State Small Business Credit Initiative:
March 1, 2021
Implementation and Funding Issues
Robert Jay Dilger
Congressional interest in small business access to capital has always been high, primarily
Senior Specialist in
because small businesses are viewed as a means to stimulate economic activity and create jobs,
American National
but it has become especially acute in the wake of the Coronavirus Disease 2019 (COVID-19)
Government
pandemic’s widespread adverse economic impact on the national economy.

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

that includes an 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, the

Small Business 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
September 27, 2017.
The original SSBCI provided funding, allocated by formula and distributed in one -third increments, to states, territories, and
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, and venture capital programs. In most instances, the initial round of funding (called a tranche) took place in
FY2011. 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
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
times the amount of their SSBCI funds. As of December 31, 2016, 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
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.
The Obama Administration recommended in its FY2015, FY2016, and FY2017 budget requests that another $1.5 billion
round of funding take place, with $1 billion competitively awarded to states and $500 million awarded “by a need -based
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 114th Congress
(S. 1901, H.R. 5144, 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
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
also indicate that Treasury’s program oversight could have been improved and that performance measures were n eeded to
assess the program’s efficacy.
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Appendixes
Appendix. The Original SSBCI’s Legislative Origins ......................................................... 39

Contacts
Author Information ....................................................................................................... 42

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State Small Business Credit Initiative: Implementation and Funding Issues

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

1 P.L. 111-240, the Small Business Jobs Act of 2010, limited T reasury’s role in administrating the State Small Business
Credit Initiative (SSBCI) program to seven years from enactment (September 27, 2010). As a result, T reasury role in
administering the program sunset on September 27, 2017.
2 U.S. Office of Management and Budget (OMB), Appendix, Budget of the U.S. Government, FY2013: Department of
the Treasury, p. 1061, at http://www.gpo.gov/fdsys/pkg/BUDGET -2013-APP/pdf/BUDGET -2013-APP.pdf.
3 OMB, Appendix, Budget of the U.S. Government, FY2013: Department of the Treasury, p. 1061.
4 OMB, Appendix, Budget of the U.S. Government, FY2014: Department of the Treasury, p. 991, at
https://www.gpo.gov/fdsys/pkg/BUDGET -2014-APP/pdf/BUDGET -2014-APP.pdf.
5 U.S. Department of the T reasury, State Small Business Credit Initiative, FY 2016: President’s Budget, p. 6, at
http://www.treasury.gov/about/budget-performance/CJ16/18.%20SSBCI%20FY%202016%20CJ.pdf; U.S. Department
of the T reasury, State Sm all Business Credit Initiative: A Sum m ary of States’ Quarterly Reports as of Septem ber 30,
2015, p. 1, at https://www.treasury.gov/resource-center/sb-programs/DocumentsSBLFT ransactions/
SSBCI%20Quarterly%20Report%20Summary%20September%202015_FINAL.pdf ; and U.S. Department of the
T reasury, State Sm all Business Credit Initiative: A Sum m ary of States’ Quarterly Reports as of Septem ber 30, 2016, p.
1, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Quarterly%20Report%20Summary%20September%202016_Final.pdf .
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costs).6 As of December 31, 2016, al 57 participants had received their first tranche, 56 had
received their second tranche, and 53 had received their third tranche.7
States were expected to leverage their SSBCI funds to generate new smal business lending that is
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
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
consortiums of municipalities in North Dakota; and a consortium of municipalities in Wyoming.
During congressional consideration, advocates argued that the SSBCI would promote economic
growth and job creation by enhancing smal business access to capital. Opponents argued that the
SSBCI did not address the need to stimulate demand for credit by smal businesses, which, in the
opponents’ view, was the core issue affecting the role of smal business in job creation. They
argued that “the solutions to America’s economic problems do not lie in more taxpayer-funded
bailouts” and advocated smal business tax reductions as a more effective means to stimulate job
creation and economic growth.9 For additional discussion of these different approaches to
stimulate job creation and economic growth, see CRS Report R40985, Small Business: Access to
Capital and Job Creation, by Robert Jay Dilger.
It is difficult to determine the full extent of the SSBCI’s effect on smal business lending. As of
December 31, 2016, states had spent or obligated about 88% of the $1.45 bil ion available ($1.27
bil ion of $1.45 bil ion), which is sufficient to provide an indication of the program’s impact on
smal business lending.10 However, determining the program’s influence on smal business
lending is likely to be more suggestive than definitive because differentiating the SSBCI’s effect
on smal business lending from other factors, such as changes in the lender’s local economy, is
methodological y chal enging, especial y given the relatively smal amount of financing involved
relative to the national market for smal business loans. In 2017, the SSBCI’s $1.5 bil ion in
financing represented about 0.24% of outstanding non-agricultural smal business loans.11

6 U.S. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of Decem ber 31, 2016, p. 1, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Quarterly_Report_Summary_December_2016.pdf .
7 U.S. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of Decem ber 31, 2016, p. 1.
8 U.S. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ 2016 Annual Reports,
p. 2, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant .pdf.
9 U.S. Congress, House Committee on Financial Services, T o Create the Small Business Lending Fund Program to
Direct the Secretary of the T reasury to make Capital Investments in Eligible Institutions in order to Increase the
Availability of Credit for Small Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd
sess., May 27, 2010, H.Rept. 111-499 (Washington: GPO, 2010), pp. 37, 38.
10 U.S. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of Decem ber 31, 2016, 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
that they had spent about $279.9 million for new State Small Business Credit Initiative (SSBCI) supported loans and
investments using recycled SSBCI funds generated from SSBCI loan r epayments and returns on SSBCI investments.
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 non -agricultural
small business loans (defined as the sum of “total loans secured by nonfarm nonresidential properties of $1,000,000 or
less” and “total commercial and industrial loans to U.S. addressees of $1,000,000 or less”).
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Treasury has reported that SSBCI funds supported more than 21,000 loans and investments in
smal business amounting to over $10.7 bil ion, with more than 80% of the funds and investments
made to smal businesses with 10 or fewer full-time employees. Treasury has also reported that
smal 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
The Obama Administration recommended in its FY2015, FY2016, and FY2017 budget requests
that another $1.5 bil ion round of funding take place. Under their proposal, $1 bil ion would have
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
ecosystems, and evaluate results,” and $500 mil ion awarded “by formula based on economic
factors such as job losses and pace of economic recovery.”13
Legislation containing provisions similar to the Obama Administration’s proposal was introduced
during the 113th Congress (H.R. 4556, the Smal Business Access to Capital Act of 2014, and S.
2285, its companion bil in the Senate), the 114th Congress (S. 1901, the Smal Business Access to
Capital Act of 2015, H.R. 5144, the Jumpstart Housing Opportunities Utilizing Smal Enterprises
Act of 2016, and H.R. 5672, the Smal Business Access to Capital Act of 2016), the 115th
Congress (S. 1897, the Smal Business Access to Capital Act of 2017), and the 116th Congress (S.
3551, the Smal Business Access to Capital Act of 2020).14
This report examines the current SSBCI proposal and its legislative origins and the
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
Inspector General (OIG). These audits suggested that states general y met the statute’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
to assess the program’s efficacy.
Legislative Origins
On February 4, 2021, Senator Gary Peters, who sponsored legislation establishing the original
SSBCI (see the Appendix for the original SSBCI’s legislative origins), introduced S. 258, the

12 U.S. Department of the T reasury, 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/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdf .
13 OMB, The Appendix, Budget of the United States Government, Fiscal Year 2017: Department of the Treasury, pp.
1034, 1035, at https://www.gpo.gov/fdsys/pkg/BUDGET -2017-APP/pdf/BUDGET -2017-APP.pdf.
14 H.R. 5144, the Jumpstart HOUSE Act of 2016, added a provision (SEC. 3. Support for affordable housing projects)
designed 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
households, as determined by the Secretary, in consultation with the Secretary of Housing and Urban D evelopment.”
H.R. 5672, the Small Business Access to Capital Act of 2016, added a provision (SEC. 2. New tranches of capital for
successful State programs) that would have included competitive award factors designed to provide preference to
participants based on their plans to (I) leverage private sector capital; (II) create and retain jobs during the 2 -year period
beginning on the date of the award; (III) serve small businesses that 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
businesses; and establish or continue a robust self-evaluation of their use of awarded funds; provide non-federal funds
in excess of the amount required; and the extent to which the participant expended, obligated, or transferred their 2010
allocation.
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Smal Business Access to Capital Act of 2021.15 The bil would provide $10 bil ion for another
round of SSBCI funding ($5 bil ion in formula-based al ocations and an additional $5 bil ion in
competitive grants for states that have already capitalized the financing received from the 2010
program).16
Several organizations indicated their support for the bil . For example, the Council of
Development Finance Agencies (CDFA) argued that
A $10 billion infusion in a reauthorized SSBCI Program would provide immediate access
to capital for small businesses that desperately need it. The programs created by states
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
should this option be enacted. States are prepared to receive an infusion of SSBCI funding
immediately.17
There were disagreements concerning whether a reauthorization of the SSBCI should be included
in the budget reconciliation bil . General y speaking, Democrats argued that the SSBCI should be
included in the reconciliation bil because the program
 had a proven track record of assisting smal businesses create and retain jobs; and
 required states to develop programs that targeted the needs of underserved
communities, which, they argued, had not been adequately addressed by the
Smal Business Administration’s Paycheck Protection Program (PPP), which
provides forgivable loans to smal businesses adversely affected by COVID-19.18
Republicans general y argued that the SSBCI should not be included in the reconciliation bil
because the program
 was an extraneous matter that did not directly address COVID-19 and would
make funding available for years after the pandemic’s expected duration;
 was duplicative of the PPP, which had, at that time, $140 bil ion in lending
authority stil available; and
 had limited oversight, did not meet al of its statutory objectives, was slow to
launch and inefficient at deploying capital, and had a questionable effect on job
creation.19

15 Senator Gary Peters introduced similar legislation (S. 3551, the Small Business Access to Capital Act of 2020)
during the 116th Congress. T hat bill would have appropriated $3 billion for another round of SSBCI funding (on March
20, 2020).
16 Sen. Gary Peters, “Peters, Stabenow Reintroduce Legislation Providing $10 Billion to Support Small Business
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.
17 Council of Development Finance Agencies, “Small Business Access to Capital Act,” at https://www.cdfa.net/cdfa/
cdfaweb.nsf/pages/SSBCI.html.
18 For further information and analysis of the Paycheck Protection Program, see CRS Report R46284, COVID-19 Relief
Assistance to Sm all Businesses: Issues and Policy Options, by Robert Jay Dilger, Bruce R. Lindsay, and Sean Lowry .
19 U.S. House of Representatives, Committee on Financial Services, “Supporting Small and Minority-Owned
Businesses T hrough 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. House of
Representatives, Committee on Financial Services, Subcommittee on National Security, International Development and
Monetary Policy, “Supporting Small and Minority-Owned Businesses T hrough the Pandemic,” subcommittee hearing,
February 4, 2021, at https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407099; U.S. Senate,
Committee on Banking, Housing and Urban Affairs, “T he Coronavirus Crisis: Next Steps for Rebuilding Main Street,”
committee hearing, February 25, 2021, at https://www.banking.senate.gov/hearings/the-coronavirus-crisis-next -steps-
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During their internal negotiations on the reconciliation bil , Democratic congressional leaders
amended S. 258 to reserve
 $2.5 bil ion for businesses owned and controlled by social y and economical y
disadvantaged individuals, including minority-owned businesses ($1.5 bil ion in
an initial al ocation, plus $1 bil ion for an incentive program for states that
demonstrate “robust support,” as defined by the Secretary of the Treasury, for
businesses owned and controlled by social y and economical y disadvantaged
individuals);
 $500 mil ion for tribal governments;
 at least $500 mil ion for businesses, including independent contractors and sole
proprietors, with fewer than 10 employees; and
 $500 mil ion for technical assistance to smal businesses that need legal,
accounting, financial, and other kinds of advice in applying for smal business
support programs.
Among other things, the amended bil would also require states and other jurisdictions to submit a
plan on how they would expeditiously deliver funds to help smal businesses respond to and
recover from the pandemic and a plan to encourage program participation by minority depository
institutions (MDIs) and community development financial institutions (CDFIs). The amended bil
would also al ow Treasury to create a multi-state participation program that would al ow states to
automatical y 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.
The House Committee on Financial Services included the amended SSBCI bil language in its
portion of the budget reconciliation bil (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
Budget agreed to the budget reconciliation bil (19-16), which included the amended SSBCI bil
language, on February 22, 2021, and reported the bil to the full House on February 24, 2021. The
House passed H.R. 1319 (219-212) on February 27, 2021.
SSBCI Programs
The SSBCI provided funding to expand existing or create new state smal business investment
programs, including capital access programs, loan participation programs, loan guarantee
programs, collateral support programs, venture capital programs, and any other smal business
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 “smal
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
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 .
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contribution must be from 2% to 7% of the amount borrowed. Typical y, the contributions range
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
smal 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,
collateral, and other loan terms are negotiated between the lender and the borrower.21
Under the SSBCI, approved state CAPs are eligible 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
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
private funds if they choose to do so.22
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
fees, equipment, inventory, and the purchase, construction, renovation, or tenant improvements of
an eligible 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
program and the loan amount may not exceed $5 mil ion.24
State Loan Participation Programs
State loan participation programs enable “smal businesses to obtain medium to long-term
financing, usual y 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
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
state originates a second loan, which is usual y subordinate to the lender’s senior loan should a
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, “SSBCI Program Profile: Capital Access Program.”
22 U.S. Department of the T reasury, “SSBCI Program Profile: Capital Access Program.”
23 U.S. Department of the T reasury, “SSBCI Program Profile: Capital Access Program.” State capital access programs
(CAPs) under the SSBCI program may not enroll the unguaranteed portions of Small Business Association ( SBA)
guaranteed or other federally guaranteed loans without the express, prior written consent of T reasury. Also, restrictions
apply to refinancing and other uses.
24 U.S. Department of the T reasury, “SSBCI Program Profile: Capital Access Program.”
25 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Participation Program,” at
http://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Program_Profile_Loan_Participation_FINAL_May_17.pdf .
26 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Participation Program.”
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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 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
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
utilization 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 typical y establish limits on the amount of
loans any one lender can originate in the program and have a cash reserve to cover anticipated
losses on the guarantees. Interest rates, maturity, col ateral, and other loan terms are typical y
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 wil discuss and negotiate loan terms and
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
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
than 750 employees. They must also target an average loan amount of $5 mil ion or less and may
not guarantee credit for any single loan exceeding $20 mil ion.30
State Collateral Support Programs
State collateral support programs are “designed to enable financing that might otherwise be
unavailable due to a collateral shortfal .”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
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
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, “SSBCI Program Profile: Loan Participation Program.”
28 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Guarantee Program,” at http://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI_Program_Profile_Loan_Guarantee_FINAL_May_17.pdf .
29 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Guarantee Program.”
30 U.S. Department of the T reasury, “SSBCI Program Profile: Loan Guarantee Program.”
31 U.S. Department of the T reasury, “SSBCI Program Profile: Collateral Support Program,” at http://www.treasury.gov/
resource-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.”
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State Venture Capital Programs
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
investors, that invests directly in businesses and a fund of funds that invests in other venture
capital funds that, in turn, invest in individual businesses.35 In both cases, the day-to-day
management of the fund is typical y outsourced to a professional firm. Investments are typical y
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
state venture capital funds is 12 years, and individual fund investments are typical y for 3 years to
7 years.36
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
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 mil ion or less
and may not make a single investment exceeding $20 mil ion.37
SSBCI Funding
P.L. 111-240 appropriated $1.5 bil ion to the Department of the Treasury for the SSBCI program,
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
Islands, and, in some instances, municipalities were eligible for funding, with the amount
available 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 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, “SSBCI Program Profile: Venture Capital Program,” at http://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI_Program_Profile_Venture_Capital_FINAL_May_17.pdf .
35 U.S. Department of the T reasury, “SSBCI Program Profile: Venture Cap ital Program.”
36 U.S. Department of the T reasury, “SSBCI Program Profile: Venture Capital Program.”
37 U.S. Department of the T reasury, “SSBCI Program Profile: Venture Capital Program.”
38 12 U.S.C. §5708(b). T reasury reports that SSBCI administrative expenses, which include the cost of government
employee salaries, contract support, and reimbursement to the T reasury OIG for program audits, were $5.393 million in
FY2011, $4.746 million in FY2012, and $6.431 million in FY2013; and is estimated to be $8,299,000 in FY2014. See
U.S. Department of the Treasury, State Sm all Business Credit Initiative: FY2013 President’s Budget Subm ission , pp. 3,
8, at http://www.treasury.gov/about/budget -performance/Documents/16%20-%20FY%202013%20SSBCI%20CJ.pdf;
U.S. Department of the Treasury, State Sm all Business Credit Initiative: FY2014 President’s Budget, pp. 3, 8, at
http://www.treasury.gov/about/budget-performance/CJ14/16.%20SSBCI%20CJ%20FINAL%20ok.pdf; and U.S.
Department of the T reasury, State Sm all Business Credit Initiative: FY2015 President’s Budget, pp. 3, 9, at
http://www.treasury.gov/about/budget-performance/CJ15/21.%20SSBCI.pdf.
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apply for funding, they were required to submit to Treasury an application for funding by June 27,
2011.
Municipalities were al owed to apply for funding only in the event their state did not participate
in the program. Municipalities were eligible to apply for funding up to the total amount of their
state’s SSBCI al otment, with the final approved amounts apportioned based on their
proportionate share of the population of al approved municipal applicants in that state, based on
the most recent available decennial census.39 Eligible municipalities were required to submit to
Treasury an application for funding by September 27, 2011.
The application for funding requested information concerning such items as
 the amount requested;
 how the funds are to be used (state capital access program, collateral support
program, loan participation program, loan guarantee program, venture capital
program, or other smal business support program);
 confirmation that, at a minimum, $1 of public investment wil result in at least $1
of new private credit; that there is a reasonable expectation the funding wil result
in new smal business lending of at least 10 times the amount of the SSBCI
federal contribution; that the funding targets smal businesses with 500
employees or fewer, does not support borrowers that have more than 750
employees, targets loans with an average principal of $5 mil ion or less, and does
not extend credit support to loans that exceed $20 mil ion;
 documentation describing the operational capacity, skil s, and experience of the
applicant’s management team in operating capital access and other smal
business capital support programs;
 documentation describing the internal accounting and administrative control
systems used to safeguard against waste, loss, unauthorized use, and
misappropriation; and
 documentation describing how the participant planned to use the funds “to
provide access to capital for smal businesses (1) in low- and moderate-income
communities, (2) in minority communities, (3) in other underserved
communities, and to (4) women- and minority-owned smal 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
approved, T reasury is required to allocate federal funds to the three municipalities (or combination of municipalities)
with the largest populations. See 12 U.S.C. §5703(d)(5).
40 U.S. Department of the T reasury, “State Small Business Credit Initiative: Application,” at http://www.treasury.gov/
resource-cent er/sb-programs/Documents/SSBCI%20Application.pdf.
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administrative costs, each participating state was guaranteed a minimum al otment of 0.9% of
available funding ($13.168 mil ion).41
H.R. 1319 uses the same al ocation formula but replaces December 2007 with December 2019,
December 2008 with December 2020, and December 2009 with December 2021. Also, as
mentioned, there would be a separate $500 mil ion al ocation for tribal governments “in the
proportion the Secretary determines appropriate including with consideration to available
employment and economic data regarding such tribal government.”
Funding was (and would be) provided in three instal ments (cal ed tranches), each approximately
one-third of the participant’s approved al otment. The first tranche was provided “immediately
following the receipt of the fully signed Al ocation Agreement.”42 Al otment agreements
described how states were to comply with program requirements and were signed after the state’s
application was approved.
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
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 al ocation agreement and could terminate any
portion of an al otment that Treasury had not disbursed within two years of the date on which the
al ocation agreement with the state was signed. By statute, al SSBCI al ocation agreements
expired on March 31, 2017.
To encourage states to utilize their funds expeditiously, H.R. 1319 would require states to receive
their second tranche (second one-third al otment) within three years and their third and final
tranche (last one-third al otment) 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,
and Treasury would be required to either return the funds to the general fund or real ocate the
funds to other participating states.
State-by-State Allotments
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
submitted an application to participate in the program. Collectively, they requested approximately
$1.4 bil ion 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 anticipated that its total administrative costs over the lifetime of the SSBCI program would be about $36.85
million.
42 U.S. Department of the T reasury, “State Small Business Credit Initiative: Frequently Asked Questions,” at
http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci-faqs.aspx#gen3.
43 U.S. Department of the T reasury, “St ate Small Business Credit Initiative: Frequently Asked Questions.”
44 Applicants were entitled to the funding provided by the SSBCI formula. American Samoa requested $10,418,500.
T he minimum SSBCI allotment is $13,168,350. All other applicants requested the amount provided by the SSBCI
formula. See U.S. Government Accountability Office (GAO), State Sm all 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.
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($9.711 mil ion); and a Carrington, North Dakota, led consortium of 36 municipalities ($3.458
mil ion).
Table 1 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 smal business
investment programs supported. As shown on Table 1, California received the largest al otment
($167.75 mil ion) and American Samoa, which requested less than the minimum guaranteed
al otment, received the smal est al otment ($10.5 mil ion).
States used SSBCI funding to support the following smal business investment programs: 23
supported a capital access program, 40 supported a loan participation program, 20 supported a
loan guarantee program, 16 supported a collateral support program, and 38 supported a venture
capital program.
Table 1. SSBCI Programs
Capital
Allotment
Access
Loan
Loan
Collateral
Venture
Participant
($ millions) Program Participation
Guarantee
Support
Capital
Alabama
$31.301
X
X
X

Alaska,
$13.168

X
Anchorage
American
$10.500

X
Samoa
Arizona
$18.204

X

Arkansas
$13.168
X
X
X

X
California
$167.755
X
X
X
X

Colorado
$17.233
X

X

Connecticut
$13.301

X
Delaware
$13.168
X
X

District of
$13.168

X

X
X
Columbia
Florida
$97.622
X
X
X

X
Georgia
$47.808
X
X
X

Guam
$13.168
X
X
X

Hawai
$13.168

X
Idaho
$13.168

X

Il inois
$78.365
X
X

X
X
Indiana
$34.339
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
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Capital
Allotment
Access
Loan
Loan
Collateral
Venture
Participant
($ millions) Program Participation
Guarantee
Support
Capital
West Virginia
$13.168

X
X
X
X
Wisconsin
$22.363

X

X
Wyoming,
$13.168

X

X
Laramie
Consortiumb
Sources: U.S. Department of Treasury, “State Programs Funded by SSBCI,” at https://www.treasury.gov/
resource-center/sb-programs/Documents/SSBCI%20State%20Programs%20and%20Contacts.pdf; and U.S.
Government Accountability Office, State Smal Business Credit Initiative, GAO-12-173, December 7, 2011.
a. The Mandan, North Dakota, led consortium of 37 municipalities and an Indian tribe was al otted $9.711
mil ion to administer a loan participation program. The Carrington, North Dakota, led consortium of 36
municipalities was al otted $3.458 mil ion to administer a col ateral support program and a venture capital
program.
b. The Laramie, Wyoming, led consortium includes 17 municipalities.
Approximately 32.5% of SSBCI funds were al ocated to loan participation programs, 29.5% to
venture capital programs, 18.4% to collateral support programs, 16.9% to loan guarantee
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,
al 57 participants had received their first tranche, 56 had received their second tranche, and 53
had received their third tranche.47
States were (and would continue to be) al owed to use up to 5% of their initial tranche, and up to
3% of their second and third tranches, for administrative expenses related to implementing an
approved smal 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
describing the use of al ocated funds for each approved program, including the total amount of
al ocated funds used for direct and indirect administrative costs, the total amount of al ocated
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
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.
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. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of Decem ber 31, 2016, p. 10, at https://www.treasury.gov/resource-center/sb-programs/Documents/
SSBCI_Quarterly_Report_Summary_December_2016.pdf .
47 U.S. Department of the T reasury, State Small Business Credit Initiative: A Summary of States’ Quarterly Reports as
of Decem ber 31, 2016, p. 1.
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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
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).48
GAO released annual audits of the SSBCI program on December 7, 2011, December 5, 2012,
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
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 official y started in January 2011,
when Treasury obtained signed al ocation agreements and distributed first instal ments of funds to
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
articulate what documentation was required for both the application and review processes.”51 The
two previously approved states were asked to sign an amended al ocation agreement that
incorporated the revisions.
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
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 al owed.
GAO also found that Treasury did not finalize its disbursement procedures for second and third
instal ments 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 initial disbursement to
support loans or investments to smal businesses. However, GAO noted that one state reported
that it was ready for its second instal ment 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-
Business-Lending-Fund-Program-Oversight . An audit of Louisiana’s use of SSBCI funds was issued on January 9,
2014, and removed from the T reasury OIG’s website on February 19, 2015, pending further review. T he OIG later
determined that the work performed was not sufficient to support the findings and conclusions in the rep ort under
generally accepted government auditing standards. T he audit report will not be reissued.
49 U.S. Government Accountability Office (GAO), State Small Business Credit Initiative, GAO-12-173, December 7,
2011, p. 21, at http://www.gao.gov/assets/590/586727.pdf.
50 GAO, State Small Business Credit Initiative, GAO-12-173, p. 14.
51 GAO, State Small Business Credit Initiative, 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.
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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
outcomes.
The three administrative performance goals were
 90% of requests for modifications to al ocation agreements are approved or
rejected within 90 days of receiving a final submission;
 90% of requests for subsequent disbursements under existing al ocation
agreements are approved or rejected within 90 days of receipt of a formal
submission; and
 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
of Management and Budget as part of its annual budget submission.
The four performance indicators were
 the amount of SSBCI funds used over time, as reported on SSBCI quarterly
reports;
 the volume and dollar amounts of loans or investments supported by SSBCI
funds, as reported on SSBCI annual reports;
 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
reports.
Treasury reported this performance data internal y to the Assistant Secretary of Financial
Institutions on an annual basis.
GAO’s second annual SSBCI audit, issued on December 5, 2012, found that states with
preexisting smal business programs distributed their SSBCI funds quicker than other states
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 smal
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 smal business lending.55
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
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, “Correspondence with the author,” June 22, 2012. For the first two goals, the measurement period
starts once all required documentation from the requesting participating state is received.
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.
56 GAO, Small Business Lending: Opportunities Exist to Improve Performance Reporting of Treasury’s Programs, 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.
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In response to this recommendation, on September 25, 2013, Treasury officials made SSBCI
performance information publicly available by releasing the first of what would become an
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
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
of jobs created or retained).
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 stil
facing several chal enges in using their SSBCI funds. For example, as of June 30, 2013, Treasury
had disbursed about $811 mil ion in SSBCI funds to participants (about 54% of total SSBCI
funds). Only 8 participants had received their third and final tranche, 19 partic ipants had received
their second tranche, and 30 participants were “stil working to use their first disbursement of
SSBCI funding.”60
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 smal business programs
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
some time for them to real ocate funds from SSBCI programs experiencing low demand to those
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
and 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
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 stil reluctant to
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, 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/
SSBCI%20Summary%20of%20States%202012%20Annual%20Reports%20FINAL.pdf.
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.
61 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, p. 13.
62 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, p. 16.
63 GAO, State Small Business Credit Initiative: Opportunities Exist to Enhance Performance Measurement and
Evaluation, 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.
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Treasury’s Inspector General Evaluation Reports
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 al ocation agreement between
Treasury and participating states, the OIG made nine recommendations for improvements. For
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
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
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
compliance with the policy guidelines and other restrictions applicable to the other participants
[lenders and borrowers] in the program.”68
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
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
combine al 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
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
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
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 for Compliance and Oversight,” May 15, 2012, at
http://www.treasury.gov/resource-center/sb-programs/Pages/ssbci.aspx.
71 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, May 24, 2012, at https://oig.treasury.gov/sites/oig/
files/Audit_Reports_and_T estimonies/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 .
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In each audit, the OIG reviewed a judgmental sample of smal business loans or investments to
“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
identified as intentional y or recklessly misused.74 Only Texas, New Jersey, West Virginia, and the
North Dakota Mandan consortium were found to be in full compliance with al SSBCI
requirements.
California
Treasury’s OIG determined that California had properly used the majority of the $3.6 mil ion in
SSBCI loans it examined, but it identified $133,250 in loan loss reserves funded under
California’s Smal Business Loan Guarantee Program that did not comply with SSBCI program
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 Smal
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
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 al of the
required borrower and lender assurances.”78
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 additional supporting
documentation for its SSBCI administrative expenses; and instructed California program officials
to address missing borrower and lender certifications and assurances. Treasury subsequently
noted that any loans stil missing required assurances and certifications had been unenrolled and
that al 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, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 2.
74 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 1.
75 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 3.
76 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 3.
77 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 3.
78 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, p. 3.
79 U.S. Department of the T reasury, OIG, Small Business Lending Fund: California Needs to Improve Its Oversight of
Program s Participating in the State Sm all Business Credit Initiative, pp. 13-14.
80 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, September 27, 2012, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIGSBLF12006.pdf.
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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
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
did not provide definitive guidance on the permissibility of passive real estate loans and informed
Montana that refinancing prior debt to the same lender was al owable if the prior debt had
matured and new underwriting had occurred. The OIG noted that Treasury attempted to clarify
the Smal Business Job Act’s prohibition on the refinancing of prior debt by defining refinancing,
which is not defined in the act. The OIG chal enged Treasury’s conclusion “that the statutory
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
OIG noted that there were no references in the Smal Business Jobs Act or in Treasury’s SSBCI
policy guidelines concerning “re-funding.”84
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
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
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
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
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
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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 Agreement due to its non-compliance
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
administrative expenses charged to the SSBCI program did not comply with program guidance.91
Treasury agreed to require Vermont to provide a subaccounting of al the funds transferred in
connection with the interest rate subsidy program as wel as al program income generated from
the use of such funds.92 Treasury also agreed to determine whether “there has been a general
event of default under Vermont’s Al ocation Agreement resulting from the State’s non-
compliance 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
warrants a reduction, suspension, or termination of future funding to the State.”93 In addition,
Treasury agreed to disal ow the $216,820 in administrative expenses charged to the SSBCI
program by Vermont unless the state provides supporting documentation in accordance with
OMB Circular A-87.94
Michigan
Treasury’s OIG found that Michigan had used the majority of the $38.5 mil ion in SSBCI loans it
examined properly, but it identified “approximately $2.524 mil ion in misuse, of which $2.5
mil ion 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
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 Initiative: Vermont’s Use of Federal Funds for
Capital Access and Credit Support Program s, pp. 3-4.
91 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, p. 3.
92 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, p. 15.
93 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, p. 15.
94 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, p. 14.
95 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, 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.
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were incurred prior to the date Michigan was approved to participate in the program and notified
of its SSBCI al ocation. The OIG recommended that those expenses be disal owed.97
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
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 and to disal ow the $8,506 in
administrative expenses that were incurred prior to the date Michigan was approved to participate
in the program and notified of its SSBCI al ocation.99
Texas
Treasury’s OIG examined five investments, totaling $6.3 mil ion, financed by the Texas Smal
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 al 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
prior to the completion of each transaction.”100
Massachusetts
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
approximately $6.6 mil ion of the SSBCI funds disbursed, including $4 mil ion for the
Massachusetts Growth Capital Corporation (MGCC) loan participation program, $2.1 mil ion for
the Massachusetts Business Development Corporation (MBDC) loan participation program, and
$211,000 for the Massachuset s 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/OIGSBLF13003.pdf.
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portion of federal y-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
loan closing.102
The OIG recommended that Treasury “revise its program guidance to make the enrollment of
federal y-guaranteed loans a clear prohibition, disal ow $200,000 in administrative expenses
unless the Commonwealth can provide adequate support for such costs, and require the
Commonwealth to demonstrate that it has a compliant system for al ocating administrative
costs.”103 The OIG also recommended that Treasury “determine whether there has been a general
event of default of the Al ocation Agreement resulting from Massachusetts’s non-compliance
with lender/borrower assurance requirements, material y inaccurate certifications, and failure to
report program income.”104
In response to the OIG’s recommendations, Treasury indicated it was in the process of revising its
program guidance on the enrollment of federal y guaranteed loans. It also stated that it wil
determine whether Massachusetts has adequately cured its noncompliance with program
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
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
the 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
approximately $4.1 mil ion of its first SSBCI disbursement of $4.3 mil ion—$80,883 for 36 loans
enrolled in the Delaware Access Program and approximately $4 mil ion 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
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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
that Treasury directed Delaware’s officials to obtain the missing assurances for each loan. By
November 2012, Delaware had retroactively obtained these assurances.
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
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
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
implemented “additional precautions, including random audits of SSBCI loans, to ensure
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
Jersey’s use of SSBCI funds.111 The accounting firm found that as of June 30, 2012, New Jersey
had spent about $2.9 mil ion of its first SSBCI disbursement of $11.1 mil ion—$1.76 mil ion for
two loan participations, $675,000 for a credit guarantee, and $500,000 for a direct loan.112
The accounting firm reviewed al four transactions and determined that New Jersey complied
with al program requirements in administering the $2.9 mil ion in SSBCI funds. The OIG
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.
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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 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’
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
found that Alabama had overstated the amount of SSBCI funds used by approximately $1 mil ion
in its March 31, 2012, quarterly report and by approximately $4 mil ion in its June 30, 2012,
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.
However, because Treasury identified and corrected the inaccuracies prior to the audit, the OIG
made no recommendations concerning the errors.115
Missouri
Treasury’s OIG contracted with an independent certified public accounting firm to audit
Missouri’s use of SSBCI funds. The accounting firm reviewed al 17 SSBCI transactions between
the signing of the SSBCI al ocation agreement on May 23, 2011, and March 31, 2012. These
transactions included 16 investments, totaling $6.6 mil ion, by the Missouri Innovation,
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
administrative expenses Missouri charged against SSBCI funds during that time period to ensure
these expenses were al owable, reasonable, and al ocable. Because the audit of the IDEA Fund
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
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 Initiative: Alabama’s Use of Federal Funds for
Capital Access and Other Credit Support Program s, June 4, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIGSBLF13008.pdf.
115 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Alabama’s Use of Federal Funds for
Capital Access and Other Credit Support Program s, pp. 1-2.
116 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, 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.
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have known that prohibited party relationships are not al owed because the SSBCI policy
guidelines “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
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 “potential y
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
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
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
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.122
Treasury agreed to recoup the $240,000 from Missouri. Treasury also agreed to “determine
whether Missouri has adequately cured its non-compliance with the related party prohibition,
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
Washington’s use of SSBCI funds. The accounting firm reviewed al of the state’s $5.3 mil ion in
SSBCI loans issued by Washington’s Enterprise Cascadia Loan Participation Program and al of
the $1.7 mil ion in investments issued by the state’s W Fund Venture Capital Program between
the signing of the SSBCI al ocation agreement on October 31, 2011, and June 30, 2012. The
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.
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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
Report to reflect the cost transfer. Treasury “advised Washington that it would authorize the
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
use of SSBCI funds. The accounting firm reviewed al of the state’s $1.53 mil ion in SSBCI loans
issued by the Kansas Capital Multiplier Loan Fund and the $696,950 in investments issued by the
Kansas Capital Multiplier Venture Fund between the signing of the SSBCI al ocation agreement
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
these expenses were al owable, reasonable, and al ocable.
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 mil ion
aggregate financial arrangement.128 The OIG noted that there is a $20 mil ion cap on SSBCI loans
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
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
that exceed a principal amount of $20 mil ion. Treasury agreed to revise the SSBCI policy
guidelines 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 Initiative: Washington’s Use of Federal Funds
for Capital Access and Other Credit Support Program s, p. 2.
127 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. 7.
128 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Kansas’ Use of Federal Funds for
Other Credit Support Program s, September 5, 2013, p. 2, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIG-SBLF-13-013.pdf.
129 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. 2.
130 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. 18. Kansas officials explained that the three lo ans in question were “ made to
separate legal entities which were operated as separate businesses at separate locations, but who sold product to a
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.
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audit and tax consulting costs that were not properly al ocated through a cost al ocation plan or an
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 disal owed audit and tax consulting
costs from the State’s quarterly reports, and review Kansas’ cost al ocation plan for administrative
costs.”133
Florida
Treasury’s OIG reviewed al 7 SSBCI venture capital investments, totaling $37 mil ion, issued by
the Florida Venture Capital Program and al 17 SSBCI loans, totaling approximately $14.6
mil ion, issued by the Florida Loan Participation Program (11 loans, totaling $9.75 mil ion);
Florida Direct Loans Program (1 loan, totaling $3.5 mil ion); Florida Loan Guarantee Program (3
loans, totaling $1.37 mil ion); and Florida Capital Access Program (2 loans, totaling $780 for
portfolio insurance) between the signing of the SSBCI al ocation agreement on August 24, 2011,
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
al owable, reasonable, and al ocable.
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
prohibited relationships, maximum transaction amounts, use-of-proceeds, capital-at-risk, and
other restrictions noted in the [Smal Business Jobs] Act and SSBCI Guidelines.”135 The
questionable transaction involved the use of $4 mil ion in SSBCI funds in a $34.7 mil ion
investment “that involved multiple 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
collecting companion lender assurances [as was recommended by the OIG] is impractical and unnecessary.” See U.S.
Department of the T reasury, OIG, State Sm all Business Credit Initiative: Kansas’ Use of Federal Funds for Other
Credit Support Program s, p. 18. T reasury agreed to clarify the “ SSBCI National Standards for Compliance and
Oversight” document to specify which companion lenders must submit assurances.
134 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, November 15, 2013, pp. 1, 13, at https://oig.treasury.gov/sites/oig/
files/Audit_Reports_and_T estimonies/OIGSBLF14002R.pdf.
135 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. 7.
136 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. 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.
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when an investment involves multiple equity instruments.”138 Treasury agreed to revise the
program’s guidance concerning the $20 mil ion credit support restriction.139
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
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
and made adjustments to the state’s administrative expenses to account for the error in their
March 31, 2013, SSBCI quarterly report.140
In addition, the OIG found that Florida had “overstated by approximately $23 mil ion the amount
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
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
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
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
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
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
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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 in SSBCI funds it had
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
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 “Il inois neglected to
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 Il inois
unintentional y 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 mil ion. This occurred because the
financing structure of the transaction was changed without the state’s knowledge.150
Treasury informed the OIG that it wil recoup from Il inois the $105,000 expenditure identified
by the OIG as being prohibited, require Il inois to modify any master agreements with lenders
that do not include required language mandating that lenders notify the state of changes in the
sex-offender status of their principals, and require Il inois to provide lender certifications when 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, March 19, 2014, pp. 1-2, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIGSBLF14004R.pdf.
147 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support Program s, March 26, 2014, p. 17, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIG-SBLF-14-005R%20%28for%20web%29.pdf.
148 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support Program s, pp. 2-3.
149 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support Program s, p. 3.
150 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Illinois’ Use of Federal Funds for
Capital Access and Other Credit Support Program s, pp. 12-13.
151 U.S. Department of the T reasury, OIG, State Small Business Credit 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
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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
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
misuse was “not reckless or intentional because SSBCI Policy Guidelines do not explic itly
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
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
with al SSBCI requirements.
Treasury informed the OIG that it wil publish guidance to clarify that using SSBCI funds to
support transactions with a non-secular 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
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
ensure that al borrower and lender assurance requirements are signed and dated prior to the
transfer of SSBCI funds.157
American Samoa
American Samoa was awarded $10.5 mil ion in SSBCI funds on January 12, 2012, and received
its first disbursement of $3.465 mil ion 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.
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, March 26, 2014, p. 12, at https://oig.treasury.gov/sites/
oig/files/Audit_Reports_and_T estimonies/OIG-SBLF-14-006.pdf.
153 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, pp. 2-3.
154 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, p. 3.
155 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, p. 3.
156 I U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: South Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, pp. 13-14.
157 U.S. Department of the T reasury, 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, 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_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.
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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
annual report to Treasury on time, causing Treasury to declare a general event of default of
American Samoa’s Al ocation 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
its findings, the OIG recommended that Treasury disal ow the $49,155 in unsupported
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
first comply with the terms of its Al ocation Agreement, and approve the agreement
modifications, before disbursing additional funds.”161
Treasury informed the OIG that it wil disal ow the $49,155 in unsupported administrative costs,
determine whether American Samoa has again defaulted on its al ocation agreement, and
determine what form of remedy may be appropriate.162 Treasury also indicated that if American
Samoa’s funding is not terminated, Treasury “wil not disburse additional funds before requiring
that the Territory first comply with the terms of the Al ocation Agreement.”163
Officials with American Samoa’s Department of Commerce agreed with the recommendation to
disal ow the questioned SSBCI administrative expenses, which, they noted, were made by a
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
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
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 al
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 Initiative: American Samoa’s Administrative
Expenses and Reporting, pp. 2-3.
161 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 13.
162 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 17.
163 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 17.
164 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 19.
165 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, p. 19.
166 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: American Samoa’s Administrative
Expenses and Reporting, pp. 14, 19-24.
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North Carolina Loan Participation Program, and 5 were from the North Carolina Venture Capital
Fund-of-Funds Program), totaling $4.9 mil ion, between the signing of the al ocation agreement
on May 23, 2011, and December 31, 2012. The OIG also reviewed 46 of the state’s SSBCI
administrative cost transactions, totaling $720,257.167
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
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 [Smal Business Jobs] Act and
constitute a misuse of funds” but not an intentional or reckless misuse of funds due to the lender’s
misrepresentations.169
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
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
rendered the certifications obsolete.
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
to the investment” and “reported $10.3 mil ion in capital commitments with SSBCI funds to four
angel investment funds as obligated funds even though only $2.9 mil ion had been pledged to
investees.”171 The OIG expressed concern that “while obligating funds on a multi-year basis
general y is an accepted practice,” using capital commitments to angel investment funds with
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 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 Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, March 27, 2014, pp. 1-2, 16, at https://oig.treasury.gov/
sites/oig/files/Audit_Reports_and_T estimonies/OIGSBLF14009.pdf.
168 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, pp. 3, 8-9.
169 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, pp. 3, 8-9.
170 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, pp. 10-11.
171 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, pp. 3-4.
172 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. 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.
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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
standard definition of funds used for al program-reporting purposes instead of defining funds
used differently for different purposes.174
Treasury informed the OIG that it wil (1) verify that North Carolina has withdrawn SSBCI funds
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
a disbursement that states are not holding excess idle cash that is not likely to be expended,
obligated, or transferred to smal businesses within a reasonable time period; (4) explain in the
summary quarterly reports that funds “expended, obligated, or transferred” include obligations to
venture capital funds not yet linked to specific smal business investments; and (5) make every
effort to follow the definition of funds used in the SSBCI policy guidelines.175
Idaho
Treasury’s OIG examined a random sample of 30 SSBCI loans enrolled in the Idaho Collateral
Support Program (ICSP), totaling $50.3 mil ion, for which Idaho provided $7.6 mil ion in
collateral and 12 loans committed for enrollment into the ICSP, totaling $10.8 mil ion, for which
Idaho had reserved $2 mil ion in collateral as of September 30, 2013. Treasury had previously
reviewed Idaho’s administrative expenses from January 2012 to September 2012 and had reduced
Idaho’s final al otment 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
in administrative expenses as of September 30, 2013. The OIG reviewed these additional
administrative expenses for compliance with SSBCI guidelines.176
The OIG found that Idaho appropriately used the $9.6 mil ion in collateral support that was
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
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 Initiative: North Carolina’s Use of Federal
Funds for Capital Access and Other Credit Support Program s, p. 17.
175 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, pp. 18, 22-23.
176 U.S. Department of the T reasury, 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/
Audit_Reports_and_T estimonies/OIGSBLF14010R.pdf.
177 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.
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.
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amount of the executed loan.179 In addition, Idaho noted that it “wil work with Treasury to rectify
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
issues identified in the audit.181
Idaho’s $272,744 in administrative expenses reported since Treasury’s earlier audit were found to
be in full compliance with SSBCI guidelines.182
Indiana
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
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
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),
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 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
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 Initiative: Idaho’s Use of Federal Funds for its
Collateral Support Program , pp. 16-17.
180 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. 14.
181 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. 14.
182 T he 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
had been approved for the SBA’s 504/Certified Development Company (CDC) loan guaranty program. T he OIG
expressed concern that T reasury’s reporting of jobs created or retained by recipients of SSBCI supported loans may
potentially duplicate the SBA’s reporting of jobs created or retained by 504/CDC loan program recipients. T reasury
agreed to explain clearly in the summary of st ates’ annual reports that there is a possibility for duplicate reporting of
job creation and retention figures in such circumstances. See U.S. Department of the T reasury, OIG, State Sm all
Business Credit Initiative: Idaho’s Use of Federal Funds for its Collateral Support Program , pp. 5-7, 11, 15.
183 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, June 18, 2014, pp. 2, 6-10, at https://oig.treasury.gov/sites/oig/files/
Audit_Reports_and_T estimonies/OIGSBLF14011.pdf.
184 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.
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.
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not prohibited, “may raise the appearance of partiality and should be addressed by SSBCI Policy
Guidelines.”187
The OIG recommended that (1) Treasury recoup the $499,986 of federal funds “intentional y”
misused and declare a specific event of default of its al ocation agreement with Indiana; (2)
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
investment decision going forward.188
Treasury agreed with al 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”
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.”189
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
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
that the investment “had led to the creation of numerous new jobs for the people of Indiana.”190 In
addition, Indiana reported that it “wil 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, while the investment constituted a related party
transaction, it did not meet the criteria needed to establish it as a prohibited related party interest. T he conflict of
interest existing for [the $300,000 investment] ... was disclosed to the Board of Elevate Ventures in accordance with
Elevate Venture’s conflict -of-interest policy, and the Board approved the investment without any review by the State.”
See U.S. Department of the Treasury, OIG, State Sm all Business Credit Initiative: Indiana’s Use of Federal Funds for
Other Credit Support Program s, p. 9.
188 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.
189 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, pp. 10-11, 14.
190 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, pp. 16-17.
191 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, pp. 16-17.
192 U.S. Department of the T reasury, 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_T estimonies/OIGSBLF14012.pdf.
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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
inaccurately certified that it was in compliance with al SSBCI requirements in several quarterly
reports.
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
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
100% complete.”194
The OIG found that al of Tennessee’s sampled administrative expenses were reasonable,
al owable, and al ocable 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
Participation Program, totaling $8.6 million of the $8.9 mil ion obligated or spent as of March 31,
2014. The sampled loans were made between August 31, 2012 (the signing of the consortium’s
SSBCI al ocation agreement), and March 31, 2014. The OIG also reviewed the consortium’s
$194,101 in SSBCI administrative expenses.196
The OIG found that the Mandan consortium used al of the loan funds it reviewed appropriately.
The OIG also determined that the consortium’s administrative expenses were reasonable,
al owable, and al ocable 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.
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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
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%
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
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.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
funds.202
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-
risk must be from a private source when SSBCI funds are invested. Rhode Island acknowledged
that the private capital was not initial y invested as required by Treasury guidelines but indicated
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
and wil 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
in New York’s SSBCI venture capital program, cal ed the Innovate Fund. The OIG found that the
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 Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2.
200 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2.
201 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 2.
202 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 3.
203 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 4.
204 U.S. Department of the T reasury, OIG, State Small Business Credit Initiative: Rhode Island’s Use of Federal Funds
for the Slater Technology Fund, p. 4.
205 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, 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.
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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
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 smal
businesses. Advocates argued that the SSBCI would help to address the then-recent decline in
smal business lending and create jobs. Opponents were not convinced it would enhance smal
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 smal business lending. As
mentioned, as of December 31, 2016, states had spent or obligated about 88% of the $1.45 bil ion
available ($1.27 bil ion of $1.45 bil ion), which is sufficient to provide some insight. For
example, as mentioned, Treasury reported that SSBCI funds supported more than 21,000 loans
and investments in smal business amounting to over $10.7 bil ion, with more than 80% of the
funds and investments made to smal businesses with 10 or fewer full-time employees. Treasury
also reported that smal 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,
determining the SSBCI’s influence on smal business lending is likely to be more suggestive than
definitive because differentiating the SSBCI’s effect on smal business lending from other,
exogenous factors, such as changes in the lender’s local economy and changes in the demand for
smal business loans, is methodological y chal enging, especial y given the relatively smal
amount of financing involved relative to the national market for smal business loans.209 As
mentioned, the SSBCI’s $1.5 bil ion in financing at that time represented about 0.24% of
outstanding non-agricultural smal business loans.
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
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
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, 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/
SSBCI%20Summary%20of%20States%20Annual%20Report%202016_508%20Compliant.pdf .
209 U.S. T reasury, “Correspondence with the author,” June 22, 2012.
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Appendix. The Original SSBCI’s Legislative Origins
On January 27, 2010, then-President Obama announced in his State of the Union Address that
because “financing remains difficult for smal business owners across the country, even those that
are making a profit,” he would send Congress several legislative proposals designed to enhance
smal business access to capital, including a proposal to establish a $30 bil ion Smal Business
Lending Fund (SBLF).210 On May 7, 2010, the Obama Administration sent Congress draft
legislation to establish the SBLF and the State Smal Business Credit Initiative (SSBCI).211
On May 13, 2010, Representative (now Senator) Gary Peters introduced H.R. 5302, the State
Smal Business Credit Initiative Act of 2010. The bil would have authorized a $2 bil ion SSBCI
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, initial y titled
the Smal Business Lending Fund Act of 2010. Based on the President’s SBLF proposal, the bil
was designed to encourage lending to smal businesses by creating a $30 bil ion SBLF to make
capital investments in eligible community banks with total assets of less than $10 bil ion.212 On
May 18, 2010, the Committee on Financial Services held a hearing on H.R. 5297 and the
following day, approved the bil , 42-23, as amended.213 Perhaps the most significant amendment
approved was an amended version of the $2 bil ion State Smal Business Credit Initiative Act of
2010. It was approved by a vote of 39-23.214
SBLF and SSBCI advocates argued that the programs were necessary because “many companies,
particularly smal 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
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 smal business access to
capital.
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

210 U.S. President (Barack Obama), “ Remarks by the President in State of the Union Address,” January 27, 2010, at
https://obamawhitehouse.archives.gov/the-press-office/remarks-president -state-union-address.
211 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd
sess., May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), p. 17.
212 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 18.
213 U.S. Congress, House Committee on Financial Services, Incentives to Promote Small Business Lending, Jobs, and
Econom ic Growth, 111th Cong., 2nd sess., May 18, 2010, Serial no. 111-137 (Washingt on, DC: GPO, 2010).
214 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, report to accompany H.R. 5297, 111th Cong., 2nd
sess., May 27, 2010, H.Rept. 111-499 (Washington, DC: GPO, 2010), pp. 21, 22.
215 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 16.
216 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 18.
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argued that the SBLF and SSBCI did not address what they considered to be the core issue
affecting smal business job creation during the economic recovery—the need to stimulate
demand for credit by smal businesses.217 They argued that the bil would fail to help smal
businesses or create jobs, would succeed in adding bil ions of dollars to the national debt, and
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 smal business
access to capital, they advocated an extension of a series of smal business tax credits as a more
effective means to stimulate smal 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),
which provided that “in the engrossment of H.R. 5297, the Clerk shal add the text of H.R. 5486,
as passed by the House, at the end of H.R. 5297 and that H.R. 5486 shal be laid on the table.”220
H.R. 5486, To Amend the Internal Revenue Code of 1986 to Provide Tax Incentives for Smal
Business Job Creation, and for Other Purposes, included several tax incentives for smal
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
language for a proposed amendment in the nature of a substitute to H.R. 5297, as reported, which
included a proposed $1 bil ion Smal Business Early-Stage Investment Program.
On June 17, 2010, the House passed H.R. 5297 by a vote of 241-182. The engrossed bil , retitled
the Smal Business Jobs and Credit Act of 2010, included the language in H.R. 5486 and the
Smal Business Early-Stage Investment Program, as wel as the $30 bil ion SBLF and $2 bil ion
SSBCI.
The arguments presented in the House report accompanying the bil , both for and against the
bil ’s passage, also were presented during House floor debate. For example, advocates argued that
the SSBCI would “increase smal business lending which wil retain and create jobs.”221
Opponents argued that the bil “is repeating the same failed initiatives that have helped our
national debt grow to $13 bil ion in the past two years” and did not address what they viewed as
the top problem facing smal 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
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
of the bil (S.Amdt. 4594, an amendment in the nature of a substitute for H.R. 5297) on

217 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 37.
218 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 38.
219 U.S. Congress, House 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 in Eligible Institutions in order to Increase the
Availability of Credit for Sm all Businesses, and for other Purposes, p. 38.
220 H.Res. 1436. A second rule (H.Res. 1448) was issued on June 16, 2010, to allow consideration of two amendments
that were revised to comply with House “ pay-go” rules.
221 Rep. Melissa Bean, “T he Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record, vol.
156, no. 90 (June 16, 2010), p. H4514.
222 Rep. Randy Neugebauer, “T he Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record,
vol. 156, no. 90 (June 16, 2010), p. H4514, H4515.
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September 16, 2010, by a vote of 61-38.223 The Senate-passed version of the bil , which included
the SSBCI but funded at $1.5 bil ion instead of $2 bil ion, was passed by the House on September
23, 2010, by a vote of 237-187. The enrolled bil , retitled the Smal Business Jobs Act of 2010,
was signed into law (P.L. 111-240) by President Obama on September 27, 2010.224
The arguments presented during Senate floor debate, both for and against the bil ’s
passage, were similar to those presented during House floor debate. One difference was a
greater emphasis by the bil ’s advocates in the Senate on the SSBCI’s support of state
loan col ateral programs. Several Senators argued that the SSBCI’s support of state loan
col ateral programs was needed because, as one Senator pointed out, “just as the
recession has battered the value of our homes, it has also battered the value of business
property such as real estate, factories, and equipment. That has damaged the ability of
smal businesses to get bank financing because it has lowered the value of property they
can offer as col ateral.”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. T hat
same day, Sen. Harry Reid 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, which included the
Small Business Lending Fund (SBLF) and most of the provisions later included in S.Amdt. 4594. In response to
perceived opposition to the SBLF, S.Amdt. 4407 was withdrawn on July 21, 2010. In its place, Sen. Harry Reid
proposed for Sen. George LeMieux S.Amdt. 4500, to establish the Small Business Lending Fund Program. He also
proposed for Sen. Max Baucus S.Amdt. 4499, an amendment in the nature of a substitute, which contained S.Amdt.
4407, with modifications, minus the SBLF. On July 22, 2010, cloture on S.Amdt. 4500 was invoked in the Senate, by a
vote of 60-37. On July 27, 2010, Sen. Harry Reid withdrew S.Amdt. 4500 and introduced for Sen. Max Baucus
S.Amdt. 4519, which included the SBLF, the provisions in S.Amdt. 4499, with modifications, $1.5 billion in
emergency disaster agricultural assistance, and additional revenue offsets. On July 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 SBLF and the
number of amendments to be offered. On August 5, 2010, Sen. Harry Reid introduced for Sens. Max Baucus and Mary
Landrieu S.Amdt. 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
have raised $1.1 billion, removed a provision that would have reallocated $500 million in future spending from P.L.
111-5, the American Recovery and Reinvestment Act of 2009, and removed a provision to provide $1.5 billion in
emergency agricultural assistance funding. On September 14, 2 010, 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 61 -38. See Sen. Harry Reid, “ T ext of Amendments:
SA 4519,” Congressional Record, 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., Congressional Record, vol. 156, no. 113 (July
29, 2010), p. S6473; Sen. Harry Reid, “ Small Business Lending Fund Act of 2010,” Remarks in the Senate,
Congressional Record, vol. 156, no. 113 (July 29, 2010), pp. S6472, S6473; Sen. Mitch McConnell, “ Small Business
Lending Fund Act of 2010,” Remarks in the Senate, Congressional Record, vol. 156, no. 113 (July 29, 2010), pp. S
6472, S6473; Sen. Kay Hagen, “ Motion to Invoke Cloture on H.R. 5297, the Small Business Lending Fund Act of
2010,” Rollcall Vote No. 236 Leg., Congressional Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S
7158; and Sen. Al Franken, “Small Business Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Congressional
Record, daily edition, vol. 156, part 125 (September 16, 201 0), p. S7158.
224 Sen. Al Franken, “Small Business Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Congressional Record,
daily edition, vol. 156, part 125 (September 16, 2010), p. S7158.
225 Sen. Carl Levin, “Small Business Lending Fund Act of 2010,” remarks in the Senate, Congressional Record, vol.
156, part 124 (September 15, 2010), p. S7123.
Congressional Research Service

41

State Small Business Credit Initiative: Implementation and Funding Issues

Author Information

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

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Congressional Research Service
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