Washington state to boost small business lending by $300 million

The Washington State Department of Commerce announced today that it is introducing three new programs that will encourage private lending to small businesses, injecting about $300 million into the state economy over five years, and creating an estimated 4,000 to 8,000 jobs.

The program will be paid for using $19.7 million from the federal government, the state’s share of funds authorized by Congress at the end of 2010 as part of the Small Business Jobs Act.

By leveraging the federal money to attract private capital, Rogers Weed, director of the state Commerce Department, thinks the state can generate about $15 to $18 for every $1 the state invests. We targeted the programs to achieve the greatest possible impact, says Weed. We are using the [federal] funds to create and sustain longer-term opportunities for investing in our small businesses.

Responding to input from lenders, small businesses and others, the state chose to fund three separate programs:

• $8.7 million will go to Enterprise Cascadia, a non-profit that finances businesses in rural and other underserved areas with the goal of promoting community development. The organization expects to attract sixteen times that amount in private money to expand its business lending.
• $6 million will go to a Capital Access Program that will create a loan loss reserve fund that will allow bank partners such as Wells Fargo to make riskier loans than they might otherwise be willing to make. The state figures its investment will allow an additional twenty to thirty times the amount to be invested in businesses that might not otherwise have been approved for a loan.
• Another $5 million will go to an early stage venture fund that will be used to help commercialize technologies and business ideas coming out of the states university and government research laboratories. The money will fill a gap in funding needs that has opened up as angel investors and venture capitalists have become more risk averse, avoiding investments in early stage start-us.

These moves are just the latest in a series of moves designed to boost small business, which account for 95 percent of all businesses in Washington state. In November, the department announced an initiative to help promote exports among small businesses. The initiative included $1.6 million in federal grants to encourage banks to participate in export finance programs sponsored by the Export-Import Bank of the United States, the U.S. Small Business Administration and other government financing programs. The program hoped to have 10 more banks make export loans over the next three years with a target of supporting $20 million in export sales. Although four times more Washington company export, on average, than companies in other states, exporters still only account for four percent of all state companies.

The state has also moved to expand the number of small businesses exempt from the B&O tax, sought to reduce regulations and worked on developing a centralized system that would make it easier for businesses to pay taxes that differ from region to region within the state.

When the economy was booming and credit was easy, entrepreneurs often financed their businesses by taking out home equity loans or maxing out their credit cards. Now with housing values down and credit tight, many small businesses have found it difficult to finance their operations.The state hopes the easier access to funds will lead to investments by small businesses that might not otherwise been made.