On Thursday, October 27th 2022, officials from the White House, Treasury Department, Arizona, Michigan, and Minnesota met with stakeholders to discuss key investments from the American Rescue Plan’s (ARP) State Small Business Credit Initiative (SSBCI), which are expected to result in billions of dollars of financing to small businesses involved in manufacturing and critical supply chain initiatives.
Since taking office, the Administration has bolstered manufacturing with the creation of nearly 700,000 manufacturing jobs, the most of any president on record, and close to 100,000 jobs above pre-pandemic levels. Companies are choosing to make more in America, and we are seeing the industries of the future expand with over $200 billion of new investments in EVs, semiconductors, and other critical industries. Large manufacturers like GE Aviation and Siemens Energy are making new commitments to help their small and medium sized manufacturers upgrade.
Over 90% of manufacturers are small and medium sized firms, employing over 40% of workers in the sector. They are vital anchor employers and drivers of economic development in communities across our country. With nearly $10 billion from the American Rescue Plan, SSBCI will fund programs administered by states, the District of Columbia, territories and tribal governments that will play an important role in helping small and medium sized manufacturers grow as the Biden-Harris Administration continues its work building a manufacturing economy from the bottom up and middle out.
SSBCI is expected to catalyze up to $10 of private investment for every $1 of capital funding, meaning that investments powered by SSBCI will result in billions of dollars of public and private financing to small manufacturers, along with key investments in several other sectors of national priority. At the meeting, state officials from Arizona, Michigan, and Minnesota laid out details on how their states’ SSBCI-funded initiatives are supporting investments in manufacturing. Their comments are summarized below.
The state is expanding three lending programs deployed successfully in 2010 following the Great Recession. The three lending programs include: a program that offers loan guarantees, a loan participation program where the state purchases a share of loans, and a program that will provide collateral support to help borrowers qualify for loans. The latter two programs target industries with high potential economic impact, including manufacturing. Michigan is allowing all three lending programs to support working capital revolving lines of credit. This approach is particularly important for manufacturers supplying parts or tools to the automotive industry where the development of new tooling can take months before those investments generate cash flow from sales to upstream manufacturers. Flexible capital is important because manufacturers typically face a cash gap where they need to make investments in personnel, processes, and equipment before earning revenue upon fulfillment of orders.
Arizona intentionally developed highly flexible SSBCI programs after recognizing that manufacturers would benefit from programs having less rigid guidelines. State officials noted that different lending models within a broad program continuum can provide options that businesses need, especially Arizona manufacturers facing ever-changing financing challenges responding to changes in supply chain demand.
Moreover, Arizona is a state that has built strong relationships with Small Business Development Centers (SBDCs), partners often identified by states as beneficial to their SSBCI programs and manufacturers in particular. State partnerships with SBDCs have taken a variety of forms in different states. Arizona, for example, requires SBDC outreach to small business including manufacturers. The Arizona Commerce Authority houses the Manufacturing Extension Partnership, another important source of technical assistance for manufacturers.
The state has seen a marked increase in requests from manufacturers, local economic developers, and financial institutions to support the financing of cutting-edge equipment for manufacturers. Minnesota stakeholders have placed an emphasis on the need for capital to support the purchase of equipment that improves processes, upgrades technology, and increases efficiencies and productivity. Traditional financial institutions reported that underwriting cutting-edge equipment using prudential lending standards is difficult, resulting in a financing gap. Another hurdle is that while investments in high tech machinery and equipment may lead to higher productivity and improved competitiveness, they may not lead to the increased job creation required to meet requirements of existing state-funded loan programs.
With SSBCI funding from the American Rescue Plan, Minnesota is developing a new loan participation program to fill this financing gap. The Automation Loan Participation Program (ALPP) offers a companion loan to private financing provided by a bank, credit union, community development financial institution, nonprofit lender, or vendor. Loan participations can total up to $500,000 to purchase machinery, equipment, and software designed to increase manufacturing efficiencies. The program complements an existing state program that funds training for workers to operate new automation equipment. A final anticipated benefit is that ALPP is expected to increase the number of re-shored manufacturing operations and allow companies to move some outsourced activities in-house. The program targets established manufacturers.
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The state participants in the October 27th meeting made a clear case for the potential for SSBCI to support smaller manufacturers across the country. This work by Arizona, Michigan, and Minnesota builds upon SSBCI’s proven track record of supporting manufacturing, having invested over $2.5 billion in federal and private financing through more than 2,500 loan or investment transactions through the prior version of this program SSBCI 1.0 and making manufacturing the sector that received the most support.
The ARP-funded SSBCI will build upon that proven success by providing both debt and equity capital. This can help firms with the challenges they face in obtaining equity investments, working capital, and financing for the modernization of equipment and facilities. Recognizing these diverse needs, individual states have designed SSBCI lending and equity programs to support some or all of these uses, depending on the specific needs of manufacturers in their states. Traditional financial institutions are keen to provide financing to manufacturing firms, but collateral gaps can limit the amount of credit they can provide. This can lead some manufacturers to turn to more costly forms of financing.
To help states maintain the momentum in expanding manufacturing jobs and investments achieved under the Biden-Harris Administration, Treasury began convening meetings for states to share best practices with one another and collaborate on supporting small manufacturers. These meetings have been collectively attended by more than a dozen states. Soon, the Administration will release a report with a spotlight on program initiatives that can serve as templates for other jurisdictions.
Presenters and Biden-Harris Administration representatives included:
- Gene Sperling, Senior Advisor to the President and American Rescue Plan Coordinator, White House
- Michael Negron, Special Assistant to the President for Economic Policy, White House
- Zach Butterworth, Director of Private Sector Engagement, White House
- Jana Platt, Public Engagement Analyst, White House
- Adair Morse, Deputy Assistant Secretary for Capital Access, U.S. Department of the Treasury
- Jeffrey Stout, Program Director, State Small Business Credit Initiative, U.S. Department of the Treasury
- Ron Kelly, Outreach Lead for the State Small Business Credit Initiative, U.S. Department of the Treasury
- Christopher Cook, Managing Director – Capital Access, Michigan Economic Development Corporation
- Sandra Watson, President & CEO, Arizona Commerce Authority
- Ken Burns, Chief Operating Officer, Arizona Commerce Authority
- Steve Grove, Commissioner of Employment & Economic Development, Minnesota
If you are interested in learning about your state’s proposed SSBCI programs and points of contact, please visit the SSBCI website.