Capital Access Program Connects Lenders with Small Businesses in Need

As credit unions continue to advocate for increased member business lending (MBL) capacity, the CAP program, a government-funded initiative available to financial institutions on a state-by-state basis, can help credit unions connect with small businesses in need of loans while offsetting some of the accompanying risk.

The Capital Access Program (CAP) marries the interests of financial institutions and small-business owners, helping businesses secure financing in a difficult economic environment by encouraging lenders to make loans to small businesses that fall just shy of conventional loan approval standards. The program then works to mitigate any risk for the lending institution by providing additional funds that can be used to hedge against losses from loan defaults.

Financial institutions must go through a brief application process to become an approved program partner. The lender then creates a CAP loan-loss reserve account, and CAP matches all contributions to the account as premiums from both the borrower and lender are deposited into the reserve account one loan at a time. Lenders have several structuring options, but the combined premiums must land between 2 and 7 percent of the enrolled loan amount in Washington and between 3 and 7 percent in Oregon.

The enrollment paperwork is reviewed by the governing agency—Business Oregon in Oregon or the Department of Commerce in Washington—and after approval, which typically takes just a few days, the agency will make the matching deposits into the lender’s reserve account. Those funds can then be used by the credit union to cover enrolled loan losses for the loan in question or for any other loan issued by that same institution under the CAP program.

The program is open to credit unions, banks, savings associations, and certain other federally insured business lenders and can be applied to most loans that will be used for “business purposes.”

Funding for CAP in both Oregon and Washington comes from the federal Small Business Jobs Act of 2010, which directed $1.5 billion to state programs that improve access to capital for small businesses so they can grow and create new jobs.

“This program was designed to be easy, to help financial institutions and businesses work together without any needless red tape,” said Dan Hein, vice president of finance for the Northwest Credit Union Association (NWCUA). “The whole process is quick and simple, and in the end, it’s a low-risk approach to being able to fund a small-business loan you might not have otherwise been able to fund.”

Interested in Learning More?

Business lending presents opportunities for credit unions and their communities, but carving out a share of the market can be difficult. Loan growth is slowly increasing and interest rates are at all-time lows.

At the NWCUA’s Winter Lenders’ Networking Council in Oregon, credit union lending professionals will have a chance to learn more about Oregon’s CAP program, as well as other programs available to benefit lending operations. Alison Boswell from the Oregon Business Development Department (Business Oregon) will also share some insight into Oregon State financing programs and will cover how Business Oregon is dedicated to helping Oregon businesses gain access to capital.

The council is scheduled for 10 a.m. on Feb. 12 in Beaverton, Ore. Registration and more information are available online.

For lenders in Washington State, click here to view a state-specific presentation on similar programs.

 

Questions or comments? Contact Matt Halvorson, Anthem Editor: mhalvorson@nwcua.org.

Posted in Community Impact, Economy.