By Chuck Crumbo
Published July 26, 2011
South Carolina has been awarded $18 million from the federal government to create a capital access program for credit-worthy small businesses. Funding through the national State Small Business Credit Initiative could generate 10 times as much in private lending, officials said today.
To receive the money, South Carolina had to show a reasonable expectation that $10 in new private lending will result from every $1 in federal funding, bankers and business leaders said during a news conference at the Capital City Club.
The capital access program in South Carolina, therefore, is expected to generate $180 million in small business lending, they said.
“Perhaps more importantly, this access to funds will empower small businesses across our state to open, expand and do whatever it takes to ensure their own success and put more people to work,” said Lloyd Hendricks, president and CEO of the S.C. Bankers Association.
Businesses eligible for the program can have up to 500 employees and borrow as much as $5 million. Not-for-profit organizations like hospitals also are eligible to borrow under the new program. The loans, though, cannot be used for real estate speculation.
“Access to capital is a struggle for many small businesses,” said Harry Huntley, executive director of the S.C. Jobs-Economic Development Authority, which will be the program’s administrator. “These critical funds will provide a powerful reason for banks to lend to the job-creation machines we have in South Carolina that are just waiting for their spark.”
State leaders are focusing efforts on small business to help knock down South Carolina’s 10.2% jobless rate. In South Carolina, about 65% of jobs are in small business.
The state-run program applies for the funds, which then are used to boost credit that private lenders can make available to qualifying creditworthy small businesses.
Banks participating in the program will make all decisions about a loan application in-house, which will free them from having to get approval from state or federal officials, said Edwin Lesley, president and CEO of the Business Development Corp. of South Carolina.
South Carolina is the 14th state to join the program, which was created by the Small Business Jobs Act passed by Congress and signed by President Obama on Sept. 27.
To be eligible for the program, the state legislature had to pass a joint resolution authorizing the S.C. Jobs-Economic Development Authority to receive and distribute the funds.
The S.C. Bankers Association lobbied the legislature for the measure and introduced the program to its members. The economic development authority also will work with the Business Development Corp. of South Carolina to administer and put the program into effect.
The BDC will take a lead role in working with the state’s banking industry, whose participation is essential to the program’s success, officials said.
Because the program is under the auspices of the U.S. Treasury Department, regulators may loosen some underwriting requirements, officials said.
The program’s advantage for banks is that it’s based on a federally funded reserve fund concept that is fundamentally different from traditional insurance or guarantee programs, which guarantee individual loans, Lesley said.
The program works on a portfolio concept. In other words, if a financial institution participates in the program, a special reserve fund, which is owned by the state but managed by Business Development Corporation of S.C., is set up to cover future losses from a portfolio of loans that the institution makes under the program. The reserve fund is not specific to individual loans, but is used to offset losses on any loan in the participating financial institution’s portfolio of loans made under the program.
This reserve fund concept allows financial institutions the ability to make business loans that are considered higher risk than conventional loans and that may not meet conventional underwriting standards.