Maryland Access to Capital Program

Problem

 Lending to small businesses has decreased in recent years. Part of the problem is that small businesses without substantial/ solid credit have few options for loans. The same goes for those without adequate collateral or a relationship with a bank. This disproportionately disadvantages low-income residents, immigrants, business owners of color, residents in reentry, etc. Financial exclusion of resource-restricted populations in Marylander is a problem.

Another part of the problem is that non-traditional financial institutions in the business of making loans to these populations face high borrowing costs themselves, minimal incentives to make these loans, and little to no coverage on loan defaults.

Small businesses have been hit extremely hard by the pandemic as they have worked to adapt to a remote environment, comply with pandemic-related requirements, etc. Absent access to credit, small businesses cannot succeed and scale. Job growth and wealth creation are stifled, especially in historically disinvested neighborhoods.

Solution

The Maryland Capital Access Program (MDCAP) encourages banks and other financial institutions to make loans to small businesses – especially those that have been unable to or have had difficulty obtaining loans in the past. MDCAP creates a loan loss reserve program, managed by the Department of Commerce, for financial institutions making qualified loans. Each time a qualifying loan is made to a small business, a percentage of the loan amount is deposited into the loan loss reserve account by the lender, the borrower, AND the State.

The loan loss reserve account mitigates risk loss to a qualifying lender and gives lenders the confidence to be more flexible on collateral and credit requirements. Further, particularly for CDFIs, the loan loss reserve account can decrease the cost of borrowing money. The program motivates lenders to bank a wider band of businesses with the assurance that losses can be recovered from the loan loss reserve account.

This program was the result of legislation sponsored by Maryland Delegate Brooke Lierman and co-filed by Maryland Senator Katie Fry Hester.