Over 90% of companies in Rhode Island are small businesses, employing much of the private sector workforce. Entrepreneurs need access to affordable capital to launch and expand businesses, and the consolidation of the national banking industry has made it increasingly difficult for small-scale businesses to find lenders who are responsive to their needs. At the same time, the remaining local community banks and credit unions that are most likely to offer flexible financing arrangements to small businesses are often capital constrained. Challenges obtaining access to capital have historically been particularly acute for women and minority owned businesses, with a recent national NMSDC survey finding that half of minority owned businesses have been unable to obtain financing to grow their operations over the past four years.
BankLocal moves state cash deposits to local community banks and credit unions as an incentive for small business lending, using some of the $500 million to $1 billion in state cash on hand at any point during the year. Participating lending institutions are eligible to receive a cash deposit equal to the amount of each small business loan the institution makes, up to $250,000. Loans must be made to businesses within the state of Rhode Island, to companies with 100 employees or less. Loans to women or minority owned businesses, or to businesses founded by first-time entrepreneurs, are eligible for a 2-to-1 match. Deposits are “sticky”, with the state pledging to keep the deposits at the lending institutions for the duration of the matched loans.