SSBCI Comes to Indian Country: New Federal Funding for Tribes to Invest in Indian Country Small Businesses and Native Entrepreneurs
Thursday, December 9, 2021

If you have ever watched an episode of Shark Tank, then you know the basics of venture capital investing – an investor invests in a company for a piece of its equity or revenue.  What you may not know is that it is incredibly difficult for Native-owned small businesses and entrepreneurs to engage venture capitalists or other credit and financing. However, a new federal program is aiming to address this issue by providing Tribal governments the opportunity to be a shark – to invest and support the businesses of its Tribal citizens using Federal funds.

What is SSBCI?

The State Small Business Credit Initiative (SSBCI) provides federal funding to Tribes to distribute in a variety of programs that support the credit and capital needs of Native-owned small businesses and entrepreneurs.  While SSBCI was first established for State participation in the Small Business Jobs Act of 2010, as the result of revisions included in the American Rescue Plan Act (ARPA), Tribal governments can now participate. 

Native-owned small businesses and entrepreneurs frequently meet a variety of headwinds when starting or scaling a business, with lack of credit and capital resources being a major issue.   Under ARPA, SSBCI will allocate a minimum of $500,000,000 to Tribal governments, who then will distribute the funds to support the funding needs of businesses owned by the Tribe and Tribal citizens.  ARPA also provides funding for technical assistance to participating Tribes.

In order to participate in the program, a Tribe must start the application process by December 11, 2021.  Importantly, Treasury recently extended the deadline to file a notice of intent to participate (NOI) in the program to also coincide with this date.  Therefore, if you are a Tribe that is interested in receiving federal funding to support small businesses in your community, it is not too late to apply. 

Tribes Can Provide Various Types of Small Business Financing with SSBCI Funds

Tribal governments may use SSBCI funds to support eligible small business financing in any eligible manner it chooses. This includes supporting small businesses on Tribal lands, small businesses in states where Tribal lands or Tribal citizens are located, and small businesses owned by the Tribe and Tribal citizens, wherever they are located. We are awaiting final guidance from Treasury but, historically, there are two key types of financing programs Tribes can create utilizing SSBCI funding: capital and credit. 

On the capital side, a Tribe can develop Capital Access Programs (CAPs), which represent an opportunity for Tribes to partner with Native Community Financial Institutions (CDFIs) and other lenders.  In an SSBCI CAP, a Tribe sets up a reserve account at one or more lenders to cover losses on enrolled loans.  Both the lender and borrower contribute a percentage of an individual loan or line of credit to the reserve fund for a total of 2 to 7 percent of the loan amount.  The Tribe then matches these contributions to the reserve account dollar-for-dollar using SSBCI funds.  Lenders may use the reserve account to cover any losses on their CAP loans. 

The benefit of these programs can be multi-fold. First, it allows a unique opportunity for Tribes to partner with CDFIs to increase capital flow to Tribal-owned and Native-owned businesses. Treasury advises partnering with CDFIs in the design phase to ensure smooth implementation. Second, the use of SSBCI funds decreases the risk to those lending institutions and frequently limits or removes altogether working capital restrictions of small business borrowers. 

SSBCI funds can also be utilized in a variety of other credit support programs (OCSPs) to increase the availability of credit for Tribal-owned and Native-owned businesses. Credit Programs are varied but most frequently include:

Learning From the State-Administered SSBCI

Because the SSBCI has been around for a few iterations as a state-administered program, we can glean a significant amount for those experiences.  For example, we know that CAPs typically support a high volume of very small loans, with a median cap loan of $14,800, and CAPs were most successful when developed and designed with significant input from lenders.

We also know that in the venture capital space, SSBCI VCPs can provide significant access to capital. State-administered VCPs targeted high-growth potential businesses in various stages of development (from pre-seed and proof of concept to mezzanine and debt investments), with about two-thirds going to pre-seed and seed capital investments. Additionally, states routinely partnered with specialized third parties such as private investment funds, CDFIs, and non-profits (state-supported entities) to administer VCPs.  These third-party administrators provided the necessary expertise to source, structure, close, and manage equity investments in small businesses. Funds and state-supported entities manage 83% of the funding allocated to VCPs.

Key Take-Aways

If your Tribe is interested in participating in the SSBCI program, you must file a NOI and start your application by December 11, 2021.  Treasury has already extended this deadline several times and, based on statutory mandate, cannot do so beyond this date. Additional components of project design can continue past this date, but the very basics of your program must be filed with Treasury by then.

 

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