Thelma Johnson is getting ready to jumpstart the economic recovery from COVID-19 pandemic in Albany, Georgia, a town of 75,000 people in the southwest part of the state. She’s the CEO of Albany Community Together, a community development financial institution or CDFI that specializes in loans for small businesses in the Albany area.

The pandemic hit Albany “like a bomb,” wrote the New York Times last year. Around 90,000 people live in and around Albany, and seventy percent of them are Black, including Johnson and nearly all of her clients.

“You can imagine every Black family either knows somebody or is someone affected by COVID-19,” Johnson told me in a May 2020 interview. “Three or four generations of a family may live in one house, so you’re seeing families with multiple cases across generations at one time. It has been the craziest thing, so much grief, so much pain, but people are persevering with their businesses because they want to provide a life for their families.”

Johnson did not agree when Georgia started issuing orders for businesses to re-open as early as April 2020. At the time, Albany Community Together had about 34 borrowers in its portfolio, including barbershops and salons, food businesses and manufacturers. Johnson says most of her clients stayed closed because her organization found ways to support them otherwise — the restaurants could shift to curbside pickup. Nearly half of her borrowers deferred payments for at least three months.

“Some are going to need funding to re-launch,” Johnson said last May. “Restaurants will need funding to re-do floor plans. If they don’t get that funding, we will lose our Black businesses. It’s hard to create a legacy Black business that can be sustained and passed down to family.”

If the plan for economic recovery takes any cues from last time, it could be a boon for Albany.

During the Great Recession, a federal pilot program called the State Small Business Credit Initiative provided $1.4 billion in flexible funding for states to support small business lending. Georgia got around $47 million. States that received the funding partnered with local lenders like Albany Community Together to deploy the funds. Johnson’s group received $3 million in funding from the initiative, which it used to enable $21 million in loans to 20 Albany-area small businesses employing around 140 people. Some of those businesses, Johnson says, were planning to relocate if they couldn’t get the capital they needed.

As part of the American Rescue Plan passed in March, Congress is putting out a second round of the State Small Business Credit Initiative. This time, it’s providing $10 billion. States have until this Friday to notify the U.S. Treasury that they plan to seek funding under the initiative, and then they’ll have until December 11 to submit a full application with a plan for how they’ll use those funds over the next ten years. Georgia is expecting to receive an initial $117 million this time around — and also, states that perform well in terms of reaching historically marginalized communities are eligible for bonus funding.

“We are locked and loaded and ready to go,” says Johnson.

States were once much more active supporting small business lending than they were by the time the Great Recession hit. Years of austerity budgets had slowly but steadily cut state program after state program for small business loans, according to Toby Rittner, president and CEO of the Council of Development Finance Agencies.

“In the 1990s, there were still all sorts of state programs for small business loans,” says Rittner.

State small business loan programs took a variety of forms. Some provided loan loss reserves, which serve as a kind of collateral to encourage private lenders to make small business loans to borrowers who didn’t have access to the necessary collateral on their own. Sometimes the loan loss reserve support from the state would allow the lender to charge borrowers a lower rate of interest than they otherwise might, which can be very helpful in terms of cash flow for the business.

Some states had loan participation programs, where the state would purchase a portion of a small business loan originated by a private lender, taking some of the risk off the private sector as an incentive to make more small business loans.

According to Rittner, the rise of CDFIs and other small business lending groups gave many states the impression that these newer institutions had things covered, so they started cutting the funding for those programs. In some states, programs were still on the books but had no funding appropriated for them.

“The idea with the first State Small Business Credit Initiative was we needed to be able to recapitalize all of these state lending apparatuses, and figure out how to unlock capital at affordable rates for small businesses,” Rittner says. “For me it can’t be underscored enough, [the State Small Business Credit Initiative] re-established the infrastructure for states to do these programs.”

The first initiative, billed as a pilot, lasted from 2011-2017. It provided $1.4 billion in funding for states to use in various ways, but gave states a target that each dollar from the initiative leveraged $10 from other sources. For example, $1,000 in loan loss reserves might enable a $10,000 business loan.

With that target ratio, from 2011-2016 the $1.4 billion from the State Small Business Credit Initiative supported 21,000 loans and investments for a total of $10.7 billion. The median size of businesses that gained access to credit under the initiative was just three employees. The median loan amount was $33,000. Forty-one percent of those businesses were owned by women or people of color, and 42.9 percent were located in low to moderate income areas.

The second round is much bigger — $10 billion in new funding appropriated by Congress — with the same leverage target of ten to one.

Of that total, half will be distributed initially to each state using “a need-based formula based on economic factors such as job losses and pace of economic recovery.” Another $500 million specifically to benefit businesses with less than ten employees will also be distributed to states on a formula basis. Another $1.5 billion in funding has been earmarked to benefit “business enterprises owned and controlled by socially and economically disadvantaged individuals,” to be distributed state-by-state according to a formula as well. There’s also $500 million set aside initially for distribution to tribal governments.

And there is also $1 billion set aside for the Treasury to award to states later, based on how well they perform on reaching socially and economically disadvantaged business owners.

“We have not talked to a single state yet that has not been acutely aware of the racial disparities coming out of this pandemic,” says Rittner. “We didn’t have that conversation in SSBCI 1.0. Even in states where you would not expect it, we’re hearing about a focus on underserved markets and racial disparities.”

States have until December 11 this year to submit their full applications. Only three states did not apply the first time around — Alaska, North Dakota and Wyoming. In those cases a state declines to apply, cities or groups of cities from that state may submit an application instead. Anchorage, Alaska and consortiums of cities in North Dakota and Wyoming did end up submitting their own applications last time. This time around, Rittner says he has heard from all fifty states that they’ll be applying.

Between now and December is the time for states to reach out to local lenders and other voices to determine how to use the new funds, whether to simply deploy them all through existing programs or take the opportunity to create new programs.

“The states really need to go out and listen and really find out where the true needs are at. It’s been proven time and time again if you just put up a sign that says ‘we’re lending,’ people don’t just start showing up,” Rittner says. “States are going to have to go out and listen, they’re really going to have to encourage those community groups to come to them. If no one comes and says that to a state then they’re not going to know how to get there.”

Rittner says most states have designated their state economic development agency or similar quasi-government entity as the lead on their applications.

In Albany, Johnson says she’s expecting CDFIs and other lenders from across the state to start meeting soon with state officials to start figuring out how to implement the initial $117 million allocated for Georgia.

Rittner also says states could consider using State Small Business Credit Initiative funding to establish state-owned banks. Only North Dakota currently has a state-owned bank, established in 1919, and it has helped that state weather many economic downturns and natural disasters over the decades. Over the past year, state legislators have been considering state-owned banks in California, New Jersey, New Mexico, Massachusetts, Hawaii, New York and Oregon — but initial funding and capitalization for state-owned banks has been a barrier.

“I don’t see why it would not be legal, as long as they could directly identify the leverage ratio on the back end,” Rittner says. “I think it’s totally doable for them to start something like that using these funds.”