Nearly $237 million in federal funding coming to the state is planned to support small businesses in Michigan through loan initiatives and equity investments in venture capital funds.

the Michigan Economic Development Corporation. (MEDC) aims to deploy federal funding across five programs, including investing $75 million in one or more venture capital funds operating in the state.

By partnering with early-stage venture capitalists, likely as a limited partner, MEDC wants to leverage private equity investments and the expertise of venture capitalists, said Chris Cook, chief executive of access to MEDC capital.

“We want to rely on the private sector, its decision-making and expertise, to identify opportunities that have the highest probability of success,” Cook said.

The MEDC will likely issue requests for proposals or open an application process for venture capitalists interested in partnering with the venture capital program, he said.

Ara Topouzian, executive director of the Michigan Venture Capital Associationexpects the MEDC to attract interest from venture capitalists, although the initiative “won’t be for all companies.”

According to the conditions issued by the MEDC to join the venture capital program, “some of the small businesses might be interested,” Topouzian said.

“It’s too early to tell, but I would expect people to take advantage of this and we could see some new bottoms forming from this,” he said. “The end result is that we want to see startups get funded. Anytime you can provide funding like this, it’s a great opportunity for the startup community.

The planned venture capital program is part of a larger Michigan Business Growth Fund 2.0 that the MEDC has planned to use up to $236.9 million in federal funding. Small businesses participating in a program should match public funding with private capital, Cook said.

The Michigan Business Growth Fund 2.0 money is said to come from the $10 billion allocated to the state’s Federal Small Business Credit Initiative that was included in the American Rescue Plan Act signed by President Biden in March 2021.

Tuesday, the Michigan Strategy Fund The board approved the creation and guidelines of the Michigan Business Growth Fund 2.0, which includes both capital and credit programs, some of which have been in existence for a decade and will use the new injection of federal funding.

The MEDC intends to submit a request to the US Treasury Department by Feb. 11 detailing plans for how Michigan intends to use federal funding. The MEDC hopes to have a decision from the Treasury Department within 60 to 90 days, Cook said.

By creating the Michigan Business Growth Fund 2.0, the MEDC seeks to fill the gaps in access to credit and capital for small businesses.

“Overall, the goal is to enable small businesses to get loans or investments that might not otherwise be available,” Cook said. “In our opinion, there is certainly a very significant need.”

MEDC would work with organizations such as federally designated Community Development Finance Institutions (CDFIs), community banks and credit unions on lending programs that are part of the Michigan Business Growth Fund 2.0, Cook said. .

Under federal guidelines from the State’s Small Business Credit Initiative, Michigan must direct $39.8 million of federal funding to small businesses owned by socially and economically disadvantaged people. An additional $12.9 million should go to “very small businesses” that employ 10 or fewer people where the need for increased access to capital is particularly high, Cook said.

“We’ve heard from sources across the state that the availability of capital is a significant issue for these businesses,” he said. “Developing programs and increasing the availability of capital for what you would call ‘main street’ businesses, there is a significant need and that really drove a significant part of our thinking in terms of allocation.”

The Michigan Business Growth Fund 2.0 would support small businesses in a range of sectors: manufacturing, professional and business services, engineering, design and development, financial services, mobility, medical device technology, high-tech agriculture, tourism and logistics.

The MEDC hopes small businesses that receive support through the Michigan Business Growth Fund 2.0 will leverage funding with $2.42 billion in private sector investment.

“That, obviously, potentially has a very big impact on the state,” Cooks said.

In addition to the $75 million venture capital program, the Michigan Business Growth Fund 2.0 includes:

• $71 million for an existing collateral support program that provides bridge financing to small businesses that lack the collateral needed for a business loan.
• $48.2 million for a loan participation program to “fill in funding gaps that may exist due to a borrower’s lack of ability to repay in the short term or a limitation in the amount of funding that can be ‘a lender is able to provide on the basis of legal lending limits or portfolio concentration,’ according to a note from MEDC staff.
• $40.2 million for a loan guarantee program that aims to mitigate risk for a small business lender by providing partial guarantee on a new loan. MEDC’s existing loan guarantee program provided up to $5 million in loan guarantees to small businesses that backed $14.2 million in loans with minimal losses of just $183,000.
• $2.3 million for MEDC’s existing Capital Access Program to support lenders who provide financing to small businesses that may not otherwise qualify for a loan.

The MEDC modeled the Michigan Business Growth Fund 2.0 after a similar initiative that started in July 2011 using $79.6 million in federal funding that was earmarked for loan and collateral support programs. Funding primarily went to manufacturing companies hit by the Great Recession. Companies that have gained support from the initiative have been able to leverage funding and leverage $606 million in private sector investment.

Ten years ago, the MEDC also used federal money for access to capital and loan guarantee funds and a mezzanine fund.

The average loan size for small businesses under existing programs is under $100,000, Cook said. The new initiative “has the potential to support a few thousand very small businesses” through loan schemes, he added.