Deadline Beckons: US Treasury Has $13M+ for Each State to Build an Entrepreneurial Economy with SSBCI Funds

Finding capital for startups is tough. Never tougher, some would say. Yet, a little known federal program provides upwards of $13 million for any state in need of jobs, supporting the companies that are the core drivers of job creation. What can they do to launch such a wave of new businesses? Check in today with the U.S. Treasury’s State Small Business Credit Initiative (SSBCI).

SSBCI is a $1.5 Billion program to support lending to small businesses of all types. The legislation provides a one-time grant of at least $13 million to each state, (and more for higher population states). The program requires states to move quickly to deploy the capital over a three year span. Additionally, states must meet a 10:1 leverage hurdle where $10 of new money is matched to each $1 of federal funding.

States have three weeks, until June 27, to apply. Treasury encourages states to apply early if they want feedback before the deadline. How a state elects to leverage these funds now could make an enormous impact on the region’s entrepreneurial economy for years to come.

What is unique about the SSBCI program is that it provides states an opportunity to create a program tailored to their region. Most states will establish a guarantee or credit insurance program to support small business lending. But many states – at least 14 according to a recent survey by the Council of Development Finance Agencies – are opting to direct equity to startups and emerging businesses.

While only a few small companies will qualify for venture capital, many such businesses will find funding from friends and family, or angel capital. Angel investors form the bridge between early development and the later rapid growth phases of an emerging business, filling critical gaps in financing. Today, the relative size of angel investing has grown to meet advanced early stages business opportunities on a scale similar to that of venture capital investing, with $20.1BN in angel capital invested in 2010 compared to $21.8BN in venture capital invested in the same period, according to the University of New Hampshire’s Center for Venture Research and the National Venture Capital Association. However, the total number of entrepreneurial companies supported by angel capital dwarfs that of venture capital by a factor of almost 20 to 1. In 2010, 61,900 companies received angel capital support, while only 3,177 received venture capital.

An active network of angel investors in a region can help drive the opportunity for entrepreneurs to find the capital they need to grow and prosper. For states, forming new angel funds by matching SSBCI monies with new, private capital will raise the level of sophistication of seed and angels investing in a state, create a ready resource for the State’s entrepreneurs, and make a big impact on the State’s economy. And, if designed as an evergreen funding source, the program could operate for decades if effectively managed.

But I stress: Time flies, and we at Development Capital Networks urge you take advantage of the opportunity.