State Small Business Credit Initiative - Frequently Asked Questions (Faqs) - U.s. Department Of The Treasury Page 17
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37U.S. Department of the Treasury
State Small Business Credit Initiative
the new credit has not been extended for the sole purpose of refinancing existing debt
owed to that same financial institution lender.
SSBCI recommends that when a Participating State enrolls a loan that repays principal due under a loan
previously made by the same financial institution or its affiliate, the Participating State or the financial
institution lender should maintain documented substantiation that these four criteria were met.
The limitation on refinancing does not prohibit a financial institution lender from originating a new loan
under an approved program and subsequently refinancing the same loan under any approved
program. Additionally, the limitation also does not prohibit a financial institution lender from enrolling
or refinancing previously made loans from another, non-affiliated financial institution into an approved
program.
When a Participating State uses SSBCI funds to purchase a loan from another, non-affiliated
financial institution, the state must make a determination that the transaction is beneficial to the small
business borrower.
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3. What are the restrictions on borrowers' use of loan proceeds?
Updated August 5, 2013 to reflect SSBCI’s position on using SSBCI funds to purchase goodwill.
Financial institution lenders must obtain an assurance from eligible borrowers or eligible investees that
loan or investment proceeds from an approved program will only be used for business purposes
including start-up costs, working capital, business procurement, franchise fees, equipment, inventory,
and the purchase, construction, renovation or improvements of an eligible place of business. SSBCI
funds may be used to purchase any tangible or intangible assets except for goodwill. Purchases of real
estate (commercial or otherwise), securities or the acquisition or holding of any other real property for
passive investment purposes, and lobbying activities are not considered eligible business purposes
under an SSBCI-approved program. Furthermore, loan or investment proceeds may not be used to pay
delinquent federal or state tax debts unless a repayment plan is in place and in no circumstances may be
used to repay taxes held in trust or escrow (e.g., payroll or sales taxes). Loan or investment proceeds
may not be used to reimburse funds owed to or purchase any portion of the ownership interest of any
owner of the business. The prohibition on purchasing any portion of the ownership interest of an owner
proscribes the acquisition of the shares of a company or the partnership interests of a partner when the
proceeds of the loan or investment directly supported by SSBCI funds will go to any existing owner or
partner.
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4. The SSBCI Policy Guidelines require that at the closing of a loan or investment, that each small
business borrower furnish an assurance that includes, among other things, that loan or investment
proceeds will not be used for passive real estate investment. What is SSBCI's definition of "passive
real estate investment"?
SSBCI has developed a definition of "passive real estate investment" in consultation with the Small
Business Administration (SBA). SSBCI considers loan or investment proceeds to be used for "passive real
estate investment" purposes when the proceeds from the loan or investment are used by an eligible
State Small Business Credit Initiative Application
Page 17 of 37
FAQs
April 21, 2016
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