Wisconsin Technology Council: Wisconsin well within U.S. mainstream with state business loan programs

Contact: Tom Still at 608-442-7557

MADISON – Wisconsin is among at least 48 states that operate state business loan programs and it may fail to qualify for a matching federal small business initiative if such programs are eliminated, according to research by the Wisconsin Technology Council.

Information from four national sources indicates that 48 states have small business loan programs, which are a precursor for qualifying for one of a handful of matching programs through the federal government’s State Small Business Credit Initiative.

Data comes from the State Science and Technology Institute, the Center for Regional Competiveness, the Center for Community and Economic Research and the Praxis Strategy Group, all organizations with a history of tracking state economic development trends.

The $1.5 billion State Small Business Credit Initiative was created by the 2010 Small Business Jobs Act. It gives states the ability to design their own matching programs to leverage their state-backed loans and private dollars.

“We are not aware of any state of Wisconsin’s size that doesn’t offer (small business) loans,” said Dan Berglund, director of the Ohio-based State Science and Technology Institute.

“All states except North Dakota and Wyoming participated in the federal government’s State Small Business Credit Initiative,” said Delore Zimmerman of the Praxis Strategy Group in Grand Forks, N.D. However, he added, even North Dakota and Wyoming indirectly take part in the federal initiative through programs managed by coalitions of cities.

Direct loans, participation loans and loan guarantees are among the top five economic development programs in 45 of 50 states, according to the State Business Incentives Database at the Center for Community and Economic Research.

The information was released by the Tech Council as members of the Wisconsin Legislature and Gov. Scott Walker debate the future of state business loan programs operated by the Wisconsin Economic Development Corp., which is the state’s lead economic development agency. A recent state audit criticized some of WEDC’s fiscal practices but noted improvements in some areas: WEDC’s loan delinquency rate fell from 2.7 percent to 0.2 percent in the year ending Dec. 31, 2014, principal delinquency dropped from 8.8 percent to 1.7 percent, and the balance on uncollectable loans decreased from $5.5 million to $1.3 million. Also, the delinquency rate for annual performance reports by WEDC loan and grant recipients fell from 55 percent in December 2012 to 5.4 percent in December 2014.

The federal State Small Business Credit Initiative allows states to choose from five basic types of programs (four loan programs or a state-run venture capital program), and they customize the rules to suit local market conditions. To date, community banks and mission-oriented lenders are the major participants in the loan programs, in part because they often specialize in serving small businesses that do not fit a traditional credit profile.

States may implement the program through state agencies, quasi-public authorities or private contractors. This allows a state to operate its federal matching program through whatever organizational structure exists in the state with the business lending experience and capacity to execute.

In Wisconsin, the WEDC is a quasi-public agency established by Walker and the Legislature in mid-2011.

Berglund said SSTI has “long believed that whether an (economic development organization) is a state agency or quasi-public is immaterial to its success. It appears to be more about the processes that are in place and the people leading the organization and implementing those processes. It is most important that any of these organizations be set up with transparency – while protecting confidential business information – and accountability in mind.”

The Wisconsin Technology Council in an independent, non-profit organization that advises state government on policy issues while serving as a catalyst for economic development in various technology and entrepreneurial sectors.