program (Betaspring) is underway and wil be reported at a later date.198~~
~~The OIG examined al six investments made by the Slater Technology Fund, totaling $1.5 mil ion~~
~~in SSBCI funds, made between the signing of the al ocation agreement on September 6, 2011,~~
~~and December 31, 2012. The OIG found that the Slater Technology Fund “properly used most of~~
~~the $1.5 mil ion in SSBCI funds it had expended as of December 31, 2012, but misused $350,000~~

~~193 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for~~
~~its Venture Capital Program~~ ~~, pp. 3, 5-7.~~
~~194 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for~~
~~its Venture Capital Program~~ ~~, p. 10.~~
~~195 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: Tennessee’s Use of Federal Funds for~~
~~its Venture Capital Program~~ ~~, p. 8.~~
~~196 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: North Dakota Mandan Consortium’s~~
~~Use of Federal Funds for its Loan Participation Program~~ ~~, August 29, 2014, pp. 1-2, at https://oig.treasury.gov/sites/~~
~~oig/files/Audit_Reports_and_T estimonies/OIGSBLF14013R.pdf.~~
~~197 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: North Dakota Mandan Consortium’s~~
~~Use of Federal Funds for its Loan Participation Program~~ ~~, p. 7.~~
~~198 U.S. Department of t he T reasury, OIG,~~ ~~State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds~~
~~for the Slater Technology Fund, October 31, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIGSBLF15001.pdf.~~
~~Congressional Research Service~~

36

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

on two investments by failing to comply with the investor capital-at-risk requirement.”199 As the on two investments by failing to comply with the investor capital-at-risk requirement.”199 As the
OIG explained, SSBCI’s guidelines require venture capital funds and angel investor networks OIG explained, SSBCI’s guidelines require venture capital funds and angel investor networks
receiving SSBCI funds to have a “meaningful amount” of their own capital resources at risk. receiving SSBCI funds to have a “meaningful amount” of their own capital resources at risk.
Treasury has determined that this requirement is met when “private lenders or investors bear 20% Treasury has determined that this requirement is met when “private lenders or investors bear 20%
or more of the risk of loss in any transaction.”200 As the sole investor on the two investments, or more of the risk of loss in any transaction.”200 As the sole investor on the two investments,
Rhode Island’s Slater Technology Fund, which funded the investments in stages, failed to invest Rhode Island’s Slater Technology Fund, which funded the investments in stages, failed to invest
any private capital over the course of the entire funding-commitment period for the first any private capital over the course of the entire funding-commitment period for the first
investment and did not inject private capital until the date of final payment for the second investment and did not inject private capital until the date of final payment for the second
investment.201 The OIG also found that the Slater Technology Fund did not obtain required investment.201 The OIG also found that the Slater Technology Fund did not obtain required
investee and investor assurances for five of the six investments before the transfer of SSCBI investee and investor assurances for five of the six investments before the transfer of SSCBI
funds.202 funds.202
Treasury indicated that it would, as the OIG recommended in its audit, provide guidance to Treasury indicated that it would, as the OIG recommended in its audit, provide guidance to
SSBCI participants that staged funding of a single investment requires that 20% of the capital-at-SSBCI participants that staged funding of a single investment requires that 20% of the capital-at-
risk must be from a private source when SSBCI funds are invested. Rhode Island acknowledged risk must be from a private source when SSBCI funds are invested. Rhode Island acknowledged
that the private capital was not that the private capital was not ~~initial y~~ initially invested as required by Treasury guidelines but indicated invested as required by Treasury guidelines but indicated
that the state “has implemented measures to ensure future compliance.”203 Rhode Island also that the state “has implemented measures to ensure future compliance.”203 Rhode Island also
acknowledged that “certain investor and investee assurances were not timely obtained by Slater acknowledged that “certain investor and investee assurances were not timely obtained by Slater
~~and wil~~ and will now require that such assurances be obtained prior to the release of funds.”204 now require that such assurances be obtained prior to the release of funds.”204
New York (Canrock Innovate NY Fund, LP)
The OIG audited Canrock Innovate NY Fund, LP, one of eight venture capital firms participating The OIG audited Canrock Innovate NY Fund, LP, one of eight venture capital firms participating
in New York’s SSBCI venture capital program, in New York’s SSBCI venture capital program, ~~cal ed~~called the Innovate Fund. The OIG found that the the Innovate Fund. The OIG found that the
firm’s SSBCI “investments in four of five beneficiary companies constituted a reckless misuse of firm’s SSBCI “investments in four of five beneficiary companies constituted a reckless misuse of
~~approximately $1.63 mil ion of SSBCI funds because the investments were prohibited related~~
~~party interests of its general partner, Canrock Innovate Advisors, LLC.”205 The OIG noted that~~
~~“through a related entity, the three managing members of Canrock Innovate Advisors, LLC had a~~
~~controlling interest in each of the four beneficiary companies’ voting shares, which violated the~~
~~SSBCI Policy Guidelines, regarding conflicts of interest.”206~~
~~The OIG recommended that Treasury recoup the $1.63 mil ion. Treasury indicated that in lieu of~~
~~recoupment, it would not disburse the remainder of New York’s SSBCI al ocation. Treasury had~~

~~199 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit~~ 198 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds for the Slater Technology Fund, October 31, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIGSBLF15001.pdf. 199 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2. , p. 2.
200 U.S. 200 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2. , p. 2.
201 U.S. 201 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2. , p. 2.
202 U.S.202 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 3. , p. 3.
203 U.S. 203 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 4. , p. 4.
204 U.S.204 U.S. Department of the Department of the ~~T reasury~~Treasury, OIG, , OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 4. , p. 4.
~~205 U.S. Department of the T reasury, OIG,~~ Congressional Research Service 37 State Small Business Credit ~~Initiative: New York’s Use of Federal Funds for~~
~~Other Credit Support Program s, January 24, 2017, p. 2, at https://oig.treasury.gov/sites/oig/files/~~
~~Audit_Reports_and_T estimonies/OIG-17-035.pdf.~~
~~206 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: New York’s Use of Federal Funds for~~
~~Other Credit Support Program s, p. 2.~~
~~Congressional Research Service~~

37

~~State Small Business Credit Initiative: Implementation and Funding Issues~~

Initiative: Implementation and Funding Issues approximately $1.63 million of SSBCI funds because the investments were prohibited related party interests of its general partner, Canrock Innovate Advisors, LLC.”205 The OIG noted that “through a related entity, the three managing members of Canrock Innovate Advisors, LLC had a controlling interest in each of the four beneficiary companies’ voting shares, which violated the SSBCI Policy Guidelines, regarding conflicts of interest.”206 The OIG recommended that Treasury recoup the $1.63 million. Treasury indicated that in lieu of recoupment, it would not disburse the remainder of New York’s SSBCI allocation. Treasury had withheld the amount in question from New York’s final disbursement pending the results of the withheld the amount in question from New York’s final disbursement pending the results of the
OIG’s audit. The OIG responded to Treasury’s action by indicating that the withholding of the OIG’s audit. The OIG responded to Treasury’s action by indicating that the withholding of the
funds met the intent of its recommendation.207 funds met the intent of its recommendation.207
Concluding Observations
The original SSBCI was enacted as part of a larger effort to enhance the supply of capital to The original SSBCI was enacted as part of a larger effort to enhance the supply of capital to ~~smal~~
small businesses. Advocates argued that the SSBCI would help to address the then-recent decline in businesses. Advocates argued that the SSBCI would help to address the then-recent decline in
~~smal~~ small business lending and create jobs. Opponents were not convinced it would enhance business lending and create jobs. Opponents were not convinced it would enhance ~~smal~~
small business lending and worried about the program’s potential cost to the federal treasury. business lending and worried about the program’s potential cost to the federal treasury.
It is difficult to determine the full extent of the program’s effect on It is difficult to determine the full extent of the program’s effect on ~~smal~~ small business lending. As business lending. As
mentioned, as of December 31, 2016, states had spent or obligated about 88% of the $1.45 mentioned, as of December 31, 2016, states had spent or obligated about 88% of the $1.45 ~~bil ion~~billion
availableavailable ($1.27 ($1.27 ~~bil ion~~billion of $1.45 of $1.45 ~~bil ion~~billion), which is sufficient to provide some insight. For ), which is sufficient to provide some insight. For
example, as mentioned, Treasury reported that SSBCI funds supported more than 21,000 loans example, as mentioned, Treasury reported that SSBCI funds supported more than 21,000 loans
and investments in and investments in ~~smal~~ small business amounting to over $10.7 business amounting to over $10.7 ~~bil ion~~billion, with more than 80% of the , with more than 80% of the
funds and investments made to funds and investments made to ~~smal~~ small businesses with 10 or fewer full-time employees. Treasury businesses with 10 or fewer full-time employees. Treasury
also reported that also reported that ~~smal~~ small businesses indicated that SSBCI funds helped them to create or retain businesses indicated that SSBCI funds helped them to create or retain
240,669 jobs (79,193 new jobs and 161,476 retained jobs).208 But, as Treasury also noted, 240,669 jobs (79,193 new jobs and 161,476 retained jobs).208 But, as Treasury also noted,
determining the SSBCI’s influence on determining the SSBCI’s influence on ~~smal~~ small business lending is likelybusiness lending is likely to be more suggestive than to be more suggestive than
definitive because differentiating the SSBCI’s effect on definitive because differentiating the SSBCI’s effect on ~~smal~~ small business lending from other, business lending from other,
exogenous factors, such as changes in the lender’s local economy and changes in the demand for exogenous factors, such as changes in the lender’s local economy and changes in the demand for
~~smal~~ small business loans, is business loans, is ~~methodological y chal enging, especial y~~methodologically challenging, especially given the relatively given the relatively ~~smal~~
small amount of financing involved relative to the national market for amount of financing involved relative to the national market for ~~smal~~ small business loans.209 As business loans.209 As
mentioned, the SSBCI’s $1.5 mentioned, the SSBCI’s $1.5 ~~bil ion~~ billion in financing at that time represented about 0.24% of in financing at that time represented about 0.24% of
outstanding outstanding ~~non-agricultural smal~~ nonagricultural small business loans. business loans.
Treasury’s OIG’s audits of 24 states’ implementation of their SSBCI programs suggest that many Treasury’s OIG’s audits of 24 states’ implementation of their SSBCI programs suggest that many
states experienced difficulty reaching full compliance with the program’s administrative states experienced difficulty reaching full compliance with the program’s administrative
requirements, which were designed to reduce the likelihood of loan defaults, investment losses, requirements, which were designed to reduce the likelihood of loan defaults, investment losses,
and fraudulent use of funds. That should no longer be an issue because states now have and fraudulent use of funds. That should no longer be an issue because states now have
experience with, and are accustomed to, the SSBCI’s rules and regulations. However, given the experience with, and are accustomed to, the SSBCI’s rules and regulations. However, given the
~~relatively large increase in proposed funding, the large number of smal business investment~~
~~programs receiving SSBCI funding, and the large number of entities involved in the program~~
~~(state officials, hundreds of lenders and investment companies, and thousands of smal~~
~~businesses), SSBCI program oversight is likely to remain a congressional interest.~~

~~207 U.S. Department of the T reasury, OIG,~~ ~~State Small Business Credit Initiative: New York’s Use of Federal Funds for~~
~~Other Credit Support Program s, pp. 6, 7.~~
~~208 U.S. Department of the T reasury~~ 205 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New York’s Use of Federal Funds for Other Credit Support Programs, January 24, 2017, p. 2, at https://oig.treasury.gov/sites/oig/files/Audit_Reports_and_Testimonies/OIG-17-035.pdf. 206 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New York’s Use of Federal Funds for Other Credit Support Programs, p. 2. 207 U.S. Department of the Treasury, OIG, State Small Business Credit Initiative: New York’s Use of Federal Funds for Other Credit Support Programs, pp. 6, 7. 208 U.S. Department of the Treasury, , State Small Business Credit Initiative: A Summary of States’ 2016 Annual
Reports, pp. 3, 15, at https://www.treasury.gov/resource-center/sb-programs/Documents/, pp. 3, 15, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdfSSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdf . .
209 U.S.209 U.S. ~~T reasury~~ Treasury, “Correspondence with the author,” June 22, 2012. , “Correspondence with the author,” June 22, 2012.
Congressional Research Service Congressional Research Service

38 38

State Small Business Credit Initiative: Implementation and Funding Issues
relatively large increase in proposed funding, the large number of small business investment programs receiving SSBCI funding, and the large number of entities involved in the program (state officials, hundreds of lenders and investment companies, and thousands of small businesses), SSBCI program oversight is likely to remain a congressional interest. Congressional Research Service 39 State Small Business Credit Initiative: Implementation and Funding Issues
Appendix. The Original SSBCI’s Legislative Origins
On January 27, 2010, then-President Obama announced in his State of the Union Address that On January 27, 2010, then-President Obama announced in his State of the Union Address that
because “financing remains difficult for because “financing remains difficult for ~~smal~~ small business owners across the country, even those that business owners across the country, even those that
are making a profit,” he would send Congress several legislative proposals designed to enhance are making a profit,” he would send Congress several legislative proposals designed to enhance
~~smal~~ small business access to capital, including a proposal to establish a $30 business access to capital, including a proposal to establish a $30 ~~bil ion Smal~~ billion Small Business Business
Lending Fund (SBLF).210 On May 7, 2010, the Obama Administration sent Congress draft Lending Fund (SBLF).210 On May 7, 2010, the Obama Administration sent Congress draft
~~legislation~~ legislation to establish the SBLF and the State to establish the SBLF and the State ~~Smal~~ Small Business Credit Initiative (SSBCI).211Business Credit Initiative (SSBCI).211
On May 13, 2010, Representative (now Senator) Gary Peters introduced H.R. 5302, the State On May 13, 2010, Representative (now Senator) Gary Peters introduced H.R. 5302, the State
~~Smal~~ Small Business Credit Initiative Act of 2010. The Business Credit Initiative Act of 2010. The ~~bil~~ bill would have authorized a $2 would have authorized a $2 ~~bil ion~~ billion SSBCI SSBCI
modeled on the President’s SSBCI proposal. That same day, then-Representative Barney Frank, modeled on the President’s SSBCI proposal. That same day, then-Representative Barney Frank,
then-chair of the House Committee on Financial Services, introduced H.R. 5297, then-chair of the House Committee on Financial Services, introduced H.R. 5297, ~~initial y~~initially titled titled
the the ~~Smal~~ Small Business Lending Fund Act of 2010. Based on the President’s SBLF proposal, the Business Lending Fund Act of 2010. Based on the President’s SBLF proposal, the ~~bil~~
bill was designed to encourage lending to was designed to encourage lending to ~~smal~~ small businesses by creating a $30 businesses by creating a $30 ~~bil ion~~ billion SBLF to make SBLF to make
capital investments in eligiblecapital investments in eligible community banks with total assets of less than $10 community banks with total assets of less than $10 ~~bil ion~~billion.212 On .212 On
May 18, 2010, the Committee on Financial Services held a hearing on H.R. 5297 and the May 18, 2010, the Committee on Financial Services held a hearing on H.R. 5297 and the
following day, approved the following day, approved the ~~bil~~ bill, 42-23, as amended.213 Perhaps the most significant amendment , 42-23, as amended.213 Perhaps the most significant amendment
approved was an amended version of the $2 approved was an amended version of the $2 ~~bil ion State Smal~~ billion State Small Business Credit Initiative Act of Business Credit Initiative Act of
2010. It was approved by a vote of 39-23.2142010. It was approved by a vote of 39-23.214
SBLF and SSBCI advocates argued that the programs were necessary because “many companies, SBLF and SSBCI advocates argued that the programs were necessary because “many companies,
particularly particularly ~~smal~~ small businesses, claim that it is becoming harder to get new loans to keep their businesses, claim that it is becoming harder to get new loans to keep their
business operating and that banks are tightening requirements or cutting off existing lines of even business operating and that banks are tightening requirements or cutting off existing lines of even
when the businesses are up to date on their loan repayments.”215 In their view, the SBLF and when the businesses are up to date on their loan repayments.”215 In their view, the SBLF and
SSBCI would promote economic growth and job creation by enhancing SSBCI would promote economic growth and job creation by enhancing ~~smal~~ small business access to business access to
capital. capital.
The House Committee on Financial Services’ Republicans indicated in the report accompanying The House Committee on Financial Services’ Republicans indicated in the report accompanying
H.R. 5297 that they “were unanimous in our opposition to this misguided legislation.”216 They H.R. 5297 that they “were unanimous in our opposition to this misguided legislation.”216 They

~~210 U.S.~~ 210 U.S. President (Barack Obama), “President (Barack Obama), “ Remarks by the President in State of the Union Address,”Remarks by the President in State of the Union Address,” January 27, 2010, at January 27, 2010, at
https://obamawhitehouse.archives.gov/the-press-office/remarks-presidenthttps://obamawhitehouse.archives.gov/the-press-office/remarks-president -state-union-address. -state-union-address.
211 U.S. 211 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd , report to accompany H.R. 5297, 111th Cong., 2nd
sess.,sess., May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), p. 17. May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), p. 17.
212 U.S.212 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 18. , p. 18.
213 U.S. 213 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, Incentives to Promote Small Business Lending, Jobs, and
~~Econom ic~~Economic Growth, 111th Cong., 2nd sess.,, 111th Cong., 2nd sess., May 18, 2010, Serial no. 111-137 (May 18, 2010, Serial no. 111-137 (~~Washingt on~~Washington, DC: GPO, 2010). , DC: GPO, 2010).
214 U.S. 214 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd , report to accompany H.R. 5297, 111th Cong., 2nd
sess.,sess., May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), pp. 21, 22. May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), pp. 21, 22.
215 U.S.215 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 16. , p. 16.
216 U.S. 216 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 18. , p. 18.
Congressional Research Service Congressional Research Service

3940

State Small Business Credit Initiative: Implementation and Funding Issues

argued that the SBLF and SSBCI did not address what they considered to be the core issue argued that the SBLF and SSBCI did not address what they considered to be the core issue
affecting affecting ~~smal~~ small business job creation during the economic recovery—the need to stimulate business job creation during the economic recovery—the need to stimulate
demand for credit by demand for credit by ~~smal~~ small businesses.217 They argued that the businesses.217 They argued that the ~~bil~~ bill would fail to help would fail to help ~~smal~~
small businesses or create jobs, would succeed in adding businesses or create jobs, would succeed in adding ~~bil ions~~billions of dollars to the national debt, and of dollars to the national debt, and
concluded that “the solutions to America’s economic problems do not lie in more taxpayer-concluded that “the solutions to America’s economic problems do not lie in more taxpayer-
funded bailouts.”218 Instead of supporting federal spending programs to enhance funded bailouts.”218 Instead of supporting federal spending programs to enhance ~~smal~~ small business business
access to capital, they advocated an extension of a series of access to capital, they advocated an extension of a series of ~~smal~~ small business tax credits as a more business tax credits as a more
effective means to stimulate effective means to stimulate ~~smal~~ small business job creation and economic growth.219 business job creation and economic growth.219
On June 14, 2010, the House Committee on Rules issued a rule for H.R. 5297 (H.Res. 1436), On June 14, 2010, the House Committee on Rules issued a rule for H.R. 5297 (H.Res. 1436),
which provided that “in the engrossment of H.R. 5297, the Clerk which provided that “in the engrossment of H.R. 5297, the Clerk ~~shal~~ shall add the text of H.R. 5486, add the text of H.R. 5486,
as passed by the House, at the end of H.R. 5297 and that H.R. 5486 as passed by the House, at the end of H.R. 5297 and that H.R. 5486 ~~shal~~ shall be laid on the table.”220 be laid on the table.”220
H.R. 5486, To Amend the Internal Revenue Code of 1986 to Provide Tax Incentives for H.R. 5486, To Amend the Internal Revenue Code of 1986 to Provide Tax Incentives for ~~Smal~~
Small Business Job Creation, and for Other Purposes, included several tax incentives for Business Job Creation, and for Other Purposes, included several tax incentives for ~~smal~~
small businesses and several revenue-raising provisions designed to offset the costs of the tax businesses and several revenue-raising provisions designed to offset the costs of the tax
incentives. Also, at that time, the House Committee on Rules posted on its website legislative incentives. Also, at that time, the House Committee on Rules posted on its website legislative
language for a proposed amendment in the nature of a substitute to H.R. 5297, as reported, which language for a proposed amendment in the nature of a substitute to H.R. 5297, as reported, which
included a proposed $1 included a proposed $1 ~~bil ion Smal~~ billion Small Business Early-Stage Investment Program. Business Early-Stage Investment Program.
On June 17, 2010, the House passed H.R. 5297 by a vote of 241-182. The engrossed On June 17, 2010, the House passed H.R. 5297 by a vote of 241-182. The engrossed ~~bil~~ bill, retitled , retitled
the the ~~Smal~~ Small Business Jobs and Credit Act of 2010, included the language in H.R. 5486 and the Business Jobs and Credit Act of 2010, included the language in H.R. 5486 and the
~~Smal~~ Small Business Early-Stage Investment Program, as Business Early-Stage Investment Program, as ~~wel~~ well as the $30 as the $30 ~~bil ion~~billion SBLF and $2 SBLF and $2 ~~bil ion~~
billion SSBCI. SSBCI.
The arguments presented in the House report accompanying the The arguments presented in the House report accompanying the ~~bil~~ bill, both for and against the , both for and against the
~~bil~~ bill’s passage, also were presented during House floor debate. For example, advocates argued that ’s passage, also were presented during House floor debate. For example, advocates argued that
the SSBCI would “increase the SSBCI would “increase ~~smal~~ small business lending which business lending which ~~wil~~ will retain and create jobs.”221 retain and create jobs.”221
Opponents argued that the Opponents argued that the ~~bil~~ bill “is repeating the same failed initiatives that have helped our “is repeating the same failed initiatives that have helped our
national debt grow to $13 national debt grow to $13 ~~bil ion~~billion in the past two years” and did not address what they viewed as in the past two years” and did not address what they viewed as
the top problem facing the top problem facing ~~smal~~ small businesses—“the lack of sales and demand.”222 businesses—“the lack of sales and demand.”222
The House-passed version of H.R. 5297 was placed on the Senate Legislative Calendar on June The House-passed version of H.R. 5297 was placed on the Senate Legislative Calendar on June
18, 2010. Following a series of votes on motions to invoke cloture on several amendments in the 18, 2010. Following a series of votes on motions to invoke cloture on several amendments in the
nature of a substitute to H.R. 5297 and the August recess, the Senate passed an amended version nature of a substitute to H.R. 5297 and the August recess, the Senate passed an amended version
of the of the ~~bil~~ bill (S.Amdt. 4594, an amendment in the nature of a substitute for H.R. 5297) on (S.Amdt. 4594, an amendment in the nature of a substitute for H.R. 5297) on

~~217 U.S. Congress, House~~ 217 U.S. Congress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 37. , p. 37.
218 U.S.218 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 38. , p. 38.
219 U.S. 219 U.S. Congress, HouseCongress, House Committee on Financial Services, Committee on Financial Services, To Create the Small Business Lending Fund Program to
Direct the Secretary of the Treasury ~~to m ake Capital Investm ents~~ to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for ~~Sm all~~Small Businesses, and for other Purposes, p. 38. , p. 38.
220 H.Res. 1436. A second rule220 H.Res. 1436. A second rule (H.Res. 1448) was issued(H.Res. 1448) was issued on Juneon June 16, 2010, to allow consideration of two amendments 16, 2010, to allow consideration of two amendments
that were revisedthat were revised to comply with House “to comply with House “ pay-go” rules. pay-go” rules.
221 Rep. Melissa Bean, “221 Rep. Melissa Bean, “~~T he~~The Small Business Small Business ~~Jobs~~ Jobs and Credit Act of 2010,” House debate,and Credit Act of 2010,” House debate, Congressional Record, vol. , vol.
156, no. 90 (June 16, 2010), p. H4514. 156, no. 90 (June 16, 2010), p. H4514.
222 Rep. Randy Neugebauer, 222 Rep. Randy Neugebauer, ~~“T he~~ “The Small Business Small Business ~~Jobs~~ Jobs and Credit Act of 2010,” House debate, and Credit Act of 2010,” House debate, Congressional Record, ,
vol. 156, no. 90 (June 16, 2010), p. H4514, H4515. vol. 156, no. 90 (June 16, 2010), p. H4514, H4515.
Congressional Research Service Congressional Research Service

4041

State Small Business Credit Initiative: Implementation and Funding Issues

September 16, 2010, by a vote of 61-38.223 The Senate-passed version of the September 16, 2010, by a vote of 61-38.223 The Senate-passed version of the ~~bil~~ bill, which included , which included
the SSBCI but funded at $1.5 the SSBCI but funded at $1.5 ~~bil ion~~ billion instead of $2 instead of $2 ~~bil ion,~~ billion, was passed by the House on September was passed by the House on September
23, 2010, by a vote of 237-187. The enrolled 23, 2010, by a vote of 237-187. The enrolled ~~bil~~ bill, retitled the , retitled the ~~Smal~~ Small Business Jobs Act of 2010, Business Jobs Act of 2010,
was signed into law (P.L. 111-240) by President Obama on September 27, 2010.224 was signed into law (P.L. 111-240) by President Obama on September 27, 2010.224
The arguments presented duringThe arguments presented during Senate floorSenate floor debate, bothdebate, both for and against the for and against the ~~bil~~ bill’s ’s
passage, were similarpassage, were similar to those presented duringto those presented during House floorHouse floor debate. One difference was a debate. One difference was a
greater emphasisgreater emphasis by the by the ~~bil ’s~~ bill’s advocates inadvocates in the Senate on the SSBCI’s support of state the Senate on the SSBCI’s support of state
loanloan ~~col ateral~~ collateral programs. Several Senators argued that the SSBCI’s supportprograms. Several Senators argued that the SSBCI’s support of state loan of state loan
~~col ateral~~ collateral programs was needed because, as one Senator pointedprograms was needed because, as one Senator pointed out,out, “just“just as the as the
recession has battered the valuerecession has battered the value of our homes, it has also battered the value of business of our homes, it has also battered the value of business
propertyproperty such as real estate, factories, and equipment.such as real estate, factories, and equipment. That has damaged the abilityThat has damaged the ability of
~~smal~~ of small businesses to get bank financingbusinesses to get bank financing because it has lowered the valuebecause it has lowered the value of property they of property they
can offer as can offer as ~~col ateral.”225~~

~~223 On June~~ collateral.”225 223 On June 29, 2010, cloture on a motion to proceed to H.R. 5297 was invoked in the Senate by a vote of 66-33. 29, 2010, cloture on a motion to proceed to H.R. 5297 was invoked in the Senate by a vote of 66-33. ~~T hat~~That
same day, Sen. Harry Reidsame day, Sen. Harry Reid proposed a motion to commit H.R. 5297 to the Senate Committee on Finance with proposed a motion to commit H.R. 5297 to the Senate Committee on Finance with
instructions to report back forthwith S.Amdt. 4407, an amendment in the nature of a substitute, whichinstructions to report back forthwith S.Amdt. 4407, an amendment in the nature of a substitute, which ~~included~~ included the the
SmallSmall ~~Business~~ Business Lending FundLending Fund (SBLF)(SBLF) and most of the provisions later includedand most of the provisions later included in S.Amdt.in S.Amdt. 4594. In response to 4594. In response to
perceived opposition to the SBLF, S.Amdt.perceived opposition to the SBLF, S.Amdt. 4407 was withdrawn4407 was withdrawn on Julyon July 21, 2010. In its place, Sen. Harry Reid 21, 2010. In its place, Sen. Harry Reid
proposed for Sen. Georgeproposed for Sen. George LeMieux S.Amdt.LeMieux S.Amdt. 4500, to establish the Small Business4500, to establish the Small Business Lending FundLending Fund Program. He also Program. He also
proposed for Sen. Max Baucusproposed for Sen. Max Baucus S.Amdt. 4499, an amendment in the nature of a substitute, which contained S.Amdt. S.Amdt. 4499, an amendment in the nature of a substitute, which contained S.Amdt.
4407, with modifications, minus the SBLF.4407, with modifications, minus the SBLF. On JulyOn July 22, 2010, cloture on S.Amdt. 4500 was22, 2010, cloture on S.Amdt. 4500 was invoked in the Senate, by a invoked in the Senate, by a
vote of 60-37. On July 27, 2010, Sen. Harry Reidvote of 60-37. On July 27, 2010, Sen. Harry Reid ~~withdrew~~ withdrew S.Amdt.S.Amdt. 4500 and introduced for Sen. Max Baucus 4500 and introduced for Sen. Max Baucus
S.Amdt. 4519, which includedS.Amdt. 4519, which included the SBLF,the SBLF, the provisions in S.Amdt.the provisions in S.Amdt. 4499, with modifications, $1.5 billion in 4499, with modifications, $1.5 billion in
emergency disaster agriculturalemergency disaster agricultural assistance, and additional revenue offsets. On Julyassistance, and additional revenue offsets. On July 29, 2010, a motion to invoke cloture 29, 2010, a motion to invoke cloture
on S.Amdt. 4519 failed by a vote of 58-42. Debate on the motion focused on differences concerning the SBLFon S.Amdt. 4519 failed by a vote of 58-42. Debate on the motion focused on differences concerning the SBLF and the and the
number of amendments to be offered. On Augustnumber of amendments to be offered. On August 5, 2010, Sen. Harry Reid5, 2010, Sen. Harry Reid introduced for Sens.introduced for Sens. Max BaucusMax Baucus and Mary and Mary
Landrieu S.Amdt.Landrieu S.Amdt. 4594, an amendment in the nature of a substitute. It contained the provisions in S.Amdt. 4519, 4594, an amendment in the nature of a substitute. It contained the provisions in S.Amdt. 4519,
except that it removed a provision to eliminate the advance payment option for the earned-income tax credit that would except that it removed a provision to eliminate the advance payment option for the earned-income tax credit that would
have raisedhave raised $1.1 billion, removed a provision that would have reallocated $500 million in future spending$1.1 billion, removed a provision that would have reallocated $500 million in future spending from P.L. from P.L.
111-5, the American Recovery and Reinvestment Act of 2009, and removed a provision to provide $1.5 billion in 111-5, the American Recovery and Reinvestment Act of 2009, and removed a provision to provide $1.5 billion in
emergency agriculturalemergency agricultural assistance funding. On September 14, assistance funding. On September 14, ~~2 010~~2010, the Senate invoked cloture on S.Amdt. 4594, by a , the Senate invoked cloture on S.Amdt. 4594, by a
vote of 61-37, and passed it on September 16, 2010, by a vote of 61vote of 61-37, and passed it on September 16, 2010, by a vote of 61 -38. See Sen.-38. See Sen. Harry Reid,Harry Reid, ~~“ T ext~~ “Text of Amendments: of Amendments:
SASA 4519,” 4519,” Congressional Record, vol. 156, no. 111 (July 27, 2010), pp. S6309-S6337; Sen. Kay Hagan, “Motion to , vol. 156, no. 111 (July 27, 2010), pp. S6309-S6337; Sen. Kay Hagan, “Motion to
Invoke Cloture on amendment No. 4519,” Roll Call Vote No. 221 Leg., Invoke Cloture on amendment No. 4519,” Roll Call Vote No. 221 Leg., Congressional Record, vol. 156, no. 113 (July , vol. 156, no. 113 (July
29, 2010), p. S6473; Sen. Harry Reid,29, 2010), p. S6473; Sen. Harry Reid, “ “Small BusinessSmall Business Lending FundLending Fund Act of 2010,” Remarks in the Senate, Act of 2010,” Remarks in the Senate,
Congressional Record, vol. 156, no. 113 (July 29, 2010), pp. S6472, S6473; Sen. Mitch McConnell, “, vol. 156, no. 113 (July 29, 2010), pp. S6472, S6473; Sen. Mitch McConnell, “ Small Business Small Business
Lending FundLending Fund Act of 2010,” Remarks in the Senate, Act of 2010,” Remarks in the Senate, Congressional Record, vol. 156, no. 113 (July 29, 2010), pp. S, vol. 156, no. 113 (July 29, 2010), pp. S
6472, S6473; Sen. Kay Hagen, “6472, S6473; Sen. Kay Hagen, “ Motion to Invoke Cloture on H.R. 5297, the Small BusinessMotion to Invoke Cloture on H.R. 5297, the Small Business Lending FundLending Fund Act of Act of
2010,” Rollcall Vote No. 236 Leg., 2010,” Rollcall Vote No. 236 Leg., Congressional Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S, daily edition, vol. 156, part 125 (September 16, 2010), p. S
7158; and Sen.7158; and Sen. Al Franken, “Small BusinessAl Franken, “Small Business ~~Lending Fund~~ Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Act of 2010,” Rollcall Vote No. 237 Leg., Congressional
Record, daily edition, vol. 156, part 125 (September 16, , daily edition, vol. 156, part 125 (September 16, ~~201 0~~2010), p. S7158. ), p. S7158.
224 Sen. Al Franken, “Small Business 224 Sen. Al Franken, “Small Business Lending FundLending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Act of 2010,” Rollcall Vote No. 237 Leg., Congressional Record, ,
daily edition, vol. 156, part 125 (September 16, 2010), p. S7158. daily edition, vol. 156, part 125 (September 16, 2010), p. S7158.
225 Sen. Carl Levin, “Small Business225 Sen. Carl Levin, “Small Business ~~Lending~~ Lending Fund Act of 2010,” remarks in the Senate, Fund Act of 2010,” remarks in the Senate, Congressional Record, vol. , vol.
156, part 124 (September 15, 2010), p. S7123. 156, part 124 (September 15, 2010), p. S7123.
Congressional Research Service Congressional Research Service

4142

State Small Business Credit Initiative: Implementation and Funding Issues

Author Information

Robert Jay Dilger Robert Jay Dilger
Grant A. Driessen Grant A. Driessen
Senior Specialist in American National Government Specialist in Public Finance Senior Specialist in American National Government Specialist in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report should ~~n ot~~not be relied upon for purposes other be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.

Congressional Research Service Congressional Research Service
R42581 R42581 · VERSION 4547 · UPDATED
4243