Reading: White House, Treasury and state officials discuss U.S. bailout investments in manufacturing through the state’s Small Business Credit Initiative
Thursday, October 27e 2022, officials from the White House, Treasury Department, Arizona, Michigan and Minnesota met with stakeholders to discuss key investments from the American Small Business Credit Initiative (SSBCI) Rescue Plan (ARP), which are expected to bring billions of dollars in funding 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 nearly 100,000 jobs above pre-pandemic levels. Companies are choosing to do more in America, and we see the industries of the future growing with more than $200 billion in new investment in electric vehicles, semiconductors, and other critical industries. Major manufacturers like GE Aviation and Siemens Energy are making new commitments to help their small and medium manufacturers modernize.
More than 90% of manufacturers are small and medium-sized enterprises, which employ more than 40% of workers in the sector. They are essential anchor employers and engines of economic development in communities across the country. With nearly $10 billion from the U.S. bailout, 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 is continuing its work to build a bottom-up and middle manufacturing economy.
SSBCI is expected to catalyze up to $10 of private investment for every dollar of capital funding, meaning SSBCI-powered investments will result in billions of dollars in public and private funding for small manufacturers, as well as investments key in several other national priority areas. . At the meeting, state officials from Arizona, Michigan, and Minnesota detailed how their states’ SSBCI-funded initiatives are supporting investment in the manufacturing sector. Their comments are summarized below.
The state is expanding three successful lending programs rolled out in 2010 in the wake of the Great Recession. The three loan programs include: a program that offers loan guarantees, a loan participation program where the state buys a share of loans, and a program that will provide collateral support to help borrowers qualify for loans. These last two programs target industries with high potential economic impact, including manufacturing. Michigan allows all three loan programs to support revolving working capital lines of credit. This approach is particularly important for manufacturers who supply parts or tools to the automotive industry, where the development of new tools can take months before these investments generate cash flow from sales to upstream manufacturers. Flexible capital is important because manufacturers typically face a cash shortfall where they need to invest in people, processes, and equipment before generating revenue from order fulfillment.
Arizona intentionally developed very flexible SSBCI programs after recognizing that manufacturers would benefit from programs with less rigid guidelines. State officials noted that different lending models within a broad continuum of programs can provide options that businesses need, especially Arizona manufacturers facing ever-changing financing challenges in response to changes in supply chain demand.
Additionally, 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 various forms in different states. Arizona, for example, requires the SBDC to target small businesses, including manufacturers. The Arizona Commerce Authority is home to the Manufacturing Extension Partnership, another important source of technical support for manufacturers.
The state has seen a marked increase in requests from industrialists, local economic developers and financial institutions to support the financing of state-of-the-art equipment for industrialists. Minnesota stakeholders emphasized the need for capital to support the purchase of equipment that improves processes, upgrades technology, and increases efficiency and productivity. Traditional financial institutions have indicated that it is difficult to underwrite state-of-the-art equipment using prudential lending standards, resulting in a funding gap. Another obstacle is that while investments in high-tech machinery and equipment may lead to increased productivity and improved competitiveness, they may not lead to the increased job creation needed to meet the requirements of existing loan programs. funded by the state.
With SSBCI funding from the American Rescue Plan, Minnesota is developing a new loan participation program to fill this funding gap. The Automation Loan Participation Program (ALPP) offers a complementary 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 efficiency. The program complements an existing state program that funds worker training in the use of new automation equipment. A final expected benefit is that the ALPP is expected to increase the number of relocated manufacturing operations and allow companies to move some outsourced activities in-house. The program targets established manufacturers.
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Participating States as of October 27e The meeting clearly highlighted SSBCI’s potential to support small manufacturers across the country. This work from Arizona, Michigan and Minnesota builds on SSBCI’s proven track record of manufacturing support, having invested more than $2.5 billion in federal and private funding through more than 2,500 loan or investment transactions through the previous version of this SSBCI 1.0 program and making manufacturing the industry that received the most support.
The ARP-funded SSBCI will build on this proven success by providing both debt and equity capital. This can help businesses overcome the challenges they face in securing capital investment, working capital, and financing for equipment and facility upgrades. Recognizing these varying needs, individual states have designed SSBCI loan and capital programs to support some or all of these uses, based on the specific needs of manufacturers in their states. Traditional financial institutions are keen to provide financing to manufacturing companies, but gaps in collateral may limit the amount of credit they can provide. This may cause some manufacturers to turn to more expensive forms of financing.
To help states maintain the momentum of expanding manufacturing jobs and investments made under the Biden-Harris administration, the Treasury has begun hosting meetings for states to share best practices with each other and collaborate to support small manufacturers. These meetings collectively brought together more than a dozen states. Soon, the Administration will release a report highlighting program initiatives that can serve as models for other jurisdictions.
Presenters and representatives from the Biden-Harris administration included:
- Gene Sperling, Senior Advisor to the President and US Bailout 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 Access to Capital, U.S. Department of Treasury
- Jeffrey Stout, Program Director, State Small Business Credit Initiative, United States Department of Treasury
- Ron Kelly, Outreach Manager for the State Small Business Credit Initiative, United States Department of Treasury
- Christopher Cook, Managing Director – Access to Capital, Michigan Economic Development Corporation
- Sandra Watson, President and CEO, Arizona Commerce Authority
- Ken Burns, COO, Arizona Commerce Authority
- Steve Grove, Commissioner of Jobs and Economic Development, Minnesota
If you would like to learn more about the SSBCI programs and points of contact offered by your state, please visit the SSBCI website.