BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1465 (Yee) - Economic development; export loan financing.
Amended: May 9, 2012 Policy Vote: GO 7-5
Urgency: No Mandate: No
Hearing Date: May 24, 2012 Consultant: Bob Franzoia
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 1465 would require the Secretary of Business,
Transportation and Housing (BT&H) and the State Treasurer's
Office (STO) to enter into loans, loan guarantees, and qualified
loans that provide export financing.
Fiscal Impact: Minor, absorbable costs in federal funds to BT&H
and the STO through 2016-17 for administration of an export loan
program.
Unknown, potentially hundreds of thousands of dollars in
federal funds for increased participation in the Small
Business Loan Guarantee Program (SBLGP) and the California
Pollution Control Financing Authority (CPCFA) through
2016-17.
Average cost of $4,000 to $7,000 generally per $100,000
CPCFA loan.
Potential General Fund loans by the CPCFA.
Background: The federal State Small Business Credit Initiative
Act of 2010 allocated $168.6 million to the state, split between
the SBLGP in BT&H and the CPCFA in the STO. Funds not allocated
by 2017 revert to the federal government.
For the SBLGP, any small business is eligible for a loan used
primarily in the state and for any standard business purpose
beneficial to the applicant's business, such as expansion into
new facilities or purchase of new equipment. Guarantees can
cover up to 90 percent of the loan amount, with the guaranteed
portion of the loan not exceeding $500,000. The term of the
loan guarantee may extend up to seven years. Interest rates are
negotiated between the borrower and the lender. Collateral is
generally required with each transaction tailored to meet the
borrower's financial situation.
SB 1465 (Yee)
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BT&H enters into annual contracts with 11 Financial Development
Corporations (FDCs). The FDCs are nonprofit organizations
established and defined by the Corporations Code. The FDCs
market the loan guarantee program, coordinate the packaging of
the loan and loan guarantee applications, issue the loan
guarantees, and manage the portfolio of outstanding loan
guarantees.
Within the CPCFA, the California Capital Access Program (CalCAP)
insures loans to finance the acquisition of land, construction
or renovation of buildings, the purchase of equipment, other
capital projects and working capital. CalCAP is a loan loss
insurance program that aims to help small businesses obtain
loans for which they would otherwise be ineligible.
Participating financial institutions establish all the terms and
conditions of CalCAP loans. Once the financial institution
approves a CalCAP loan, it establishes a loan loss reserve
account. The financial institution and the borrower pay an
equal amount to the reserve account that is equal to 2 to 3.5
percent, as set forth in statute, of the loan principal,
depending on the lender's perception of the borrower's
creditworthiness. CalCAP matches the total paid into the
reserve account. The maximum loan amount is $5 million and the
maximum enrolled amount is $2.5 million. Each individual
borrower is limited by a maximum $2.5 million enrolled over a
three year period. CalCAP allows a maximum lender/borrower
contribution for any single borrower in a three year period of
$100,000.
Proposed Law: This bill would require the Secretary of BT&H, to
the extent the secretary determines to be practical, to enter
into loans and loan guarantee agreements with financial
institutions that provide export financing for the purpose of
increasing exports and jobs in California.
This bill would require CalCAP, to the extent that the authority
determines to be practical, enter into qualified loans with
financial institutions that provide export financing, for the
purpose of increasing exports and jobs in California.
Related Legislation: SB 1116 (Leno) would reduce the minimum
contribution paid by financial institutions and borrowers from
two to one percent of the loan into a loan loss reserve account
under CalCAP and extend the time that financial institutions
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have to enroll a loan into CalCAP.
The Governor is proposing to consolidate the SBGLP into the
Governor's Office of Business and Economic Development (GO-Biz).
Staff Comments: A loan guarantee is a promise by one party (the
guarantor) to assume the debt obligation of a borrower if that
borrower defaults.
The term can be used to refer to a government to assume a
private debt obligation if the borrower defaults. Most loan
guarantee programs are established to correct perceived market
failures by which small borrowers, regardless of
creditworthiness, lack access to the credit resources available
to large borrowers.
A loan loss reserve program requires a portion of a bank's cash
or cash equivalents holdings to be set aside to cover estimated
potential losses in its loan portfolio. When loans are repaid,
this reserve shrinks accordingly, and when loans are made, it
increases. In the event of defaulted loans, repossessed
collateral is liquidated and credited to the loan loss reserve.
The proposed amendment would sunset the provisions of this bill
on March 31, 2017 when the allocation agreement between the
state and the US Treasury.
.