SSBCI Capital Program Policy Guidelines December 4 2023

U.S. Department of the Treasury

State Small Business Credit Initiative

Capital Program Policy Guidelines

Revised December 4, 2023

Table of Contents

Section I. Overview ........................................................................................................................ 4

Section II. Eligible Programs .......................................................................................................... 4

Section III. Main Capital Allocation – 12 U.S.C. § 5702(b) and (c) .............................................. 5

a. Allocation Formula – 12 U.S.C. § 5702(b) ......................................................................... 5

b. Tranching and Deployment – 12 U.S.C. § 5702(c)(1) ........................................................ 6

c. Termination of Amounts Not Transferred; Reallocations – 12 U.S.C. § 5702(c)(4) ......... 7

Section IV. SEDI-Owned Business Allocations ............................................................................. 8

a. $1.5 billion Allocation for SEDI-Owned Businesses – 12 U.S.C. § 5702(d) ..................... 8

Allocation Methodology and Disbursement Schedule ................................................ 8

“Expended For” Requirement .................................................................................... 9

b. $1.0 billion Incentive Allocation for SEDI-Owned Businesses – 12 U.S.C. § 5702(e) ... 11

Section V. Allocation for VSBs – 12 U.S.C. § 5702(f) ................................................................ 12

Section VI. Approving Jurisdictions for Participation .................................................................. 13

a. Designation of Administrative Responsibility – 12 U.S.C. §§ 5703(b)(1) and (b)(2) ...... 13

b. Applications, Generally – 12 U.S.C. § 5703(b) ................................................................ 13

c. Contractual Arrangements – 12 U.S.C. § 5703(c) ............................................................ 14

d. Tribal Governments – 12 U.S.C. §§ 5701(10)(E), 5702(b)(2)(C), 5703(b)-(c)................ 14

e. Municipalities – 12 U.S.C. § 5703(d) ............................................................................... 15

Section VII. Approving CAPs ...................................................................................................... 15

a. In General.......................................................................................................................... 15

b. Federal Contribution – 12 U.S.C. § 5704(d) ..................................................................... 15

c. CAP Experience and Capacity Program Requirement – 12 U.S.C. § 5704(e)(1) ............ 16

d. Lender Capital at Risk – 12 U.S.C. § 5704(e)(4).............................................................. 17

e. Borrower and Loan Size Requirements – 12 U.S.C. § 5704(c)(4) ................................... 18

The Capital Program Policy Guidelines were initially released on November 10, 2021 and were revised on

October 7, 2022, December 15, 2022, June 15, 2023, August 16, 2023, and December 4, 2023. Appendix 1

summarizes the substantive revisions.

f. Loan Purpose Requirements and Prohibitions – 12 U.S.C. § 5704(e)(7) ......................... 18

Business Purpose Generally – 12 U.S.C. § 5704(e)(7)(A)(i)(I) ................................ 18

Business Purpose: Passive Real Estate Investment Guidance – 12 U.S.C.

§ 5704(e)(7)(A)(i)(I).................................................................................................. 19

Prohibited Loan Purposes – 12 U.S.C. § 5704(e)(7)(A)(i)(II) ................................. 21

Borrower Restrictions – 12 U.S.C. § 5704(e)(7)(A)(i)(III) ....................................... 21

Additional Borrower Restrictions – 12 U.S.C. § 5704(e)(7)(A)(iv) .......................... 22

Lender Assurances – 12 U.S.C. § 5704(e)(7)(A)(ii) and (iii) ................................... 23

Lender Assurances: Refinancing and New Extensions of Credit – 12 U.S.C.

§ 5704(e)(7)(A)(ii) .................................................................................................... 24

g. Monitoring the Annual Claims Rate ................................................................................. 25

Section VIII. Approving OCSPs ................................................................................................... 25

a. In General.......................................................................................................................... 25

b. 10:1 Financing – 12 U.S.C. § 5705(c)(2).......................................................................... 26

c. 1:1 Financing – 12 U.S.C. § 5705(c)(1) ............................................................................ 27

d. Lender or Investor Capital at Risk – 12 U.S.C. § 5705(c)(3) ........................................... 28

Lenders ...................................................................................................................... 28

Debt Investors ........................................................................................................... 29

Equity Investors ........................................................................................................ 29

e. Borrower/Investee and Loan/Investment Size Requirements – 12 U.S.C. § 5705(c)(4) .. 30

f. Loan/Investment Purpose Requirements and Prohibitions – 12 U.S.C. § 5705(f) ........... 30

Generally................................................................................................................... 30

Equity/Venture Capital Programs: Conflict-of-Interest Standards .......................... 31

Equity/Venture Capital Programs: Certification Relating to Sex Offenses ............. 33

Tribal Programs: Conflict-of-Interest Standards ..................................................... 34

g. Additional Considerations for Approving OCSPs ............................................................ 34

Anticipated Benefits to the Jurisdiction – 12 U.S.C. § 5705(d)(1) ........................... 34

OCSP Experience and Capacity – 12 U.S.C. § 5705(d)(2) ...................................... 35

OCSP Capacity to Manage Increases – 12 U.S.C. § 5705(d)(3) .............................. 36

OCSP Accounting and Administrative Controls – 12 U.S.C. § 5705(d)(4) .............. 36

OCSP Program Design and Implementation Plan – 12 U.S.C. § 5705(d)(5) .......... 36

h. Relationship to Tax Credit Programs ................................................................................ 37

i. Additional Guidance Regarding Equity/Venture Capital Programs ................................. 37

Multi-Jurisdiction Funds .......................................................................................... 37

Services to Portfolio Companies ............................................................................... 37

Incubation and Early-Stage Investment Models ....................................................... 38

Reporting................................................................................................................... 39

Section IX. Other SSBCI Program Requirements ........................................................................ 40

a. Capital Access in Underserved Communities................................................................... 40

b. Compliance with Civil Rights Requirements ................................................................... 41

c. In-Jurisdiction and Out-of-Jurisdiction Loans and Investments ....................................... 41

d. Enrollment of Loans in Loan-Related SSBCI Programs .................................................. 42

e. Relationship to SBA Lending Programs and Other Federal Loans .................................. 43

f. Minimum National Customer Protection Standards ......................................................... 43

g. Disclosure of Terms .......................................................................................................... 45

Section X. Reporting ..................................................................................................................... 46

Section XI. Administrative Costs – 12 U.S.C. § 5702(c)(3)(C)-(D) ............................................ 47

Section XII. Un-enrollment – 12 U.S.C. § 5702(c)(1)(C) ............................................................ 47

a. Requesting Approval to Replenish and Un-enroll ............................................................ 47

b. Documentation for the Replenishment of Loans and Investments ................................... 48

Section I. Overview

The American Rescue Plan Act of 2021 (ARPA) reauthorized and amended the Small

Business Jobs Act of 2010 (SBJA) to provide $10 billion to fund the State Small Business Credit

Initiative (SSBCI) as a response to the economic effects of the COVID-19 pandemic. SSBCI is a

federal program administered by the Department of the Treasury (Treasury) that was created to

strengthen state programs that support private financing to small businesses.

SSBCI is expected

to, in conjunction with new small business financing, create billions of dollars in lending and

investments to small businesses that are not getting the support they need to expand and create

jobs. SSBCI allows states of the United States, the District of Columbia, territories, eligible

municipalities, and Tribal governments (collectively, “jurisdictions”

) the opportunity to build

upon or create successful models of small business programs. ARPA provided for a $6.5 billion

main capital allocation, $1.5 billion allocation for business enterprises owned and controlled by

socially and economically disadvantaged individuals (SEDI-owned businesses), $1.0 billion

incentive allocation for SEDI-owned businesses, $500 million allocation for very small

businesses (VSBs), and $500 million allocation for technical assistance funding.

Treasury has issued separate guidelines regarding technical assistance and instructions on

how to apply. Technical assistance funding is available for each jurisdiction that completes a

timely application for an SSBCI capital program in accordance with the deadlines and guidance

published by Treasury. Applications for technical assistance will be due in accordance with the

deadlines and guidance published by Treasury.

Treasury reserves the right to waive or modify any provision of these guidelines.

Section II. Eligible Programs

SSBCI provides funding for jurisdictions’ small business lending and investment

programs. There are two program categories: Capital Access Programs (CAPs) and Other Credit

Support Programs (OCSPs).

CAPs provide portfolio insurance to lenders that make small business loans. Portfolio

insurance is provided in the form of a separate loan loss

reserve

fund for each participating

financial institution. To enroll a loan in the CAP, both the lender and the borrower must make

insurance premium payments to the reserve fund. The jurisdiction must make a matching

insurance premium payment to the reserve fund. The jurisdiction’s matching payment to the

reserve fund may be made with the jurisdiction’s allocated SSBCI funds.

The SSBCI provisions are codified at 12 U.S.C. § 5701 et. seq.

The definition of “State” in the SBJA includes “a municipality of a State of the United States to which the

Secretary has given special permission to apply under section 3004(d) [of the SBJA].” Because all states submitted

complete applications by the applicable capital program deadline, municipalities are not eligible to apply for SSBCI.

Therefore, herein, unless indicated otherwise, a “jurisdiction” means (A) one of the fifty states of the United States;

(B) the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of Northern Mariana Islands,

Guam, American Samoa, and the United States Virgin Islands; and (C) a Tribal government, or a group of Tribal

governments that jointly apply for an allocation. See 12 U.S.C. § 5701(10) and section VI.e of these Guidelines.

OCSPs include other programs that provide support for small business lending and

investment that are not CAPs. These programs include collateral support programs, loan

participation programs, loan guarantee programs, and other similar programs.

They also include

jurisdiction-sponsored equity/venture capital programs, which involve either (i) SSBCI

investments in venture capital funds that invest in small businesses or (ii) direct investments of

SSBCI funds in small businesses alongside co-investments.

OCSPs also include qualifying loan

or swap funding facilities, which are contractual arrangements between a jurisdiction and a

private financial entity. Under such facilities, the jurisdiction delivers funds to the private

financial entity as collateral; that entity, in turn, provides funding to the jurisdiction. The full

amount resulting from the arrangement, less any fees or other costs of the arrangement, is

contributed to, or for the account of, an approved program.

Section III. Main Capital Allocation – 12 U.S.C. § 5702(b) and (c)

a. Allocation Formula – 12 U.S.C. § 5702(b)

The SSBCI statute, 12 U.S.C. § 5702(b), sets out a formula for the amount of main

capital funds available to jurisdictions.

Pursuant to the statute, Treasury allocated funds to all

fifty states along with the District of Columbia, the Commonwealth of Puerto Rico, the

Commonwealth of Northern Mariana Islands, Guam, American Samoa, and the United States

Virgin Islands according to the formula, which takes into account a jurisdiction’s job losses in

proportion to the aggregate job losses of all jurisdictions. Each state of the United States, the

District of Columbia, and territory was guaranteed a minimum allocation of 0.9 percent of the

$6 billion allocation for states, the District of Columbia, and territories. Treasury made a

separate allocation to Tribal governments based on Tribal enrollment, with a preliminary

minimum allocation of approximately 0.09 percent of the total $500 million Tribal allocation.

Collateral support programs help viable businesses that are struggling to get credit because the value of the

collateral they hold has fallen and provide banks greater confidence in extending credit to these borrowers.

Loan participation programs entail risk sharing among financial institution lenders and the participating jurisdiction.

“Equity/venture capital programs” refer to the broad category of programs that meet this criteria.

Jurisdiction-sponsored equity/venture capital programs typically entail joint public-private investment programs

focused on “seeding” small businesses with high-growth-potential. For purposes of SSBCI, the references to the

term “venture capital fund” refer more specifically to an entity that meets the U.S. Securities and Exchange

Commission (SEC) definition of “venture capital fund” set out at 17 C.F.R. § 275.203(l)-1, as well as any entity that

would meet that definition but for the form of the investment of SSBCI funds in the entity, e.g., via a debt

instrument (in the latter case, this deviation from the regulatory definition may have implications for the ability of

program participants to rely on the SEC’s venture capital fund definition and any associated exemption from certain

requirements under the Investment Advisers Act of 1940). Co-investments in direct investment programs may come

from a venture capital fund or a wider group of investors or funds.

For ease of reference, the SSBCI website includes information about allocation amounts and allocation

methodology for each jurisdiction. Please visit http://www.treasury.gov/ssbci

for more details.

For more information on the Tribal allocation, please see the Tribal allocation methodology publication on

Treasury’s website.

b. Tranching and Deployment – 12 U.S.C. § 5702(c)(1)

Pursuant to 12 U.S.C. § 5702(c)(1), each jurisdiction that is approved for participation in

the SSBCI will receive its allocation of main capital funds in three disbursements as follows:

33 percent, 33 percent, and 34 percent. The transfer of the first 33 percent will occur promptly

following the receipt of the fully signed Allocation Agreement.

As a precondition to receipt of

the second and third disbursements, the jurisdiction must, among other things, certify to Treasury

that the jurisdiction has expended, transferred, or obligated 80 percent or more of the prior

disbursement of allocated funds to or for the account of one or more approved programs that

have delivered loans or investments to eligible businesses (i.e., it has deployed such funds).

The

certification must be signed by an official of the jurisdiction with oversight responsibility for the

approved program(s). The following is a description of these requirements.

Funds Expended, Transferred, or Obligated

For purposes of determining whether a jurisdiction has “expended” a prior disbursement

of SSBCI funds, Treasury will generally consider funds expended if the expenses have been paid

by or are for an approved program. Examples of expended funds include: SSBCI funds that have

been disbursed to a lender to cover the federal contribution to a CAP reserve fund; SSBCI funds

that have been disbursed to a specific borrower (or disbursed to a specific lender or set aside as

part of a commitment to a specific transaction) as part of a loan participation, loan guarantee,

collateral support, or direct lending program; SSBCI funds that have been invested in specific

small businesses pursuant to an equity/venture capital investment; and SSBCI funds that have

been spent for allowable administrative expenses.

For purposes of determining whether a jurisdiction has “transferred” a prior disbursement

of SSBCI funds, Treasury will generally consider funds transferred if they have been transferred

by the jurisdiction receiving SSBCI funds to the implementing entity, or the contracted entity,

that is charged with administering the day-to-day operations of the SSBCI program, as a

reimbursement for actual expenses or when there is a clearly documented actual and immediate

cash need to fund a loan or investment to an eligible small business or to pay for allowable

administrative expenses. The implementing entity is the specific department, agency, or political

subdivision of the jurisdiction that has been designated to implement a program under 12 U.S.C.

§ 5703(b)(1). The term “agency” includes government corporations and other entities authorized

or supervised by the jurisdiction. The contracted entity is the entity (i.e., an entity of another

jurisdiction, for-profit third-party, or nonprofit third-party) that contracts with the jurisdiction or

its implementing entity for the implementation and administration of the SSBCI program under

12 U.S.C. § 5703(c).

If the jurisdiction plans to use SSBCI funds as collateral for a qualifying loan or swap funding facility, the entire

allocation is available to be transferred in a single lump sum.

As part of this certification, the authorizing official for the participating jurisdiction will be required to certify to

Treasury that the participating jurisdiction is in compliance with all terms of the Allocation Agreement, SSBCI

Capital Program Policy Guidelines, and the representations and warranties made in the Allocation Agreement. Upon

receipt, Treasury will review the request and accompanying certification for completeness. Treasury may ask for

records or further information that substantiates any aspect of the participating jurisdiction’s certification.

For purposes of determining whether a jurisdiction has “obligated” a prior disbursement

of SSBCI funds, Treasury will generally consider funds obligated if they have been committed to

pay for the amounts of orders placed, contracts awarded, goods and services received, and

similar transactions during a given period that will require payment by the approved program

during the same or a future period. Examples of obligated funds include: SSBCI funds that have

been committed, pledged, or otherwise promised, in writing, to a specific borrower as part of a

loan participation, collateral support, or direct lending program; SSBCI funds that have been set

aside to cover obligations arising from loan guarantees; SSBCI funds that have been committed,

pledged, or otherwise promised, in writing, as part of an equity/venture capital investment

transaction; and SSBCI funds that have been committed, pledged, or promised, in writing, for

allowable administrative expenses (e.g., an executed contract for services).

Delivered Loans or Investments to Eligible Businesses

As noted above, for a jurisdiction to receive a subsequent disbursement, at least

80 percent of its prior disbursement of allocated funds must have been expended, transferred, or

obligated to or for the account of one or more approved programs that have delivered loans or

investments to eligible businesses. Treasury will consider the latter requirement for the prior

disbursement to be used for approved programs that have delivered loans or investments to

eligible businesses to be satisfied if at least two transactions with eligible small businesses are

completed during every 12-month period from such programs’ inception. This latter requirement

to receive a subsequent disbursement must be fulfilled in addition to the requirement that funds

are expended, transferred, or obligated.

c. Termination of Amounts Not Transferred; Reallocations – 12 U.S.C.

§ 5702(c)(4)

Any portion of a jurisdiction’s allocation that has not been transferred to the jurisdiction

under this section may be deemed to be no longer allocated to the jurisdiction and no longer

available to the jurisdiction if:

• The second 1/3 of the jurisdiction’s allocated amount has not been transferred to the

jurisdiction before the end of the 3-year period beginning on the date that the

jurisdiction is approved for participation in the SSBCI; or

• The last 1/3 of a jurisdiction’s allocated amount has not been transferred to the

jurisdiction before the end of the 6-year period beginning on the date that the

jurisdiction is approved for participation in the SSBCI.

Any amount that is deemed to be no longer allocated to the jurisdiction and no longer

available to the jurisdiction shall be either returned to the general fund of the Treasury or

reallocated to other jurisdictions.

Section IV. SEDI-Owned Business Allocations

a. $1.5 billion Allocation for SEDI-Owned Businesses – 12 U.S.C. § 5702(d)

Allocation Methodology and Disbursement Schedule

The SSBCI statute, 12 U.S.C. § 5702(d), provides that the Secretary shall allocate

$1.5 billion among the jurisdictions based on the needs of SEDI-owned businesses. Treasury will

divide the $1.5 billion into a portion for states of the United States, the District of Columbia, and

territories and a portion for Tribal governments in a manner that is consistent with the division of

funds under the main capital allocation, referenced in 12 U.S.C. § 5702(b). Treasury has

determined that these portions reasonably reflect the needs of SEDI-owned businesses in the

respective jurisdictions, because these portions, determined by statute for the main capital

allocation, generally reflect small business financing needs in these jurisdictions.

Each state of the United States, the District of Columbia, or territory’s share of these

jurisdictions’ portion of the $1.5 billion SEDI allocation will be based on the percentage of the

jurisdiction’s total population residing in Community Development Financial Institution (CDFI)

Investment Areas, as defined in 12 C.F.R. § 1805.201(b)(3)(ii), relative to the total population

residing in all CDFI Investment Areas.

The population in CDFI Investment Areas serves as a

proxy for the needs of SEDI-owned businesses because these areas are generally low-income,

high-poverty geographies that receive neither sufficient access to capital nor support for the

needs of small businesses, including minority-owned businesses. Each Tribal government’s share

of the Tribal government portion of the $1.5 billion SEDI allocation will be determined using the

same formula as the main capital allocation, based on enrollment data, except without the

minimums.

Treasury has determined that the use of enrollment data reflects the needs of Tribal

SEDI-owned businesses, as Tribal members and communities have faced widespread and

long-standing lack of access to capital and investment, such that a population-based approach

provides a reasonable proxy for the extent of the needs of these businesses. The allocations are

posted on Treasury’s website.

Each jurisdiction’s SEDI allocation will be transferred in three approximately equal

tranches, with 33 percent for the first and second tranche and 34 percent for the third tranche.

The first allocation will be disbursed when the jurisdiction is approved for participation in the

SSBCI. The second and third disbursements will occur when the jurisdiction certifies that it has

deployed 80 percent of its prior tranche of SSBCI funds under the deployment standards set forth

in Section III.b above.

The CDFI Fund evaluates Puerto Rico, but not other territories, in identifying CDFI Investment Areas. For

purposes of the SSBCI, Treasury has also evaluated American Samoa, Guam, the Northern Mariana Islands, and the

U.S. Virgin Islands and has determined that these territories in their entirety constitute CDFI Investment Areas,

because each of these territories has a poverty rate of at least 20 percent. See 12 C.F.R. § 1805.201(b)(3)(ii)(D)(1).

More information about the Tribal SEDI allocation will be posted on Treasury’s website.

“Expended For” Requirement

A jurisdiction’s SEDI allocation must be expended for SEDI-owned businesses. A

jurisdiction is not required to establish a separate program for SEDI-owned businesses but must

maintain records of the total amount of its SSBCI funds that are expended for SEDI-owned

businesses. In light of the fungibility of SSBCI funds, Treasury will deem this “expended for”

requirement to be satisfied if an amount of the jurisdiction’s SSBCI funds equivalent to its SEDI

allocation is expended for SEDI-owned businesses. For this purpose, SSBCI funds means all

SSBCI funds disbursed to the jurisdiction—including the main capital allocation funds, VSB

allocation funds, SEDI allocation funds, and SEDI incentive allocation funds—other than

technical assistance funds.

Treasury will consider SSBCI funds to have been expended for SEDI-owned businesses

if the jurisdiction expends (as defined in Section III.b above) the funds for meeting the needs of

SEDI-owned businesses. “Meeting the needs of SEDI-owned businesses” means that the SSBCI

funds are expended for loans, investments, or other credit or equity support to:

(1) business enterprises that certify that they are owned and controlled by individuals who

have had their access to credit on reasonable terms diminished as compared to others in

comparable economic circumstances, due to their:

• membership of a group that has been subjected to racial or ethnic prejudice or

cultural bias within American society;

• gender;

• veteran status;

• limited English proficiency;

• disability;

• long-term residence in an environment isolated from the mainstream of American

society;

• membership of a federally or state-recognized Indian Tribe;

• long-term residence in a rural community;

• residence in a U.S. territory;

• residence in a community undergoing economic transitions (including

communities impacted by the shift towards a net-zero economy or

deindustrialization); or

• membership of an underserved community (see Executive Order 13985, under

which “underserved communities” are populations sharing a particular

characteristic, as well as geographic communities, that have been systematically

denied a full opportunity to participate in aspects of economic, social, and civic

life, as exemplified by the list in the definition of “equity,” and “equity” is

consistent and systematic fair, just, and impartial treatment of all individuals,

including individuals who belong to underserved communities that have been

denied such treatment, such as Black, Latino, and Indigenous and Native

American persons, Asian Americans and Pacific Islanders and other persons of

color; members of religious minorities; lesbian, gay, bisexual, transgender, and

queer (LGBTQ+) persons; persons with disabilities; persons who live in rural

areas; and persons otherwise adversely affected by persistent poverty or

inequality);

(2) business enterprises that certify that they are owned and controlled by individuals whose

residences are in CDFI Investment Areas, as defined in 12 C.F.R. § 1805.201(b)(3)(ii);

(3) business enterprises that certify that they will operate a location in a CDFI Investment

Area, as defined in 12 C.F.R. § 1805.201(b)(3)(ii); or

(4) business enterprises that are located in CDFI Investment Areas, as defined in 12 C.F.R.

§ 1805.201(b)(3)(ii).

The term “owned and controlled” means, if privately owned, 51 percent is owned by such

individuals; if publicly owned, 51 percent of the stock is owned by such individuals; and in the

case of a mutual institution, a majority of the board of directors, account holders, and the

community which the institution services is predominantly comprised of such individuals.

Certification will be required with regard to items (1) to (3) above. Item (3) is intended to

cover a business taking out a loan or investment to build a location in a CDFI Investment Area

that the business will operate in the future. With regard to item (4), a jurisdiction may reasonably

identify businesses located in CDFI Investment Areas based on the businesses’ addresses from

the relevant loan, investment, and credit/equity support applications without additional

certification.

Jurisdictions must use their SSBCI funds only for the purposes and activities specified in

these guidelines and other SSBCI guidance issued by Treasury, which will be incorporated by

reference into the Allocation Agreement. If the amount of a jurisdiction’s SEDI allocation is not

expended for SEDI-owned businesses, Treasury may find that the jurisdiction is non-compliant

with the Allocation Agreement, in which case Treasury may, in its sole discretion, withhold or

reduce the amount of future SSBCI disbursements to the jurisdiction or seek other available

remedies specified in the Allocation Agreement, such as the recoupment of previously disbursed

funds.

For each calendar year, Treasury will use the list of CDFI Investment Areas identified by the CDFI Fund as of

January 1 of that calendar year. If the CDFI Fund’s list is updated during that calendar year, the new list will not be

adopted for purposes of SSBCI until the next calendar year, in order to provide advance notice to jurisdictions.

Further, Treasury has determined that American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin

Islands in their entirety constitute CDFI Investment Areas for purposes of the SSBCI, because each of these

territories has a poverty rate of at least 20 percent. Treasury has provided a mapping tool for the borrower or

investee to use to identify whether the relevant address is in a CDFI Investment Area, available at

https://home.treasury.gov/policy-issues/small-business-programs/state-small-business-credit-initiative-ssbci/2021-

ssbci/cdfi-fund-investment-areas.

See footnote 10.

b. $1.0 billion Incentive Allocation for SEDI-Owned Businesses – 12 U.S.C.

§ 5702(e)

Under 12 U.S.C. § 5702(e), Treasury must set aside $1 billion to increase the amount of

SSBCI funds that jurisdictions can obtain, beyond jurisdictions’ allocated amounts for the second

and third tranches of main capital, for jurisdictions that demonstrate “robust support” for

SEDI-owned businesses in the deployment of prior allocation amounts. Of this amount, Treasury

will use $500 million to provide jurisdictions additional funds for each of the second and third

tranches of main capital.

Jurisdictions demonstrate “robust support” for SEDI-owned businesses by expending

their previously disbursed SSBCI funds for meeting the needs of SEDI-owned businesses. For

this purpose, the terms “SSBCI funds,” “expend,” and “meeting the needs of SEDI-owned

businesses” have the same definitions as in Section IV.a above.

For each of the second and third tranches of main capital, Treasury will increase the

amount of SSBCI funds that a jurisdiction can obtain using a two-step process:

Step 1:

Each jurisdiction should aspire to expend a certain percentage (the SEDI Objective) of its

SSBCI funds that have been expended since the jurisdiction’s prior disbursement of main

capital allocation, SEDI allocation, and VSB allocation funds for meeting the needs of

the SEDI-owned businesses within its jurisdiction. For states of the United States, the

District of Columbia, and territories, the SEDI Objective equals the population of the

jurisdiction that are residents in CDFI Investment Areas, as defined in 12 C.F.R.

§ 1805.201(b)(3)(ii), divided by the total population of the jurisdiction.

For Tribal

governments, the SEDI Objective is 100 percent. These SEDI Objectives have been

established to reflect the needs of SEDI-owned businesses within each type of

jurisdiction in a manner that is consistent with the reasons described above regarding

these needs with respect to the SEDI allocation.

For each of the second and third tranches of main capital, $400 million of the

$500 million of additional funds will be available as initial eligible amounts. Each

jurisdiction’s initial eligible amount will be determined in the same manner as the

$1.5 billion SEDI allocation methodology described above, as that methodology reflects

the needs of SEDI-owned businesses. The initial eligible amounts are available on

Treasury’s website.

When a jurisdiction certifies that it has deployed 80 percent of its prior tranche of

disbursed SSBCI funds under Section III.b above, Treasury will calculate the percentage

of the jurisdiction’s SEDI Objective that the jurisdiction has achieved. The jurisdiction

will receive an additional disbursement in an amount equal to such achieved percentage

See footnote 10.

(subject to a limit of 100 percent) multiplied by the jurisdiction’s initial eligible amount.

Step 2:

For each of the second and third tranches of main capital, Treasury will make a second

disbursement from these additional funds, totaling $100 million in the aggregate plus any

other residual funds, to jurisdictions that have requested their Step 1 disbursement by the

date that Treasury sets for the second disbursement. For the second tranche of main

capital, the residual funds will include only initial eligible amounts unachieved by the

jurisdictions that have requested their Step 1 disbursement. For the third tranche of main

capital, the residual funds will include any remaining (unachieved and un-drawn) amount

of the $400 million for the second tranche of main capital and any remaining (unachieved

and un-drawn) amount of the $400 million for the third tranche of main capital.

Treasury will disburse these funds based on the aforementioned jurisdictions’ relative

performance in Step 1. Treasury will provide additional details regarding the

methodology and timing for allocating the second disbursements from these additional

funds at a later date. The second disbursements within each tranche are not expected to

occur before most jurisdictions have requested their first disbursement for such tranche.

Section V. Allocation for VSBs – 12 U.S.C. § 5702(f)

The SSBCI statute requires Treasury to allocate $500 million to jurisdictions to be

expended for VSBs. The allocations for VSBs will be determined according to the same formula

as the jurisdiction’s main capital allocation, except without the minimums for the Tribal

government portion. Each jurisdiction’s VSB allocation will be transferred in three

approximately equal tranches, with 33 percent for the first and second tranche and 34 percent for

the third tranche. The first tranche will be disbursed when the jurisdiction is approved for

participation in the SSBCI. The second and third tranches will be disbursed when the jurisdiction

certifies that it has deployed 80 percent of its prior tranche of disbursed SSBCI funds under

Section III.b above.

A jurisdiction’s VSB allocation must be expended for VSBs. A VSB means a business

with fewer than 10 employees at the time of the loan, investment, or other credit/equity support

and includes independent contractors and sole proprietors. A business that has 10 or more

employees following an SSBCI transaction will not be considered a VSB for purposes of

subsequent loans or investments.

A jurisdiction is not required to establish a separate program for VSBs but must maintain

records of the total amounts of its SSBCI funds expended for VSBs. In light of the fungibility of

SSBCI funds, Treasury will deem this “expended for” requirement to be satisfied if an amount of

the jurisdiction’s SSBCI funds equivalent to its VSB allocation is expended for VSBs. The term

“expended” has the same definition as in Section III.b above. For this purpose, SSBCI funds

means all SSBCI funds disbursed to the jurisdiction—including the main capital allocation funds,

VSB allocation funds, SEDI allocation funds, and SEDI incentive allocation funds—other than

technical assistance funds.

Jurisdictions must use their SSBCI funds only for the purposes and activities specified in

these guidelines and other SSBCI guidance issued by Treasury, which will be incorporated by

reference into the Allocation Agreement. If a jurisdiction’s VSB allocation is not expended for

VSBs, Treasury may find that the jurisdiction is non-compliant with the Allocation Agreement,

in which case Treasury may, in its sole discretion, withhold or reduce the amount of future

SSBCI disbursements to the jurisdiction, or seek other available remedies specified in the

Allocation Agreement, such as the recoupment of previously disbursed funds.

Section VI. Approving Jurisdictions for Participation

a. Designation of Administrative Responsibility – 12 U.S.C. §§ 5703(b)(1) and

(b)(2)

Before Treasury approves a jurisdiction for participation in the SSBCI, the applicant must

demonstrate that all actions required under the jurisdiction’s laws have been taken to delegate

administrative responsibility for the program to a designated department, agency, or political

subdivision of the jurisdiction (i.e., the implementing entity). The term “agency” includes

government corporations and other entities authorized or supervised by the jurisdiction. The

applicant is required to submit a letter from the governor of the state or a governing official of

the territory, the District of Columbia, or Tribal government designating an implementing entity.

The applicant also will be required to submit a short narrative statement describing the legal

actions that have been taken to delegate responsibility for the program and attaching any relevant

documentation in support of that statement. The documents should describe the authority upon

which the designated implementing entity is able to enter into binding agreements on behalf of

the jurisdiction with Treasury. This will typically involve discussion of the entity’s charter and

express authorizations from the jurisdiction to act on its behalf through a state resolution or other

instrument. The narrative should discuss the jurisdiction’s budget process and any necessary

steps for SSBCI funds to be deployed for the uses in the application. In some states, this requires

the passage of a budget resolution by the state legislature. An application will not be approved

until all legal actions necessary to enable the designated implementing entity to implement the

program and participate in the SSBCI have been accomplished and the jurisdiction has provided

Treasury with a description of such actions.

b. Applications, Generally – 12 U.S.C. § 5703(b)

Any jurisdiction that establishes a new, or has an existing, CAP or OCSP that meets the

SSBCI eligibility criteria may apply for SSBCI funds by accessing the application portal from

the SSBCI website at http://www.treasury.gov/ssbci. Treasury is available to provide technical

assistance to applicants that are in the process of creating or starting programs. The SSBCI

statute requires that a CAP or OCSP be fully positioned, within 90 days of the execution of the

Allocation Agreement, to act on providing the kind of credit support that the CAP or OCSP was

established to provide. Complete applications from states, the District of Columbia, territories,

and Tribal governments must be submitted to Treasury in accordance with the deadlines

published by Treasury.

An application for SSBCI funding is not a competitive award process. Treasury will

approve applications that satisfy the requirements under the SSBCI statute and applicable

program requirements. To expedite processing, applicants should make every effort to ensure

that their applications include all applicable supporting documentation.

c. Contractual Arrangements – 12 U.S.C. § 5703(c)

A jurisdiction may have contractual arrangements for the implementation or

administration of its capital program with an authorized agent of the jurisdiction, or with an

entity selected and supervised by the jurisdiction, including for-profit and non-profit entities

(e.g., investment funds, loan funds). To help support the efficacy of small business credit support

and investment programs, and to ensure compliance with all applicable legal requirements,

Treasury expects participating jurisdictions to promote a fair, competitive, and open selection

and contracting process.

The SSBCI application will ask jurisdictions to explain the steps they will take to

promote a fair, competitive, and open selection and contracting process. These steps could

include application and enforcement of existing procurement and ethics policies of the

jurisdiction and new measures the jurisdiction chooses to implement specifically for the SSBCI

program. Examples of such policies include limitations on or disclosure of political contributions

to officials with authority to select SSBCI contractors; reporting requirements regarding

lobbying activity, including lobbying related to the SSBCI contractor selection process or

program implementation; and request-for-proposal policies to govern the process for evaluating

bids for SSBCI-related contracts.

d. Tribal Governments – 12 U.S.C. §§ 5701(10)(E), 5702(b)(2)(C), 5703(b)-(c)

Under 12 U.S.C. § 5702(b)(2)(C), Tribal governments may apply jointly for funding

under the SSBCI. Tribal governments may apply jointly through an organization or other Tribal

government representative if each Tribal government applying jointly authorizes the organization

or other Tribal government representative to represent the Tribal government for purposes of

SSBCI. Any joint application by a third party or Tribal government representative must include

documentation that the applicant has been authorized to represent each of the participating Tribal

governments. Such documentation must include Tribal resolutions or other actions taken by each

participating Tribal government to delegate authority to the applicant. The same approval criteria

and program requirements that are applicable to Tribal governments will apply to each joint

application by Tribal governments.

A Tribal enterprise may implement and administer SSBCI programs as long as it is an

authorized agent of, or entity supervised by, the Tribal government. A “Tribal enterprise” is an

entity: (1) that is wholly owned by one or more Tribal governments, or by a corporation that is

wholly owned by one or more Tribal governments; or (2) that is owned in part by one or more

Tribal governments, or by a corporation that is wholly owned by one or more Tribal

governments, if all other owners are either United States citizens or small business concerns.

This definition is consistent with the Small Business Administration (SBA) HUBZone definition

of a “small business concern” relating to Tribal governments in 15 U.S.C. § 657a(b)(2)(C).

e. Municipalities – 12 U.S.C. § 5703(d)

As noted above, the SSBCI statute allows municipalities to apply directly for SSBCI

funding in certain circumstances if the state of the United States does not apply directly.

Specifically, the Act provides that Treasury may grant municipalities of a state special

permission to apply directly for funding under the SSBCI if: (1) that state did not submit an

SSBCI notice of intent to Treasury by May 10, 2021; or (2) that state filed a notice of intent by

May 10, 2021 but does not submit a complete application for approval of a state program by

11:59 PM ET on February 11, 2022. Because all states submitted complete applications by the

deadline, municipalities are not eligible to apply.

Section VII. Approving CAPs

a. In General

CAPs provide portfolio insurance to lenders that are financial institutions as defined in

12 U.S.C. § 5701(5)

and that make small business loans. Portfolio insurance is provided in the

form of a separate loan loss reserve fund for each participating financial institution. CAPs are

established and administered by each jurisdiction, individually.

Jurisdictions may work together and standardize several program characteristics,

consistent with applicable SSBCI program requirements, which would increase uniformity

across jurisdictions. For example, jurisdictions could use similar enrollment forms for financial

institutions to participate in the program; use similar enrollment forms for each loan; set the

same rules for eligible borrowers and uses of loan proceeds; standardize the amount of borrower

and lender payments to the CAP reserve fund; establish a uniform form and frequency of

reporting from lenders; and use similar forms to document the recovery of any loan losses from

the CAP reserve fund. Such standardization could result in savings for financial institutions on

staff training, loan operations, recordkeeping, and management expenses. If the programs are

standardized across large and small jurisdictions, financial institutions could offer CAPs in all

locations with relatively little extra administrative cost.

b. Federal Contribution – 12 U.S.C. § 5704(d)

Under the SSBCI statute, approved CAPs are eligible for federal contributions in an

amount equal to the premiums paid by the borrower and the financial institution lender to the

The statutory definition of “financial institution” is any insured depository institution, insured credit union, or

CDFI, as each of those terms is defined in section 103 of the Riegle Community Development and Regulatory

Improvement Act of 1994, 12 U.S.C. § 4702.

reserve fund. This amount is calculated on a loan-by-loan basis. A participating jurisdiction may

use the federal contribution to make its contribution to the reserve fund. Accordingly, the federal

contribution may be used to match the aggregate borrower/lender contribution at a level of 1:1.

The jurisdiction may supplement the federal contribution with jurisdiction funds or private funds,

but the federal contribution cannot be used to match any amount in excess of the sum of the

borrower and financial institution lender contributions. Federal contributions to CAPs may only

be used to pay losses on loans originated and enrolled after the effective date of the jurisdiction’s

Allocation Agreement. The jurisdiction may allow lenders to use premiums from loans

subsequently enrolled in the jurisdiction’s SSBCI CAP portfolio to pay prior losses on loans

enrolled in the SSBCI CAP portfolio.

c. CAP Experience and Capacity Program Requirement – 12 U.S.C. § 5704(e)(1)

Each jurisdiction should exercise due care to determine that financial institutions

participating in the SSBCI possess sufficient commercial lending experience, financial and

managerial capacity, and operational skills to meet the objectives of the SSBCI statute. To ensure

the federal funds are made broadly available to small businesses, including VSBs and

SEDI-owned businesses, each jurisdiction must apply the same standards for participation in its

SSBCI programs to all classes of lenders and not restrict any class of financial institutions from

participating in the program. In addition, if a CAP allows financial institution lenders to partner

with third-party providers (e.g., non-depository CDFIs), the jurisdiction must apply the same

standards applicable to the financial institutions to third-party providers. In all cases, loans

should comply with the minimum national customer protection standards under Section IX.f

below and be offered in a manner that ensures fair access to financial services, fair treatment of

customers, and compliance with applicable laws and regulations, including fair lending and

consumer protection laws. As required by the SSBCI statute, jurisdictions must consult with the

appropriate federal banking agency or, as appropriate, the CDFI Fund, to determine for each

financial institution that participates in a CAP that the financial institution has sufficient

commercial lending experience and financial and managerial capacity to participate in the CAP.

Jurisdictions may also consult with state regulatory or supervisory authorities regarding

participating financial institutions, if applicable. The following table lists examples of

documents and certifications jurisdictions may use to determine adequacy of a financial

institution’s lending experience and financial and managerial capacity.

TYPE OF

ITU

TION

RATINGS

PERFORMANCE REPORTS

CER

IFICA

ONS

Insured depository

institutions

(including

depository

CDFIs)

•

Uniform Banking

Performance Report (UBP

showing that commercial

loans and leases comprise a

significant part of the

institution’s assets.

•

A UBPR peer group analy

sis

showing that the institution

’s

percentage of non-current

loans and leases does not

exceed its peer group

average (UBPR reports may

be obtained at

www.ffiec.gov/UBPR.htm).

Self-certification that the

ins

titution is not operating

under

any formal

nforcement action with

its primary

federal

regulator that addresses

unsafe or unsound lending

practices

Federally-insured credit

nions

(

including CDFI credit

nions)

Financial Performance Reports

(FPRs) from the NCUA.

Self-certification that the

ins

ution is not operating

under

any formal

nforcement action with

its primary

federal

regulator that addresses

unsafe or unsound lending

practices.

CDFIs (excluding

insured depositories

and

credit u

nions)

AERIS rating

• Annual report with audited

financial statements.

•

State supervisory or

regulatory information.

d. Lender Capital at Risk – 12 U.S.C. § 5704(e)(4)

The SSBCI statute, 12 U.S.C. § 5704(e), requires that for any loan enrolled in a CAP, the

financial institution lender must have a meaningful amount of its own capital at risk in the loan.

Treasury has determined that because of how CAPs operate, each lender has a meaningful

amount of its own capital resources at risk. As required by 12 U.S.C. § 5704(e)(5), the borrower

and lender together can only contribute up to 7 percent of the loan amount to a reserve fund, and

the jurisdiction matches that same contribution with SSBCI funds. At maximum contribution, the

reserve fund only has 14 percent of each loan (7 percent from the borrower and lender together,

and 7 percent from SSBCI funds), leaving the lender at risk for 86 percent of the loan.

e. Borrower and Loan Size Requirements – 12 U.S.C. § 5704(c)(4)

For a loan to be eligible for enrollment in the CAP, the borrower must have

500 employees or less at the time that the loan is enrolled in the program, and the loan cannot

exceed $5 million.

For purposes of determining a borrower’s eligibility for CAPs, Treasury’s calculation of

borrower size is consistent with the SBA’s methodology for calculating the number of

employees under 13 C.F.R. § 121.106. In determining a borrower’s number of employees,

Treasury counts all individuals employed on a full-time, part-time, or other basis. This includes

employees obtained from a temporary employee agency, professional employee organization, or

leasing concern. Volunteers (i.e., individuals who receive no compensation, including no in-kind

compensation, for work performed) are not considered employees. A borrower’s number of

employees includes the employees of its affiliates, as defined in 13 C.F.R. § 121.103. In regard

to counting employees, businesses owned and controlled by a Tribal government are not

considered affiliates of the Tribal government and are not considered affiliates of other

businesses owned by the Tribal government because of their common ownership by the Tribal

government or common management, as described in 13 C.F.R. § 121.103(b)(2).

f. Loan Purpose Requirements and Prohibitions – 12 U.S.C. § 5704(e)(7)

As required by 12 U.S.C. § 5704(e)(7), for each loan enrolled in a CAP, the participating

jurisdiction must require the financial institution lender to obtain an assurance from each

borrower stating that the loan proceeds will not be used for an impermissible loan purpose under

the SSBCI program.

Business Purpose Generally – 12 U.S.C. § 5704(e)(7)(A)(i)(I)

Each financial institution lender must obtain an assurance from the borrower affirming

that the loan proceeds will be used for a business purpose. A business purpose includes, but is

not limited to, start-up costs; working capital; franchise fees; and acquisition of equipment,

inventory, or services used in the production, manufacturing, or delivery of a business’s goods or

services, or in the purchase, construction, renovation, or tenant improvements of an eligible place

of business that is not for passive real estate investment purposes. SSBCI funds may be used to

purchase any tangible or intangible assets except goodwill. The term “business purpose” excludes

acquiring or holding passive investments in real estate, the purchase of securities, and lobbying

activities (as defined in Section 3(7) of the Lobbying Disclosure Act of 1995, P.L. 104-65, as

amended).

The Act defines “lobbying activities” as “lobbying contacts and efforts in support of such contacts, including

preparation and planning activities, research and other background work that is intended, at the time it is performed,

for use in contacts, and coordination with the lobbying activities of others.”

Business Purpose: Passive Real Estate Investment Guidance – 12 U.S.C. § 5704(e)(7)(A)(i)(I)

Each financial institution lender must obtain an assurance from the borrower affirming

that the loan proceeds will be used for a business purpose. As noted above under “Business

Purpose Generally,” an eligible business purpose under SSBCI includes the purchase,

construction, renovation, or tenant improvements of an eligible place of business that is not for

passive real estate investment purposes. However, an eligible business purpose excludes

acquiring or holding passive investments in real estate. Loan proceeds are used for passive real

estate investment purposes when the proceeds of the loan are used to invest in real estate

acquired and held primarily for sale, lease, or investment. Passive real estate investment includes

most real estate development (including construction) in which the developer does not intend to

occupy or actively use the resulting real property.

A small business borrower can deliver the assurance that the loan is not being used for

passive real estate if the small business borrower occupies and uses at least a specific percentage

of the building; the percentage varies depending on whether the project involves the construction

of a new building or renovation of an existing building:

• Construction of a new building. If SSBCI-supported loan proceeds are used in the

construction of a new building, the small business must occupy and use at least

60 percent of the total rentable property following issuance of an occupancy permit or

other similar authorization.

• Renovation of an existing building. If SSBCI-supported loan proceeds are used in the

acquisition, renovation, or reconstruction of an existing building, the borrower may

permanently lease up to 49 percent of the rentable property to one or more tenants, if the

small business occupies and uses at least 51 percent of the total rentable property within

12 months following the acquisition, renovation, or reconstruction.

If a small business chooses to lease an allowable portion of the rentable square footage to

a tenant, the jurisdiction may rely on lease agreements, blueprints, or similar documentation in

assuring the lease of an allowable portion of the rentable square footage is consistent with these

guidelines.

SSBCI-supported loan proceeds may not be used to improve or renovate any portion of

rentable property that the small business borrower leases to a third party. “Rentable property”

means the total square footage of all buildings or facilities used for business operations, which

(1) excludes vertical penetrations (e.g., stairways, elevators, and mechanical areas that are

designed to transfer people or services vertically between floors) and all outside areas and

(2) includes common areas (e.g., lobbies, passageways, vestibules, and bathrooms).

There are two exceptions to the general prohibition on the use of SSBCI-supported loan

proceeds for passive real estate investment. An eligible business purpose may include the

financing of real estate investments in either one of the following limited circumstances.

(1) Passive company leasing to operating company. A passive company such as a

holding company that acquires real property using an SSBCI-supported loan may

have an eligible business purpose where 100 percent of the rentable property is leased

to the passive company’s affiliated operating companies that are actively involved in

conducting business operations. To meet this exception, the following criteria must

also be met:

• The passive company must be an eligible small business using the affiliate and

employee definitions described above;

• The operating company must be subject to the same sublease restrictions as the

owner affiliate;

• The operating company must be a guarantor or co-borrower on the

SSBCI-supported loan to the eligible passive company;

• Both the passive company and the operating company must execute SSBCI

borrower use-of-proceeds certifications and sex-offender certifications covering

all principals;

• Each natural person holding an ownership interest constituting at least 20 percent

of either the passive company or the operating company must provide a personal

guarantee for the SSBCI-supported loan; and

• The passive company and the operating company have a written lease with a term

at least equal to the term of the SSBCI-supported loan (which may include

options to renew exercisable solely by the operating company).

(2) Construction loan of $500,000 or less. A construction loan with an original principal

amount of $500,000 or less may have an eligible business purpose if:

• the building will not serve as a residence for the owner, their relatives, or

affiliates;

• the building will be put into service immediately;

• the loan is underwritten and made for the purpose of constructing or refurbishing

a structure; and

• the building has not been and will not be financed by another SSBCI-supported

loan.

Under this exception, loans that automatically convert into permanent financing are

excluded from the definition of “eligible business purpose,” unless the converted

loans would no longer rely on SSBCI support. The term “construction loan” means a

loan secured by real estate made to finance (1) land development (e.g., the process of

improving land, such as laying sewers or water pipes) preparatory to erecting new

structures or (2) the on-site construction of industrial, commercial, residential, or farm

buildings. For purposes of this paragraph, “construction” includes not only

construction of new structures, but also additions or alterations to existing structures

and the demolition of existing structures to make way for new structures.

Prohibited Loan Purposes – 12 U.S.C. § 5704(e)(7)(A)(i)(II)

Each financial institution lender must obtain an assurance from the borrower affirming

that the loan proceeds will not be used to:

• Repay delinquent federal or jurisdiction income taxes unless the borrower has a

payment plan in place with the relevant taxing authority;

• Repay taxes held in trust or escrow (e.g., payroll or sales taxes);

• Reimburse funds owed to any owner, including any equity investment or investment

of capital for the business’s continuance; or

• Purchase any portion of the ownership interest of any owner of the business,

except

for the purchase of an interest in an employee stock ownership plan qualifying under

section 401 of Internal Revenue Code, worker cooperative, employee ownership trust,

or related vehicle, provided that the transaction results in broad-based employee

ownership for employees in the business and the employee stock ownership plan or

other employee-owned entity holds a majority interest (on a fully diluted basis) in the

business.

Borrower Restrictions – 12 U.S.C. § 5704(e)(7)(A)(i)(III)

Each financial institution lender must obtain an assurance from the borrower affirming

that the borrower is not:

• An executive officer, director, or principal shareholder of the financial institution

lender;

• A member of the immediate family of an executive officer, director, or principal

shareholder of the financial institution lender; or

• A related interest or immediate family member of such an executive officer, director,

or principal shareholder of the financial institution lender.

For purposes of these three borrower restrictions, the terms “executive officer,”

This prohibition applies to the acquisition of shares of a company or the partnership interest of a partner when the

proceeds of the loan directly supported by SSBCI funds will go to any existing owner or partner.

“director,” “principal shareholder,” “immediate family,” and “related interest” refer to the same

relationship to a financial institution lender as the relationships described in 12 C.F.R. part 215.

Permissible borrowers may include jurisdiction-designated charitable, religious, or other

non-profit or philanthropic institutions; government-owned corporations; consumer and

marketing cooperatives; and faith-based organizations, provided the loan is for a “business

purpose” as defined above. Permissible borrowers may also include sole proprietors, independent

contractors, worker cooperatives, and other employee-owned entities, as well as Tribal

enterprises, provided that all applicable program requirements are satisfied.

Additional Borrower Restrictions – 12 U.S.C. § 5704(e)(7)(A)(iv)

Each financial institution lender must obtain an assurance from the borrower affirming

that the borrower is not:

• A business engaged in speculative activities that profit from fluctuations in price,

such as wildcatting for oil and dealing in commodities futures, unless those activities

are incidental to the regular activities of the business and part of a legitimate risk

management strategy to guard against price fluctuations related to the regular

activities of the business or through the normal course of trade;

• A business that earns more than half of its annual net revenue from lending activities,

unless the business is (1) a CDFI that is not a depository institution or a bank holding

company, or (2) a Tribal enterprise lender that is not a depository institution or a bank

holding company

;

• A business engaged in pyramid sales, where a participant’s primary incentive is based

on the sales made by an ever-increasing number of participants;

• A business engaged in activities that are prohibited by federal law or, if permitted by

federal law, applicable law in the jurisdiction where the business is located or

conducted (this includes businesses that make, sell, service, or distribute products or

services used in connection with illegal activity, unless such use can be shown to be

completely outside of the business’s intended market); this category of businesses

includes direct and indirect marijuana businesses, as defined in SBA Standard

A construction loan permitted under Business Purpose: Passive Real Estate Investment Guidance – 12 U.S.C.

§ 5704(e)(7)(A)(i)(I) will not be considered a speculative business for purposes of SSBCI.

When a participating jurisdiction makes a loan to an eligible CDFI, the CDFI may re-lend the funds to other

entities. Each CDFI re-lending transaction must be eligible and meet all SSBCI program requirements, including

obtaining all required assurances and certifications. The participating jurisdiction may include private financing

caused by and resulting from the re-lending transaction in the jurisdiction’s private leverage ratio. Similarly, Tribal

enterprise lenders may also be permissible borrowers for the purpose of relending, if the re-lending transactions are

eligible and meet all SSBCI program requirements, including obtaining all required assurances and certifications.

Operating Procedure 50 10 6;

• A business deriving more than one-third of gross annual revenue from legal gambling

activities, unless the business is a Tribal SSBCI participant, in which case the Tribal

SSBCI participant is prohibited from using SSBCI funds for gaming activities, but is

not restricted from using SSBCI funds for non-gaming activities merely due to an

organizational tie to a gaming business

; “gaming activities” for purposes of Tribal

SSBCI programs is defined as Class II and Class III gaming under the Indian Gaming

Regulatory Act (IGRA), 25 U.S.C. § 2703.

Each financial institution lender must also obtain an assurance from the borrower

affirming that no principal of the borrowing entity has been convicted of a sex offense against a

minor (as such terms are defined in section 111 of the Sex Offender Registration and Notification

Act (42 U.S.C. § 16911)). For purposes of this certification, “principal” is defined as if a sole

proprietorship, the proprietor; if a partnership, each partner; if a corporation, limited liability

company, association, development company, or other entity, each director, each of the five most

highly compensated executives, officers, or employees of the entity, and each direct or indirect

holder of

percent

or more

of the ownership

stock

equivalent

of the

entity.

Lender Assurances – 12 U.S.C. § 5704(e)(7)(A)(ii) and (iii)

Each participating jurisdiction must obtain an assurance from the financial institution

lender affirming:

• The SSBCI-supported loan is not being made in order to place under the protection of

the approved program prior debt that is not covered under the approved program and

that is or was owed by the borrower to the financial institution lender or to an affiliate

of the financial institution lender.

• If the SSBCI-supported loan is a refinancing, it complies with all applicable SSBCI

restrictions and requirements regarding refinancing and new extensions of credit,

including that the SSBCI-supported loan is not a refinancing of a loan previously

made to the borrower by the lender or an affiliate of the lender.

• No principal of the financial institution lender has been convicted of a sex offense

against a minor (as such terms are defined in section 111 of the Sex Offender

Registration and Notification Act (42 U.S.C. § 16911)). For the purposes of this

certification, “principal” is defined as if a sole proprietorship, the proprietor; if a

SBA Standard Operating Procedure 50 10 6, Lender and Development Company Loan Programs (effective

October 1, 2020) (“Because federal law prohibits the distribution and sale of marijuana, financial transactions

involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore,

businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be

ineligible for SBA financial assistance.”).

Under this standard, a gaming Tribal enterprise could apply for SSBCI funds for its new gas station, for example,

even if the Tribal enterprise’s revenues from gaming were greater than 33 percent.

partnership, each partner; if a corporation, limited liability company, association,

development company, or other entity, each director, each of the five most highly

compensated executives, officers, or employees of the entity, and each direct or

indirect holder of 20 percent or more of the ownership stock or stock equivalent of

the entity.

Lender Assurances: Refinancing and New Extensions of Credit – 12 U.S.C.

§ 5704(e)(7)(A)(ii)

New Lenders. Under the SSBCI statute, a lender is not prohibited from enrolling or

refinancing loans previously made by another, non-affiliated financial institution. Accordingly, a

lender may refinance a borrower’s existing loan, line of credit, extension of credit, or other debt

originally made by an unaffiliated lender so long as the proceeds of the transaction are not used

to finance an extraordinary dividend or other distribution.

When a participating jurisdiction uses SSBCI funds to support the purchase of a loan from

another, non-affiliated financial institution, the jurisdiction must make a determination that the

transaction is beneficial to the small business borrower. For purposes of the eligible business

purpose and certification requirements, the eligible business purpose of the new loan is generally

determined by the purpose of the underlying funding being refinanced.

New Extensions of Credit by Existing Lenders. Financial institution lenders are generally

prohibited from refinancing an existing outstanding balance or previously made loan, line of

credit, extension of credit, or other debt owed by a small business borrower already on the books

of the same financial institution (or an affiliate) into the SSBCI-supported program. However, a

financial institution lender may use SSBCI funds to support a new extension of credit that repays

the amount due on a matured

loan or other debt that was previously used for an eligible

business purpose when all the following conditions are met:

• The amount of the new loan or other debt is at least 150 percent of the outstanding

amount of the matured loan or other debt;

• The new credit supported with SSBCI funding is based on a new underwriting of the

small business’s ability to repay the loan and a new approval by the lender;

• The prior loan or other debt has been paid as agreed and the borrower was not in

default of any financial covenants under the loan or debt for at least the previous

36 months (or since origination, if shorter); and

• Proceeds of the transaction are not used to finance an extraordinary dividend or other

distribution.

A matured loan or line of credit only includes such that have matured according to their terms and does not

include a loan or line of credit that has been accelerated to maturity. Transferring an accelerated loan into an SSBCI

program does not promote the purpose of expanding small business access to capital and would primarily benefit

lenders rather than small businesses.

If a participating jurisdiction enrolls a loan that is used to repay principal under a loan previously

made by the same financial institution or its affiliate, the participating jurisdiction or the

financial institution lender must maintain records showing that these criteria were met. The

limitation on refinancing does not prohibit a financial institution lender from originating a new

loan under an SSBCI approved program and subsequently refinancing the same loan under any

approved program.

g. Monitoring the Annual Claims Rate

The claims rate for a CAP reflects the compensation a lender may seek for borrower

defaults and, accordingly, the amount of SSBCI subsidy the lender may receive. CAPs are

intended to support responsible lending that is beneficial to small businesses and are not intended

to subsidize high default rate business models. To ensure CAPs continue to be used consistent

with these objectives, jurisdictions must monitor annual CAP claims rates and review lenders

whose annual claims rates exceed 6 percent. The claims rate may be measured by either total

capital or number of loans in a 12-month period. The jurisdiction may determine to disallow a

lender from enrolling any additional CAP loans if the jurisdiction determines the lender’s

practices do not meet program standards or is using the CAP to offset the costs of high default

rate lending.

Treasury will monitor CAP annual claims rates annually.

Section VIII. Approving OCSPs

a. In General

Under 12 U.S.C. § 5701(12), an OCSP is a program that is not a CAP, that uses public

resources to promote private access to credit, and that meets certain eligibility criteria. OCSPs

may include loan programs, investment programs, or other credit or equity support programs.

OCSPs may include programs that provide support for small business lending and investment

such as collateral support programs, loan participation programs, jurisdiction

-sponsored

equity/

venture

capital

programs,

loan

guarantee

programs,

other similar programs. Unlike

CAP lenders, OCSP lenders and investors need not be financial institutions as defined above.

In an SSBCI equity/venture capital program, the “investor” can be an entity of the

jurisdiction; any private venture capital, seed-stage, mezzanine, or angel fund participating in an

approved SSBCI program (but not individual investors in such a fund); or a special-purpose

vehicle or entity. The “investee” is the small business that is the end recipient of SSBCI funds,

either directly or indirectly through a venture capital fund.

Tribal enterprises may be lenders or investors in an OCSP, if they comply with all

applicable program requirements. Any Tribal enterprise acting as a lender or investor should

have sufficient lending or investing experience and the financial and managerial capacity to

participate in the OCSP.

At their discretion, jurisdictions may conduct additional reviews of lenders and apply other limits to approved

programs and participating lenders.

b. 10:1 Financing – 12 U.S.C. § 5705(c)(2)

As required by 12 U.S.C. § 5705(c)(2), for OCSPs to be eligible for federal funding, a

jurisdiction must demonstrate a “reasonable expectation” that, when considered with all other

approved programs under the SSBCI, such programs together have the ability to use federal

contributions to such programs to generate small business lending and investment at least

10 times the federal contribution amount. As a part of the 10:1 financing requirement, the statute

requires SSBCI funds to “cause and result in” private financing. As a part of the application,

jurisdictions must describe how their OCSPs will in fact “cause and result in” private financing.

For example, for OCSPs involving venture capital funds, jurisdictions may specify such

safeguards as limiting investments to anchor investments,

prohibiting SSBCI participation after

a fund’s initial close, or restricting investments in funds for which private capital is likely to be

catalyzed by SSBCI participation based on the funds’ age, size, or experience.

Treasury refers to the ratio of small business lending and investment to the federal

contribution amount as the “private financing ratio.” Specifically, the private financing ratio is

the “private financing” caused by and resulting from the SSBCI investment, divided by the

“SSBCI funds used.” These terms are defined below. Jurisdictions must meet an ex ante

requirement that they demonstrate, at the time they apply for SSBCI funds, a reasonable

expectation that their SSBCI programs will achieve a 10:1 private financing ratio. In addition,

jurisdictions must fulfill ongoing ex post reporting requirements on actual leverage achieved.

For the ex ante requirement, jurisdictions must provide to Treasury certain estimates or

projections of program parameters at the time they apply for SSBCI funds, such as: funding

allocation among various programs (e.g., capital access, equity/venture capital, loan

participation, loan guarantee, collateral support); turnover within programs (e.g., average loan

tenor); and loss rates.

The SSBCI application materials will include a template that allows a

jurisdiction to input its estimates or projections of program parameters, and that calculates an

estimate of the private financing ratio resulting from the jurisdiction’s inputs. Subject to

Treasury’s approval, the jurisdiction may provide its own calculation of the private financing

ratio, if the jurisdiction provides Treasury with its calculation and the inputs, so that Treasury

can confirm the results. For purposes of ex ante projections, Treasury will calculate the private

leverage ratio over a 10-year horizon, commencing with the initial deployment of federal funds.

That is, the 10-year time horizon is specific to each initial transaction (or, for simplicity, annual

group of transactions), not from the initiation of the program. If a jurisdiction knows that it will

stop recycling funds after the allocation time period or anytime within the 10-year horizon for a

particular program, the jurisdiction should adjust its leverage projections accordingly.

For purposes of calculating and reporting the private financing ratio achieved by SSBCI

programs (the ex post calculation), records of direct and indirect private financing motivated by

federal funds should be maintained and aggregated for the numerator of the private financing

Anchor investments are meaningful investments made early in the life of the fund that send a strong signal

regarding the merits and risk profile of investing in the fund.

A loss rate is the face value of defaulted loans less any recovered value, divided by the sum of the original loan

amounts.

ratio. Jurisdictions will be required to provide transaction-level information to Treasury, and

Treasury will perform the ex post calculation.

“Private financing” means private financing across all approved programs and includes

all loans or investments from a private source to an eligible borrower or eligible investee,

whether occurring at or subsequent to loan or investment closing (subject to certain restrictions

to be set forth in the Allocation Agreement regarding permissible types of subsequent private

financing), and whether funded or unfunded. It encompasses equity investments, written

commitments of future equity investments, term loans, lines of credit, and any new infusions of

cash by the small business owner into the borrower.

For a Tribal government program, private

financing may include Tribal enterprise funds acquired in commerce, provided that the funds do

not originate with the state, federal, or Tribal government. Private financing does not include

financing provided by tax-credit supported vehicles, such as funds capitalized by the sale of state

tax credits.

A participating jurisdiction may count SBA-guaranteed loans or other financing

that is credit-enhanced by federal, state, or local incentives, if (1) the financing is caused by, or is

the result of, an SSBCI-supported transaction, (2) the capital comes directly from a private

entity, and (3) the lender or investor has at least some of its own capital at risk.

“SSBCI funds used” are SSBCI funds that have been (1) disbursed to a lender to cover

the SSBCI contributions to a CAP reserve fund, (2) disbursed or committed to a specific

borrower as part of a loan participation, collateral support, or direct lending program, (3) set

aside to cover obligations arising from individual loan guarantees, loan participations, or

collateral support agreements to specific borrowers, or (4) invested or committed to be invested

in specific businesses, pursuant to an equity/venture capital investment. If the aggregate amount

of these funds exceeds all of the participating jurisdiction’s allocated amounts from the main

capital, VSB, SEDI, and SEDI incentive allocations (because some of the funds invested have

generated program income that has been added to allocated funds), the “SSBCI funds used”

means the participating jurisdiction’s total allocated amounts. SSBCI funds used are

distinguishable from funds considered deployed (i.e., expended, transferred or obligated, and

delivered) as described in Section III.b above.

c. 1:1 Financing – 12 U.S.C. § 5705(c)(1)

As required by 12 U.S.C. § 5705(c)(1), each OCSP must “demonstrate that, at a

minimum, $1 of public investment by the State program will cause and result in $1 of new

private credit.” Unlike the 10:1 financing expectation described above, this 1:1 financing is an

eligibility requirement. As a result, Treasury will only approve OCSPs that demonstrate that the

design of the program will meet the 1:1 financing ratio.

When a participating jurisdiction makes a loan to an eligible CDFI, the CDFI may re-lend the funds to other

entities. If a CDFI re-lending transaction is eligible and meets all SSBCI program requirements, including obtaining

all required assurances and certifications, the participating jurisdiction may include private financing caused by and

resulting from the re-lending transaction in the jurisdiction’s private leverage ratio.

Angel investments (i.e., investments made by generally high net worth individuals in startup businesses) that

generate individual tax credits as a result of their investment activity may be considered private capital for purposes

of the minimum private leverage test and calculating subsequent private financing.

For purposes of this requirement, jurisdictions should calculate their “new private credit”

(which Treasury refers to as “private financing”) for each individual OCSP using the following

formula:

• Financing ratio = [total aggregate private financing generated by the individual OCSP]

divided by [SSBCI funds used by the individual OCSP]

• “Private financing” and “SSBCI funds used” have the same definitions as those set forth

in Section VIII.b above.

As noted above, the statute requires SSBCI funds to “cause and result in” 1:1 private

financing. Therefore, in the SSBCI application, jurisdictions must describe how their OCSPs will

“cause and result in” private financing. For example, for OCSPs involving venture capital funds,

jurisdictions may specify that (1) the program will limit investments to anchor investments

prohibit SSBCI participation after the initial close of the fund, or (2) the program will only work

with funds for which private capital is likely to be catalyzed by SSBCI participation based on the

funds’ age, size, or experience.

A private investment that occurs prior to the SSBCI investment may count towards the

jurisdiction’s 1:1 financing ratio when a jurisdiction can document that the forthcoming SSBCI

funds were the “cause and result” of the private investment. For example, a private investment

that occurs prior to an SSBCI investment may count towards the jurisdiction’s private capital

ratio if the jurisdiction supplies documentation (e.g., board meeting minutes) evidencing the

causal connection between the SSBCI investment and the private investment. In addition, private

capital raised within the same funding round as the SSBCI funding may be counted toward the

1:1 financing ratio if a term sheet or similar agreement specifies the inclusion of SSBCI capital

and the private financing transaction occurs no earlier than 90 days before the SSBCI

investment.

d. Lender or Investor Capital at Risk – 12 U.S.C. § 5705(c)(3)

OCSPs must mandate that lenders and investors—through which OCSPs provide loans,

investments, or other credit or equity support—have “a meaningful amount of their own capital

resources at risk.” Treasury has determined that “meaningful amount” differs for various types of

lenders and investors, as some will bear risk at the transaction level while others bear pooled

risk.

Lenders

Lenders that transact with small businesses and bear the risk of loss in such transactions

(e.g., by originating loans supported by collateral support, loan guarantees, loan participations, or

other types of credit support) have a meaningful amount of capital resources at risk if they bear

Anchor investments are meaningful investments made early in the life of a fund that send a strong signal

regarding the merits and risk profile of investing in the fund.

20 percent or more of the risk of loss in any transaction. A borrower’s own funds, including

borrower contributions to the transaction (sometimes referred to as borrower equity), do not

qualify towards the 20 percent threshold. If such lenders transfer loans to debt investors, then the

lenders must retain at least 5 percent of the risk of loss of the transaction.

Debt Investors

Debt investors that originate loans have a meaningful amount of capital resources at risk

if these investors establish terms whereby the private capital is pari passu with, or junior to, the

SSBCI capital in cash flow rights up to the repayment of the SSBCI investment. For these debt

investors, the 1:1 financing requirement is met at the fund level.

Debt investors that do not originate loans

have a meaningful amount of capital

resources at risk if these investors establish terms whereby the private capital in the same risk

layer

as the SSBCI capital is pari passu with, or junior to, the SSBCI investment in cash flow

rights. For these debt investors, the 1:1 financing requirement is met at the risk layer level.

If the debt investor is a fund or similar entity, the fund or entity manager should have

exposure to the risk of its portfolio in a manner that is consistent with industry standards.

To the extent that an OCSP is structured such that a lender transfers a portion of

SSBCI-compliant loans to a special-purpose vehicle or other pooled entity funded by

SSBCI capital and private capital, the OCSP may satisfy the private capital at risk requirement

by showing that the originating lender will retain at least 20 percent of the risk of loss of each

loan at a transaction level, regardless of the structure of the special-purpose vehicle or other

pooled entity. Otherwise, the OCSP will be assessed based on the existing standards applicable

to debt investors that do not originate loans, as described above.

Equity Investors

Equity investors have a meaningful amount of capital resources at risk if these investors

establish terms whereby the private capital is pari passu with, or junior to, the SSBCI investment

in cash flow rights.

Eligible equity investors that make qualifying investments under the Incubation Funding

Model or Early-Stage Investor Model, as defined in Section VIII.i below, have a meaningful

amount of capital resources at risk if these investors establish terms whereby the private capital

For example, debt investors that do not originate loans include special-purpose vehicles that issue asset-backed

securities.

Whole loans, pools of loans, or other assets from a lending contract can be placed in a special-purpose vehicle.

The vehicle then receives principal and interest payments, or other cash flows, from the underlying loan or other

assets. The resulting cash flows are then distributed to different investment tranches in the vehicle (i.e., layers of

risk). The sequencing of payments to the various tranches reflects the seniority of each of those tranches. “Risk

layer” here refers to the tranche of the asset-backed security in which the SSBCI capital is invested.

is pari passu with the SSBCI investment in cash flow rights up to the repayment of the SSBCI

investment.

If SSBCI capital is invested through a venture capital fund, the fund or entity manager

must have exposure to the risk of its portfolio in a manner that is consistent with industry

standards.

e. Borrower/Investee and Loan/Investment Size Requirements – 12 U.S.C.

§ 5705(c)(4)

OCSPs are required (1) to target an average borrower or investee size of 500 employees

or less, (2) not to extend credit or investment support to borrowers or investees that have more

than 750 employees, (3) to target support towards loans or investments with an average principal

or investment amount of $5 million or less, and (4) not to provide credit or investment support if

a given transaction exceeds $20 million. For loan programs, (3) and (4) apply to the principal

amount of the loan directly supported by SSBCI, plus all other loans for the same loan purpose

that close on or about the same date. Direct SSBCI support for a loan includes a guarantee, cash

collateral, and loan participation (either purchased participation or companion participation

loan). For equity investment programs, (3) and (4) apply to a single investment round that

includes an SSBCI-funded investment, including all classes of equity instruments that close on or

about the same date. SSBCI support for an investment includes direct equity investments in

small businesses made by a jurisdiction or its contractors, as well as investments in small

businesses made by venture capital funds in which the jurisdiction invested SSBCI funds. The

$20 million restriction cannot be avoided by dividing a larger loan into smaller loans or by

creating separate equity instruments within an investment round. Participating jurisdictions

should evaluate transactions that in the aggregate exceed the $20 million limit and that have

substantially similar terms and conditions,

including documenting the justification for

participating in any transaction that could reasonably be viewed as exceeding the $20 million

restriction.

The standard for calculating borrower size for CAPs in Section VII.e applies for purposes

of calculating the borrower or investee size for OCSPs.

f. Loan/Investment Purpose Requirements and Prohibitions – 12 U.S.C. § 5705(f)

Generally

Pursuant to 12 U.S.C. § 5705(f)(2), Treasury may prescribe limitations and prohibitions

on loan purposes or investment purposes for OCSPs. Accordingly, for each loan or investment

resulting from an approved OCSP, the participating jurisdiction must require the lenders or

investors to obtain an assurance from each borrower or investee stating that the loan or

Such transactions may include, but are not limited to, transactions that involve the same or affiliated businesses,

single or multiple loans or investments, terms and conditions that provide for cross-collateralization with multiple

borrowers, affiliates, or a single borrower and different assets, cross guarantees, or the presence of other

substantially similar terms or conditions among the transactions.

investment proceeds will not be used for an impermissible purpose under the SSBCI program as

set forth in the following sections of Section VII.f above:

• Business Purpose Generally – 12 U.S.C. § 5704(e)(7)(A)(i)(I);

• Business Purpose: Passive Real Estate Investment Guidance – 12 U.S.C.

§ 5704(e)(7)(A)(i)(I);

• Prohibited Loan Purposes – 12 U.S.C. § 5704(e)(7)(A)(i)(II);

• Additional Borrower Restrictions – 12 U.S.C. § 5704(e)(7)(A)(iv) (except the

sex offender certification in the section above applies only to OCSP loan programs; the

sex offender certification for equity/venture capital programs is addressed below);

• Lender Assurances – 12 U.S.C. § 5704(e)(7)(A)(ii) and (iii); and

• Lender Assurances: Refinancing and New Extensions of Credit – 12 U.S.C.

§ 5704(e)(7)(A)(ii).

The “lender” requirements in Section VII.f shall apply to OCSP lenders and investors.

The “borrower” requirements shall apply to OCSP borrowers and investees. The

conflict-of-interest provisions specified in Section VII.f Borrower Restrictions – 12 U.S.C.

§ 5704(e)(7)(A)(i)(III) apply to CAP and OCSP loan programs. Conflict-of-interest provisions

applicable to equity/venture capital programs and Tribal SSBCI programs are set forth below.

Equity/Venture Capital Programs: Conflict-of-Interest Standards

Funds from an SSBCI equity/venture capital program must not be used to make an

investment in a business in which an SSBCI insider has a personal financial interest.

Jurisdictions with such programs should adopt conflict-of-interest policies consistent with the

standards set forth in this section.

The following definitions apply to the conflict-of-interest standards for equity/venture

capital programs:

• An “SSBCI insider” of an SSBCI equity/venture capital program is a person who, in the

12-month period preceding the date on which SSBCI support for a specific investment in

a venture capital fund or company is closed or completed:

o Was:

 a manager or staff member, whether by employment or contract, in the

jurisdiction’s SSBCI equity/venture capital program;

 a government official with direct oversight or jurisdiction over an SSBCI

equity/venture capital program, or such an official’s immediate supervisor;

 a member of the board of directors or similar body for a jurisdiction-sponsored

non-profit entity who, through such membership, has authority to vote on

decisions to invest SSBCI funds or has authority over the employment or

compensation of staff managing processes related to the investment of SSBCI

funds;

 a member of the board of directors or similar body for an independent non-profit

or for-profit entity that operates an SSBCI equity/venture capital program; or

 an employee, volunteer, or contractor on an investment committee or similar body

that recommends SSBCI investments for approval or approves SSBCI

investments under the SSBCI equity/venture capital program; or

o Exercised a controlling influence on jurisdiction decisions regarding:

 The allocation of SSBCI funds among approved equity/venture capital programs;

 Eligibility criteria for the SSBCI equity/venture capital programs; or

 The processes for approving investments of SSBCI funds under the SSBCI

equity/venture capital program.

• A “business partner” of an SSBCI insider is a person who owns 10 percent or more of

any class of equity interest, on a fully diluted basis, in any private entity in which an

SSBCI insider also owns 10 percent or more of any class of equity interest on a fully

diluted basis.

• A “family member” of an SSBCI insider means:

o Such person’s spouse, domestic partner, parents, grandparents, children,

grandchildren, brothers, sisters, stepbrothers, and stepsisters; and

o Any other relatives who live in the same household as the SSBCI insider.

• An “independent non-profit entity” means any non-profit entity that is not sponsored by

the jurisdiction.

• A “personal financial interest” means any financial interest derived from ownership or

right to ownership of, or lending to or other investment in, a private, for-profit entity that

may receive an SSBCI investment (including any financial interest derived from

ownership or right to ownership of, or investment in, a venture capital fund).

• A “jurisdiction-sponsored non-profit entity” is a non-profit entity that is:

(1)(i) created by legislation to pursue policies of the jurisdiction’s government; or

(ii) created by jurisdiction officials on behalf of the jurisdiction to pursue policies of the

jurisdiction’s government; or

(iii) privately created as a non-profit entity that is selected by jurisdiction officials

pursuant to specific legislation to pursue public policies on behalf of the jurisdiction’s

government; and

(2) over which the jurisdiction’s officials exercise a controlling influence through

budgetary decisions or other legislative action or direction.

Subject to the exceptions described below, SSBCI funds may not be used by SSBCI

equity/venture capital programs to make or support investments in a company or venture capital

fund if an SSBCI insider, or a family member or business partner of an SSBCI insider, has a

personal financial interest in the company or venture capital fund. A prohibited conflict of

interest is deemed to exist even if the conflict is disclosed or the relevant individuals recuse

themselves from participating in the investment. Further, accepting a role as an SSBCI insider

does not require a person to divest financial interests in a company or venture capital fund

resulting from previous employment or personal investment activity. However, if a person is an

SSBCI insider, any company or venture capital fund in which the insider has a personal financial

interest is prohibited from receiving investments or financial support from SSBCI funds.

Exceptions to the general prohibition are as follows:

• A governmental entity or a jurisdiction-sponsored non-profit entity may use SSBCI funds

for follow-on investments in companies or venture capital funds if the entity has an

existing ownership or voting interest resulting from a prior investment of SSBCI funds or

non-SSBCI funds. Furthermore, in this circumstance, the entity may authorize

investments if an SSBCI insider serves on the board of directors of the company or

venture capital fund, if an SSBCI insider does not have a personal financial interest in the

company or venture capital fund and the entity’s prior financial interest is in compliance

with all applicable laws and rules.

• An independent non-profit or for-profit entity managing or investing SSBCI funds for an

SSBCI equity/venture capital program is not precluded from authorizing follow-on

investments using SSBCI funds in a company or venture capital fund in which the entity

previously invested SSBCI funds or the entity has previously appointed a representative

to serve on the board of directors in stewardship of the investment. However, such

independent non-profit or for-profit entity may not authorize (or seek approval from the

participating jurisdiction for) an investment of SSBCI funds in a company or venture

capital fund in which the entity holds any type of financial interest resulting from an

investment made with non-SSBCI funds.

Equity/Venture Capital Programs: Certification Relating to Sex Offenses

If a business is to receive the benefit of SSBCI funds through an equity/venture capital

program, the certification related to sex offenders set forth in Section VII.f above must instead

state that no principal of the investor or the investee has been convicted of a sex offense against a

minor (as such terms are defined in section 111 of the Sex Offender Registration and

In addition to control over the management of the non-profit entity, a jurisdiction may exercise a controlling

influence through a contractual arrangement, provided that the contract requires that jurisdiction officials review and

pre-approve each investment proposed to be made by the non-profit entity using SSBCI funds where the entity has

an existing ownership or voting interest resulting from a prior investment of non-SSBCI funds.

Notification Act (42 U.S.C. § 16911)). For the purposes of this certification, “principal” is

defined as if a sole proprietorship, the proprietor; if a partnership, each managing partner and

each partner who is a natural person and holds 50 percent or more ownership interest of any class

of the partnership interests; if a corporation, limited liability company, association, development

company, or other entity, each director, each of the five most highly compensated executives or

officers of the entity, and each natural person who is a direct or indirect holder of 50 percent or

more of any class of equity interest in the entity; and if a partnership where the managing partner

is a corporation, limited liability company, association, development company, or other entity,

each director and each of the five most highly compensated executives or officers of the entity.

Tribal Programs: Conflict-of-Interest Standards

Under a Tribal OCSP program, if a Tribal enterprise lends to or invests in another Tribal

enterprise, relationships that would otherwise be prohibited under these guidelines related to

conflicts of interest in loan programs and equity/venture capital programs are permitted if such

relationships occur by virtue of common Tribal ownership, provided that:

• The lender/investor and borrower/investee certify that the transaction is in accordance

with the Tribal conflict-of-interest policy;

• The Tribal conflict-of-interest policy addresses:

o Conflicts arising from immediate family and self-dealing; and

o Enforcement mechanisms for violations of the conflict-of-interest policy; and

• The Tribal enterprise lender or investor will publicly disclose its transactions with Tribal

enterprise borrowers or investees.

g. Additional Considerations for Approving OCSPs

In determining whether an OCSP is eligible, the SSBCI statute requires Treasury to

consider five specific factors related to the proposed OCSP. Following is a discussion of these

factors intended to guide jurisdictions in demonstrating that a proposed OCSP meets these

standards.

Anticipated Benefits to the Jurisdiction – 12 U.S.C. § 5705(d)(1)

Treasury will consider, when determining OCSP eligibility, the anticipated benefits to the

jurisdiction, its businesses, and its residents to be derived from the federal contributions to, or for

the account of, the OCSP, including the extent to which resulting small business lending and

investment will expand economic opportunities. Jurisdictions should present as part of their

SSBCI application the projected loan and investment volumes of their programs, and describe

the expected benefits to the jurisdiction, the jurisdiction’s businesses, and the jurisdiction’s

residents. In describing expected benefits, jurisdictions should focus on, but not limit their

discussion to, the following measures. Estimates may cover the anticipated allocation time

period.

• The projected number and amount of SSBCI-supported small business loans or

investments closed through the OCSP, including all forms of financing funded,

guaranteed, or insured by OCSPs, including leases, credit lines, and investments.

• The number and types of jobs created, as well as the quality of jobs created (defined as

locally appropriate), including the projected permanent, full-time workers hired by small

business borrowers or investees as a result of receiving SSBCI-supported small business

loans and investments through the OCSP, and an indication of the wage level and

benefits relative to local standards.

• The projected increases in tax revenues, including sales, income, or other tax revenues,

resulting from SSBCI-supported small business loans and investments through the OCSP.

These estimates may include taxes paid by both permanent and temporary workers hired

as a result of SSBCI-supported small business loans and investments through the OCSP.

• Long-term economic benefits of the jurisdiction’s investments. For example, climate

transition investments may result in efficient energy use, sustainable jobs, or economic

growth in sustainable manufacturing and industrial decarbonization, sustainable

agriculture, bio-materials, and electric vehicles and changing infrastructure. Another

example is that investments in areas such as small and mid-size enterprise (SME)

manufacturing and supply chain resiliency may result in stronger economic growth,

high-quality jobs, and innovation. Also, investments focused on innovation in supply

chains of critical products such as semiconductors, critical minerals and materials, and

advanced pharmaceuticals may provide long-term national and economic security

benefits.

• Other expected benefits from the economic development objectives of the jurisdiction.

OCSP Experience and Capacity – 12 U.S.C. § 5705(d)(2)

Treasury will consider, when determining OCSP eligibility, the operational capacity,

skills, and experience of the management team of the OCSP. A jurisdiction can demonstrate

these factors with information such as:

• Qualifications and experience of senior management. The OCSP’s senior management

may include people who have significant credit underwriting or risk-management

experience with institutions such as banks, finance companies, rating agencies, or

insurance companies.

• Experience of senior management in operating public credit support or capital access

programs. The OCSP might employ people with underwriting or credit risk management

experience in federal, state, or local small business credit programs (e.g., SBA or state

development finance authorities).

• Adoption of industry best practices. The OCSP may demonstrate that it employs industry

best practices. The adoption of best practices helps to demonstrate the industry

knowledge and sophistication of the OCSP management.

OCSP Capacity to Manage Increases – 12 U.S.C. § 5705(d)(3)

Treasury will consider, when determining OCSP eligibility, the capacity of the OCSP to

manage increases in the volume of its small business lending (or investing). This can be

demonstrated through:

• Financial strength. An applicant should demonstrate that it possesses adequate financial

resources to support the staffing increases and infrastructure improvements needed to

undertake a significantly increased number of financing transactions.

• Operational capacity. An applicant should demonstrate that the OCSP has systems,

policies, and procedures in place to accommodate a significantly increased transaction

volume.

OCSP Accounting and Administrative Controls – 12 U.S.C. § 5705(d)(4)

Treasury will consider, when determining OCSP eligibility, the internal accounting and

administrative controls systems of the OCSP, and the extent to which they can provide

reasonable assurance that the funds of the jurisdiction’s program are safeguarded against waste,

loss, unauthorized use, or misappropriation. This can be demonstrated by:

• Evidence that management conducts, or in the case of a new OCSP, intends to conduct,

periodic internal audits.

• A requirement for annual independent audits (including management letters).

OCSP Program Design and Implementation Plan – 12 U.S.C. § 5705(d)(5)

Treasury will consider, when determining OCSP eligibility, the soundness of the program

design and implementation plan of the OCSP. This can be demonstrated by:

• For both new and existing OCSPs, the adoption or use of established business models and

strategies for managing the risks associated with making, insuring, or guaranteeing small

business strategies and models.

• For an existing OCSP, the absence of material weakness or deficiency findings by

external auditors. Soundness of program design can also be shown through operating

results; for example, a management letter citing no significant operational or financial

weaknesses can be employed as evidence of appropriate program design.

h. Relationship to Tax Credit Programs

Fund managers may not combine financing from private tax credit-supported entities

(i.e., entities that are funded through the sale of tax credits they received from a state) and

SSBCI-supported programs for the same business purpose, or within the same investment or loan

fund.

However, jurisdiction agencies and non-profit jurisdiction-sponsored entities that receive

funding from the sale of tax credits are permitted to combine these two types of funding for their

loans and investments. For these entities, the tax credit funds are still not considered private

capital.

An SSBCI-supported transaction cannot be used by an entity to increase the pool of funds

that generates New Markets Tax Credits or Historic Preservation Tax Credits. If, however, a

transaction supported with SSBCI funds meets program requirements, an entity may use

SSBCI funds alongside a transaction that generates tax credits.

i. Additional Guidance Regarding Equity/Venture Capital Programs

Multi-Jurisdiction Funds

Jurisdiction-sponsored equity/venture capital programs may participate in multi-

jurisdiction fund structures. Multi-jurisdiction funds are funds that can receive SSBCI capital

from multiple jurisdictions or invest in ventures across multiple jurisdictions. Multi-jurisdiction

funds may set up opportunities to invest in small businesses for more than one SSBCI

participating jurisdiction and can then raise outside capital more easily because of the scale of

entrepreneurs. In these arrangements, each jurisdiction must have a separate agreement with the

fund manager. Jurisdictions can require the fund manager to invest in small businesses within its

jurisdiction only. They can also give permission to allow investments in certain

out-of-jurisdiction small businesses (see Section IX.c below). Jurisdictions must report on all

SSBCI investments to which the jurisdiction’s SSBCI capital has exposure, regardless of

whether the investment occurs in jurisdiction or out of jurisdiction.

Services to Portfolio Companies

Venture capital funds offer a variety of services to their portfolio companies (i.e., the

potential SSBCI investees). These services can include, for example, financial management,

operational guidance, IT consulting, and connecting portfolio companies to potential customers,

investors, board members, and officers. These services vary depending on the portfolio

company’s stage in the venture capital ecosystem. As these services to portfolio companies are a

type of equity support, SSBCI funds, out of the federal contribution, may be used to pay for such

support up to an annual average of 1.71 percent of the federal contribution to a venture capital

In addition, for purposes of the 10:1 financing ratio and 1:1 financing requirement for OCSPs, financing provided

by tax-credit supported vehicles, generally, are not considered private financing. See Section VIII.b.

SSBCI capital that is invested in an entity that meets the definition of a venture capital fund in footnote 5 of these

guidelines is eligible to be used for payment of the services described in this subsection. This entity will be subject

to the 1:1 financing requirement at the fund level.

fund over the life of the jurisdiction’s venture capital program. Treasury established the

1.71 percent average limit based on data on fee benchmarks from venture capital fund contracts

covering the operating costs of general partners, under which the median lifetime fees paid to

fund managers amounted to an annualized 2.138 percent of the fund size.

Treasury determined

that 80 percent of the 2.138 percent (which equals 1.71 percent) is a reasonable estimate of the

percentage of SSBCI funds invested in venture capital funds that would be used, on average, to

provide services to portfolio companies, based on data indicating that venture capital fund

general partners spent an average of approximately 80 percent of their time engaging with small

businesses (which were potential portfolio companies) and relevant networks.

This equity

support is subject to both the 10:1 and 1:1 financing requirements.

In the contractual agreement between a jurisdiction and a venture capital fund, the fund

must be required to identify the services to be provided to portfolio companies and annually

certify that these services were provided. The agreement between the fund and the portfolio

companies should include disclosure of these services offered by the fund manager. Consistent

with industry standards on payments of fees to cover these services to portfolio companies, the

fund should reimburse the jurisdiction for payments of such services by SSBCI funds before

returns are paid to the general or limited partners.

Incubation and Early-Stage Investment Models

In the “Incubation Funding Model,” for venture capital funds that make early-stage

qualifying investments

(as defined below) in businesses, the jurisdiction may offer these

venture capital funds a call option to buy the cash flow rights of the SSBCI capital for a

predetermined multiple (greater than or equal to 1) of the SSBCI capital based on a negotiated

trigger event.

In the “Early-Stage Investor Model,”

for jurisdictions that use direct investment

programs to provide capital directly to early-stage businesses, the jurisdiction may offer

early-stage co-investors a call option to purchase SSBCI shares at a price equal to a

predetermined multiple (greater than or equal to 1) of the SSBCI capital that is used for

qualifying investments based on a negotiated trigger event.

Robinson and Sensoy, Do Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash

Flow Performance, 2013. The same study found that the average lifetime fee paid to a fund manager was 2.037

percent of the fund size. We choose to use the median lifetime fee paid to fund managers instead of the average, as

the median is more representative of fees paid to the fund manager in the majority of funds.

Gompers, et al., 2016, “How do Venture Capitalists Make Decisions,” (working paper, Harvard Business School).

Early-stage equity investment, including convertible debt funding, is funding intended for companies in the

development phase. This stage of financing varies from small funds for companies cultivating ideas or concepts to

larger sums for companies looking to grow their products and services.

For example, an early-stage investor can be an unaffiliated, private market venture capital fund, professional angel

investor, accelerator, charitable foundation, or other professional early-stage investor. A professional angel investor

is one who is dedicated to the business, understands how startups work, and can contribute smart capital and

relationships to push potential investees to the next stage of maturity. Angel investors are private investors who fund

start-up businesses, usually in return for equity in the company. An accelerator is an organization that offers

mentorship, capital, and connections to investors and business partners.

For both models, “qualifying investment” means an investment with the following

attributes:

• The investment must be the first SSBCI investment in a company, raising early-stage

capital, up to $125,000 per company (with a maximum round of $375,000);

• The jurisdiction conducts robust due diligence on the venture capital fund or early-stage

investor, including (but not be limited to) ensuring that: (1) the investor has experience

and a track record in early-stage investing and understands the early-stage investment

process; and (2) the investor has a history of directly or indirectly

providing

incubator-like services; and

• For the Incubation Funding Model, the available incubator-like services must be equally

accessible to all portfolio companies.

Reporting

When a jurisdiction provides SSBCI capital to a provider (the entity that transacts

directly with the business by making an investment supported by an approved SSBCI program),

a jurisdiction’s capital must be either (1) held in a separate fund or otherwise separately

accounted for, or (2) held in a fund with other investors’ funds, with each investor’s investment

accounted for separately. Equity/venture capital programs must be able to trace and report on

each investment in a fund’s portfolio that was funded partially or entirely by the SSBCI

contribution to the fund. A jurisdiction will be required to report to Treasury on investment

performance and other transaction-specific details for each business that received SSBCI capital.

These venture capital funds and early-stage investors that make early-stage investments may provide incubator-

like services either by themselves or through a partnership with an incubator or another organization that provides

similar services to portfolio companies.

Section IX. Other SSBCI Program Requirements

a. Capital Access in Underserved Communities

The SSBCI statute, 12 U.S.C. § 5704(e)(8), requires that a jurisdiction’s application for a

CAP must contain a report detailing how the jurisdiction plans to use the federal contributions to

the approved program to help provide access to capital for small businesses in low- and

moderate-income, minority, and other underserved communities, including women- and

minority-owned small businesses (collectively, “underserved communities”). Treasury

encourages jurisdictions to consider the following areas when including plans regarding “other

underserved communities” in their report: rural communities; communities undergoing economic

transitions, including communities impacted by the shift towards a net-zero economy or

deindustrialization; and communities surrounding Minority-Serving Institutions.

The SSBCI

statute, 12 U.S.C. § 5705(f)(2), mandates that Treasury consider the same eligibility criteria for

OCSPs as for CAPs, to the extent the Secretary determines applicable and appropriate. Treasury

has determined that a jurisdiction report regarding capital access to underserved communities

should also be required in an application for an OCSP.

A jurisdiction’s report should contain information sufficient for Treasury to evaluate

whether the jurisdiction’s plans to help provide access to capital for underserved communities

are substantive and relevant to local market conditions. An acceptable report will contain plans

that describe: (1) how the jurisdiction will provide access to capital for small businesses in

underserved communities, and (2) how the jurisdiction will monitor performance relative to the

plans in the report.

When describing how the jurisdiction will provide access to capital for small businesses

in underserved communities, the jurisdiction may have different strategies for different

underserved groups referenced in the SSBCI statute. For example, some jurisdictions may plan

to provide access to capital through the design of the program itself (e.g., providing reduced

pricing or enhanced risk mitigation as an incentive for certain underserved geographies or

populations). Other jurisdictions may plan to provide access to capital through a concerted

campaign to disseminate information through organizations that have business relationships with

underserved communities (e.g., seminars and one-on-one counseling; advertisements in

specialized media; periodic e-mailed newsletters that reach underserved populations). Where

relevant, the report should address how the jurisdiction will work with CDFIs and minority

depository institutions, as defined in 12 U.S.C. § 5701(17), to reach underserved communities.

The report is part of the application that is incorporated by reference in the Allocation

Agreement between Treasury and the participating jurisdiction. Further, the report may be made

public by Treasury. If Treasury makes the report public, Treasury will withhold information that

appears to be personally identifiable information (PII), sensitive information such as commercial

Minority-serving institutions are institutions of higher education that serve minority populations and include, but

are not limited to, Historically Black Colleges and Universities (as defined in 20 U.S.C. § 1061(2)),

Hispanic-Serving Institutions (as defined in 20 U.S.C. § 1101a(a)(5)), Tribal Colleges and Universities (as defined

in 20 U.S.C. § 1059c(b)(3)), and Asian American and Pacific Islander Serving Institutions (as defined in 20 U.S.C.

§ 1059g(b)(2)).

or financial information about small businesses, or information that involves privacy, security,

and proprietary business interests. Treasury will work with the jurisdiction to seek to protect the

confidentiality of such information.

When describing how the jurisdiction will monitor performance relative to the plans in its

report, the jurisdiction’s report must include a way for the jurisdiction to periodically assess the

progress of its plans over the course of the allocation period. In its annual report to Treasury

(see Section X below), the jurisdiction will be required to provide a description of any updates to

its plan and its progress toward the metrics cited in its own plan.

For example, some applicants may maintain records of their outreach activities (e.g., the

number of seminars held and number of businesses that attended). Alternatively, applicants may

monitor the loan volume to underserved groups or to low- and moderate-income communities;

loan results may be compared to prior years’ results, to the region’s business demographics, or to

private lending in general.

In addition to requiring that jurisdictions present a report with their plans for expanding

access to capital for underserved communities, the SSBCI statute also provides an allocation

based on the needs of SEDI-owned businesses and an incentive allocation based on jurisdictions’

robust support for SEDI-owned businesses (see Section IV above). A jurisdiction’s plan for

expanding access to capital for underserved communities may include the jurisdiction’s plan to

expand access to capital for SEDI-owned businesses, but may also be broader to include other

underserved communities, as determined by the jurisdiction. The SEDI-owned business

allocations described in Section IV will not take into account these reports.

b. Compliance with Civil Rights Requirements

SSBCI capital funds are considered federal financial assistance for purposes of legal

requirements related to nondiscrimination and nondiscriminatory use of federal funds, where

such laws are applicable to a recipient and any contracted entity operating SSBCI programs on

its behalf. These requirements include ensuring that entities receiving federal financial assistance

from Treasury do not deny benefits or services, or otherwise discriminate on the basis of race,

color, national origin (including limited English proficiency), disability, age, or sex (including

sexual orientation and gender identity), in accordance with, but not limited to, the following

authorities: Title VI of the Civil Rights Act of 1964 (Title VI), 42 U.S.C. § 2000d-1 et seq., and

Treasury’s implementing regulations, 31 C.F.R. part 22; Section 504 of the Rehabilitation Act of

1973 (Section 504), 29 U.S.C. § 794; Title IX of the Education Amendments of 1972 (Title IX),

20 U.S.C. § 1681 et seq., and Treasury’s implementing regulations, 31 C.F.R. part 28;

Age Discrimination Act of 1975, 42 U.S.C. § 6101 et seq., and Treasury’s implementing

regulations at 31 C.F.R. part 23.

c. In-Jurisdiction and Out-of-Jurisdiction Loans and Investments

SSBCI funds for each jurisdiction are intended to benefit that jurisdiction, its businesses,

and its residents. Treasury requires each jurisdiction to use at least 90 percent of its capital

allocation for loans, investments, and other credit or equity support for small businesses located

in the jurisdiction.

This means that, at most, 10 percent of a jurisdiction’s SSBCI allocation

may be used to support loans, investments, or other credit or equity support for out-of-

jurisdiction small businesses. For each loan, investment, or other support for small businesses

located outside of the jurisdiction, the jurisdiction must provide a reasonable explanation of the

benefits of that investment to businesses located in the jurisdiction. For example, such loans,

investments, and other support can aid jurisdiction s in expanding their economic ecosystem and

benefit their residents by bolstering in- jurisdiction economies through, for instance, the creation

of, and increase in, demand for in- jurisdiction business products and services.

For SSBCI funds allocated to Tribal governments, in-jurisdiction transactions include the

following:

• Transactions with businesses on Tribal lands.

• Transactions with businesses in states where the Tribe is physically located or within

which the Tribe exercises jurisdiction. For example, a Tribe located in Montana with

Treaty rights in Wyoming can include Montana and Wyoming as “in-jurisdiction.”

• Transactions with Tribal enterprise-operated businesses, businesses owned by Tribal

members, and businesses in the states in which Tribal members reside. For example, an

Arizona Tribe may have the bulk of its members in a town on the border of Nevada and

Arizona. Because the Tribe is exercising jurisdiction over its members in both states, it

may invest in both states.

Tribal SSBCI program transactions that do not fall into the above categories constitute

out-of- jurisdiction investments, loans, or other credit or equity support subject to the 10 percent

restriction on out-of- jurisdiction investments, and must reasonably benefit the Tribal

government’s businesses or members.

d. Enrollment of Loans in Loan-Related SSBCI Programs

One loan cannot be enrolled in more than one approved program at the same time. A

lender may not divide one loan into multiple agreements or notes, each enrolled in an approved

program, for the same loan purpose. If, for example, a borrower receives two loans under

separately approved programs, each participating jurisdiction should maintain documentation

showing that the borrower used the loan proceeds from the two loans for different purposes.

Examples of documentation include the description of the loan purpose in the two loan

agreements, copies of checks paid to vendors with the proceeds of the two loans, or a statement

signed by the lender or borrower prior to closing the SSBCI-supported transaction indicating the

A business’s location must be consistent with the “Business Street Address” data element in Table 7 of the SSBCI

Capital Program Reporting Guidance. For each borrower or investee, the jurisdiction must report on the “[s]treet

address of the borrower’s or investee’s main office or location of the borrower or investee that is primarily

benefitting from the SSBCI funds. If real estate construction financing is involved, enter the street address of the

project.”

two different uses of the two loans.

e. Relationship to SBA Lending Programs and Other Federal Loans

Under the SSBCI Program, eligible CAPs or OCSPs may not enroll any portion of an

SBA-guaranteed loan or the unguaranteed portion of any other federal loan without the express,

prior written consent of the Treasury.

If a borrower receives a loan guaranteed by the SBA’s 7(a) or 504 loan programs or the

U.S. Department of Agriculture’s Business and Industry (USDA B&I) loan program,

SSBCI funds may not be used as credit support to a loan or investment for the same purpose as

the SBA-or USDA-guaranteed loan. For example, a borrower may not use a loan guaranteed

under SBA’s 7(a) program and an SSBCI-supported loan to purchase the same real estate,

including land and improvements. In contrast, a borrower may receive two sources of federal

support in two separate loans if the proceeds for the two loans are for different purposes. For

example, if a borrower receives a loan guaranteed under the SBA 7(a) or 504 program or the

USDA B&I program to purchase real estate occupied by the borrower, the borrower also may

receive an SSBCI-supported loan to purchase equipment. Jurisdictions must require

documentation showing that the borrower used the loan proceeds from the two loans for different

purposes. Examples of documentation include the description of the loan purpose in the two loan

agreements or promissory notes, copies of checks paid to different vendors from the proceeds

from the two loans, or a statement signed by the lender or borrower prior to closing the

SSBCI-supported transaction indicating the two different uses of the two loans.

f. Minimum National Customer Protection Standards

SSBCI funds are intended to benefit small businesses by making capital available for

lending and investment. To promote program integrity and ensure that SSBCI transactions

primarily benefit small businesses, SSBCI programs must conform to the minimum national

customer protection standards, which would apply to small businesses that are SSBCI borrowers,

set forth herein. Many jurisdictions’ programs and program participants (such as financial

institutions) are subject to separate state or federal requirements related to customer protection;

these standards do not affect a lender’s obligation to adhere to those other applicable

requirements. In light of the variety of programs and potential lending partners, jurisdictions

must ensure programs meet these minimum standards to ensure SSBCI financing supports

transactions that are economically beneficial to small businesses.

The following standards are

minimum standards, and jurisdictions should consider the credit environment and needs of small

businesses in their jurisdiction in determining whether to impose additional standards. For

example, jurisdictions may impose lower rates or limits on product types offered as appropriate

Lenders and borrowers may negotiate transaction terms as long as they are within the parameters established by

these minimum standards, any additional requirements of the jurisdiction, and any applicable federal requirements.

to achieve the purposes of the program. State regulatory requirements may also apply and result

in additional standards, such as lower rates or limits on permissible terms.

• Rate cap. The interest rate for each individual loan, at the time of obligation and

throughout the term of the loan, may not exceed the National Credit Union

Administration’s (NCUA) interest rate ceiling for loans made by federal credit unions as

described in 12 U.S.C. § 1757(5)(A)(vi)(I) and set by the NCUA board.

The NCUA’s

permissible interest rate ceiling supports its mission to protect credit unions and its

consumers. In choosing to adopt the NCUA interest rate ceiling, Treasury aims to ensure

that small businesses that participate in SSBCI receive loans that are economically

beneficial to them.

• Limitation of certain features.

(1) Confessions of judgment.

Contract clauses requiring confessions of judgment often

take away small business borrowers’ legal defenses without any due process and,

thus, tend to be harmful to these borrowers. Accordingly, SSBCI-supported

transactions may not include such confessions of judgment clauses.

(2) “Double-dipping” fees. “Double dipping” occurs when a lender issues new credit to

refinance prior credit without forgiving a portion of the fee already paid and results in

the borrower paying a fee on top of a fee. Accordingly, SSBCI supported transactions

may not include double-dipping fees.

(3) Prepayment fees can be used by creditors to hide costs to borrowers and charge fees

that can be detrimental to the borrower. However, prepayment fees may be customary

for certain larger commercial loans and may enable lenders to charge lower interest

rates that benefit borrowers in general. To balance these interests, for

SSBCI-supported transactions:

• For loans with an original principal amount under $100,000, lenders may not

include prepayment fees.

• For loans with an original principal amount of $100,000 or more, lenders may

include prepayment fees so long as any such fees are reasonable, customary, and

clearly disclosed to the borrower in accordance with Section IX.g “Disclosure of

Terms.”

(4) Upfront fees or charges paid by the small business, excluding fees to the jurisdiction

program, that exceed 3 percent for loans greater than $25,000 or $750 for loans

National Credit Union Administration, Letter to Federal Credit Unions, “Permissible Loan Interest Rate Ceiling

Extended,” August 2021. “At the time of obligation” means at the time the loan is made. For example, if the

SSBCI-supported loan has a variable interest rate, the interest rate at any point during the life of the loan cannot

exceed the NCUA’s interest rate ceiling in effect at the time the loan was made. Any change in the NCUA’s interest

rate ceiling after a SSBCI-supported loan is made does not impact the loan.

A confession of judgment is usually a contractual clause in which the debtor agrees to allow a creditor, upon the

nonoccurrence of a payment, to obtain a judgment against the debtor, often without advanced notice or a hearing.

$25,000 and under. The 3 percent cap on upfront fees or charges for loans greater

than $25,000 is based on SBA’s treatment of fees pursuant to 13 C.F.R. § 107.860.

The $750 cap on these fees for loans $25,000 and under is reasonable because the

fixed underwriting costs per loan often exceed 3 percent of the loan amount for loans

$25,000 and under. Setting the cap at $750 for all loan amounts of $25,000 and under

would likely facilitate lending from financial institutions to very small businesses that

need a small loan.

Upfront fees or charges that count toward this cap include, but are not limited to,

application fees, origination fees, and document preparation fees. Lenders may also

charge small business borrowers for out-of-pocket expenses the lenders incur that are

common to commercial loan transactions. Payment of these expenses is not subject to

the cap, provided the out-of-pocket expenses are reasonable and customary.

Out-of-pocket expenses may include, but are not limited to, out-of-pocket expenses

for title insurance, title examination, property surveys, appraisals, environmental site

assessments, notarizations, and credit reports. Note that out-of-pocket expenses do

not include salaries and wages paid to employees of the lender.

Participating Jurisdictions should review and monitor their SSBCI programs to ensure

they are supporting transactions that are transparent and economically beneficial to

small businesses, including appropriate fees and charges.

Through the limitations described above, Treasury aims to ensure greater transparency

for small business borrowers and to ensure that small businesses that participate in

SSBCI receive loans that are economically beneficial to them.

g. Disclosure of Terms

Participating jurisdictions must require the lender or investor in an SSBCI supported

transaction to disclose all key terms in an easy-to-understand manner. Such disclosures must be

made before consummation of the relevant transaction and should include, for example, the loan

or investment amount; payment obligation and schedule; any terms giving the lender or investor

control over the borrower’s or investee’s cash balances, cash flows or ownership; any conversion

rights and future rights to purchase equity; and any fees or extra costs (including any prepayment

fees).

Treasury does not prescribe a particular form for disclosure of terms. If the

documentation a lender or investor uses to provide information to a borrower or investee

complies with the substance of the disclosure-of-terms requirement, Treasury will deem the

disclosure requirement to be satisfied.

For a bank, or other depository institution, that is subject to federal prudential regulation

and supervision, if such an institution uses the institution’s customary documentation as

appropriate to the SSBCI-supported transaction, Treasury will deem the disclosure requirement

to be satisfied, except in cases of fraud or violations of otherwise applicable law.

For other lenders or investors, Treasury will deem the disclosure requirement to be

satisfied, except in cases of fraud or violations of otherwise applicable law, if their

documentation discloses the following information, as applicable to the terms of the transaction,

to the borrower or investee:

• Total amount of the loan or investment.

• Payment obligation and schedule. For example: $1,000 is due by the third

business day of each month for 60 months.

• Any terms giving the lender or investor control over the borrower’s or investee’s

cash balances or other assets, cash flows, or ownership (including personal

guarantees).

• Any conversion rights and future rights to purchase equity.

• Any fees or extra costs (including any prepayment fees).

This minimum standard applies across all SSBCI programs; however, these standards do

not supersede disclosure requirements that may apply under other applicable law. All applicable

federal and state securities and lending disclosure laws, rules, and regulations continue to apply.

Section X. Reporting

For reporting purposes, SSBCI capital funds are not considered federal financial

assistance. The SSBCI statute, 12 U.S.C. § 5702(c)(5), specifically states that capital funds

transferred to jurisdictions are not considered federal financial assistance for the purposes of

31 U.S.C. subtitle V. Funds given to provide technical assistance, however, are considered

federal financial assistance, and therefore the related reporting requirements, which will be

described in the forthcoming technical assistance guidance, will apply to those funds. Treasury

has issued reporting requirements related to the demographics of owners of small business that

participate in an SSBCI capital or technical assistance program.

Participating jurisdictions are required to submit the following reports to Treasury.

Treasury may make information from the reports public. If Treasury decides to make these reports

public, Treasury will withhold information that appears to be personally identifiable information

(PII), sensitive information such as commercial or financial information about small businesses,

or information that involves privacy, security, and proprietary business interests. Treasury will

work with jurisdictions to seek to protect the confidentiality of such information.

• Quarterly reports. Within 30 days after the end of each quarterly reporting period, the

jurisdiction will be required to deliver to Treasury a quarterly report describing the use of

SSBCI funds for each approved program on both a quarterly and a cumulative basis,

including the total amount of SSBCI funds used for direct and indirect administrative

costs, the total amount of SSBCI funds used, the amount of program income generated,

SSBCI Capital Program Reporting Guidance is available at https://home.treasury.gov/policy-issues/small-

business-programs/state-small-business-credit-initiative-ssbci; State Small Business Credit Initiative;

Demographics-Related Reporting Requirements, Department of the Treasury, 87 Federal Register 13628 (March 10,

2022).

and the amount of charge-offs against the federal contributions to the reserve funds set

aside for any approved capital program. Additionally, the jurisdiction will identify the

contracted entities and amounts of SSBCI funds transferred in the period; the aggregated

amount of SSBCI funds deployed by the jurisdiction or contracted entities to support

loans to or investments in eligible small businesses; and the aggregate amount of

SSBCI funds deployed for allocations related to SEDI-owned businesses and VSBs.

• Annual reports. By March 31 of each year, beginning March 31, 2023, the participating

jurisdiction will be required to submit to Treasury an annual report for the prior calendar

year. This annual report will be required to contain transaction-level data for each loan or

investment, including small business characteristics, made with SSBCI funds for that

year, and information on subsequent private financing for OCSP loans and investments

made in prior years when required by the SSBCI Allocation Agreement. The annual

report will also be required to provide information on any qualifying loan or swap

funding facility, if applicable.

• Performance results. A summary of the performance results of the participating

jurisdiction’s allocation is to be submitted with the participating jurisdiction’s final

annual report.

Section XI. Administrative Costs – 12 U.S.C. § 5702(c)(3)(C)-(D)

SSBCI administrative costs are defined and governed by the Uniform Cost Principles in

2 C.F.R. Part 200 Subpart E. The Uniform Cost Principles contain criteria that must be used to

establish chargeable administrative costs and specific information on allowable costs in various

cost categories. Administrative costs are capped by statute (see 12 U.S.C. § 5702(c)(3)(C)-(D)).

Specifically, for the first tranche, the administrative costs are not to exceed 5 percent of allocated

funds, and for the second or third tranche, the administrative costs are not to exceed 3 percent of

allocated funds for the respective tranche.

Section XII. Un-enrollment – 12 U.S.C. § 5702(c)(1)(C)

a. Requesting Approval to Replenish and Un-enroll

A participating jurisdiction may wish to un-enroll a particular transaction or use of

administrative expenses from its SSBCI program account if (1) the jurisdiction or Treasury

identifies a potentially noncompliant use of funds; or (2) the Treasury Office of the Inspector

General (OIG) identifies an instance of noncompliance or misuse not characterized as reckless or

intentional.

If Treasury identifies a potentially noncompliant use of funds, it will assess relevant facts

and applicable program requirements, including these guidelines, the Allocation Agreement, and

the National Standards for Compliance and Oversight. The jurisdiction will be afforded an

opportunity to provide Treasury additional information that will be used to determine whether a

violation of the Allocation Agreement or other program requirements has occurred. The

jurisdiction will be given at least 30 days to supply additional information.

The SSBCI statute also requires OIG to audit participating jurisdictions’ use of allocated

federal funds and states that under the agreement between Treasury and a participating

jurisdiction, Treasury “shall recoup any allocated Federal funds transferred to the participating

[jurisdiction] if the results of the audit include a finding that there was an intentional or reckless

misuse of transferred funds by the [jurisdiction].”

If Treasury determines that SSBCI funds have been used for an impermissible purpose,

Treasury may also allow the jurisdiction to replenish its SSBCI program account in the amount

of the funds found to be misused. In such a case, Treasury may allow the jurisdiction to un-enroll

the loan or investment or remove the disallowed administrative expenses from the SSBCI

account. Treasury may also exercise other remedies, including reducing the amount of future

disbursements.

Treasury’s written approval is needed for replenishment and un-enrollment. Note that

Treasury’s approval of any replenishment and un-enrollment does not preclude OIG from

conducting its own review of potential noncompliance issues.

b. Documentation for the Replenishment of Loans and Investments

A jurisdiction must provide Treasury with a written description of each transaction and

the justification for a proposed replenishment and un-enrollment. Treasury may provide the

jurisdiction with written conditional approval. Once the jurisdiction has replenished its SSBCI

program account, the jurisdiction must provide Treasury the following:

• A letter from the jurisdiction to the lender, investor, or third party involved in

administration that informs such party that the transaction is no longer enrolled in the

SSBCI program, and that SSBCI funds no longer support the transaction. For certain

transactions, as determined by Treasury, the jurisdiction must provide evidence that the

relevant contract is no longer valid or will not be honored using SSBCI funds;

• Accounting documentation evidencing that the SSBCI program account has been

replenished; and

• A certification from the authorized jurisdiction official that explains the reason for un-

enrollment of each transaction and states that the jurisdiction has undertaken all necessary

actions and transactions to replenish the SSBCI program account.

12 U.S.C. § 5702(c)(1)(C)(ii).

Appendix 1: Summary of Substantive Revisions

October 7, 2022 revisions:

• Updated to reflect revised deadlines and reference other SSBCI publications.

• Replaced the term “state” with “jurisdiction” when referring to the full range of

SSBCI participants.

• Included a brief description of named OCSPs that are frequently included in SSBCI capital

program applications.

• Clarified that certain references to “venture capital programs” includes equity programs other

than those involving venture capital funds.

• Defined “venture capital fund.”

• Incorporated loan guarantees as an example of “expended funds” for purposes of

SSBCI disbursements.

• Conformed to the interim final rule “State Small Business Credit Initiative;

Demographics-Related Reporting Requirements,” Department of the Treasury,

87 Federal Register 13628 (March 10, 2022).

• Provided guidance on CDFI Investment Areas.

• Conformed to the certifications set forth in the SSBCI Capital Program Application and the

Capital Program Sample Certifications.

• Updated the list of example documents and certifications jurisdictions may use to determine

adequacy of a financial institution’s lending experience and financial and managerial

capacity.

• Clarified the guidance regarding passive real estate as a business purpose.

• Clarified the types of business ownership purchases that qualify for SSBCI support.

• Clarified that all CDFI relending transactions must comply with all SSBCI program

requirements.

• Clarified that a borrower’s or investee’s own funds do not count towards the 20 percent

capital at risk threshold.

• Explained the approach for evaluating capital at risk for programs that combine certain

lender and debt investor characteristics.

• Clarified that the restriction on extending support to businesses with more than

750 employees applies to investees as well as borrowers.

• Clarified that the $5 million or less loan transaction target applies to investments as well as

loans and that it is calculated consistently with the $20 million transaction restriction.

• Revised the definition of an “SSBCI insider.”

• Clarified what entities are permitted for payments for services to portfolio companies,

consistent with the revised “venture capital fund” definition.

• Clarified the reporting requirements applicable to equity/venture capital programs.

• Clarified that 90 percent of a participating jurisdiction’s allocation must be used to support

businesses located (rather than headquartered) in the jurisdiction.

• Clarified that the rate cap requirement applies throughout the term of the loan (rather than

only at origination).

• Removed the SF-425 from list of reporting requirements.

• Clarified that the administrative cost caps only apply to allocated funds (and not to program

income).

December 15, 2022 revision:

• Revised the definition of “jurisdiction-sponsored non-profit entity.”

June 15, 2023 revision:

• Revised requirements applicable to refinancing transactions by new lenders.

August 16, 2023 revision:

• Updated and clarified the cap on upfront fees and charges. Also reorganized the “exclusion

of certain features” section under “Minimum National Customer Protection Standards” for

clarity and improved readability.

December 4, 2023 revision:

• Revised and reorganized the “exclusion of certain features” section, including so that it is

titled the “limitation of certain features” section and to revise the provision governing

prepayment fees, and revised the “disclosure of terms” section, including to incorporate an

existing FAQ.