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Background on Georgia’s State Small Business Credit Initiative (SSBCI)
www.dca.ga.gov/economic/financing/programs/SSBCI.asp
The Small Business Jobs Act of 2010 (the “Act”) created the State Small Business Credit Initiative, funded with $1.5 billion to strengthen state lending programs that support small businesses and manufacturers. Of that total amount allocated, Georgia was allocated $47,808,507 in December of 2011. Any approved program must ultimately generate $10 in private leverage for each public dollar awarded by the state.
Following discussions with Treasury and completion of the rule-making for the program, Georgia’s SSBCI proposal now contains three programs. Those programs are: 1) GA Funding for CDFIs, to which the State will allocate $20 million; 2) GA SBCG, or Small Business Credit Guarantee, to which the State will allocate $17,808,507; and 3). GCAP (Georgia Capital Access Program), to which the State will allocate $10 million.
| The DCA, in coordination with the Georgia Department of Banking and Finance (GDB&F) has developed participation parameters for banks, credit unions, Community Development Financial Institutions (CDFIs) and other private financial lenders. DCA will be holding workshops through-out the state. The first is in rural Georgia at the Tifton Rural Development Center on March 15th. Other marketing outreach program to inform and educate lenders and small businesses about Georgia’s SSBCI programs will be conducted around the state. A description of the SSBCI initiatives details follow.
GA Funding for CDFIs
The CDFIs currently operating in Georgia are positioned in the metro and rural underserved communities to establish relationships with local banks, local chambers of commerce, economic development authorities and small business owners that are recognizing the need for job creation on a local or personal level. By partnering with Banks, the CDFIs plan to leverage the SSBCI funds 10:1 over the life of the program. CDFIs generally partner with banks to provide traditional “gap financing” by structuring their loans as subordinated debt to leverage a bank’s first lien debt.
GA Small Business Credit Guarantee
The GA SBCG, or Small Business Credit Guarantee, will provide a 50% credit guarantee to the lender with a conversion option, whereby participating lenders may choose to convert any enrolled credit guarantee to a 10% (of the remaining principal) deposit to a loan loss reserve account where the reserve can cover up to an 80% loss on any individual loan. Turnaround on the Guarantee request by participating private lenders is expected to be days, not weeks.
Georgia Capital Access Program
The Georgia Capital Access Program (GCAP) will be a new small business lending program. The Program assists small businesses with obtaining loans through participating financial institutions (lenders). GCAP lenders may be banks, credit unions, or CDFIs, as defined in the SSBCI act. The lenders are encouraged to make loans to small businesses whose requests meet “traditional” underwriting standards but whose assets are impacted by the ongoing economic restructuring (real-estate values, perception of receivables strength, etc.).
GCAP provides portfolio insurance to the lenders by requiring insurance premiums to be paid, by the borrower and the lender, to a loan loss reserve fund for each loan enrolled. The borrower and lender each make an equal contribution of 2% of the amount enrolled, which GCAP will match, to a lender’s loan loss reserve account. A borrower may also pay the lender’s fee, and vice versa, as long as a written agreement is signed. GCAP allows the borrower’s fee to be financed and may be part of the loan proceeds. Each financial institution has a separate loan loss reserve fund managed by GCAP. |
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