BILL ANALYSIS �
AB 201
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Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 201 (Holden) - As Introduced: January 29, 2013
SUBJECT : Small Business Development Corporations
SUMMARY : Requires the names of the financial institutions and
financing companies that make direct loans to small businesses to be
posted on a prescribed agency website. Specifically, this bill :
1)Modifies the membership of the Small Business Board by replacing the
Secretary of the Business, Transportation and Housing Agency (BTH)
and with the Secretary of the soon to be established Business and
Consumer Services Agency (BCS Agency).
2)Requires the director responsible for overseeing the small business
financial development corporation administered programs to post the
names of the financial institutions and financial companies making
direct loans on the BCS Agency website.
EXISTING LAW :
1)Authorizes the approval of 11 FDCs by BTH for the purpose of
administering a number of small business finance programs including
the Small Business Loan Guarantee Program (SBLGP), direct loans,
disaster assistance loans, and surety bond guarantees.
2)Establishes the SBLGP 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, FDCs act as
financial intermediaries between the state, the small business, and
the financial institution.
3)Establishes the Small Business Board for the purpose of designating
new FDCs, hearing appeals, and advising the Governor and Legislation
on issues and programs affecting the small business community.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "For the past 40 years,
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SBLGP has been instrumental in working with banks to guarantee loans
to undercapitalized small businesses. Under the Small Business Act,
the Obama administration has allotted $78 million to SBLGP, and the
state has appropriated another $38 million. At a time when
California is striving to rebound from a long recession, this
program can play a pivotal role in making much needed capital more
accessible to thousands of small businesses so they can expand,
create new jobs, and save the jobs of existing employees. This bill
would ensure that information about the SBLGP, including a list of
participating lenders, is posted on the Governor's Office of
Business and Economic Development's (GO-Biz) website for small
businesses to explore this resource."
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 $1.9 trillion economy. Businesses with less
than 100 employees comprise nearly 98% of all businesses, and are
responsible for employing more than 37% of all workers in the state.
Among other advantages, small businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. California small businesses comprised 96% of
the state's 60,000 exporters in 2009, which accounted for over 44%
of total exports in the state. Nationally, small businesses
represented only 31.9% of total exports. These numbers include the
export of only goods and not services.
Historically, small businesses have functioned as economic engines,
especially in challenging economic times. During the nation's
economic downturn from 1999 to 2003, microenterprises (businesses
with fewer 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. More recently, the federal
Small Business Administration's Small Business Economy 2011 report
stated that small businesses nationally outperformed large firms in
net job creation nearly three out of four times from 1992 through
2010 when private-sector employment rose.
During the recent economic downturn, however, small business owners
were been especially hard hit. Equifax has reported that
bankruptcies in California rose by 81% in 2009, as compared to 44%
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nationally. This trend continued in 2010 where the Equifax report
stated that while, general, bankruptcies were down across the nation
including some regions in the west, small business bankruptcies in
California accounted for almost 20% of all small business
bankruptcies in the nation.
3)Small Business Loan Guarantee Program : The SBLGP 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
future financing on its own.
In 2011-12, approximately $5.7 million was made available for loan
guarantees under the state SBLGP, which leveraged $9.9 million in
small business loans from financial institutions. During this
period 178 guarantees were provided, creating and/or retaining over
1,200 jobs. There are currently 1,046 loans being guaranteed under
the state program.
4)Small Business Jobs Act and Federal Guarantee Program : In October
2010, Congress passed and the President signed the Small Business
Jobs Act (Act). Among other things, the Act created the State Small
Business Credit Initiative (SSBIC), which is authorized to expend up
to $1.5 billion for state sponsored small business finance programs.
Over the life of the program, every federal dollar must be matched
by $10 private sector dollars. September 2017 is the deadline for
using the funds. Funding for the administration, outreach, and
oversight of the program is primarily the responsibility of the
state, given that no more than 5% of federal funds can go toward
these activities.
Under the funding formula, California is eligible to receive up to
$167.7 million, which is the largest amount of any state. The next
highest award is $97 million for Florida, with every state that
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applies receiving a minimum of $13.1 million. California uses its
moneys to capitalize the SBLGP administered through BTH and a loss
reserve program and collateral support program administered through
the California Pollution Control Financing Authority at the state
Treasurer's Office.
Funding is awarded to states in three tranches with participating
jurisdictions allowed to apply for the next round of funding when
80% of their current funds are expended. Nine of the 57
participating jurisdictions have received second round funding and
three states are into their third and final round.
Of the $68 million California received in the first round,
California has encumbered $16.6 million, with approximately $13.4
million set aside to cover loan guarantees under the federal portion
of the SBLG Program. Over 18, 600 jobs have been created or
retained by the close of 2012.
In 2011-12, approximately $36.2 million in guarantees were made
under the federal SBLGP, which leveraged $58.2 million in small
business loans from financial institutions. During this period, 203
guarantees were provided, creating or retaining 6,000 jobs through
guarantee activities. There are currently 297 loans being
guaranteed under the federal program, 85% have been to businesses in
low- and moderate-income areas.
According to the FDCs, one impediment to getting the SBLGP portion
out is the lack of state administrative support. Repeated budget
actions have severally limited ongoing management funds and crippled
the state portion of the program, which allowed greater programmatic
flexibility in serving the needs of small businesses.
JEDE will hear three measures which are designed to enhance the
program and help to facilitate the drawdown of additional federal
dollars. AB 201 encourages greater private financial institution
participation; AB 1247 (Medina) makes programmatic changes that
streamline the program; and, AB 780 (Bocanegra) appropriates $2
million for FDC administrative costs.
5)Program Transparency and Outreach : While the FDCs and the SBLGP
have been operating for more than 30 years, very little public
information is available to help small businesses understand the
value of the program and to alert lenders to the state's largest
credit enhancement program for small businesses. AB 201 requires
that lenders be listed on the program website. The author may want
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to expand this information to include an explanation of the SBLGP,
how it operates through the regional network of FDCs, and other
financial programs offered through the FDCs including direct
lending, surety bond guarantees, and disaster loans.
6)Governor's Office of Business and Economic Development : In April
2010, the Governor's Office of Economic Development was established
to provide a One-Stop-Shop for serving the needs of businesses and
economic developers. While initially established through Executive
Order S-01-10, the office was later codified and renamed as GO-Biz,
in AB 29, Chapter 475, Statues of 2010. In 2012, GO-Biz directly
assisted 5,308 companies, resulting in the creation and/or retention
of 9,050 jobs and $1.45 billion in investments.
Among other programs, GO-Biz provides permit and other business
assistance for new and expanding businesses, as well as
administering the California Innovation Hub Program under an initial
partnership with the statewide network of SBDCs. GO-Biz also
oversees the Office of the Small Business Advocate.
In March 2012, the Governor initiated a reorganization process (GRP
2) to realign the state's administrative structure. Key changes
were proposed and agreed to by the Legislature including the
dismantling of BTH and the shifting of a number of key programs and
services to GO-Biz including:
The Small Business Loan Guarantee Program;
The California Travel and Tourism Commission;
The California Film Commission;
The Film California First Program; and
The Infrastructure and Economic Development Bank (I-Bank).
In addition, the Governor called for the placement of the California
SBDC Program within GO-Biz. Programmatic approval of the
reorganization was granted in July 2012 and will become effective
July 2013. However, legislation is also necessary to statutorily
reflect the reorganization changes.
1)Technical Amendments : The measure includes several drafting errors
relative to the placement of state programs and entities under the
GRP #2. Staff recommends deleting sections one and two of the bill
to address this technical concern.
2)Related Legislation : Below is a list of related legislation.
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a) AB 29 (John A. P�rez) Codification of GO-Biz: This bill
establishes GO-Biz within the Governor's Office for the purpose
of serving as the lead entity for economic strategy and marketing
of California on issues relating to business development, private
sector investment and economic growth. The bill also transfers
the Office of the Small Business Advocate from BTH to GO-Biz.
Status: Signed by the Governor, Chapter 475, Statutes of 2011.
b) AB 1247(Medina) Restructure of the FDC Programs: This bill
repeals and recasts the provisions of the FDC small business
financing programs from BTH to GO-Biz. Status: Pending in the
Assembly Committee on Jobs, Economic Development and the Economy.
c) AB 780 (Bocanegra) FDC Administrative Funds: This bill
appropriates $2 million from the General Fund for the purpose of
providing administrative funding to the FDCs. Each FDC is
eligible to receive $150,000. The bill also states that it is
the Legislature's intent that the FDCs are to be under the
jurisdiction of GO-Biz. Status: Pending in the Assembly
Committee on Jobs, Economic Development and the Economy.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090