BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1009
                                                                  Page  1

          Date of Hearing:   May 20, 2009

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Kevin De Leon, Chair

                AB 1009 (V. Manuel Perez) - As Amended:  May 6, 2009 

          Policy Committee:                              Jobs, Economic  
          Development & the Economy                     Vote: 6 - 1 

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill creates a direct loan program within the Small  
          Business Loan Guarantee Program (SBLGP) to provide business  
          loans to qualified small businesses. Specifically, this bill: 

          1)Requires the Secretary of the Business, Transportation, and  
            Housing Agency to develop and implement a direct loan program  
            to provide loans to small businesses that meet certain  
            requirements.

          2)Sets a maximum loan limit of $500,000 and would require all  
            loans to have a guarantee from a federal agency or department.

          3)Establishes the Direct Loan Account in the California Small  
            Business Expansion Fund and would continuously appropriate all  
            money in that account for the purposes of administering the  
            program.

          4)Requires the director of the SBLGP to develop and implement an  
            application and review process that minimally includes  
            eligibility standards, rating, and ranking criteria.

          5)Requires as a condition of applying for a loan, that the  
            business has not been successful in accessing capitol in the  
            private market.

          6)Requires the director of SBLGP to determine that the direct  
            loan program is sufficiently capitalized prior to the  
            programs' commencement. 

          7)Requires the director of SBLGP to report annually to the  








                                                                  AB 1009
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            Legislature on the activities of the program.

          8)Requires an independent audit of the program and that the  
            findings be reported to the governor and Legislature no later  
            than six months after the second full fiscal year of  
            operations. 

          9)Sunsets the program on January 1, 2015.

           



          FISCAL EFFECT  

          1)Administrative costs for the program, likely in excess of  
            $150,000 per year. 

          2)Costs in the range of $50,000 for the required independent  
            audit of the program and annual reports to the Legislature.

           COMMENTS  

           1)Rationale  . 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 financial development corporations  
            (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.

           2)Small Business Loan Guarantee Program  . The SBLGP has four  
            program components: a loan guarantee, a direct farm loan, a  
            disaster assistance loan guarantee, and a metal plating  
            facility loan guarantee. The program is managed by BT&H and  
            locally administered through 11 local FDCs, which review and  








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            approve state-backed guarantees on loans made through private  
            lending institutions. 

            In order to qualify for SBLGP financial assistance, a business  
            must meet the federal definition of a small business and be  
            able to demonstrate that it cannot access private financing  
            without the use of the guarantee. The program has a default  
            rate at or below traditional lenders: 0.45% in 2006-07 and  
            0.25% in 2005-06. The five-year average default rate as of  
            June 30, 2007 was 0.59%. The default rate for the comparable  
            portfolio of the Small Business Administration is 3.5% to 5%.

            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.


           Analysis Prepared by  :    Julie Salley-Gray / APPR. / (916)  
          319-2081