BILL ANALYSIS Ó
AB 2671
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2671 (Jobs, Economic Development, and the Economy Committee)
As Amended August 21, 2012
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |75-0 |(May 21, 2012) |SENATE: |37-0 |(August 23, |
| | | | | |2012) |
-----------------------------------------------------------------
Original Committee Reference: J.E.D.&E.
SUMMARY : Extends the sunset from January 1, 2013, to January 1,
2018, on the requirement that at least 20% of the total amount
of all outstanding loan guarantees be set aside in the
California Expansion Fund (Expansion Fund) for the purpose of
paying potential defaults under the Small Business Loan
Guarantee Program (SBLGP).
The Director of the SBLGP maintains the discretion to set a
greater reserve requirement for the overall program and for any
individual small business financial development corporation
(FDC) activities.
The Senate amendments replace an elimination of the sunset with
a five-year extension.
EXISTING LAW establishes the Expansion Fund for the purpose of
retaining the moneys which capitalize the SBLGP and pay defaults
on loan guarantees. Statute sets a minimum capital reserve
requirement of $1 dollar in reserve for every $5 in outstanding
guarantee or a 20% reserve requirement. On January 1, 2013, the
minimum reserve amount is scheduled to increase to 25%.
AS PASSED BY THE ASSEMBLY , the bill eliminated the sunset on the
20% reserve requirement, which was scheduled to expire on
January 1, 2013.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the SBLGP guarantee activities increase the program's
guarantee liability $445,200 per year. Existing law provides
that liabilities are not obligations of the General Fund and may
only be paid through moneys in the Expansion Fund.
COMMENTS : The SBLGP enables a small business to obtain a term
AB 2671
Page 2
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 2010-11, approximately $5 million was made available for loan
guarantees under the SBLGP, which leveraged $13 million in small
business loans. During this period, 99 guarantees were
provided, creating and/or retaining 595 jobs.
Program Operations
Existing law sets a minimum capital reserve requirement of $1
dollar in reserve for every $5 in outstanding guarantee, i.e. a
20% reserve requirement. On January 1, 2013, the minimum
reserve amount will increase from 20% to 25%. Absent the change
proposed in AB 2671, increased reserves will be required to be
deposited in the Expansion Fund, thereby limiting the number of
small businesses the program can serve.
Small businesses are key job creators within the California
economy, producing 65% of net new jobs in the last 17 years.
Addressing their capital needs is directly related to creating
and maintaining jobs in California.
The California Small Business Loan Guarantee Program does not
use General Fund moneys as reserves for guarantees. Therefore,
extending the sunset does not directly impact the General Fund.
The analysis raised a concern regarding the potential for a
Member to introduce legislation in the future to cover default
which the reserve could not address.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
AB 2671
Page 3
319-2090
FN: 0004978