BILL ANALYSIS
AB 1009
Page 1
ASSEMBLY THIRD READING
AB 1009 (V. Manuel Perez)
As Amended May 6, 2009
Majority vote
ECONOMIC DEVELOPMENT 6-1 APPROPRIATIONS 12-4
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|Ayes:|V. Manuel Perez, Beall, |Ayes:|De Leon, Ammiano, Charles |
| |Bill Berryhill, Block, | |Calderon, Davis, Fuentes, |
| |Huber, Salas | |Hall, John A. Perez, |
| | | |Price, Skinner, Solorio, |
| | | |Torlakson, Krekorian |
| | | | |
|-----+-------------------------+-----+---------------------------|
|Nays:|Logue |Nays:|Nielsen, Harkey, Miller, |
| | | |Audra Strickland |
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SUMMARY : Expands the Small Business Loan Guarantee Program (SBLGP),
administered by the Business, Transportation and Housing Agency
(BT&H), to include authority for offering direct loans. Requires
that all loans have a federally-backed guarantee, that loans only be
provided to credit worthy small businesses, and that the program be
independently audited.
EXISTING LAW establishes the SBLGP within BT&H 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.
FISCAL EFFECT : According the analysis by the Assembly
Appropriations Committee, implementation of this bill will result in
administrative special funds cost of $150,000 per year and a
one-time independent audit cost of $50,000.
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
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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.
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 are an important means for
dispersing the positive economic impacts of trade within the
overall California economy. Of the over 52,000 companies that
exported goods from California in 2006, 95% were small- and
medium-sized enterprises (SME.) These SMEs generated nearly half
(44%) of California's exports in 2006.
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. In April 2009, ADP, the nation's largest
provider of business payroll services, reported that total
employment in the U.S. decreased by 742,000. Small businesses,
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defined as businesses with less than 50 employees, reduced
employment by 284,000, of which 111,000 were in goods-producing
small businesses and 173,000 were in service-related businesses.
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)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.
Capitalization for the direct loan program could come from federal
stimulus moneys. In order to access federal moneys, however, the
state will need to clearly demonstrate that it has the capacity
and authority to implement such a program. AB 1009 provides this
authority.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN:
0001199