Virginia Small Business Financing Authority did not lend $ 28 million

State authority disbursed only 8-10% of funds available for small businesses in 2018-19


September 14, 2020


Sydney lake

The Virginia Small Business Financing Authority (VSBFA) disbursed just 8% of its available funds in 2018 and only 10% in 2019 on loans, grants and bonds to help small businesses – keeping $ 28 million, according to a study published Monday by the Joint Legislative Audit & Review Commission (JLARC).

A division of the Virginia Department of Small Business and Supplier Diversity, VSBFA offers financing programs that include direct loans, support loan programs (encouraging banks to lend to small businesses), as well as grants and transmission obligations for the growth and expansion of small businesses. The authority was created by the General Assembly to provide more financing opportunities for small businesses, as these businesses may be riskier investments and not be as profitable for banks as loans to large businesses.

JLARC on Monday released studies examining the Virginia Department of Small Business and Supplier Diversity, the Tobacco Region Revitalization Commission and State economic development initiatives. Among other findings, JLARC also determined that the VSBFA and the Tobacco Region Revitalization Commission had failed to meet key objectives.

JLARC also proposed policy options to change the definition of small business, which would ultimately be up to the General Assembly.

Changing the definition of small business could affect the procurement practices the state uses to award contracts. One option would be to exclude comparatively larger businesses from obtaining a small business certification by reducing the number of employees and the gross revenue a business may have to qualify. JLARC also offered the opportunity to develop and adopt industry-based thresholds, similar to the US Small Business Administration.

In its report on VSBFA, JLARC noted that the authority manages several funding programs for small businesses, but the authority has also taken on the role of overseeing two COVID-19 assistance programs that will award $ 80.3 million. businesses (mainly thanks to federal funding from the CARES Act). Since the VSBFA did not meet the criteria for effective administration of funding, JLARC recommends setting annual targets for loan program disbursements and requesting staff to track and report annually the percentage of funds from the loan program. loan and grant program that are allocated or used.

“It is of great concern to me that we have funds that are not being used. … If I knew how much we had to lend, our outreach activity would be much more assertive, ”said an anonymous person associated with the VSBFA, according to the JLARC study, which also showed that the number of loan requests to the VSBFA has halved. between 2017 and 2018. The decrease in requests could be due to a lack of coherent sensitization efforts on the part of the VSBFA with companies and banks regarding available funding. According to the JLARC study, many companies are unaware of the VSBFA and its efforts.

“VSBFA has not established a coherent plan that identifies specific groups of companies or banks to contact,” according to the JLARC study. “Without a formal plan, staff carry out ad hoc outreach activities and work largely with the same companies and banks. “

And even for companies that apply for and receive financing, there is also a lack of formal loan risk policies and risk assessment tool, which the JLARC study found has led to confusion. and “overly cautious lending decisions”. For this reason, one bank told JLARC that it had given up on using VSBFA as a lending option.

“Over the past two years, I have referred three borrowers to your group, all of whom were turned down due to poor credit quality. … The last transaction we referred you turned down because the credit quality was too good. … I’m very confused about your goals of helping small businesses, ”an anonymous bank told JLARC to use in the study.

JLARC recommended that the VSBFA implement risk standards and a risk assessment tool to calculate the potential risk of loan applicants.

As part of the JLARC study of economic development initiatives, he found that grant recipients from the Tobacco Region Revitalization Commission had failed to keep their jobs because grant funding was not received. properly verified – and therefore recommended strengthening its due diligence procedures to increase the economic impact of the region’s tobacco commission opportunity Funds.

According to the JLARC study, the opportunity fund has a lesser advantage over other Virginia grants because of the poor performance of early projects. According to JLARC, a high percentage of projects never materialize and grant awards are canceled before funds are disbursed or used.

The Tobacco Region Revitalization Commission’s megasites program has also failed to meet its targets, JLARC found. Of nine companies funded by the grants, only two have tenants and the projects are expected to take decades to fully build, according to JLARC.

“Only half of future jobs at the sites will likely be net new jobs for the state, with the other half representing employees relocated from elsewhere in the region or state,” JLARC said in the study. “The economic benefits of the megasite program are low and are expected to remain low compared to other incentives, even as industrial site occupancy increases. JLARC recommended that industrial sites receiving funding report regularly on job creation and capital investment.

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