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The Mixed Signals Of Federal SME Funding

It was a busy summer for U.S. officials in efforts to boost small businesses’ access to working capital. As the season winds down, the numbers are pouring in about how SMEs are accessing cash, and where that cash is coming from. PYMNTS takes a look at three just-released reports to break down the details, and finds a mixed picture of federal support for SME finance.

In the last few weeks, the U.S. Treasury released two new reports outlining the progress of the State Small Business Credit Initiative, a program that sees government funds allocated to states, which, in turn, funnel those funds down to SMEs through a variety of channels, including loan guarantees, loan participation and venture capital. The numbers look pretty good, but another report released this week found that a different government body, the Small Business Administration, actually led to a decline in small business lending. The numbers are giving mixed signals about small businesses’ access to funding through government programs.

[bctt tweet="The numbers are giving mixed signals about small businesses’ access to funding through government programs"]

The Treasury

The U.S. Treasury published two separate reports on the latest levels of funding issued through the SSBCI.

In its Summary of States’ 2014 Annual Reports, released in July, the Treasury takes a look at a new angle of the impact of the SSBCI on small business finance. According to the analysis, the initiative has helped support 12,400 SMEs financially, amounting to $6.4 billion in loans or investments into small businesses. The majority – 71 percent – of this funding went to Collateral Support Programs in 2014, which sees SSBCI funds going to SMEs “to fill a collateral gap for otherwise strong businesses,” the Treasury said.

“SSBCI funds have supported thousands of loans and investments that might not otherwise have been made to small businesses in a wide range of sector,” the Treasury concludes in its report.

In a more recent retrospective, the Treasury’s Summary of States’ Quarterly Reports for Q1 2015 takes a look at the small business financing figures for the first quarter of 2015.

According to the Treasury, funds issued to invest in small businesses saw a 6 percent increase in the first quarter of the year, hitting more than $1.1 billion by the end of the quarter since the program began in 2011. Those funds were funneled through 48 states – according to reports, North Dakota and Wyoming did not apply for funding through the SSBCI.

Not only has the volume of funds deployed by the SSBCI increased, but the volume of “recycled” funds has seen steady growth, too. Recycled funds are funds that were already invested in a company, the loan was repaid, and the repayment and profit were then channeled back into a finance program to support a small business.

The data reveals that California has allocated the most funds of any other state. Six states – Vermont, Idaho, North Dakota, Puerto Rico, Montana and South Carolina - have deployed 99-100 percent of the funds secured by the SSBCI (California, on the other hand, has deployed just 58 percent of those funds).

Loan participation and venture capital were the most common programs through which SSBCI funds were channeled by the states, the data revealed.

The Small Business Administration

Now, for the bad news. The Treasury’s report provides a rosy picture of federal support of small business funding. But the latest data from Biz2Credit found a drop in small business lending in August, a result researchers attributed to the temporary shutdown of another government SME funding agency: the Small Business Administration.

According to the Biz2Credit August Small Business Lending Index, lending to small businesses declined slightly last month, leading to a 0.1 point drop in the index score for banks large and small.

In July, the SBA was forced to halt its lending practices as the agency hit its annual lending cap and was forced to wait for Congress to raise that limit. It did, and the agency reported quickly resuming its financing.

But according to reports in JD Supra last month, that momentary lending lapse will not go unnoticed by SMEs. “While the Senate was quick to pass legislation approving an increase to the cap,” reports said, “that did not quell the fear and anxiety felt by small business groups over the possibility of congressional inaction and the detrimental impact it could have on small business owners and entrepreneurs.”

Biz2Credit confirmed those fears and anxieties with its latest figures.

"We were disappointed to see that the SBA's temporary shutdown in July scared some customers away from loans, a factor that hurt big and small banks," Biz2Credit CEO Rohit Arora in a statement.

Data revealed that institutional investors (61.8 percent) and alternative lenders  (61 percent) approved the most loans out of all financial groups in August, surpassing approval rates of large and small banks. Big banks approved 22.3 percent of SME loans that month, down from 22.4 percent the month prior.

“Luckily,” Arora added, “the drop was not massive and our analysis showed the march of customers towards more online channels is accelerating as the economy picks up and small business owners enter into the year-end busy season.”



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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