Working Capital Loans for Small Businesses

Access to Capital
All Technologies

Challenge: Small businesses in the advanced energy industry report limited access to both patient capital and working capital as key barriers to growth and survival. Financial security through patient, or long-term, investment is important for these businesses for which technology development can take decades to reach its full commercialization potential. Furthermore, small businesses need sufficient working capital to cover operating expenses, pay workers, and establish a customer base.

Current government grants and subsidies are primarily dedicated to financing deployment of advanced energy technology, but do not directly support the companies that innovate and manufacture the products. Venture capital firms, on the other hand, typically have a funding horizon of three to five years, a model unsuitable for the advanced energy industry.

Solution: State leaders could offer direct working capital loans to small businesses in the advanced energy industry. Loans to businesses could be provided at low interest rates and over long-term periods, and repayments could be recycled and reused to support additional capital investments. State leaders could alternatively help increase small business access to private loans by providing credit enhancements to lenders in the form of loan loss reserve funds or loan guarantees.

Examples: PIDC Philadelphia, a public-private economic development corporation, offers working capital, machinery, and equipment loans to small businesses and mid-size businesses with $150,000 to $10 million in revenue. These loans range in size from $50,000 to $750,000 and are drawn directly from PIDC funds, with PIDC also responsible for credit analysis and underwriting. In 2017, PIDC provided $1.9 billion in financing, of which $12 million went to growing small businesses.

The Ohio Capital Access Program creates loan loss reserve funds for accredited lenders, with eligible borrowers gaining access to up to $250,000 in working capital financing. Lenders are responsible for all phases of the transaction, but are insured against default by access to a reserve fund. This fund is created by matching contributions from the borrower and lender of between 1.5 and 3.0 percent and a contribution from the Ohio Development Services Agency of 10 percent of the loan amount.