BILL ANALYSIS
AB 1009
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 1009 (V. Manuel Perez) - As Introduced: February 27, 2009
SUBJECT : Small Business Direct Loan Program
SUMMARY : Authorizes the establishment of a direct loan program
for the purpose of providing loans to qualified businesses, as
specified. Specifically, this bill :
1)Expands the Small Business Loan Guarantee Program (SBLGP),
administered by the Business, Transportation and Housing
Agency (BTH), to include authority for offering direct loans.
2)Creates a separate account within the California Small
Business Expansion Fund (Expansion Fund) for the purpose of
this measure.
3)Requires the director of the SBLGP to develop and implement an
application and review process that minimally includes
eligibility standards, rating and ranking criteria, and other
appropriate policies and procedures for evaluating direct
loans, as specified.
4)Provides that the maximum loan amount under the program is
$500,000 and that all direct loans have a guarantee from a
federal agency or department.
5)Requires that each applicant successfully demonstrates that
they have reasonable access to business and management
technical assistance during the term of the loan.
6)Requires information on the direct loan program be annually
reported to the Legislature as part of an existing annual
reporting requirement of SBLGP.
7)Requires an independent audit of the direct loan program and
its findings be reported to the Governor and Legislature no
later than January 1, 2012.
EXISTING LAW :
1)Provides that BTH oversee and coordinate the activities of
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various departments, offices, and economic development
programs, with responsibility for maintaining the strength and
efficiency of California's infrastructure and financial
markets. These programs provide financial and programmatic
regulation important to the economic marketplace, community
development, and the safe and efficient flow of commerce.
2)Establishes the SBLGP within BTH for the purpose of assisting
small businesses in obtaining long term loans or lines of
credit from conventional financial institutions, which small
businesses would not otherwise qualify for without the
guarantee. Under this program, financial development
corporations (FDCs) act as financial intermediaries between
the state, the small business, and the financial institution.
3)Establishes the Expansion Fund for the purpose of retaining
the moneys which separately capitalize the SBLGP and paying
out defaulted loan guarantees issued under the SBLGP. Each
account within the Expansion Fund is legally separate and is
prohibited from securing loan guarantees or other obligations
of another FDC. The state is not liable or obligated beyond
the funds allocated and deposited in an individual trust fund
account within the Expansion Fund.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose : According to the author, California small businesses
face many challenges during this current economic downturn.
Debt markets are frozen, unemployment is rising, and
production is stalled. Although the federal government is
working aggressively to improve the flow of capital, the fact
remains that many small businesses do not have sufficient
access to necessary financial resources.
AB 1009 addresses this issue by authorizing the expansion of
an existing state program to offer direct loans. The SBLGP
has been operated by the state for over 20 years and has an
established network of FDCs to undertake the expansion of the
existing program to include direct loans. In fact, the SBLGP
already provides direct loans for farmers who can secure a
federal farm loan guarantee.
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This bill is also implements a recommendation from the
California Economic Development Recovery Strategy (Recovery
Strategy) developed by the Assembly Committee on Jobs,
Economic Development, and the Economy (JEDE).
2)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with less than 100 employees comprise more than
98.3% of all businesses, and are responsible for employing
more than 57.9% of all workers in the state.
Small- and medium-sized businesses are crucial to the state's
international competitiveness and an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 52,000 companies that
exported goods from California in 2006, 95% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly half (44%) of California's exports
in 2006. Nationally, SMEs represented only 29% of total
exports. Again, these numbers include the export of only
goods and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
less than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than
50 employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting
for nearly 64% of all new employment growth. Common types of
microenterprises include engineering, computer system design,
housekeeping, construction, landscaping, and personnel
services.
During the current economic downturn, small businesses have
been especially hard hit. A recent study by the National
Small Business Association found that over a third of business
owners expressed the most significant concern over access
credit. Additionally, in the most recent American Express
OPEN Economic Pulse Report, 63% of small businesses reported
being impacted by tightening credit conditions. This is up
from 50% just two months earlier. Until credit conditions
rebound, it will be difficult for small businesses, the
state's historic economic engines, to start expanding and
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creating jobs.
3)Small Business Direct and Guarantee Loan Program : The SBDGLP
enables a small business to obtain a term loan or line of
credit when it cannot otherwise qualify for a loan on its own.
The state, working through 11 FDCs, offers direct loans or
loan guarantees that a qualifying small business borrower
could not otherwise obtain.
Applicants must meet the definition of a small business (100
or fewer employees) with the specific market rate loan terms
and interest rates being negotiated between the borrower and
the lender. Proceeds of the loan must be used primarily in
California for any standard business purpose applicable to the
applicant's business. The guarantee program provides
guarantees covering up to 90% of the loan, but not exceeding
$500,000. The guarantee program allows a business to not only
obtain a loan but to also establish credit with a lender. The
business is then more likely to obtain additional financing on
its own.
In 2007-08, approximately $38 million was available for loan
guarantees under the SBLGP, which leveraged $169 million in
small business loans. During this period, 1,358 guarantees
were provided, creating and/or retaining 16,301 jobs. The
total outstanding loan portfolio in 2007-08 was $365 million,
representing 2,437 outstanding guarantees.
4)California Economic Development Recovery Strategy : In
anticipation of the enactment of the $787 billion federal
stimulus package, Assemblyman P?rez, Chairman of Economic
Development Committee, called for the preparation of a 24
month blueprint on how to most effectively use federal
stimulus funds to address the state's most immediate economic
and workforce needs while still serving as a catalyst for
advancing the state's long-term economic growth. In March
2009, the Recovery Strategy was published and is currently out
for public comment.
The Recovery Strategy proposes to use the broadest set of
community, economic, and workforce development tools to link
these new federal resources with the people and organizations
they are designed to serve. In order to accomplish this
important task, the Recovery Strategy recommends that the
state serve as a facilitator to support and enhance each
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community's individual initiative to design and implement
policies and programs which best fit their needs. The
recommended actions in the Recovery Strategy are organized
around five community development goals. The five goals are
to:
Goal 1 - Improve business access to business capital
Goal 2 - Target infrastructure projects that link to
economic development
Goal 3 - Expedite workforce services and training
opportunities
Goal 4 - Enhance local and regional community development
capacity
Goal 5 - Ensure that the state's recovery strategy is a
plan for all Californians.
Each of these goals includes a list of specific action items,
including actions that should start immediately, to actions
proposed in the next six-to-12 months and, finally, those
actions which will help to fortify the economy as the state
begins to move out of the recession in the next 12-to-18
months.
The direct loan program proposed in AB 1009 is a specific
recommendation under Goal #1 to have the state take actions to
improve businesses access to capital.
1)Capitalizing a Direct Loan Program : While AB 1009 establishes
a separate authority to offer direct loans under the SBLGP,
the bill does not authorize sharing the current program's
capitalization. In this way, AB 1009 does not dilute the
impact of the existing program.
Implementation of AB 1009 will require its own capitalization,
probably in the range of $10 to $20 million. These moneys
could be an eligible cost under one or more of the federal
stimulus programs. However, in order to access these moneys,
the state would need to clearly demonstrate that it has the
capacity and authority to implement such a program. AB 1009
provides such authority.
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2)Author's amendments : Committee staff understands the author
will be offering the following amendments:
a) Require, as a condition of applying for a loan, that the
business has not been successful in accessing capital in
the private market.
b) Require, as a condition of receiving a loan, that the
business has the ability to repay the loan.
c) Require the executive director to determine that the
direct loan program is sufficiently capitalized prior to
the program's commencement.
d) Extend the sunset on the program from 2013 to 2015 to
reflect the time it may take to capitalize the program.
e) Make other technical and clarifying changes.
7 Related legislation : Below is a list of related legislation.
a) AB 610 (Price) : This bill enhances the Small Business
Loan Guarantee Program's ability to leverage existing
program dollars resulting in the ability to serve more
small businesses financial needs per year. Status: Signed
by the Governor, Chapter 601, Statutes of 2007.
b) AB 1104 (Aghazarian) : This bill makes modifications to
the Small Business Loan Guarantee Program relating to small
business disaster guarantees and eligible investments of
SBLGP funds. Status: Signed by the Governor, Chapter 624,
Statutes of 2007.
c) AB 1431 (Arambula) : This bill would have established
the Early Stage Investment Guarantee Program, administered
through the Small Business Loan Guarantee Program, for the
purpose of assisting small businesses in attracting
investors during the early years of their company's growth,
as specified. Status: Died pursuant to Art. IV, Sec.
10(c) of the Constitution in 2008.
d) SB 358 ( Ducheny ): This bill authorizes the establishment of
a Native American Business Revolving Loan and Guarantee
Program, which would be administered through the SBLGP at
BTH. The purpose of the program is to promote the
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long-term economic viability of tribal communities by
providing capital to create or retain jobs, offer business
development and employment training, and provide general
education to tribal members. Status: Pending a hearing in
the Senate Committee on Appropriations.
e) SB 1200 (Ducheny) : This bill would have authorized the
establishment of the Native American Business Revolving
Loan Program, which would be administered through the SBLGP
at BTH. The purpose of the program is to promote the
long-term economic viability of tribal communities by
providing capital to create or retain jobs, offer business
development and employment training, and provide general
education to tribal members. Status: Held under
submission in the Assembly Committee on Appropriations in
2008.
REGISTERED SUPPORT / OPPOSITION :
Support
Assembly Committee on Jobs, Economic Development, and the
Economy (sponsor)
Association of Financial Development Corporations
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090