Before Congress adjourned for recess, the President signed the Small Business Jobs and Credit Act of 2010 (HR 5297). This newly enacted law includes a provision that has the potential to help health centers access additional capital financing. Specifically, it allocates $1.5 billion in grants to new and existing State Capital Access Programs and other state credit initiatives for lending to small businesses. Capital Access Programs (CAPs) are state-sponsored programs designed to incentivize banks to lend money to small businesses that wouldn’t otherwise be able to get a loan. Each state’s CAP has its own eligibility criteria, use restrictions and maximum loan amounts, but most CAPs make support available to both non-profit and for-profit small businesses (under 500 employees). Since the mid-90s, about half of all states and a few municipalities have established CAPs, which are shown to improve access to loans for small businesses while generating economic benefits to local communities. This new federal funding is meant to incentivize states to start up a CAP where they don’t have one already and to improve and enhance existing CAPs to better target resources.
How does a CAP Work?
A Capital Access Program is designed to facilitate access to loans for small businesses that otherwise wouldn’t be able to get a loan. A CAP can be run by a state or municipality and each program is run slightly differently. However, across every CAP the structure is the same: each bank has a dedicated CAP reserve fund that the borrower and bank pay a combined up-front premium into (typically 3-7% percent of the total loan) and that the state pays into at a one-to-one match. With double the up-front payment on the loan and CAP funding in a reserve pool, the bank has a cushion so it is able to take on slightly riskier investments. The loan is processed and approved between bank and borrower in about 3-5 days and requires no outside approval and little bureaucracy. Loan amounts currently vary by state but the new federal support is available for loans up to $5 million.
How Can Health Centers Benefit?
This is an excellent opportunity for states to drawn down additional federal funds and now that this bill is law, states (or municipalities if the state chooses not to apply) will need to think about applying for CAP funding for their state. In order to be eligible to drawn down these new federal funds, however, the law requires that each state’s plan will have to show how the funds will be used to provide capital to small businesses in low and moderate-income, minority, and other underserved communities, including women and minority owned small businesses. For states that already have CAPs, this represents a chance for PCAs and health centers to approach their state financing authorities to discuss ways to improve health centers’ access to CAP loans and, in so doing, to help the state meet the ‘underserved community’ requirement. For states that do not yet have a CAP, this is a time for PCAs and health centers to approach their financing authority to discuss starting a CAP and how the state might focus CAP resources toward health centers’ communities and projects.
NACHC is working with our partners at Capital Link to analyze how PCAs and health centers can maximize this opportunity. Stay tuned to the Health Centers on the Hill blog and other NACHC communications for more information on Capital Access Programs and how they might improve health centers’ access to capital financing.