Solving the Catch-22 of Small Business Loans
The satirical novel, Catch-22, came to symbolize the dilemma of solving a problem that is, basically, unsolvable. The characters fought air combat in World War II and the number of missions necessary to complete a tour of duty rose continually – they could never go home.
Small business owners and those who help them face a similar conundrum to solve the Catch-22 dilemma of securing affordable loans to start or grow an enterprise. It takes money – and collateral – to secure a business loan, but you need a loan to get that money. This paradox magnifies among owners of very small businesses (VSBs), businesses owned by socially and economically disadvantaged individuals (SEDIs), and businesses in historically under-banked and under-resourced communities.
The rate of loan approvals, for example, among Latino-owned very small businesses contrasts significantly with their white counterparts. The ninth annual Stanford University State of Latino Entrepreneurship report, issued in March 2024, showed that Latina-owned business owners receive an average 39% loan approval rate from both local and national banks. In contrast, loan approvals for their white female counterparts are at 55% from local banks and 65% from national lenders. Among white males, the gap widens further, to 60% and 67%, respectively.
Often when secured, small business loans come with an exorbitant price tag, meaning interest rates that sometimes soar into double-digits. In fact, the most frequent request from small businesses is to secure financing at reasonable terms. To combat these problems, The Washington State Department of Commerce has developed several programs to serve the needs of small businesses across the state. This summer, Commerce is rolling out five new loan programs, made possible by $163.4 million in funding provided through the U.S. Treasury’s State Small Business Credit Initiative (SSBCI). These loan programs aim to promote entrepreneurship, support small business ownership, and increase the flow of capital in underserved communities.
Commerce does not approve or administer these loans; they are managed by our trusted partners in the financial community. All five of these loan programs specifically serve businesses and nonprofits across the state, especially those in underserved communities. A portion of all program funding specifically targets VSBs and SEDI-owned businesses. Working with private partners, Commerce expects to leverage this new private capital through identified Community Development Financial Institutions (CDFIs) to expand lending and investment in small businesses and entrepreneurship, build small business ecosystems and create jobs.
So now, in Washington State, there’s a way to solve the Catch-22 problem of securing a small business loan. Well, actually, there are five of them. Two loan programs are available now, with the others coming soon. Whether you own a small business or you and your organization support them, it is helpful to understand these new loan programs.
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Small Business Flex Fund 2 (Micro Loan Program) – $63 million
The program works with participating Community Development Financial Institutions (CDFIs) to fund capital needs among the smallest businesses and non-profit organizations in Washington. It focuses on the most under-resourced businesses in under-banked communities. Your application goes through the program’s web portal and matches your business with a participating lender to finalize interest rates and terms. The program is administered by Calvert Impact Small Business and Grow America. They serve businesses and nonprofits with 50 or fewer employees and up to $5 million in revenue. Learn more and apply at SmallBusinessFlexFund.org.
Owner-Occupied Commercial Real-Estate Loan Program (CRE) – $25 million
CRE expands access to capital and reduces lending risk while lowering loan costs for small businesses and non-profit organizations with a subsidized loan. The program helps small businesses qualify for financing and lowers your business risk for owner-occupied real estate loans. This loan is for you if you are looking for owner-occupied commercial real estate loans for such things as tenant improvements, construction, purchase or refinance. The program is administered by Heritage Bank (HBCDE, LLC). It offers companion loans with SSBCI funds and targets loans up to $5 million with 10-year terms.
Coming Soon
Collateral Support Program (CSP) – $10 million
The CSP complements the SBA’s 504 Loan Program. These funds cover short-term construction loans, and offer bridge loan funds. The CSP is administered by Evergreen Business Capital Community Finance (EBCCF). A nonprofit lender offering financing solutions for small businesses in the Pacific Northwest.
Revenue-Based Financing Fund (RBF) – $12 million
RBF will meet the growing demands of small businesses across the state by offering upfront capital with repayment of loans based on a percentage of the business’s earnings, the program supports underbanked communities and businesses who could not obtain financing under traditional debt-based loan products.
Venture Capital Fund
Washington State SSBCI funds engaged three separate venture capital funds dedicated to early-stage funding in support of growth for Washington businesses. Venture capital funds have diverse investment teams that focus on investing in underserved startups or targeted investment objectives such as social equity, climate tech innovations, information technology, AI and machine learning.
Learn More
Visit the Washington State Small Business Credit Initiative (SSBCI) page to learn more about these programs.