BILL NUMBER: AB 2671	CHAPTERED
	BILL TEXT

	CHAPTER  648
	FILED WITH SECRETARY OF STATE  SEPTEMBER 27, 2012
	APPROVED BY GOVERNOR  SEPTEMBER 27, 2012
	PASSED THE SENATE  AUGUST 23, 2012
	PASSED THE ASSEMBLY  AUGUST 28, 2012
	AMENDED IN SENATE  AUGUST 21, 2012
	AMENDED IN ASSEMBLY  APRIL 26, 2012
	AMENDED IN ASSEMBLY  MARCH 26, 2012

INTRODUCED BY   Committee on Jobs, Economic Development, and the
Economy (Assembly Members V. Manuel Pérez (Chair), Beall, Block, and
Hueso)

                        MARCH 5, 2012

   An act to amend and repeal Sections 14030, 14070, and 14076 of,
and to repeal Section 14069.6 of, the Corporations Code, relating to
small business financial development corporations.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2671, Committee on Jobs, Economic Development, and the Economy.
Small business financial development corporations: loans and loan
guarantees.
   (1) The California Small Business Financial Development
Corporation Law authorizes the formation of small business financial
development corporations to grant loans or loan guarantees for the
purpose of stimulating small business development. The law imposes
certain duties with respect thereto on a director designated by the
Secretary of Business, Transportation and Housing. The California
Small Business Expansion Fund, which is created under that law and is
continuously appropriated, provides funds to be used to pay for
defaulted loan guarantees and administrative costs of these
corporations. Existing law, until January 1, 2013, specifies that the
amount of guarantee liability outstanding at any one time shall not
exceed 5 times the amount of funds on deposit in the expansion fund
plus any receivables due from funds loaned from the fund to another
fund in state government, as specified. Existing law, beginning
January 1, 2013, instead provides that the amount of guarantee
liability outstanding shall not exceed 4 times those amounts.
   This bill would extend, until January 1, 2018, the provisions
limiting the amount of guarantee liability outstanding from exceeding
5 times the amount of funds on deposit in the expansion fund, as
specified. The bill would also provide that the provisions limiting
the amount of guarantee liability outstanding from exceeding 4 times
the amount of those funds become operative on January 1, 2018.
   Existing law requires the former Trade and Commerce Agency to
contract with an entity to conduct an independent statewide
assessment of capital needs in California pertaining to the program
established under the California Small Business Financial Development
Corporation Law, and to establish minimum standards for the siting
of small business financial development corporations, to be completed
no later than June 30, 1998.
   This bill would repeal that obsolete requirement imposed on the
abolished agency.
   (2) Existing law requires a corporate guarantee to be backed by
funds on deposit in the corporation's trust fund account, or by
receivables due from the corporation's trust fund account to another
fund in state government, as specified. Existing law, until January
1, 2013, requires that loan guarantees be secured by a reserve of at
least 20%, to be determined by the director. Existing law, beginning
January 1, 2013, requires that loan guarantees be secured by a
reserve of at least 25%, to be determined by the director.
   This bill would make the minimum 20% reserve requirement effective
only until January 1, 2018. The bill would provide that the
provisions requiring a minimum 25% reserve become operative on
January 1, 2018. The bill would make conforming changes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 14030 of the Corporations Code, as amended by
Section 1 of Chapter 601 of the Statutes of 2007, is amended to read:

   14030.  (a) There is hereby created in the State Treasury the
California Small Business Expansion Fund. All or a portion of the
funds in the expansion fund may be paid out, with the approval of the
Department of Finance, to a lending institution or financial company
that will act as trustee of the funds. The expansion fund and the
trust fund shall be used to pay for defaulted loan guarantees issued
pursuant to Article 9 (commencing with Section 14070), administrative
costs of corporations, and those costs necessary to protect a real
property interest in a defaulted loan or guarantee. The amount of
guarantee liability outstanding at any one time shall not exceed five
times the amount of funds on deposit in the expansion fund plus any
receivables due from funds loaned from the expansion fund to another
fund in state government as directed by the Department of Finance
pursuant to a statute enacted by the Legislature, including each of
the trust fund accounts within the trust fund.
   (b) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
  SEC. 2.  Section 14030 of the Corporations Code, as added by
Section 2 of Chapter 601 of the Statutes of 2007, is amended to read:

   14030.  (a) There is hereby created in the State Treasury the
California Small Business Expansion Fund. All or a portion of the
funds in the expansion fund may be paid out, with the approval of the
Department of Finance, to a lending institution or financial company
that will act as trustee of the funds. The expansion fund and the
trust fund shall be used to pay for defaulted loan guarantees issued
pursuant to Article 9 (commencing with Section 14070), administrative
costs of corporations, and those costs necessary to protect a real
property interest in a defaulted loan or guarantee. The amount of
guarantee liability outstanding at any one time shall not exceed four
times the amount of funds on deposit in the expansion fund plus any
receivables due from funds loaned from the expansion fund to another
fund in state government as directed by the Department of Finance
pursuant to a statute enacted by the Legislature, including each of
the trust fund accounts within the trust fund, unless the director
has permitted a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 14037.
   (b) This section shall become operative on January 1, 2018.
  SEC. 3.  Section 14069.6 of the Corporations Code is repealed.
  SEC. 4.  Section 14070 of the Corporations Code, as amended by
Section 5 of Chapter 601 of the Statutes of 2007, is amended to read:

   14070.  (a) The corporate guarantee shall be backed by funds on
deposit in the corporation's trust fund account, or by receivables
due from funds loaned from the corporation's trust fund account to
another fund in state government as directed by the Department of
Finance pursuant to a statute enacted by the Legislature.
   (b) Loan guarantees shall be secured by a reserve of at least 20
percent to be determined by the director.
   (c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative costs
of the corporations. A corporation located in a rural area may
utilize the funds for direct lending to farmers as long as at least
90 percent of the corporate fund farm loans, calculated by dollar
amount, and all expansion fund farm loans are guaranteed by the
United States Department of Agriculture. The amount of funds
available for direct farm lending shall be determined by the
director. In its capacity as a direct lender, the corporation may
sell in the secondary market the guaranteed portion of each loan so
as to raise additional funds for direct lending. The agency shall
issue regulations governing these direct loans, including the maximum
amount of these loans.
   (d) In furtherance of the purposes of this part, up to one-half of
the trust funds may be used to guarantee loans utilized to establish
a Business and Industrial Development Corporation (BIDCO) under
Division 15 (commencing with Section 33000) of the Financial Code.
   (e) To execute the direct loan programs established in this
chapter, the director may loan trust funds to a corporation located
in a rural area for the express purpose of lending those funds to an
identified borrower. The loan authorized by the director to the
corporation shall be on terms similar to the loan between the
corporation and the borrower. The amount of the loan may be in excess
of the amount of a loan to any individual farm borrower, but actual
disbursements pursuant to the agency loan agreement shall be required
to be supported by a loan agreement between the farm borrower and
the corporation in an amount at least equal to the requested
disbursement. The loan between the agency and the corporation shall
be evidenced by a credit agreement. In the event that any loan
between the corporation and borrower is not guaranteed by a
governmental agency, the portion of the credit agreement attributable
to that loan shall be secured by assignment of any note, executed in
favor of the corporation by the borrower to the agency. The terms
and conditions of the credit agreement shall be similar to the loan
agreement between the corporation and the borrower, which shall be
collateralized by the note between the corporation and the borrower.
In the absence of fraud on the part of the corporation, the liability
of the corporation to repay the loan to the agency is limited to the
repayment received by the corporation from the borrower except in a
case where the United States Department of Agriculture requires
exposure by the corporation in rule or regulation. The corporation
may use trust funds for loan repayment to the agency if the
corporation has exhausted a loan loss reserve created for this
purpose. Interest and principal received by the agency from the
corporation shall be deposited into the same account from which the
funds were originally borrowed.
   (f) Upon the approval of the director, a corporation shall be
authorized to borrow trust funds from the agency for the purpose of
relending those funds to small businesses. A corporation shall
demonstrate to the director that it has the capacity to administer a
direct loan program, and has procedures in place to limit the default
rate for loans to startup businesses. Not more than 25 percent of
any trust fund account shall be used for the direct lending
established pursuant to this subdivision. A loan to a corporation
shall not exceed the amount of funds likely to be lent to small
businesses within three months following the loan to the corporation.
The maximum loan amount to a small business is fifty thousand
dollars ($50,000). In the absence of fraud on the part of the
corporation, the repayment obligation pursuant to the loan to the
corporation shall be limited to the amount of funds received by the
corporation for the loan to the small business and any other funds
received from the agency that are not disbursed. The corporation
shall be authorized to charge a fee to the small business borrower,
in an amount determined by the director pursuant to regulation. The
program provided for in this subdivision shall be available in all
geographic areas of the state.
   (g) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
  SEC. 5.  Section 14070 of the Corporations Code, as added by
Section 6 of Chapter 601 of the Statutes of 2007, is amended to read:

   14070.  (a) The corporate guarantee shall be backed by funds on
deposit in the corporation's trust fund account, or by receivables
due from funds loaned from the corporation's trust fund account to
another fund in state government as directed by the Department of
Finance pursuant to a statute enacted by the Legislature.
   (b) Loan guarantees shall be secured by a reserve of at least 25
percent to be determined by the director, unless the director
authorizes a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 14037.
   (c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative costs
of the corporations. A corporation located in a rural area may
utilize the funds for direct lending to farmers as long as at least
90 percent of the corporate fund farm loans, calculated by dollar
amount, and all expansion fund farm loans are guaranteed by the
United States Department of Agriculture. The amount of funds
available for direct farm lending shall be determined by the
director. In its capacity as a direct lender, the corporation may
sell in the secondary market the guaranteed portion of each loan so
as to raise additional funds for direct lending. The agency shall
issue regulations governing these direct loans, including the maximum
amount of these loans.
   (d) In furtherance of the purposes of this part, up to one-half of
the trust funds may be used to guarantee loans utilized to establish
a Business and Industrial Development Corporation (BIDCO) under
Division 15 (commencing with Section 33000) of the Financial Code.
   (e) To execute the direct loan programs established in this
chapter, the director may loan trust funds to a corporation located
in a rural area for the express purpose of lending those funds to an
identified borrower. The loan authorized by the director to the
corporation shall be on terms similar to the loan between the
corporation and the borrower. The amount of the loan may be in excess
of the amount of a loan to any individual farm borrower, but actual
disbursements pursuant to the agency loan agreement shall be required
to be supported by a loan agreement between the farm borrower and
the corporation in an amount at least equal to the requested
disbursement. The loan between the agency and the corporation shall
be evidenced by a credit agreement. In the event that any loan
between the corporation and borrower is not guaranteed by a
governmental agency, the portion of the credit agreement attributable
to that loan shall be secured by assignment of any note, executed in
favor of the corporation by the borrower to the agency. The terms
and conditions of the credit agreement shall be similar to the loan
agreement between the corporation and the borrower, which shall be
collateralized by the note between the corporation and the borrower.
In the absence of fraud on the part of the corporation, the liability
of the corporation to repay the loan to the agency is limited to the
repayment received by the corporation from the borrower except in a
case where the United States Department of Agriculture requires
exposure by the corporation in rule or regulation. The corporation
may use trust funds for loan repayment to the agency if the
corporation has exhausted a loan loss reserve created for this
purpose. Interest and principal received by the agency from the
corporation shall be deposited into the same account from which the
funds were originally borrowed.
   (f) Upon the approval of the director, a corporation shall be
authorized to borrow trust funds from the agency for the purpose of
relending those funds to small businesses. A corporation shall
demonstrate to the director that it has the capacity to administer a
direct loan program, and has procedures in place to limit the default
rate for loans to startup businesses. Not more than 25 percent of
any trust fund account shall be used for the direct lending
established pursuant to this subdivision. A loan to a corporation
shall not exceed the amount of funds likely to be lent to small
businesses within three months following the loan to the corporation.
The maximum loan amount to a small business is fifty thousand
dollars ($50,000). In the absence of fraud on the part of the
corporation, the repayment obligation pursuant to the loan to the
corporation shall be limited to the amount of funds received by the
corporation for the loan to the small business and any other funds
received from the agency that are not disbursed. The corporation
shall be authorized to charge a fee to the small business borrower,
in an amount determined by the director pursuant to regulation. The
program provided for in this subdivision shall be available in all
geographic areas of the state.
   (g) This section shall become operative on January 1, 2018.
  SEC. 6.  Section 14076 of the Corporations Code, as amended by
Section 7 of Chapter 601 of the Statutes of 2007, is amended to read:

   14076.  (a) It is the intent of the Legislature that the
corporations make maximal use of their statutory authority to
guarantee loans and surety bonds, including the authority to secure
loans with a minimum loan loss reserve of only 20 percent, so that
the financing needs of small business may be met as fully as possible
within the limits of corporations' loan loss reserves. The agency
shall report annually to the Legislature on the financial status of
the corporations and their portfolio of loans and surety bonds
guaranteed.
   (b) Any corporation that serves an area declared to be in a state
of emergency by the Governor or a disaster area by the President of
the United States, the Administrator of the United States Small
Business Administration, or the United States Secretary of
Agriculture shall increase the portfolio of loan guarantees where the
dollar amount of the loan is less than one hundred thousand dollars
($100,000), so that at least 15 percent of the dollar value of loans
guaranteed by the corporation is for those loans. The corporation
shall comply with this requirement within one year of the date the
emergency or disaster is declared. Upon application of a corporation,
the director may waive or modify the rule for the corporation if the
corporation demonstrates that it made a good faith effort to comply
and failed to locate lending institutions in the region that the
corporation serves that are willing to make guaranteed loans in that
amount.
   (c) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
  SEC. 7.  Section 14076 of the Corporations Code, as added by
Section 8 of Chapter 601 of the Statutes of 2007, is amended to read:

   14076.  (a) It is the intent of the Legislature that the
corporations make maximal use of their statutory authority to
guarantee loans and surety bonds, including the authority to secure
loans with a minimum loan loss reserve of only 25 percent, unless the
agency authorizes a higher leverage ratio for an individual
corporation pursuant to subdivision (b) of Section 14037, so that the
financing needs of small business may be met as fully as possible
within the limits of corporations' loan loss reserves. The agency
shall report annually to the Legislature on the financial status of
the corporations and their portfolio of loans and surety bonds
guaranteed.
   (b) Any corporation that serves an area declared to be in a state
of emergency by the Governor or a disaster area by the President of
the United States, the Administrator of the United States Small
Business Administration, or the United States Secretary of
Agriculture shall increase the portfolio of loan guarantees where the
dollar amount of the loan is less than one hundred thousand dollars
($100,000), so that at least 15 percent of the dollar value of loans
guaranteed by the corporation is for those loans. The corporation
shall comply with this requirement within one year of the date the
emergency or disaster is declared. Upon application of a corporation,
the director may waive or modify the rule for the corporation if the
corporation demonstrates that it made a good faith effort to comply
and failed to locate lending institutions in the region that the
corporation serves that are willing to make guaranteed loans in that
amount.
   (c) This section shall become operative on January 1, 2018.