Regulatory Note: American Rescue Plan – State Small Business Credit Initiative
Regulatory Note
American Rescue Plan – State Small Business Credit Initiative
With the President’s signing of the American Rescue Plan Act of 2021 (ARPA) earlier this afternoon, banks should note a few changes to the provisions in H.R. 1319 (the bill initially approved by the House of Representatives) that covered the State Small Business Credit Initiative (“SSBCI”). The ARPA modifications to the Paycheck Protection Program are substantially identical to those in the original House bill.
Among many other programs, ARPA revives the SSBCI, a program that has supported bank loans to small businesses but that fell by the wayside in 2017. The Treasury Department administers the program and allocates funds to states that will use the funds to provide credit enhancements for loans to small businesses.
ARPA removes certain SSBCI requirements that were in H.R. 1319,1 which will change how states participate in the program and may have some effect on banks hoping to make loans backed by the SSBCI. Notably, a provision in H.R. 1319 that would have given a measure of priority to minority depository institutions (“MDIs”) and community development financial institutions (“CDFIs”) has been removed.
To recap, as before, section 3301 of ARPA re-establishes the SSBCI and appropriates $10 billion to the Treasury Department to allocate among the states through several channels. The allocations are intended to leverage up to $100 billion in small business loans (assuming a leverage ratio of slightly under 10%). ARPA does not change the dollar amounts of the appropriation or the subsequent allocations. Treasury is to allocate most of the $10 billion appropriation -- $7 to 7.5 billion – in three phases among qualifying states in the same way that Treasury allocated funds under the Small Business Jobs Act.
Additionally, of the $10 billion, section 3301(b) of ARPA directs Treasury – as H.R. 1319 had provided for – to allocate another $1.5 billion to support lending to business enterprises owned and controlled by “socially and economically disadvantaged individuals.” Treasury is to allocate this amount among the states based on the needs of such business enterprises “as determined by the Secretary, in each State.”
Two requirements for the disposition of the $1.5 billion that were in H.R. 1319 have been eliminated, however. H.R. 1319 would have required the Treasury Secretary, first, to oversee the states’ use of the funds to “directly support” business enterprises owned and controlled by socially and economically disadvantaged individuals and, second, to establish “a minimum amount of support” that a state must provide to these enterprises. While the Secretary necessarily will exercise some degree of oversight even in the absence of a specific provision as in H.R. 1319, the nature of that oversight may have been reduced and the authority to determine a minimum level of support may have disappeared.
ARPA also omits three other provisions that were in H.R. 1319, as follows:
MDIs and CDFIs. The House bill would have required a state seeking an allocation of SSBCI funds to provide a plan to Treasury detailing how MDIs and CDFIs “will be encouraged to participate” in the SSBCI. Section 3301 of ARPA omits this requirement. The legislation does not bar a state from developing a program to support such participation, but, conceivably, in some states, banks that are not MDIs or CDFIs would play a larger role.
Pandemic Response Plan. Under H.R. 1319, as a prerequisite to receiving any SSBCI funds, a state would have had to submit a pandemic response plan to Treasury. Such a plan would have contained “a description of how the State will expeditiously utilize funds to support small businesses, including business enterprises owned and controlled by socially and economically disadvantaged individuals, in responding to and recovering from the economic effects of the COVID-19 pandemic.”
Predatory Lending. As another prerequisite in H.R. 1319, a state would have had to agree that no lending activity supported by SSBCI funds “would result in predatory lending, as determined by the Secretary.” The omission of this provision allows Treasury to avoid what would have been a fraught rulemaking on the meaning of predatory lending in a commercial lending context.
1. The provisions of H.R. 1319 to reauthorize the SSBCI were summarized in my Regulatory Note of March 1, 2021.
2. Note that ARPA retains the $1 incentive allocation to states that demonstrate “robust support” for businesses owned and controlled by socially and economically disadvantaged individuals in the deployment of prior allocation amounts.