Program aims to shower capital on small biz in PA

Pennsylvania’s small businesses are in line for a capital infusion of nearly $268 million under a program announced July 18 by the Wolf Administration

  • The money is coming from the federal government via the American Rescue Plan Act
  • But it will be distributed by the state, specifically the state Department of Community and Economic Development.
  • Other hands also are in line to touch the money before it’s deposited with small businesses either as loans or equity/venture investments.

Whose handsBen Franklin Technology Partners, the state’s Life Sciences Greenhouses, certified economic development organizations and community development financial institutions.

  • Certified economic development organizations include entities like Capital Region Economic Development Corp., Cumberland Area Economic Development Corp., Lancaster-based EDC Finance Corp. and the York County Economic Development Corp., which is managed by the York County Economic Alliance.
  • Community development financial institutions include nonprofits like Assets and Community First Fund, both based in Lancaster.
  • The state also plans to work with what it called “underserved venture capital firms.”
  • The definition is not limited to race or ethnicity, according to DCED spokesperson Penny Ickes. It could also include funds based on location or socioeconomic status.

What’s the program: The State Small Business Credit Initiative, which was created in 2010 under the aegis of the U.S. Treasury to spur lending after the 2008 financial crash.

  • The American Rescue Plan reauthorized and funded the program to the tune of $10 billion nationwide, including portions set aside for very small businesses — those with less than 10 employees — and socially and economically disadvantaged businesses.
  • Pennsylvania is dividing its share of $267.8 million into three broad pools.
  • The first two — one for equity investments and one for venture capital investments — contain $142 million.
  • The third — a loan participation program — will contain more than $125 million.
  • “Our partners will use this funding to help small businesses, socially and economically disadvantaged businesses, and businesses in the innovation and technology sector,” acting DCED secretary Neil Weaver said in a statement.

What’s next: Economic development organizations can apply for funds from the pools through Aug. 19.

  • The money will be awarded on a competitive basis, Ickes said.
  • According to a DCED timeline, the agency will begin contracting with economic development partners by Sept. 9.
  • Small businesses would be able to apply for funds through those partners by Oct. 17.
  • Of the total amount coming into the state, $15.2 million is earmarked for very small businesses and $39.9 million is for socially and economically disadvantaged businesses, according to an analysis by the Congressional Research Service in Washington, D.C.
  • Detailed guidelines should be available soon, the Wolf administration said in a press release.
  • The state will receive an initial disbursement of $81.3 million, Ickes said. Additional money will follow once the state has distributed at least 80% of the initial amount.

The background: The State Small Business Credit Initiative is reminiscent of the many aid programs lobbed at small businesses during the pandemic.

  • However, the initiative dates back to an earlier crisis. That means it has a history.
  • According to the Congressional Research Service in Washington, D.C., the program got off to a slow start, in part due to lack of clear guidelines and hesitation among large banks to take part.
  • Given the experience of the past, the new round should be relatively free of those problems, the research service wrote in its analysis, which cited audits by the Treasury Department.
  • “Nevertheless, these previous audits reveal that programs with multiple actors (federal and state officials, hundreds of lenders and venture capital companies, and thousands of small businesses) are likely to encounter implementation issues even under the best of circumstances,” the research service wrote. 
  • The reauthorized program also is larger. The post-crash initiative doled out $1.5 billion, compared to a post-pandemic sum of $10 billion.

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