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New SSBCI Program Could Help Finance Employee Ownership Funds

karenkahn33@outlook.com · Nov 15, 2021 ·

$10 billion program allows for employee ownership investments

by Marjorie Kelly and Karen Kahn

An unusual provision in the Department of the Treasury’s guidance for the State Small Business Credit Initiative (SSBCI), a $10 billion program included in the 2021 American Rescue Plan Act (ARPA), creates a specific and promising opening for employee ownership. The guidance explicitly allows states and lenders to use the financing to support transitions to employee ownership, laying the groundwork for potentially millions of dollars to flow into employee ownership deals.

States could work with mission-oriented financial institutions to create Local Economy Preservation Funds (LEPFs), which use their capital to finance conversions of businesses to employee ownership.

The SSBCI program was created to increase access to capital for small business, to benefit state economies. Congress, in a floor dialogue, directed Treasury to include employee ownership transitions in the program. The final language reflects input from a number of employee ownership advocacy groups, including the National Center for Employee Ownership.

The Treasury guidance says that SSBCI loans cannot be used to “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 … worker cooperative, or related vehicle,” provided that the transaction results in employee owners holding a majority interest in the business. [U.S. Department of Treasury State Small Business Credit Initiative Capital Program Policy Guidelines]

In short, SSBCI funds can be used to finance employee ownership transitions, if majority employee ownership will be the result.

SSBCI funds will flow to state development finance agencies, which then will distribute the funds to banks, credit unions, CDFIs, and eligible venture capital funds. States could work with mission-oriented financial institutions to create Local Economy Preservation Funds (LEPFs), which use their capital to finance conversions of businesses to either Employee Stock Ownership Plans (ESOPs) or worker cooperatives. By helping to facilitate employee ownership transitions, the funds can keep businesses locally owned—rather than seeing these small businesses close their doors or sell to outside investors likely to extract wealth and move on.

The Treasury guidance for SSBCI funds also carves out $2.5 billion in capital for businesses owned and controlled by socially and economically disadvantaged individuals, $500 million for very small businesses, and $500 million for technical assistance funding. LEPFs that target disadvantaged populations could apply for these special funds.

In our 2021 report, Opportunity Knocking, The Democracy Collaborative (TDC) identified organized capital as the key to accelerating employee ownership transitions, which have been stalled for decades. Traditionally, the employee ownership advocacy community has focused almost exclusively on educating exiting owners about employee ownership in the hope that they would choose this path to sustain their legacy. Yet ESOP transitions are complex transactions—and for many business owners seeking to exit, it’s simply easier to say “yes” to a sale to a competitor or private equity firm than to find the experts and the financing to successfully implement an employee ownership transition. To compete, TDC argued, communities need investment funds that handle the transition and relieve the owner of this complexity. Funds also simplify the process for investors, who lack the capacity to take on deals one by one.

SSBCI funding offers states the opportunity to seed these investment funds, which can be run by CDFIs or other financing organizations. Municipalities could work with their state development finance agency to obtain allocations for their area. Treasury dollars can help funds attract private capital and could potentially become permanent capital for local or state funds. The result could be that the tidal wave of business closures known as the “silver tsunami” could be stemmed, and local economies could emerge more vibrant and just—with shared ownership at the heart of Main Street.

SSBCI TA Grant Applications Due in October

karenkahn33@outlook.com
August 29, 2022

The U.S. Department of the Treasury is now soliciting applications for technical assistance grants,.

Continue Reading SSBCI TA Grant Applications Due in October

Equity Funds Needed to Further Worker-to-Owner Buyouts

karenkahn33@outlook.com
March 29, 2022

Using funds from the State Small Business Credit Initiative, states could accelerate transitions.

Continue Reading Equity Funds Needed to Further Worker-to-Owner Buyouts

Positioning SSBCI to Benefit Employee Ownership

karenkahn33@outlook.com
March 10, 2022

The Vermont Employee Ownership Center is engaging the state’s economic development agencies to ensure that the state’s SSBCI program supports employee ownership transitions.

Continue Reading Positioning SSBCI to Benefit Employee Ownership

Video: New Financing Could Be Game Changer for Employee Ownership

karenkahn33@outlook.com
December 13, 2021

In a short video, Marjorie Kelly, senior fellow at The Democracy Collaborative, explains how the State Small Business Credit Initiative can be leveraged for employee ownership transitions.

Continue Reading Video: New Financing Could Be Game Changer for Employee Ownership

Dick May and Chris Mackin: A $100 billion loan guarantee program for employee ownership would be transformational

karenkahn33@outlook.com
July 1, 2021

A federal loan guarantee program of $100 billion per year would permit policymakers to grasp how employee ownership could truly address the problem of economic inequality on a national level.

Continue Reading Dick May and Chris Mackin: A $100 billion loan guarantee program for employee ownership would be transformational

Bruce Dobb & Tomás Durán: Overcoming the “Equity Injection” Obstacle to Employee Ownership

karenkahn33@outlook.com
June 22, 2021

The reauthorization of the State Small Business Credit Initiative (SSBCI) could offer a timely answer to the down payment dilemma.

Continue Reading Bruce Dobb & Tomás Durán: Overcoming the “Equity Injection” Obstacle to Employee Ownership

Cities and states accelerating employee ownership, Scaling Employee Ownership, SSBCI Capital Strategies

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