Feds OK $60M for Delaware small business credit, capital
This week, Delaware received approval for $60.9 million in federal funding toward four programs that will open credit lines or access to working capital for small businesses and entrepreneurs in the state under the State Small Business Credit Initiative (SSBCI).
The SSBCI is a 12-year-old federal initiative that aims to leverage $1 in federal spending to create $10 of private investment by small businesses. It is administered in the state by the Delaware Division of Small Business, which has reviewed applications for two existing programs. The Capital Access Program (CAP) acts as a loan loss prevention fund, while the Loan Participation Program (LPP) increases access for businesses to capital at lower interest rates.
The new round of funding, made possible by the Biden administration’s American Rescue Plan Act, will support those programs and allow Delaware to launch two new ones.
The Delaware Early Stage VC Program will support the formation of new venture capital (VC) funds with Delaware-based managers, focused on investments in underserved startups. The lack of private venture capital has long been cited as a challenge for growing the First State’s entrepreneur ecosystem, as the equity funding allows products and services to be refined before they are commercialized.
Similarly, the Delaware Accelerator and Seed Capital Program will support an estimated three accelerator programs, supporting idea-stage startups, including those developed by underserved owners and managers. The state has a growing number of incubator spaces, especially in the bioscience, energy, tech and chemical fields, but seed capital and accelerator support can also help researchers move their ideas toward commercialization.
“This new funding will be another resource to strengthen small businesses and create good jobs up and down our state,” Gov. John Carney said in a statement announcing the funding. “It will promote entrepreneurship and provide more resources for early-stage incubation programs. It will also help diverse businesses access capital and leverage additional private dollars that companies need to grow. I want to thank President Biden, the U.S. Department of the Treasury, and members of our congressional delegation for making these new resources available.”
In the LPP, the state underwrites up to half of the approved loan using the federal funds, lessening the risk on a commercial or nonprofit lender. It’s capped at $5 million and limited to businesses with 750 or fewer employees to be used on any business expense. Any loan over $500,000 requires approval from the state’s appointed Council on Development Finance, while those under that limit could be approved internally by state staff.
The loan program has been quiet in the state, with only four loans made since 2019 and none in the past fiscal year, according to Regina Mitchell, director of the Division of Small Business.
“I think given the kind of access to capital over the last few years, the need hasn’t been significant for this program. We’re anticipating that the need will be greater moving forward and that we’re also working to reach out to the lending institutions in the state to make sure they’re aware of the program and that they can participate with us if they choose,” Mitchell told the CDF at its Feb. 22 meeting.
The CAP works as a public-private match reserve fund, where the borrower, the bank, and the SSBCI funds each contribute 2% of an approved loan value to the reserve fund to help prevent delinquency. The state has added an additional 2% if a borrower falls into certain subsets, such as redevelopment districts or minority-owned businesses.
In the last 18 months, the CAP program has seen 21 projects enrolled, and most are for less than $20,000. The largest loans were for $30,000.
“Tens of millions of dollars to help small Delaware businesses get loans, support underserved entrepreneurs, provide seed capital for cutting-edge startups — these funds will provide a critical lifeline for the small businesses that make up the backbone of the First State’s economy,” Sen. Chris Coons added in a statement. “My Small Business Access to Capital Act, which was enacted in the American Rescue Plan, revived a proven program to provide small businesses with the capital they need to grow, and I couldn’t be happier to finally bring these funds to the Delaware businesses that need this help the most.”
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