CHARLESTON, W.Va. -- Banks often back off when it comes to giving startup businesses loans, an investment analyst at the state's venture capital firm said.
They require a track record from a company before they feel comfortable lending, said Michele O'Connor, investment manager at West Virginia Jobs Investment Trust.
"Capital has been very difficult for some businesses to acquire in the state because banks don't tend to lend to startups, so [businesses] struggle to find partners to provide that capital," O'Connor said.
When the trust became administrator of the state-run West Virginia Capital Access Program (WVCAP) in 2011, O'Connor said she felt "reserved enthusiasm" because she knew the program would benefit businesses, but banks hadn't "loosened up their lending" - and that hasn't changed, she said.
The WVCAP is designed to supply small businesses with the money they need to invest, expand and create jobs. West Virginia's program has access to $13.1 million -- the minimum any state could receive, O'Connor said -- through the State Small Business Credit Initiative, created under the federal Small Business Jobs Act of 2010.
The initiative provided $1.5 billion nationally to strengthen state programs that support lending to small businesses, according to the U.S. Department of Treasury.
The funds are used to help finance small businesses that are creditworthy, but may not qualify for traditional lending.
The program offers four separate funds in the state, which include one equity and three lending funds.
In West Virginia, the money has helped hire new employees, buy new equipment and create new products for startups and seasoned companies.
The WVCAP has preserved more than 300 jobs and created the potential for 278 new jobs in the state, according to the Jobs Investment Trust.
Business owners have also updated their company logos, websites and received help putting together a business plan through the operational assistance funds made available by the Claude Worthington Benedum Foundation and the state Department of Commerce.
More than 12 companies have collected more than $100,000 in operational assistance, according to WVJIT.
Seven program participants situated across the state have access to the WVCAP funds, O'Connor said.
They are the Natural Capital Investment Fund, the Center for Rural Health Development, Inc., INNOVA Commercialization Group, New River Gorge Regional Development Authority, Mid-Ohio Valley Regional Council, Regional Economic Development Partnership, and Wyoming County Economic Development Authority.
These alternative lenders are "on the forefront in assisting businesses throughout the state," when banks weren't on board, O'Connor said.
By generating $10 in new private lending for every $1 in federal funding, the SSBCI funds are expected to produce $15 billion nationwide over five years.
That's $130 million that could spur new lending and investment activity in the state, O'Connor said.
Each state has two years from the date its program was approved to distribute all of the funds.
Any funds that are paid back by businesses are returned to the WVCAP program, which will ultimately create the $130 million, O'Connor said.
"The state has five years to turn $13 million into $130 million and to do that we're going to require that some of those loans be paid off in two years so it can help other businesses," O'Connor said. "Not only is there an incentive to the program and the state, it's certainly an incentive to those program participants to make good deals, good transactions and good loans so those funds can come back in their portfolio so they can turn around and support other businesses."
The WVCAP got approval from the U.S. Treasury to start its new program in November 2011 and its first funds were available on Dec. 1, 2011. The program launched in January 2012.
The federal funds are made available to every state in three transfers. West Virginia has applied and received approval from the U.S. Treasury for its third and final installment for nearly $4.5 million.