BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1465| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1465 Author: Yee (D), et al. Amended: 5/29/12 Vote: 21 SENATE GOVERNMENTAL ORGANIZATION COMM. : 7-5, 4/10/12 AYES: Wright, Calderon, Cannella, Corbett, De León, Hernandez, Yee NOES: Anderson, Berryhill, Padilla, Walters, Wyland NO VOTE RECORDED: Evans SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/24/12 AYES: Kehoe, Alquist, Lieu, Price, Steinberg NOES: Walters, Dutton SUBJECT : Loan programs SOURCE : State Controller DIGEST : This bill requires the Secretary of Business, Transportation and Housing (BT&H), to the extent that the Secretary determines to be practical, to enter into loans and loan guarantees that provide export financing. This bill sunsets on March 31, 2017. ANALYSIS : The federal State Small Business Credit Initiative Act of 2010 allocated $168.6 million to the state, split between the Small Business Loan Guarantee Program (SBLGP) in BT&H and the California Pollution Control Financing Authority (CPCFA) in the STO. Funds not CONTINUED SB 1465 Page 2 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% 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. 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%, 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. This bill requires the Secretary, to the extent that the Secretary determines to be practical, to enter into loans or loan guarantee agreements with financial institutions that provide export financing in the state for the purpose of increasing exports to out-of-state markets and increasing jobs in California. This bill sunsets on March CONTINUED SB 1465 Page 3 31, 2017. Related Legislation SB 1116 (Leno) reduces the minimum contribution paid by financial institutions and borrowers from 2% to 1% of the loan into a loan loss reserve account under CalCAP and extends the time that financial institutions have to enroll a loan into CalCAP. The bill is presently on the Senate Third Reading file. Governor Brown is proposing to consolidate the SBGLP into the Governor's Office of Business and Economic Development. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee, there would be minor, absorbable costs in federal funds to BT&H 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 SBLGP and the 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. SUPPORT : (Verified 5/29/12) State Controller (source) Latino Business Chamber of Greater Los Angeles ARGUMENTS IN SUPPORT : The Latino Business Chamber of Greater Los Angeles states this bill seeks to help small businesses secure financing to access out-of-state markets and help California's economy and job market recover from the Great Recession. To ensure the State is targeting its guarantees to the most worthy businesses, this bill will also establish an oversight committee of high-level trade experts who will advise the State on trends and opportunities in export financing. This bill is based on the principles of the highly-successful California Export CONTINUED SB 1465 Page 4 Finance Office (CEFO), a program within the former Technology, Trade, and Commerce Agency, which provided loan guarantees to help qualified companies acquire short-term working capital loans to complete export sales. Over its nearly 20-year life, less than 2% of borrowers defaulted. Near its peak, in 1999-2000, the CEFO issued loan guarantees for 18 export transactions valued at $28 million, creating 227 jobs in the State-at no cost to the State. DLW:kc 5/29/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED