Don't Mess With Taxes

The Small Business Administration's annual Small Business Week events ended earlier this month, but another federal agency now is doing its part to support companies.

The U.S. Treasury Department this week announced five states will receive the first round of newly-reauthorized State Small Business Credit Initiative (SSBCI) money.

SSBCI was first established in 2010. The program was reauthorized and expanded in March 2021 as part of the American Rescue Plan Act (ARPA). It now has nearly $10 billion that will go to states for programs that promote entrepreneurship nationwide.

Hawaii, Kansas, Maryland, Michigan, and West Virginia are the first states to be approved for this newly approved SSBCI funding. Those states were awarded a total of more than $639 million.

Old program, new life for small businesses: These first allocations from the new version of SSBCI are part of broader goal of investing in smaller companies. Supporters say one of the goal's is to create up to $10 in private investment for every $1 of federal SSBCI capital funding.

The funds are aimed at advanced manufacturing, the environmental sector, and other key areas, with a focus on traditionally underserved communities as they emerge from the COVID-19 pandemic.

The effort is particularly noteworthy in light of a White House report released earlier this month, which found that more Americans are starting new businesses than ever before.

In 2021, Americans applied to start 5.4 million new businesses. That's 20 percent more than any other year on record.

In addition, the report also found small businesses are creating more jobs than ever before, with businesses with fewer than 50 workers creating 1.9 million jobs in the first three quarters of last year. That, according to the report, was the highest rate of small business job creation ever recorded in a single year.

The goal is for SSBCI investments to keep this small business boom going.

All this money and associated figures mean the ol' blog's usual weekend's By the Numbers honor is being handed out early. The winner is 5, in recognition of the first recipients of the renewed initiative.

First five recipients: All states, the District of Columbia, U.S. territories, and Tribal governments can apply for the money. The eligible governmental entities submitted plans to Treasury with details on how they will use SSBCI funding to assist small businesses.

Below are the highlights of the plans from the five states receiving this first round of new SSBCI funding.

Hawaii was approved for just more than $62 million. The Aloha State will use two-thirds of the allocation to launch new loan participation and credit enhancement programs, the HI-CAP Loans and HI-CAP Collateral operations. These programs will expand access to capital for underserved communities by lending to projects that will diversify Hawaii's economy and lessen its reliance on tourism, which suffered high rates of business failures and unemployment during the COVID-19 pandemic. Hawaii will also operate a venture capital program, the HI-CAP Invest program, which will include investments in impact funds that target early-stage businesses focused on social or environmental change in Hawaii.

Kansas, approved for almost $69.6 million, will operate a loan participation program, the GROWKS Loan Fund, and an equity program, the GROWKS Angel Capital Support Program, with more than 80 percent of its funds. These programs will expand access to capital for underserved communities in the Sunflower State by providing companion loans and equity investments with varying levels of SSBCI support. Kansas estimates that approximately 40 percent of businesses supported will be women-owned and 20 percent will be minority-owned small businesses.

Maryland was approved for up to $198.4 million. The Old Line state will operate eight loan and equity investment programs through Maryland Department of Housing and Community Development (DHCD), Maryland Department of Commerce, and Maryland Technology Economic Development Corporation. Among the approved programs is the Maryland Small Business Development Financing Authority (MSBDFA), a program at the Department of Commerce, which will expand access to capital for underserved communities by targeting loans to underserved businesses. Maryland anticipates that 70 percent of new loans in the SSBCI-funded program will be provided to minority-owned businesses and 40 percent to women-owned businesses. Maryland will also use $17 million to fund the Neighborhood Business Works Venture Debt Program, which will expand access to capital for underserved communities by lending alongside venture capital equity in high-growth businesses located in qualified low-income communities, anchoring the businesses in these communities through federal tax incentives that require them to remain in low-income communities for several years.

Michigan, approved for almost $237 million, has focused on creating new credit support programs to deal with the challenges the state's manufacturing sector has faced over the last several decades. With the new SSBCI funds, the Great Lakes State will use nearly one-third of its allocation to operate the Michigan Business Growth Fund Collateral Support Program. This existing program provides cash collateral accounts to lending institutions to enhance the collateral coverage of borrowers so that they qualify for loans. Historically the program has targeted industries with high wages and high job growth potential, such as manufacturing, medical device technology, engineering, and agribusiness. Now Michigan will expand the program to reach smaller service and retail businesses disproportionately hurt by COVID-19.

West Virginia was approved for just more than $72 million, of which more than half will be used to operate a seed capital co-investment fund. Mountain State officials say this will increase small businesses' access to venture capital in a state with no resident venture capital firms and average annual venture capital investment well below the per-capita national average. The fund will focus on expanding access to capital for underserved communities by providing equity investments matched with private equity from angel investors or venture capital funds. Statewide and regional nonprofits and community development financial institutions (CDFIs) will partner with community banks and CDFIs to use the remaining balance of the funds for two loan programs that will serve the needs of West Virginia businesses.

"This historic investment will help reduce the barriers that prevent small businesses and entrepreneurs from getting their ideas off the ground, building successful businesses, and creating jobs, especially in traditionally underserved communities where these opportunities are needed most," said Deputy Secretary of the Treasury Wally Adeyemo in a statement announcing the allocations.

You also might find these items of interest:

• Tax implications of business entity choices
• Tax tips from the IRS to celebrate Small Business Week
• A Labor Day salute to COVID-created new entrepreneurs

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