Amended in Assembly April 17, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 1247

Introduced by Assembly Member Medina

February 22, 2013

An act to repeal and add Chapter 1 (commencing with Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations Code, and to add begin delete Title 25 (commencing with Section 200000) end delete begin insert Chapter 6 (commencing with Section 63088) to Division 1 of Title 6.7 end insert to, to repeal begin delete Section 200009of, and to repeal and add end delete Sections begin delete 200020, 200022, and 200025 end delete begin insert 63089.5, 63089.63, 63089.64, and 63089.66 end insert of, the Government Code, relating to business, and making an appropriation therefor.

LEGISLATIVE COUNSEL’S DIGEST

AB 1247, as amended, Medina. Business investments: Small Business Financial Assistance Act of 2013.

Existing law, the California Small Business Financial Development Corporation Law, creates the California Small Business Board and the California Small Business Expansion Fund, a continuously appropriated fund, which includes General Fund moneys. Existing law authorizes the formation of small business financial development corporations to grant loans from, or guarantee loans made by a financial institution or financial company, as defined, against, moneys awarded to the corporation from the expansion fund for the purpose of stimulating small business development. Existing law authorizes a director designated by the Secretary of Business, Transportation and Housing to perform specified duties under that law. A violation of certain conflict-of-interest provisions by the director and other persons, as specified, is a crime.

This bill would revise and recast these provisions, and would transfer the administration of the California Small Business Financial Development Corporation Law to the begin delete Governor’s Office of Business and Economic Development and an executive director end delete begin insert California Infrastructure and Economic Development Bank and a program manager end insert designated by the begin delete director of the office, end delete begin insert executive director of the Infrastructure and Economic Development Bank, end insert as specified. The bill would expand the definitions of “financial institution” and “financial company” for those purposes. Because the above-described conflict-of-interest provisions would apply to the director and executive director, and other officers and employees, as specified, the bill would extend the application of a crime, and impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Because this bill would expand the purposes for which a continuously appropriated fund is expended, the bill would make an appropriation.

Vote: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Chapter 1 (commencing with Section 14000) of
Part 5 of Division 3 of Title 1 of the Corporations Code is repealed.

SEC. 2.  

Chapter 1 (commencing with Section 14000) is added
to Part 5 of Division 3 of Title 1 of the Corporations Code, to read:

 

Chapter  1. California Small Business Financial
Development Corporations

 

Article 1.  Introduction

 

14000.  

This chapter shall be known and may be cited as the
California Small Business Financial Development Corporation
Law.

14001.  

(a) It is the intent of the Legislature in enacting this
chapter to promote the economic development of small businesses
by making available capital, general management assistance, and
other resources, including loan and equity investment services,
personnel, and business education to small business entrepreneurs,
including women and minority owned businesses, for the purpose
of promoting the health, safety, and social welfare of the citizens
of California, to eliminate unemployment of the economically
disadvantaged of the state, and to stimulate economic development,
employment, minority group, women, and disabled persons
entrepreneurship.

(b) It is the further intent of the Legislature to provide a flexible
means to mobilize and commit all available and potential resources
in the various regions of the state to fulfill these objectives,
including federal, state, and local public resources, and private
debt and equity investment.

(c) It is the further intent of the Legislature that corporations
operating pursuant to this law, shall to the maximum extent
feasible, coordinate with other job and business development
efforts within their region directed toward implementing the
purpose of this part.

(d) It is the further intent of the Legislature to provide expanded
resources allowing participation by small and emerging contractors
in state public works contracts. Increased access to surety bonding
resources will assist in supporting participation by those firms in
public works contracts, and by stimulating increased participation
by small firms, the state will benefit from increased competition
and lower bid costs.

14002.  

If any provision of this chapter or the application thereof
to any person or circumstances is held invalid, this invalidity shall
not affect other provisions or applications of the chapter which
can be given effect without the invalid provision or application,
and to this end the provisions of this chapter are severable.

 

Article 2.  Definitions

 

14003.  

Unless the context otherwise requires, the definitions
in this section shall govern the construction of this chapter.

begin insert

(a) “Bank board” means the board of directors of the California
Infrastructure and Economic Development Bank.

end insert begin insert

(b) “Board” means the California Small Business Board.

end insert begin delete

(a)

end delete

begin insert (c) end insert  “Board of directors” means the board of directors of the
corporation.

begin delete

(b)

end delete

begin insert (d) end insert  “Corporation” means any nonprofit California small business
financial development corporation created pursuant to this chapter.

begin insert

(e) “Executive director” means the executive director of the
Infrastructure and Economic Development Bank.

end insert begin delete

(c) “Director” means the director of the Governor’s Office of
Business and Economic Development.

end delete begin delete

(d) “Executive director” means the person designated to this
title by the director of the Governor’s Office of Business and
Economic Development.

end delete begin delete

(e)

end delete

begin insert (f) end insert  “Expansion fund” means the California Small Business
Expansion Fund.

begin insert

(g) “Financial company” means banking organizations,
including national banks and trust companies, savings and loan
associations, certified community development financial
institutions, microlenders, state insurance companies, mutual
insurance companies, and other public and private banking,
lending, retirement, and insurance organizations.

end insert begin insert

(h) “Financial institution” means regulated banking
organizations, including national banks and trust companies
authorized to conduct business in the state and state-chartered
commercial banks, trust companies, credit unions, and savings
and loan associations.

end insert begin delete

(f)

end delete

begin insert (i) end insert  “Loan committee” means a committee appointed by the board
of directors of a corporation to determine the course of action on
a loan application pursuant to begin delete Title 25 (commencing with Section
200000) end delete begin insert end insert begin insert Chapter 6 (commencing with Section 63088) of Division
1 of Title 6.7 end insert of the Government Code.

begin insert

(j) “Program Manager” means the person designated to this
title by the executive director of the Infrastructure and Economic
Development Bank.

end insert begin delete

(g)

end delete

begin insert (k) end insert  “Trust fund” means the money from the expansion fund that
is held in trust by financial institution or financial company. A
trust fund is not a deposit of state funds and is not subject to the
requirements of Section 16506 of the Government Code.

begin delete

(h)

end delete

begin insert (l) end insert  “Trust fund account” means an account within the trust fund
that is allocated to a particular small business financial
development corporation for the purpose of paying loan defaults
and claims on bond guarantees for a specific small business
financial development corporation.

 

Article 3.  begin delete Executive Director end delete begin insert Program Manager end insert

 

14004.  

begin insert (a) end insert begin insert   end insert The begin delete executive director end delete begin insert program manager end insert shall do
all of the following:

begin delete

(a)

end delete

begin insert (1) end insert  Administer this chapter.

begin delete

(b) Expeditiously approve or disapprove

end delete

begin insert (2) end insert begin insert   end insert begin insert Make recommendations to the board on the approval or
disapproval of end insert the articles of incorporation begin delete and any subsequent
amendments to the articles of incorporation of a corporation end delete . This
determination shall be based upon the following:

begin delete

(1)

end delete

begin insert (A) end insert  Review of the articles of incorporation and bylaws of the
corporation to determine whether they contain the provisions
required by this chapter and conform with the regulations adopted
pursuant to this chapter.

begin delete

(2)

end delete

begin insert (B) end insert  A determination as to whether the legislative intent
expressed in Section 14001 shall be served by the proposed
corporation.

begin delete

(3)

end delete

begin insert (C) end insert  A determination as to whether the responsibility, character,
and general fitness of the individuals who will manage the
corporation are such as to command the confidence of the state
and to warrant the belief that the business of the proposed
corporation will be honestly and efficiently conducted in
accordance with the intent and purpose of this chapter and that
they include representatives of the financial and business
community, as well as the economically disadvantaged.

begin delete

(c)

end delete

begin insert (3) end insert  Have the accounts of each corporation formed under this
chapter audited as of the close of business on June 30 of each year.

begin delete

(d)

end delete

begin insert (4) end insert  Have the portfolio of each corporation audited a minimum
of once a year. Material audit exceptions that are not corrected by
the corporation within a reasonable period of time may result in
the suspension of the corporation pursuant to Section begin delete 200008 end delete
begin insert 63089.3 end insert of the Government Code.

begin delete

(e)

end delete

begin insert (5) end insert  Review reports from the Department of Business Oversight
and inform corporations as to what corrective action is required.

begin delete

(f)

end delete

begin insert (6) end insert  Examine, or cause to be examined, at any reasonable time,
all books, records, and documents of every kind, and the physical
properties of a corporation. The inspection shall include the right
to make copies, extracts, and search records.

begin delete

(g) Attend

end delete

begin insert (b) end insert begin insert   end insert begin insert The program manager may attend end insert and participate at
corporation meetings. The begin delete executive director, end delete begin insert program manager, end insert
or his or her designee, shall be an ex officio, nonvoting
representative on the board of directors and loan committees of
each corporation. The begin delete executive director end delete begin insert program manager end insert shall
meet with the board of directors of each corporation at least once
each fiscal year, commencing January 1, 2014.

begin insert

begin insert 1404.1. end insert   

(a) The California Small Business Board is hereby
continued and created as a subcommittee of the California
Infrastructure and Economic Development Bank Board. The
California Small Business Board consists of the following
membership:

(1) The Director of Finance or his or her designee.

(2) The Director of the Office of the Small Business Advocate
or his or her designee.

(3) The Treasurer or his or her designee.

(4) Two corporations selected by the corporations.

(5) Two members appointed by the Governor, one of whom will
serve as chair of the board, who are actively involved in the
California small business community.

(b) The California Small Business Board shall do each of the
following:

(1) Advise the program manager on matters regarding this part
and Chapter 6 (commencing with Section 63088) of Division 1 of
Title 6.7 of the Government Code.

(2) Approve new corporations recommended by the program
manager, based on an examination of each of the following:

(A) Review of the articles of incorporation and bylaws of the
corporation to determine whether they contain the provisions
required by this chapter and conform with the regulations adopted
pursuant to this part.

(B) Determination as to whether the legislative intent expressed
in Section 14002 will be served by the proposed corporation.

(C) Determination as to whether the responsibility, character,
and general fitness of the individuals who will manage the
corporation are able to command the confidence of the state and
to warrant the belief that the business of the proposed corporation
will be honestly and efficiently conducted in accordance with the
intent and purpose of this chapter and that they include
representatives of the financial and business community, as well
as the economically disadvantaged.

(c) The public members of the board, at the discretion of the
bank board, may be reimbursed per diem and travel expenses
pursuant to state law.

end insert

 

Article 4.  New Corporations

 

14005.  

Upon approval by the begin delete executive director end delete begin insert board end insert to
become a corporation, an entity shall adopt or amend its articles
of incorporation to comply with the following:

(a) The name of the corporation shall include the words “small
business financial development corporation,” except for those
corporations formed pursuant to this chapter prior to 2002, which
may also be called “small business development corporations,” or
those formed prior to 1985, which may also be called “rural or
urban development corporations.”

(b) The purposes for which the corporation is formed, which
shall be those specified in Section 14001. This requirement shall
not be deemed to preclude a statement of powers.

(c) A geographical description of the corporation’s begin insert primary end insert
service area.

(d) The name and addresses of seven or more persons who are
to act in the capacity of directors until the selection of their
successors.

(e) That the corporation is organized pursuant to the California
Small Business Financial Development Corporation Law.

14006.  

If the begin delete executive director end delete begin insert board end insert determines that the facts
disclosed by the investigation provided by Section 14004 are true
and finds that the proposed incorporation meets all the requirements
of this chapter, the begin delete executive director end delete begin insert program manager end insert shall
approve the articles of incorporation and endorse the approval
thereon and forward the same to the Secretary of State for his or
her approval and filing. Likewise, the begin delete executive director end delete begin insert program
manager end insert shall begin delete approve or disapprove of all amendments to the
articles. The executive director shall endorse the approval on the
amendatory document before the document is forwarded to the
Secretary of State for his or her approval and filing end delete begin insert review all
amendments to the articles to ensure consistency with the purposes
of the article end insert .

14007.  

begin insert (a) end insert begin insert   end insert The corporation’s existence as a small business
development corporation begins upon the filing of the articles with
the Secretary of State and continues perpetually, unless otherwise
expressly provided for by law.

begin insert

(b) If a corporation is suspended, the corporation may continue
its existence as a nonprofit corporation pursuant to the Nonprofit
Public Benefit Corporation Law (Part 2 (commencing with Section
5110) of Division 2 of Title 1 of the Corporations Code), but shall
no longer be registered with the Secretary of State as a small
business financial development corporation. A corporation shall
not enjoy any of the benefits of a small business financial
development corporation following suspension.

end insert

14008.  

(a) Any request for proposal for selection of a
corporation shall begin insert be approved by the bank and end insert require the winning
bidder to adopt or amend its bylaws to include provisions governing
the election and qualification of directors, the establishment and
functions of loan committees of the corporation, and the method
of selecting the representative of the corporation on the board.

(b) The bylaws shall provide for removal of officers only by a
two-thirds vote of the directors of the corporation.

14009.  

Each corporation shall have provisions establishing a
grievance procedure for employees, clients, or potential clients,
to appeal a decision or obtain redress of an action done by the staff
or loan committee of the corporation. The procedures shall be
established in writing during the probationary period of a new
corporation.

14010.  

The begin delete executive director end delete begin insert program manager end insert may authorize
the establishment of a new corporation using a request for proposal
process.

14011.  

The Nonprofit Public Benefit Corporation Law (Part
2 (commencing with Section 5110) of Division 2 of this title)
applies to corporations formed under this chapter, except as to
matters otherwise provided for in this chapter.

14012.  

For six months following the establishment of a
corporation, commencing upon filing of the articles of
incorporation with the Secretary of State, a corporation shall be
on probation. While on probation, a corporation may be suspended
if suspension is recommended by the begin delete executive director end delete begin insert program
manager end insert . This suspension is nonappealable and not subject to the
procedures for suspension applicable to a corporation not on
probation.

 

Article 5.  Corporation Board

 

14013.  

The corporate powers of a corporation shall be exercised
by the board of directors.

14014.  

A request for proposal for selection of a corporation
shall require the winning bidder to adopt or amend its bylaws to
state that:

(a) A person may not serve on a board of directors who is not
a resident of, or person conducting business in, the service area
described in the articles of incorporation.

(b) Each board of directors shall include representatives from
all of the following:

(1) The financial community.

(2) The business community.

(3) The economically disadvantaged.

(c) Not more than one employee of the corporation may serve
on the board of directors at any one time.

(d) A person who has a financial interest related to a matter over
which the board has authority may not make, participate in making,
or in any way attempt to influence that matter.

14015.  

If any director ceases to meet the qualifications
established in Section 14014, he or she shall immediately vacate
his or her position as a director and such position shall be deemed
vacant.

14016.  

If any vacancy occurs in the elective membership of
the board of directors through death, resignation, or otherwise, the
remaining directors shall elect a person representing the appropriate
category to fill the vacancy for the unexpired term.

14017.  

(a) The begin delete office end delete begin insert California Infrastructure and Economic
Development Bank end insert shall establish new small business financial
development corporations pursuant to the procedures otherwise
established by this begin delete chapter in the following areas: end delete begin insert chapter. In
approving the request for proposal, the bank shall ensure small
businesses in all areas of the state would have reasonable access
to the financial programs, in which they are eligible. Establishment
of a new corporation is dependent upon sufficient funding being
available. end insert

begin insert

(b) Additional corporations have been proposed in the following
areas:

end insert

(1) San Jose.

(2) Santa Ana.

(3) San Fernando Valley.

(4) Ontario.

begin delete

(b)

end delete

begin insert (c) end insert  Upon an appropriation in the annual Budget Act for this
purpose, the begin delete office shall end delete begin insert California Infrastructure and Economic
Development Bank shall approve the issuance of a request for a
proposal to end insert establish a small business financial development
corporation in southeast Los Angeles.

begin delete

(c)

end delete

begin insert (d) end insert  In furtherance of the purposes of this chapter, 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 31000)
of the Financial Code.

 

Article 6.  Corporations, Miscellaneous

 

14018.  

Every corporation shall provide for, and maintain a
central staff to perform, all administrative requirements of the
corporation, including all those functions required of a corporation
by the director.

14019.  

Reasonable costs incurred by a corporation in the
creation and maintenance of a central staff shall be paid to the
corporation from state funds, including a portion of the interest
earned on the expansion fund and the corporation’s trust fund
account, if the corporation has a trust fund account, otherwise, on
the expansion fund.

14020.  

A corporation shall report to the begin delete executive director, end delete
begin insert program manager, end insert or his or her designated representative, all
statistical and other reports required by this chapter, responses to
audit reports, budget requirements, and other information relating
to the establishment, monitoring, and suspension of a corporation.

14021.  

A corporation shall make a report to the begin delete executive
director, end delete begin insert program manager, end insert as of the close of business on June 30
of each year, describing the corporation’s activities and any
additional information requested by the begin delete executive director, end delete begin insert program
manager, end insert on or before August 1 of each year.

 

Article 7.  Conflict of Interest

 

14022.  

It shall be unlawful for the begin delete director, end delete executive director,
begin insert program manager, end insert or any person who is an officer, director, or
employee of a corporation, or who is a member of a loan
committee, or who is an employee of the begin delete office end delete begin insert California
Infrastructure and Economic Development Bank end insert to do any of the
following:

(a) Ask for, consent, or agree to receive, any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage, for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation, any loan, guarantee, financial, or other
assistance from any corporation.

(b) Borrow money, property, or to benefit knowingly, directly
or indirectly, from the use of the money, credit, or property of any
corporation.

(c) Make, maintain, or attempt to make or maintain, a deposit
of the funds of a corporation with any other corporation or
association on condition, or with the understanding, expressed or
implied, that the corporation or association receiving the deposit
shall pay any money or make a loan or advance, directly or
indirectly, to any person, partnership, joint venture, association,
or corporation, other than to a corporation formed under this
chapter.

14023.  

It shall be unlawful for the begin delete director, end delete executive director,
begin insert program manager, end insert or any person who is an officer or director of
a corporation, or who is an employee of the begin delete office, end delete begin insert California
Infrastructure and Economic Development Bank end insert to purchase or
receive, or to be otherwise interested in the purchase or receipt,
directly or indirectly, of any asset of a corporation, without paying
to the corporation the fair market value of the asset at the time of
the transaction.

14024.  

Violation of any provision of this article shall constitute
a felony.

begin delete

SEC. 3.  

Title 25 (commencing with Section 200000) is added
to the Government Code, to read:

 

Title 25.  Small Business Financial Assistance
Act of 2013

 

Chapter  1. Introduction

 

200000.  

This title shall be known and may be cited as the Small
Business Financial Assistance Act of 2013.

200001.  

The Legislature finds that:

(a) Small businesses form the core of the California economy
and that it is in the interest of the state to increase opportunities
for entrepreneurs, the self-employed, and microbusiness and small
business owners to have better access to capital and other technical
resources.

(b) Unemployment in California is a matter of statewide concern
requiring concerted public and private action to develop
employment opportunities for the disadvantaged, youth, veterans,
and unemployed persons.

(c) It is necessary to direct additional capital, general
management assistance, business education, and other resources
to encourage the development of small business opportunities,
particularly for minority, women, and disabled persons, to alleviate
unemployment.

 

Chapter  2. Definitions

 

200002.  

Unless the context otherwise requires, the definitions
in this section shall govern the construction of this title.

(a) “Corporation” means any nonprofit California small business
financial development corporation created pursuant to Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title
1 of the Corporations Code.

(b) “Director” means the director of the Governor’s Office of
Business and Economic Development.

(c) “Employment incentive loan” means a loan to a qualified
business or to a business located within an enterprise zone, as
defined in subdivision (d) of Section 7072.

(d) “Executive director” means the person designated to this
title by the director of the Governor’s Office of Business and
Economic Development.

(e) “Expansion fund” or “expansion fund” means the California
Small Business Expansion Fund.

(f) “Financial company” means banking organizations, including
national banks and trust companies, savings and loan associations,
state insurance companies, mutual insurance companies, and other
public and private banking, lending, retirement, and insurance
organizations.

(g) “Financial institution” means banking organizations,
including national banks and trust companies authorized to conduct
business in California and state-chartered commercial banks, trust
companies, community development financial institutions,
microlenders, and savings and loan associations.

(h) “Loan committee” means a committee appointed by the
board of directors of a corporation to determine the course of action
on a loan application pursuant to this title.

(i) “Office” means the Governor’s Office of Business and
Economic Development.

(j) Unless otherwise defined by the director by regulation, “small
business loan” means a loan to a business defined as an eligible
small business as set forth in Section 121.3-10 of Part 121 of
Chapter 1 of Title 13 of the Code of Federal Regulations, including
those businesses organized for agricultural purposes that create or
retain employment as a result of the loan. From time to time, the
director shall provide guidelines as to the preferred ratio of jobs
created or retained to total funds borrowed for guidance to the
corporations.

(k) “Trust fund” means the money from the expansion fund that
is held in trust by a financial institution or financial company. A
trust fund is not a deposit of state funds and is not subject to the
requirements of Section 16506.

(l) “Trust fund account” means an account within the trust fund
that is allocated to a particular small business financial
development corporation for the purpose of paying loan defaults
and claims on bond guarantees for a specific small business
financial development corporation.

(m) “Trustee” means the lending institution or financial company
selected by the office to hold and invest the trust funds. An
agreement made pursuant to this title and the trustee shall not be
construed to be a deposit of state funds.

 

Chapter  3. Program Purpose

 

200003.  

(a) There is within the Governor’s Office of Business
and Economic Development the California Business Investment
Service, which shall, among other things, assist businesses seeking
new capital resources.

(b) Pursuant to this title, the office may establish one or more
programs administered regionally under contract with small
business financial development corporations. Programs established
pursuant to this title may include the following types of financial
products:

(1) Loan guarantees.

(2) Direct loans.

(3) Disaster assistance loans.

(4) Surety bond guarantees.

(c) In all of their state-funded programs, the corporations shall,
to the extent practicable, be complementary to, and not competitive
with, commercial lenders and other state and federal programs.

200004.  

To implement its responsibilities, a corporation shall
undertake a program that shall include, but not be limited to, the
following:

(a) Outreach to low-resource small businesses and
microbusinesses. The corporations located in rural areas shall give
priority to low-resource farmers, rural, and agriculturally related
businesses.

(b) Collaboration with other organizations and lenders to identify
and assist those businesses that are creditworthy but face
impediments to accessing conventional sources because of reasons,
such as low equity, inadequate collateral, unacceptable legal
structure (such as a co-op or nonprofit organization), management
inadequacies, and language problems.

(c) To the extent possible, bringing all possible financial
resources (low-interest lenders, BIDCOs, MESBICs, other
guarantors, etc.) to bear on the borrower’s problems.

(d) Technical assistance to businesses receiving loans or
guarantees that will maximize the probability of loan repayment.

(e) Ongoing strategies for increasing program resources through
private sector involvement and nonstate funds.

(f) A program for collecting and liquidating defaulted loans so
that the corporations can qualify to become full-service lenders
under the Small Business Administration. Corporations located in
rural areas shall, in addition, try to qualify for lender status under
the Farmers Home Administration.

(g) Become an agent for other lenders and guarantors.

 

Chapter  4. Administrative Structure

 

200005.  

If regulations have not already been adopted under
Chapter 1 (commencing with Section 14000) of Part 5 of Division
3 of Title 1 of the Corporations Code, as that chapter read on
January 1, 2013, then the office shall adopt regulations concerning
the implementation of this title, Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the
Corporations Code, and direct lending as emergency regulations
in accordance with Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2. The adoption of these regulations
is an emergency and necessary for the immediate preservation of
the public peace, health and safety, or general welfare within the
meaning of subdivision (b) of Section 11346.1. Notwithstanding
subdivision (e) of Section 11346.1, the regulations shall not remain
in effect for more than 180 days unless the office complies with
all provisions of Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2, as required by subdivision (e) of
Section 11346.1. This section also applies to any direct loan
program administered by the office.

200006.  

The executive director shall do all of the following:

(a) Administer this title.

(b) Contract for services under this title and Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title
1 of the Corporations Code.

(c) In accordance with available resources, use branch offices
for the purposes of making the programs under this title accessible
to all areas of the state.

(d) Require each corporation to submit an annual written plan
of operation.

(e) Authorize the distribution, transfer, and withholding of
moneys in the expansion fund and trust funds.

(f) Authorize the investment of expansion and trust fund moneys.

(g) Oversee the operations of one or more programs authorized
pursuant to this title.

(h) Approve, suspend, or terminate a corporation’s ability to
participate in a program under this title.

(i) Advise the Governor, the director, and the Small Business
Advocate regarding issues and programs affecting California’s
small business community, including, but not limited to, business
innovation and expansion, export financing, state procurement,
management and technical assistance, venture capital, and financial
assistance.

200007.  

The use of state funds paid out to the trust fund and
the return on those funds from investment pursuant to Section
200014 is conditional pursuant to Sections 200008 and 200015.
Each corporation shall enter into a written signed agreement with
the state at the beginning of each fiscal year. The agreement shall
govern the activities in which the corporations engage, the
investment of state funds and its return, and the budgeted
administrative expenses the corporations may incur. In the event
the state and corporation do not reach an agreement, or the state
finds the corporation has violated the terms of an active agreement,
the state may take any action under Section 200008 or 200015, or
any other action as appropriate. In the event the state and
corporation do not reach agreement or the state finds the
corporation has violated the terms of an active agreement, the
corporation shall have no authority to withdraw or encumber the
trust fund or the return of those funds by the issuance of guarantees,
by incurring expenses against the fund and its return in any manner
whatsoever, and the state may take any action under Section
200008 or 200015, or any other action as appropriate. Any
guarantee or other encumbrance made by the corporation in
violation of this section shall be null and void, and neither the state
nor the trust fund will be liable therefor.

200008.  

(a) Upon a finding by the executive director that
irreparable harm may occur if guarantee or direct loan authority
is not temporarily withdrawn from a corporation, the executive
director may temporarily withdraw guarantee or direct loan, or
both, authority from a corporation. The notice of temporary
withdrawal sent to the corporation shall specify the reasons for the
action.

(1) As used in this section, “guarantee and direct loan authority”
means the authority to make or guarantee any loan that encumbers
funds in a trust fund account, any account or subaccount under the
direct control of the office or other state entity, or the expansion
fund.

(2) The executive director shall make one of the determinations
specified in subdivision (c) within 30 days of the effective date of
the temporary withdrawal, unless the corporation and the executive
director mutually agree to an extension. The corporation shall have
the opportunity to submit written material to the executive director
addressing the items stated in the temporary withdrawal notice. If
the executive director does not make any determinations within
30 days, the temporary withdrawal shall be negated. The
corporation’s yearly contract shall remain in effect during the
period of temporary withdrawal, and the corporation shall continue
to receive reimbursement of necessary operating expenses.

(b) Failure of a corporation to substantially comply with the
following may result in the suspension of a corporation:

(1) Regulations implementing the California Small Business
Development Corporation Law (Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the
Corporations Code).

(2) Fiscal and portfolio requirements, as contained in the fiscal
and portfolio audits specified in Section 14004 of the Corporations
Code.

(3) Milestones and scope of work as contained in the annual
contract between the corporation and the office.

(c) Pursuant to subdivision (a) or (b), the executive director may
do the following:

(1) Terminate the temporary withdrawal.

(2) Terminate the temporary withdrawal subject to the
corporation’s adoption of a specified remedial action plan.

(3) Temporarily withdraw, or continue to withdraw, guarantee
authority until a specified time. This determination by the executive
director shall require a finding that the corporation has failed to
comply with the California Small Business Development
Corporation Law (Chapter 1 (commencing with Section 14000)
of Part 5 of Division 3 of Title 1 of the Corporations Code).

(4) Suspend the corporation.

(5) Suspend the corporation, with suspension stayed until the
corporation provides a remedial action plan to the executive
director, and the executive director decides whether to repeal or
implement the stayed suspension.

(d) The determinations contained in paragraphs (4) and (5) of
subdivision (c) require a finding that irreparable harm will occur
unless the corporation is suspended.

(e) In considering a determination regarding the recommended
suspension and possible remedial action plans, the executive
director shall consider, along with other criteria as specified in
subdivision (b), the corporation’s history and past performance.

(f) Upon suspension of a corporation, the executive director
shall transfer all funds, whether encumbered or not, in the trust
fund account of the suspended corporation into either the expansion
fund or temporarily transfer the funds to another corporation.

(g) If the executive director decides to take any action against
the corporation pursuant to paragraphs (2) to (5), inclusive, of
subdivision (c), the corporation shall be notified of the action 10
days before the effective date of the action. The corporation shall
have the right to appeal the executive director’s decision to the
director within that 10-day period by sending notice to the director.
Once the director receives notice that the action is being appealed,
the executive director’s action shall be stayed except for temporary
withdrawal of guarantee authority. Upon receipt of the notice, the
director shall consider and make a final determination on the appeal
within 30 days. The director may elect to take any of the actions
listed in subdivision (h). The temporary withdrawal of corporation
guarantee authority shall remain in effect until the director issues
a decision.

(h) Pursuant to subdivision (g), the director may do any of the
following:

(1) Terminate the action taken by the executive director.

(2) Modify the action taken by the executive director subject to
the adoption by the corporation of a specified remedial action plan.

(3) Affirm the action taken by the executive director.

(i) Following suspension, the corporation may continue its
existence as a nonprofit corporation pursuant to the Nonprofit
Public Benefit Corporation Law (Part 2 (commencing with Section
5110) of Division 2 of Title 1 of the Corporations Code), but shall
no longer be registered with the Secretary of State as a small
business financial development corporation. A corporation shall
not enjoy any of the benefits of a small business financial
development corporation following suspension.

(j) The funds in the trust fund account of a corporation under
temporary withdrawal shall be transferred to the expansion fund.
Upon termination of the temporary withdrawal, unless the
termination is caused by suspension, the funds of the corporation
that were transferred to the expansion fund from the trust fund
account shall be returned to the corporation’s trust fund account,
notwithstanding Section 200011. While the funds of a corporation’s
trust fund account reside in the expansion fund, use of the principal
on the funds shall be governed by the implementing regulations
specifying use of funds in the expansion fund. Interest on the funds
moved from a corporation’s trust fund account upon temporary
withdrawal shall be limited to payment of the corporation’s
administrative expenses, as contained in the contract between the
corporation and the state pursuant to this title.

 

Chapter  5. Expansion Fund

 

200009.  

(a) There is hereby continued in existence 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.

(b) The expansion fund and the trust fund shall be used to pay
for defaulted loan guarantees issued pursuant to this title, surety
bond losses, administrative costs of corporations, and those costs
necessary to protect a real property interest in a defaulted loan or
guarantee.

(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government money,
and other public or private money to make loans, guarantees, and
restricted investments pursuant to this title.

(d) One or more accounts may be created by the executive
director for corporations participating in one or more programs
authorized under this title. Each account is a legally separate
account, and shall not be used to satisfy loan or surety bond
guarantees or other obligations of another corporation.

(e) 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.

(f) 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.

200009.5.  

(a) All money deposited in the expansion fund is
hereby continuously appropriated, without regard to fiscal years,
for the purposes of this title.

(b) Except as specified in subdivision (a) of Section 200011,
the state shall not be liable or obligated in any way beyond the
state money that is allocated in the expansion fund from moneys
from the General Fund moneys appropriated for such purposes.

200010.  

(a) The executive director at his or her discretion,
with the approval of the Director of Finance, may request the
trustee to invest those funds in the trust fund in any of the securities
described in Section 16430. Returns from these investments shall
be deposited in the expansion fund and shall be used to support
the programs of this title.

(b) Any investments made in securities described in Section
16430 shall be governed by the statement of investment policy
prepared by the Treasurer pursuant to subdivision (a) of Section
16481.2.

200011.  

(a) The state shall not be liable or obligated in any
way beyond the money that is allocated and deposited in the
corporation’s trust fund account.

(b) The executive director may reallocate funds held within a
corporation’s trust fund account.

(1) The executive director shall reallocate funds based on which
corporation is most effectively using its guarantee funds. If funds
are withdrawn from a less effective corporation as part of a
reallocation, the executive director shall make that withdrawal
only after giving consideration to that corporation’s fiscal solvency,
its ability to honor loan guarantee defaults, and its ability to
maintain a viable presence within the region it serves. Reallocation
of funds shall occur no more frequently than once per fiscal year.
Any decision made by the executive director pursuant to this
subdivision may be appealed to the director. The director has
authority to repeal or modify any decision to reallocate funds.

(2) The executive director may authorize a corporation to exceed
the leverage ratio specified in Section 200009 or subdivision (a)
of Section 200025, or subdivision (c) of Section 14017 of the
Corporations Code, pending the annual reallocation of funds
pursuant to this section. However, no corporation shall be permitted
to exceed an outstanding guarantee liability of more than five times
its portion of funds on deposit in the expansion fund.

200012.  

(a) There is hereby created in the State Treasury the
Small Business Disaster Recovery Loan Loss Reserve Account,
as part of the expansion fund. This account shall be used to pay
for unrecovered losses resulting from loan guarantees issued
pursuant to subdivision (a) of Section 200030 or subdivision (b)
of this section, and disaster loan guarantees issued prior to the
effective date of this section that are in default.

(b) Any lending institution that issues a low-interest loan that
is guaranteed by resources in this account shall be fully reimbursed
for the guaranteed portion of principal and interest that result from
a loan or loans that are in default. If there are insufficient funds in
this account to fully satisfy all claimants, the full faith of the
resources in the General Fund are pledged to satisfy the obligations
of this account. This account may only guarantee as much loan
dollar value as is specifically authorized by the Director of Finance
with the concurrence of the Governor. This account shall receive
all moneys transferred pursuant to Section 200013, and any
unencumbered balances transferred to the California Small
Business Expansion Fund pursuant to Chapters 11 and 12 of the
First Extraordinary Session of the Statutes of 1989, and Chapter
1525 of the Statutes of 1990, as of July 1, 1992.

(c) The Governor may utilize this authority to prevent business
insolvencies and loss of employment in an area affected by a state
of emergency within the state and declared a disaster by the
President of the United States, by the Administrator of the United
States Small Business Administration, or by the United States
Secretary of Agriculture, or declared to be in a state of emergency
by the Governor of California.

200013.  

The Director of Finance, with the approval of the
Governor, may transfer moneys in the Special Fund for Economic
Uncertainties to the California Small Business Expansion Fund
for use as authorized by the director, in an amount necessary to
make loan guarantees pursuant to this title.

200014.  

(a) The funds in the expansion fund shall be paid out
to trust fund accounts by the Treasurer on warrants drawn by the
Controller and requisitioned by the executive director, pursuant
to the purposes of this title. The executive director may transfer
funds allocated from the expansion fund to accounts, established
solely to receive the funds, in lending institutions designated by
the office to act as trustee. The lending institutions so designated
shall be approved by the state for the receipt of state deposits.
Interest earned on the trust fund accounts in lending institutions
may be utilized by the corporations pursuant to the purposes of
this title.

(b) Except as specified in subdivision (d), the executive director
shall allocate and transfer money to trust fund accounts based on
performance-based criteria. The criteria shall include, but not be
limited to, the following:

(1) The default record of the corporation.

(2) The number and amount of loans guaranteed by a
corporation.

(3) The number and amount of loans made by a corporation if
state funds were used to make those loans.

(4) The number and amount of surety bonds guaranteed by a
corporation.

(c) Any decision made by the executive director pursuant to
subdivision (b) may be appealed to the director within 15 days of
notice of the proposed action. The director may repeal or modify
any reallocation and transfer decisions made by the executive
director.

(d) The criteria specified in subdivision (b) shall not apply to a
corporation that has been in existence for five years or less. If not
already adopted, the office shall develop regulations specifying
the basis for transferring account funds to those corporations that
have been in existence for five years or less.

200015.  

Pursuant to this section and any regulations adopted
pursuant to this title, the state has residual interest in the funds
deposited by the state to a trust fund account and to the return on
these funds from investments. On dissolution or suspension of the
corporation, these funds shall be withdrawn by the executive
director from the trust fund account and returned to the expansion
fund or temporarily transferred to another trust fund account. This
provision shall be contained in the trust instructions to the trustee.

200016.  

Each trust fund account shall consist of a loan
guarantee account, and, upon recommendation by the executive
director, a bond guarantee account, each of which is a legally
separate account, and the assets of one account shall not be used
to satisfy loan guarantees or other obligations of another
corporation. Not more than one-third of a trust fund account shall
be allocated to a bond guarantee account. A corporation shall not
use trust fund accounts to secure a corporate indebtedness. State
funds deposited in the trust fund accounts, with the exception of
guarantees established pursuant to this title, shall not be subject
to liens or encumbrances of the corporation or its creditors.

200017.  

(a) The financial institution that is to act as trustee of
the trust fund shall be designated after review by the executive
director. The corporation shall not receive money on deposit to
support guarantees issued under this title without the approval of
the executive director.

(b) State funds may not be used to finance an expense incurred
by a corporation in a location not approved pursuant to a statewide
plan. The prohibition against use of state funds also applies to the
location of satellite offices, and the area served from a corporation
office.

 

Chapter  6. Guarantee Program

 

200018.  

(a) The Small Business Loan Guarantee Program,
which is hereby continued in existence, shall provide guarantees
to loans offered by financial institutions to small businesses.

(b) The Legislature finds and declares that the Small Business
Loan Guarantee Program has enabled participating small businesses
that do not qualify for conventional business loans or Small
Business Administration loans to secure funds to expand their
businesses. These small businesses would not have been able to
expand their businesses in the absence of the program. The program
has also provided valuable technical assistance to small businesses
to ensure growth and stability. The study commissioned by former
Section 14069.6 of the Corporations Code, as added by Chapter
919 of the Statutes of 1997, documented the return on investment
of the program and the need for its services. The value of the
program has also been recognized by the Governor through
proposals contained in the May Revision to the Budget Act of
2000 for the 2000-01 fiscal year.

200019.  

The executive director, following notification to the
director, may do all of the following:

(a) Contract for services entered into pursuant to this title.

(b) Hold public hearings.

(c) Act as liaison between corporations, other state and federal
agencies, lenders, and the Legislature.

(d) Process and tabulate on a monthly basis all corporate reports.

(e) Attend board meetings.

(f) Attend and participate at corporation meetings. The executive
director, or his or her designee, shall be an ex officio, nonvoting
representative on the board of directors and loan committees of
each corporation. The executive director shall meet with the board
of directors of each corporation at least once each fiscal year.

(g) Assist corporations in applying for public and private funding
opportunities, and in obtaining program support from the business
community.

200020.  

(a) The executive director shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
executive director’s decision may be repealed or modified by an
office resolution.

(b) 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.

(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.

200020.  

(a) The executive director shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
executive director’s decision may be repealed or modified by an
office resolution.

(b) 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 executive director has permitted a higher
leverage ratio for an individual corporation pursuant to subdivision
(b) of Section 200011.

(c) This section shall become operative on January 1, 2018.

200022.  

(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 executive director.

(c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative
costs of the corporations.

(d) 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.

200022.  

(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 executive director, unless the
executive director authorizes a higher leverage ratio for an
individual corporation pursuant to subdivision (b) of Section
200011.

(c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative
costs of the corporations.

(d) This section shall become operative on January 1, 2018.

200024.  

A corporation may charge the borrower or financial
institution a loan fee on all loans made or guaranteed by the
corporation to defray the operating expenses of the corporation.
The amount of the fee shall be determined by the executive
director.

200025.  

(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
office shall report annually to the Legislature on the financial status
of the corporations and their portfolio of loans and surety bonds
guaranteed pursuant to Section 9795.

(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 executive 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.

200025.  

(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 office authorizes a higher leverage ratio for an individual
corporation pursuant to subdivision (b) of Section 200011, so that
the financing needs of small business may be met as fully as
possible within the limits of corporations’ loan loss reserves. The
office shall report annually to the Legislature on the financial status
of the corporations and their portfolio of loans and surety bonds
guaranteed pursuant to Section 9795.

(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 executive 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.

200026.  

(a) A corporation shall establish one or more loan
committees, each of which shall be composed of five or more
persons, a majority of whom shall be experienced in banking and
lending operations.

(b) A loan committee shall review applications to the corporation
for a loan or guarantee and shall do each of the following:

(1) Determine the feasibility of the proposed transaction. The
loan committee shall recommend approval of the application only
upon a determination that there is a reasonable chance that the loan
will be repaid.

(2) On the basis of that determination, recommend to the board
of directors any action that the loan committee deems appropriate
under the circumstances, or, in the event that approval authority
has been delegated to the loan committee by the board of directors,
approve or disapprove the loan application.

(c) A loan committee shall expeditiously act to accept or reject
loan applications.

(d) A person who has a financial interest related to a matter over
which the loan committee has authority may not make, participate
in making, or in any way attempt to influence that matter.

200027.  

Unless delegated to its loan committee, the
corporation’s board of directors, upon a recommendation from its
loan committee shall do all of the following:

(a) Emphasize consideration to applications that will increase
employment of disadvantaged, disabled, or unemployed persons,
or increase employment of youth residing in areas of high youth
unemployment and high youth delinquency.

(b) Give consideration to applications from traditional and
safety-net providers of Medi-Cal services that will promote access
to quality medical care for individuals enrolled in Medi-Cal
managed health care networks that are contracting with or owned
or operated by a county board of supervisors, a county health
commission, or a county health authority organized pursuant to
Section 14018.7, 14087.31, 14087.35, 14087.36, 14087.38, or
14087.9605 of the Welfare and Institutions Code.

(c) Not grant a loan or guarantee, unless it determines that the
conditions of Section 200033 are satisfied.

200028.  

(a) Among other priorities, corporations shall give
high priority to the issuance of loan guarantees to small business
incubators, and to businesses that lease space in incubators.

(b) For the purposes of this section, “incubator” means a facility
that allows new small businesses to increase their probability of
success by sharing needed capital equipment, services, and
facilities, which may include, but is not limited to, the following:

(1) Reception and meeting area.

(2) Secretarial services, such as collating, telephone answering,
or mailhandling.

(3) Accounting and bookkeeping services.

(4) Research libraries.

(5) Onsite financial and management counseling.

(6) Parking.

(7) Flexible lease arrangements for flexible space.

(8) Computer or word processing facilities.

(9) Day care facilities.

(10) Office furniture rentals.

(11) A graduation policy sometimes requiring firms to leave
after three to five years in a subsidized, nurturing environment.

(12) Employee training and placement services.

(c) Among other priorities, corporations shall give high priority
to marketing their services to Phase 1 or Phase 2 Small Business
Innovation Research (SBIR) recipients and providing loan
guarantees, whenever possible.

 

Chapter  7. Direct Lending

 

200029.  

(a) A corporation may utilize funds for direct lending
as long as at least 80 percent of the corporate funds, calculated by
dollar amount, and all expansion funds are guaranteed by another
public or private financial institution.

(b) The amount of funds available for direct lending shall be
determined by the executive 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 office shall issue regulations governing these
direct loans, including the maximum amount of these loans.

(c) To execute the direct loan programs established in this
chapter, the executive 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
executive director to the corporation shall be on terms similar to
the loan between the corporation and the borrower.

(d) The amount of the loan may be in excess of the amount of
a loan to any individual borrower, but actual disbursements
pursuant to the office loan agreement shall be required to be
supported by a loan agreement between the borrower and the
corporation in an amount at least equal to the requested
disbursement. The loan between the office 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 office.
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.

(e) In the absence of fraud on the part of the corporation, the
liability of the corporation to repay the loan to the office 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 office
if the corporation has exhausted a loan loss reserve created for this
purpose. Interest and principal received by the office from the
corporation shall be deposited into the same account from which
the funds were originally borrowed.

(f) Upon the approval of the executive director, a corporation
shall be authorized to borrow trust funds from the office for the
purpose of relending those funds to small businesses. A corporation
shall demonstrate to the executive 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.

(g) 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 office that are not disbursed. The
corporation shall be authorized to charge a fee to the small business
borrower, in an amount determined by the executive director
pursuant to regulation. The program provided for in this subdivision
shall be available in all geographic areas of the state.

 

Chapter  8. Disaster Loan Guarantees

 

200030.  

(a) A corporation may, in an area affected by a state
of emergency within the state and declared a disaster by the
President of the United States, the Administrator of the United
States Small Business Administration, or the United States
Secretary of Agriculture, or declared to be in a state of emergency
by the Governor of California, provide loan guarantees from funds
allocated in Section 200013 to small businesses, small farms,
nurseries, and agriculture-related enterprises that have suffered
actual physical damage or significant economic injury as a result
of the disaster.

(b) If regulations have not otherwise been adopted, the office
may adopt or readopt regulations to implement the loan guarantee
program authorized by this section. The office may adopt these
regulations as emergency regulations in accordance with Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2, and for purposes of that chapter, including Section 11349.6,
the adoption of the regulations shall be considered by the Office
of Administrative Law to be necessary for the immediate
preservation of the public peace, health and safety, and general
welfare. Notwithstanding subdivision (e) of Section 11346.1, the
regulations shall be repealed within 180 days after their effective
date unless the office complies with Chapter 3.5 (commencing
with Section 11340) of Part 1 of Division 3 of Title 2, as provided
in subdivision (e) of Section 11346.1.

(c) Allocations pursuant to subdivision (a) shall be deemed to
be for extraordinary emergency or disaster response operations
costs incurred by the office.

 

Chapter  9. Energy Efficiency Loans

 

200031.  

(a) Corporations may grant energy efficiency
improvement loans.

(b) The office shall enter into an agreement with the California
Energy Extension Service of the Office of Planning and Research
to assist small business owners in reducing their energy costs
through low-interest loans and by providing assistance and
information.

 

Chapter  10. Surety Bonds

 

200033.  

In furtherance of the purposes set forth in Section
200001 of this code and Section 14002 of the Corporations Code,
a corporation may do any one or more of the following activities,
but only to the extent that the activities are authorized pursuant to
the contract between the office and corporation: guarantee, endorse,
or act as surety on the bonds, notes, contracts, or other obligations
of, or assist financially, any person, firm, corporation, or
association, and may establish and regulate the terms and
conditions with respect to any such loans or financial assistance
and the charges for interest and service connected therewith, except
that the corporation shall not make or guarantee any loan, unless
and until it determines:

(a) There is no probability that the loan or other financial
assistance would be granted by a financial company under
reasonable terms or conditions, and the borrower has demonstrated
a reasonable prospect of repayment of the loan.

(b) The loan proceeds shall be used exclusively in this state.

(c) The loan qualifies as a small business loan or an employment
incentive loan.

(d) That the borrower has a minimum equity interest in the
business as determined by the director.

(e) As a result of the loan, the jobs generated or retained
demonstrate reasonable conformance to the regulations specifying
employment criteria.

200034.  

(a) In addition to the authority granted by Section
200033, upon approval of the executive director, a corporation
may act as guarantor on a surety bond for any small business
contractor, including, but not limited to, women, minority, and
disabled veteran contractors.

(b) The provisions of subdivision (a) allowing a corporation to
act as a guarantor on surety bonds may be funded through
appropriate federal funding sources. Federal funds shall be
deposited in the Federal Trust Fund in the State Treasury in
accordance with Section 16360, for transfer to the expansion fund.

 

Chapter  11. Reporting

 

200035.  

(a) Except as otherwise provided in this title, the trust
fund account shall be used solely to make loans, guarantee bonds,
and guarantee loans, approved by the corporation, that meet the
loan criteria under this title. The state shall not be liable or
obligated in any way as a result of the allocation of state money
to a trust fund account beyond the state money that is allocated
and deposited in the fund pursuant to this title, and that is not
otherwise withdrawn by the state pursuant to this title.

(b) A summary of all loans and bonds to which a state guarantee
is attached shall be submitted to the executive director upon
execution of the loan agreement and periodically thereafter.

(c) A summary of all loans made by a corporation shall be
submitted to the executive director upon execution of the loan
agreement and periodically thereafter.

200036.  

(a) Annually, not later than January 1 of each year
commencing January 1, 2014, the executive director shall prepare
a report regarding the loss experience for the expansion fund for
loan guarantees, loss reserves, and surety bond guarantees for the
preceding fiscal year. At a minimum, the report shall also include
data regarding numbers of surety bond and loan guarantees awarded
through the expansion fund, including ethnicity and gender data
of participating contractors and other entities, and experience of
surety insurer participants in the bond guarantee program. The
report shall include the information described in Section 200025.
The executive director shall submit that report to the Governor
and the Legislature pursuant to Section 9795.

(b) A corporation shall also report to the executive director, or
his or her designated representative, all statistical and other reports
required by this title, responses to audit reports, budget
requirements, invoices submitted for payment by the state, and
information concerning loans made or guaranteed.

200037.  

Pursuant to subdivision (f) of Section 8684.2, within
60 days of the conclusion of the period for guaranteeing loans
under any small business disaster loan guarantee program
conducted for a disaster as authorized by Section 8684.2 or 200030,
the office shall provide a report to the Legislature on loan
guarantees approved and rejected by gender, ethnic group, type of
business and location, and each participating loan institution
pursuant to Section 9795. The office need only submit one report
to comply with this section and subdivision (f) of Section 8684.2.

end delete

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Chapter 6 (commencing with Section 63088) is added
to Division 1 of Title 6.7 of the end insert begin insert Government Code end insert begin insert , to read: end insert

begin insert

 

Chapter   begin insert 6. end insert Small Business Financial Assistance Act of
2013

 

Article begin insert 1. end insert   Introduction

 

begin insert 63088. end insert   

This chapter shall be known, and may be cited, as the
Small Business Financial Assistance Act of 2013.

begin insert 63088.1. end insert   

The Legislature finds all of the following:

(a) Small businesses form the core of the California economy
and that it is in the interest of the state to increase opportunities
for entrepreneurs, the self-employed, and microbusiness and small
business owners to have better access to capital and other technical
resources.

(b) Unemployment in California is a matter of statewide concern
requiring concerted public and private action to develop
employment opportunities for the disadvantaged, unemployed
persons, veterans, and youth.

(c) It is necessary to direct additional capital, general
management assistance, business education, and other resources
to encourage the development of small business opportunities,
particularly for minorities, women, and disabled persons, to
alleviate unemployment.

 

Article begin insert 2. end insert   Definitions

 

begin insert 63088.3. end insert   

Unless the context otherwise requires, the definitions
in this section shall govern the construction of this chapter.

(a) “Bank” means the California Infrastructure and Economic
Development Bank.

(b) “Bank board” means the board of directors of the California
Infrastructure and Economic Development Bank.

(c) “Board” means the California Small Business Board.

(d) “Corporation” means any nonprofit California small
business financial development corporation created pursuant to
Chapter 1 (commencing with Section 14000) of Part 5 of Division
3 of Title 1 of the Corporations Code.

(e) “Employment incentive loan” means a loan to a qualified
business or to a business located within an enterprise zone, as
defined in subdivision (d) of Section 7072.

(f) “Executive director” means the executive director of the
Infrastructure and Economic Development Bank.

(g) “Expansion fund” means the California Small Business
Expansion Fund.

(h) “Financial company” means banking organizations,
including national banks and trust companies, savings and loan
associations, certified community development financial
institutions, microlenders, state insurance companies, mutual
insurance companies, and other public and private banking,
lending, retirement, and insurance organizations.

(i) “Financial institution” means regulated banking
organizations, including national banks and trust companies
authorized to conduct business in California and state-chartered
commercial banks, trust companies, credit unions, and savings
and loan associations.

(j) “Loan committee” means a committee appointed by the
board of directors of a corporation to determine the course of
action on a loan application pursuant to this title.

(k) “Program manager” means the person designated to this
title by the executive director of the California Infrastructure and
Economic Development Bank.

(l) Unless otherwise defined by the executive director by
regulation, “small business loan” means a loan to a business
defined as an eligible small business as set forth in Section
121.3-10 of Part 121 of Chapter 1 of Title 13 of the Code of
Federal Regulations, including those businesses organized for
agricultural purposes that create or retain employment as a result
of the loan. From time to time, the executive director shall provide
guidelines as to the preferred ratio of jobs created or retained to
total funds borrowed for guidance to the corporations.

(m) “Trust fund” means the moneys from the expansion fund
that is held in trust by a financial institution or financial company.
A trust fund is not a deposit of state funds and is not subject to the
requirements of Section 16506.

(n) “Trustee” means the lending institution or financial company
selected by the office to hold and invest the trust funds. An
agreement made pursuant to this title and the trustee shall not be
construed to be a deposit of state funds.

(o) “Trust fund account” means an account within the trust
fund that is allocated to a particular small business financial
development corporation for the purpose of paying loan defaults
and claims on bond guarantees for a specific small business
financial development corporation.

 

Article begin insert 3. end insert   Program Purpose

 

begin insert 63088.5. end insert   

(a) There is within the Governor’s Office of Business
and Economic Development the California Infrastructure and
Economic Development Bank, which shall, among other things,
assist businesses seeking new capital resources.

(b) Pursuant to this title, the bank may establish one or more
programs administered regionally under contract with small
business financial development corporations. Programs established
pursuant to this title may include the following types of financial
products:

(1) Loan guarantees.

(2) Direct loans.

(3) Disaster assistance loans.

(4) Surety bond guarantees.

(c) In all of their state-funded programs, the corporations shall,
to the extent practicable, be complementary to, and not competitive
with, commercial lenders and other state and federal programs.

(d) In carrying out this chapter the bank may call on the
California Small Business Board for advice and recommendations.
All actions by the California Small Business Board are advisory
except where specifically assigned a duty and authority.

(e) The Small Business Board may also advise the Governor,
the director, and the Small Business Advocate regarding issues
and programs affecting California’s small business community,
including, but not limited to, business innovation and expansion,
export finance, state procurement, management and technical
assistance, venture capital, and financial assistance.

begin insert 63088.6. end insert   

To implement its responsibilities, a corporation shall
undertake a program that shall include, but not be limited to, the
following:

(a) Outreach to low-resource small businesses and
microbusinesses. The corporations located in rural areas shall
give priority to low-resource farmers and rural and agriculturally
related businesses.

(b) Collaboration with other organizations and lenders to
identify and assist those businesses that are creditworthy but face
impediments to accessing conventional sources because of reasons,
such as low equity, inadequate collateral, unacceptable legal
structure (such as a co-op or nonprofit organization), management
inadequacies, and language problems.

(c) To the extent possible, bringing all possible financial
resources (low-interest lenders, BIDCOs, MESBICs, other
guarantors, etc.) to bear on the borrower’s problems.

(d) Technical assistance to businesses receiving loans or
guarantees that will maximize the probability of loan repayment.

(e) Ongoing strategies for increasing program resources
through private sector involvement and nonstate funds.

(f) A program for collecting and liquidating defaulted loans so
that the corporations can qualify to become full-service lenders
under the Small Business Administration. Corporations located
in rural areas shall, in addition, try to qualify for lender status
under the United States Department of Agriculture’s Rural
Development and Farm Services Agency.

(g) Become an agent for other financial institutions and financial
companies.

 

Article begin insert 4. end insert   Administrative Structure

 

begin insert 63089. end insert   

If regulations have not already been adopted under
Chapter 1 (commencing with Section 14000) of Part 5 of Division
3 of Title 1 of the Corporations Code, as that chapter read on
January 1, 2013, then the bank shall adopt regulations concerning
the implementation of this title, Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations
Code, and direct lending as emergency regulations in accordance
with Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2. The adoption of these regulations is an
emergency and necessary for the immediate preservation of the
public peace, health and safety, or general welfare within the
meaning of subdivision (b) of Section 11346.1. Notwithstanding
subdivision (e) of Section 11346.1, the regulations shall not remain
in effect for more than 180 days unless the office complies with
all provisions of Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2, as required by subdivision (e) of
Section 11346.1. This section also applies to any direct loan
program administered by the bank.

begin insert 63089.1. end insert   

The program manager shall do all of the following:

(a) Administer this chapter.

(b) Contract for services under this chapter and Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title
1 of the Corporations Code.

(c) In accordance with available resources, use branch offices
for the purposes of making these programs under this chapter
accessible to all areas of the state.

(d) Require each corporation to submit an annual written plan
of operation.

(e) Authorize the distribution, transfer, and withholding of
moneys in the expansion fund and trust funds.

(f) Authorize the investment of expansion and trust fund moneys.

(g) Oversee the operations of one or more programs authorized
pursuant to this title.

(h) Approve, suspend, or terminate a corporation’s ability to
participate in a program under this title.

begin insert 63089.2. end insert   

The use of state funds paid out to the trust fund and
the return on those funds from investment pursuant to Section
63089.56 is conditional pursuant to Sections 63089.3 and
63089.57. Each corporation shall enter into a written signed
agreement with the state at the beginning of each fiscal year. The
agreement shall govern the activities in which the corporations
engage, the investment of state funds and its return, and the
budgeted administrative expenses the corporations may incur. In
the event the state and corporation do not reach an agreement, or
the state finds the corporation has violated the terms of an active
agreement, the state may take any action under Section 63089.3
or 63089.57, or any other action as appropriate. In the event the
state and corporation do not reach agreement or the state finds
the corporation has violated the terms of an active agreement, the
corporation shall have no authority to withdraw or encumber the
trust fund or the return of those funds by the issuance of
guarantees, by incurring expenses against the fund and its return
in any manner whatsoever, and the state may take any action under
Section 63089.3 or 63089.57, or any other action as appropriate.
Any guarantee or other encumbrance made by the corporation in
violation of this section shall be null and void, and neither the
state nor the trust fund will be liable therefor.

begin insert 63089.3. end insert   

(a) Upon a finding by the program manager that
irreparable harm may occur if guarantee or direct loan authority
is not temporarily withdrawn from a corporation, the program
manager may temporarily withdraw guarantee or direct loan, or
both, authority from a corporation. The notice of temporary
withdrawal sent to the corporation shall specify the reasons for
the action.

(1) As used in this section, “guarantee and direct loan
authority” means the authority to make or guarantee any loan that
encumbers funds in a trust fund account, any account or
subaccount under the direct control of the office or other state
entity, or the expansion fund.

(2) The program manager shall make one of the determinations
specified in subdivision (c) within 30 days of the effective date of
the temporary withdrawal, unless the corporation and the executive
director mutually agree to an extension. The corporation shall
have the opportunity to submit written material to the program
manager addressing the items stated in the temporary withdrawal
notice. If the program manager does not make any determinations
within 30 days, the temporary withdrawal shall be negated. The
corporation’s yearly contract shall remain in effect during the
period of temporary withdrawal, and the corporation shall continue
to receive reimbursement of necessary operating expenses.

(b) Failure of a corporation to substantially comply with the
following may result in the suspension of a corporation:

(1) Regulations implementing the California Small Business
Development Corporation Law (Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations
Code).

(2) Fiscal and portfolio requirements, as contained in the fiscal
and portfolio audits specified in Section 14004 of the Corporations
Code.

(3) Milestones and scope of work as contained in the annual
contract between the corporation and the office.

(c) Pursuant to subdivision (a) or (b), the program manager
may do the following:

(1) Terminate the temporary withdrawal.

(2) Terminate the temporary withdrawal subject to the
corporation’s adoption of a specified remedial action plan.

(3) Temporarily withdraw, or continue to withdraw, guarantee
authority until a specified time. This determination by the program
manager shall require a finding that the corporation has failed to
comply with the California Small Business Development
Corporation Law (Chapter 1 (commencing with Section 14000)
of Part 5 of Division 3 of Title 1 of the Corporations Code).

(4) Suspend the corporation.

(5) Suspend the corporation, with suspension stayed until the
corporation provides a remedial action plan to the executive
director, and the executive director decides whether to repeal or
implement the stayed suspension.

(d) The determinations contained in paragraphs (4) and (5) of
subdivision (c) require a finding that irreparable harm will occur
unless the corporation is suspended.

(e) In considering a determination regarding the recommended
suspension and possible remedial action plans, the program
manager shall consider, along with other criteria as specified in
subdivision (b), the corporation’s history and past performance.

(f) Upon suspension of a corporation, the program manager
shall transfer all funds, whether encumbered or not, in the trust
fund account of the suspended corporation into either the
expansion fund or temporarily transfer the funds to another
corporation.

(g) If the program manager decides to take any action against
the corporation pursuant to paragraphs (2) to (5), inclusive, of
subdivision (c), the corporation shall be notified of the action 10
days before the effective date of the action. The corporation shall
have the right to appeal the program manager’s decision to the
director of the California Small Business Board within that 10-day
period by sending notice to the executive director. Once the
executive director receives notice that the action is being appealed,
the program manager’s action shall be stayed except for temporary
withdrawal of guarantee authority. Upon receipt of the notice from
the corporation, the executive director shall notify the small
business board within three working days. The California Small
Business Board shall consider and make a final determination on
the appeal within 30 days of receiving notice. The small business
board may elect to take any of the actions listed in subdivision (h).
The temporary withdrawal of corporation guarantee authority
shall remain in effect until the executive director small business
board issues a decision.

(h) Pursuant to subdivision (g), the small business board may
do any of the following:

(1) Terminate the action taken by the program manager.

(2) Modify the action taken by the program manager subject to
the adoption by the corporation of a specified remedial action
plan.

(3) Affirm the action taken by the program manager.

(i) Following suspension, the corporation may continue its
existence as a nonprofit corporation pursuant to the Nonprofit
Public Benefit Corporation Law (Part 2 (commencing with Section
5110) of Division 2 of Title 1 of the Corporations Code), but shall
no longer be registered with the Secretary of State as a small
business financial development corporation. A corporation shall
not enjoy any of the benefits of a small business financial
development corporation following suspension.

(j) The funds in the trust fund account of a corporation under
temporary withdrawal shall be transferred to the expansion fund.
Upon termination of the temporary withdrawal, unless the
termination is caused by suspension, the funds of the corporation
that were transferred to the expansion fund from the trust fund
account shall be returned to the corporation’s trust fund account,
notwithstanding Section 63089.53. While the funds of a
corporation’s trust fund account reside in the expansion fund, use
of the principal on the funds shall be governed by the implementing
regulations specifying use of funds in the expansion fund. Interest
on the funds moved from a corporation’s trust fund account upon
temporary withdrawal shall be limited to payment of the
corporation’s administrative expenses, as contained in the contract
between the corporation and the state pursuant to this title.

 

Article begin insert 5. end insert   Expansion Fund

 

begin insert 63089.5. end insert   

(a) There is hereby continued in existence 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.

(b) The expansion fund and the trust fund shall be used to pay
for defaulted loan guarantees issued pursuant to this title, surety
bond losses, administrative costs of corporations, and those costs
necessary to protect a real property interest in a defaulted loan
or guarantee.

(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government moneys,
and other public or private money to make loans, guarantees, and
restricted investments pursuant to this title.

(d) One or more accounts may be created by the program
manager for corporations participating in one or more programs
authorized under this title. Each account is a legally separate
account, and shall not be used to satisfy loan or surety bond
guarantees or other obligations of another corporation.

(e) 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.

(f) 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.

begin insert 63089.51. end insert   

(a) All money deposited in the expansion fund is
hereby continuously appropriated, without regard to fiscal years,
for the purposes of this title.

(b) Except as specified in subdivision (a) of Section 63089.53,
the state shall not be liable or obligated in any way beyond the
state money that is allocated in the expansion fund from moneys
from the General Fund moneys appropriated for those purposes.

begin insert 63089.52. end insert   

(a) The program manager at his or her discretion,
with the approval of the Director of Finance, may request the
trustee to invest those funds in the trust fund in any of the securities
described in Section 16430. Returns from these investments shall
be deposited in the expansion fund and shall be used to support
the programs of this title.

(b) Any investments made in securities described in Section
16430 shall be governed by the statement of investment policy
prepared by the Treasurer pursuant to subdivision (a) of Section
16481.2.

begin insert 63089.53. end insert   

(a) The state shall not be liable or obligated in any
way beyond the money that is allocated and deposited in the
corporation’s trust fund account.

(b) The program manager may reallocate funds held within a
corporation’s trust fund account.

(1) The program manager shall reallocate funds based on which
corporation is most effectively using its guarantee funds. If funds
are withdrawn from a less effective corporation as part of a
reallocation, the program manager shall make that withdrawal
only after giving consideration to that corporation’s fiscal
solvency, its ability to honor loan guarantee defaults, and its ability
to maintain a viable presence within the region it serves.
Reallocation of funds shall occur no more frequently than once
per fiscal year. Any decision made by the program manager
pursuant to this subdivision may be appealed to the bank board
unless otherwise specified. The program manager has the authority
to repeal or modify any decision to reallocate funds.

(2) The program manager may authorize a corporation to
exceed the leverage ratio specified in Section 63089.5 or
subdivision (a) of Section 63089.66, or subdivision (c) of Section
14017 of the Corporations Code, pending the annual reallocation
of funds pursuant to this section. However, no corporation shall
be permitted to exceed an outstanding guarantee liability of more
than five times its portion of funds on deposit in the expansion
fund.

begin insert 63089.54. end insert   

(a) There is hereby created in the State Treasury
the Small Business Disaster Recovery Loan Loss Reserve Account,
as part of the expansion fund. This account shall be used to pay
for unrecovered losses resulting from loan guarantees issued
pursuant to subdivision (a) of Section 63089.90 or subdivision (b)
of this section, and disaster loan guarantees issued prior to the
effective date of this section that are in default.

(b) Any lending institution that issues a low-interest loan that
is guaranteed by resources in this account shall be fully reimbursed
for the guaranteed portion of principal and interest that result
from a loan or loans that are in default. If there are insufficient
funds in this account to fully satisfy all claimants, the full faith of
the resources in the General Fund are pledged to satisfy the
obligations of this account. This account may only guarantee as
much loan dollar value as is specifically authorized by the Director
of Finance with the concurrence of the Governor. This account
shall receive all moneys transferred pursuant to Section 63089.55,
and any unencumbered balances transferred to the California
Small Business Expansion Fund pursuant to Chapters 11 and 12
of the First Extraordinary Session of the Statutes of 1989, and
Chapter 1525 of the Statutes of 1990, as of July 1, 1992.

(c) The Governor may utilize this authority to prevent business
insolvencies and loss of employment in an area affected by a state
of emergency within the state and declared a disaster by the
President of the United States, by the Administrator of the United
States Small Business Administration, or by the United States
Secretary of Agriculture, or declared to be in a state of emergency
by the Governor of California.

begin insert 63089.55. end insert   

The Director of Finance, with the approval of the
Governor, may transfer moneys in the Special Fund for Economic
Uncertainties to the California Small Business Expansion Fund
for use as authorized by the bank board, in an amount necessary
to make loan guarantees pursuant to this title.

begin insert 63089.56. end insert   

(a) The funds in the expansion fund shall be paid
out to trust fund accounts by the Treasurer on warrants drawn by
the Controller and requisitioned by the executive director, pursuant
to the purposes of this title. The program manager may transfer
funds allocated from the expansion fund to accounts, established
solely to receive the funds, in lending institutions designated by
the office to act as trustee. The lending institutions so designated
shall be approved by the state for the receipt of state deposits.
Interest earned on the trust fund accounts in lending institutions
may be utilized by the corporations pursuant to the purposes of
this title.

(b) Except as specified in subdivision (d), the program manager
shall allocate and transfer money to trust fund accounts based on
performance-based criteria. The criteria shall include, but not be
limited to, the following:

(1) The default record of the corporation.

(2) The number and amount of loans guaranteed by a
corporation.

(3) The number and amount of loans made by a corporation if
state funds were used to make those loans.

(4) The number and amount of surety bonds guaranteed by a
corporation.

(c) Any decision made by the executive director pursuant to
subdivision (b) may be appealed to the director within 15 days of
notice of the proposed action. The director may repeal or modify
any reallocation and transfer decisions made by the executive
director.

(d) The criteria specified in subdivision (b) shall not apply to
a corporation that has been in existence for five years or less. If
not already adopted, the office shall develop regulations specifying
the basis for transferring account funds to those corporations that
have been in existence for five years or less.

begin insert 63089.57. end insert   

Pursuant to this section and any regulations adopted
pursuant to this title, the state has residual interest in the funds
deposited by the state to a trust fund account and to the return on
these funds from investments. On dissolution or suspension of the
corporation, these funds shall be withdrawn by the executive
director from the trust fund account and returned to the expansion
fund or temporarily transferred to another trust fund account. This
provision shall be contained in the trust instructions to the trustee.

begin insert 63089.58. end insert   

Each trust fund account shall consist of a loan
guarantee account, and, upon recommendation by the program
manager, a bond guarantee account, each of which is a legally
separate account, and the assets of one account shall not be used
to satisfy loan guarantees or other obligations of another
corporation. Not more than one-third of a trust fund account shall
be allocated to a bond guarantee account. A corporation shall not
use trust fund accounts to secure a corporate indebtedness. State
funds deposited in the trust fund accounts, with the exception of
guarantees established pursuant to this title, shall not be subject
to liens or encumbrances of the corporation or its creditors.

begin insert 63089.59. end insert   

(a) The financial institution that is to act as trustee
of the trust fund shall be designated after review by the program
manager. The corporation shall not receive money on deposit to
support guarantees issued under this title without the approval of
the program manager.

(b) State funds may not be used to finance an expense incurred
by a corporation in a location not approved pursuant to a statewide
plan. The prohibition against use of state funds also applies to the
location of satellite offices, and the area served from a corporation
office.

 

Chapter   begin insert 6. end insert Guarantee Program

 

begin insert 63089.61. end insert   

(a) The Small Business Loan Guarantee Program,
which is hereby continued in existence, shall provide guarantees
to loans offered by financial institutions to small businesses.

(b) The Legislature finds and declares that the Small Business
Loan Guarantee Program has enabled participating small
businesses that do not qualify for conventional business loans or
Small Business Administration loans to secure funds to expand
their businesses. These small businesses would not have been able
to expand their businesses in the absence of the program. The
program has also provided valuable technical assistance to small
businesses to ensure growth and stability. The study commissioned
by former Section 14069.6 of the Corporations Code, as added by
Chapter 919 of the Statutes of 1997, documented the return on
investment of the program and the need for its services. The value
of the program has also been recognized by the Governor through
proposals contained in the May Revision to the Budget Act of 2000
for the 2000-01 fiscal year.

begin insert 63089.62. end insert   

The program manager, following notification to the
bank director, may do all of the following:

(a) Contract for services entered into pursuant to this title.

(b) Hold public hearings.

(c) Act as liaison between corporations, other state and federal
agencies, lenders, and the Legislature.

(d) Process and tabulate on a monthly basis all corporate
reports.

(e) Attend board meetings.

(f) Attend and participate at corporation meetings. The program
manager, or his or her designee, shall be an ex officio, nonvoting
representative on the board of directors and loan committees of
each corporation. The program manager shall meet with the board
of directors of each corporation at least once each fiscal year.

(g) Assist corporations in applying for public and private
funding opportunities, and in obtaining program support from the
business community.

begin insert 63089.63. end insert   

(a) The program manager shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
program manager’s decision may be repealed or modified by a
bank board resolution.

(b) 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.

(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.

begin insert 63089.63. end insert   

(a) The program manager shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
program manager’s decision may be repealed or modified by an
office resolution.

(b) 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 program manager has
permitted a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 63089.53.

(c) This section shall become operative on January 1, 2018.

begin insert 63089.64. end insert   

(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 executive director.

(c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative
costs of the corporations.

(d) 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.

begin insert 63089.64. end insert   

(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 executive director, unless the
executive director authorizes a higher leverage ratio for an
individual corporation pursuant to subdivision (b) of Section
63089.53.

(c) The expansion fund and trust fund accounts shall be used
exclusively to guarantee obligations and pay the administrative
costs of the corporations.

(d) This section shall become operative on January 1, 2018.

begin insert 63089.65. end insert   

A corporation may charge the borrower or financial
institution a loan fee on all loans made or guaranteed by the
corporation to defray the operating expenses of the corporation.
The amount of the fee shall be determined by the program manager.

begin insert 63089.66. end insert   

(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
office shall report annually to the Legislature on the financial
status of the corporations and their portfolio of loans and surety
bonds guaranteed pursuant to Section 9795.

(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 executive 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.

begin insert 63089.66. end insert   

(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 office authorizes a higher leverage ratio for an individual
corporation pursuant to subdivision (b) of Section 63089.53, so
that the financing needs of small business may be met as fully as
possible within the limits of corporations’ loan loss reserves. The
bank shall report annually to the Legislature on the financial status
of the corporations and their portfolio of loans and surety bonds
guaranteed pursuant to Section 9795.

(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 program manager 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.

begin insert 63089.67. end insert   

(a) A corporation shall establish one or more loan
committees, each of which shall be composed of five or more
persons, a majority of whom shall be experienced in banking and
lending operations.

(b) A loan committee shall review applications to the
corporation for a loan or guarantee and shall do each of the
following:

(1) Determine the feasibility of the proposed transaction. The
loan committee shall recommend approval of the application only
upon a determination that there is a reasonable chance that the
loan will be repaid.

(2) On the basis of that determination, recommend to the board
of directors any action that the loan committee deems appropriate
under the circumstances, or, in the event that approval authority
has been delegated to the loan committee by the board of directors,
approve or disapprove the loan application.

(c) A loan committee shall expeditiously act to accept or reject
loan applications.

(d) A person who has a financial interest related to a matter
over which the loan committee has authority may not make,
participate in making, or in any way attempt to influence that
matter.

begin insert 63089.68. end insert   

Unless delegated to its loan committee, the
corporation’s board of directors, upon a recommendation from
its loan committee shall do all of the following:

(a) Emphasize consideration to applications that will increase
employment of disadvantaged, disabled, or unemployed persons,
or increase employment of youth residing in areas of high youth
unemployment and high youth delinquency.

(b) Give consideration to applications from traditional and
safety-net providers of Medi-Cal services that will promote access
to quality medical care for individuals enrolled in Medi-Cal
managed health care networks that are contracting with or owned
or operated by a county board of supervisors, a county health
commission, or a county health authority organized pursuant to
Section 14018.7, 14087.31, 14087.35, 14087.36, 14087.38, or
14087.9605 of the Welfare and Institutions Code.

(c) Not grant a loan or guarantee, unless it determines that the
conditions of Section 200033 are satisfied.

begin insert 63089.69. end insert   

(a) Among other priorities, corporations shall give
high priority to the issuance of loan guarantees to small business
incubators and to businesses that lease space in incubators.

(b) For the purposes of this section, “incubator” means a facility
that allows new small businesses to increase their probability of
success by sharing needed capital equipment, services, and
facilities, which may include, but are not limited to, the following:

(1) Reception and meeting area.

(2) Secretarial services, such as collating, telephone answering,
or mailhandling.

(3) Accounting and bookkeeping services.

(4) Research libraries.

(5) Onsite financial and management counseling.

(6) Parking.

(7) Flexible lease arrangements for flexible space.

(8) Computer or word processing facilities.

(9) Day care facilities.

(10) Office furniture rentals.

(11) A graduation policy sometimes requiring firms to leave
after three to five years in a subsidized, nurturing environment.

(12) Employee training and placement services.

(c) Among other priorities, corporations shall give high priority
to marketing their services to Phase 1 or Phase 2 Small Business
Innovation Research (SBIR) recipients and providing loan
guarantees, whenever possible.

 

Chapter   begin insert 7. end insert Direct Lending

 

begin insert 63089.80. end insert   

(a) A corporation may utilize funds for direct
lending as long as at least 80 percent of the corporate funds,
calculated by dollar amount, and all expansion funds are
guaranteed by another public or private financial institution.

(b) The amount of funds available for direct lending shall be
determined by the program manager. 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 office shall issue regulations governing
these direct loans, including the maximum amount of these loans.

(c) To execute the direct loan programs established in this
chapter, the program manager 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 program manager to the corporation shall be on terms
similar to the loan between the corporation and the borrower.

(d) The amount of the loan may be in excess of the amount of a
loan to any individual borrower, but actual disbursements pursuant
to the office loan agreement shall be required to be supported by
a loan agreement between the borrower and the corporation in
an amount at least equal to the requested disbursement. The loan
between the bank 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 bank. 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.

(e) In the absence of fraud on the part of the corporation, the
liability of the corporation to repay the loan to the bank 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 office
if the corporation has exhausted a loan loss reserve created for
this purpose. Interest and principal received by the office from the
corporation shall be deposited into the same account from which
the funds were originally borrowed.

(f) Upon the approval of the program manager, a corporation
shall be authorized to borrow trust funds from the bank for the
purpose of relending those funds to small businesses. A corporation
shall demonstrate to the program manager 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.

(g) The maximum loan amount to a small business shall be set
by the program manager, but in no case shall it be more than three
hundred thousand dollars ($300,000). 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 office that are not disbursed.
The corporation shall be authorized to charge a fee to the small
business borrower, in an amount determined by the executive
director pursuant to regulation. The program provided for in this
subdivision shall be available in all geographic areas of the state.

 

Chapter   begin insert 8. end insert Disaster Loan Guarantees

 

begin insert 63089.90. end insert   

(a) A corporation may, in an area affected by a
state of emergency within the state and declared a disaster by the
President of the United States, the Administrator of the United
States Small Business Administration, or the United States
Secretary of Agriculture, or declared to be in a state of emergency
by the Governor of California, provide loan guarantees from funds
allocated in Section 63089.55 to small businesses, small farms,
nurseries, and agriculture-related enterprises that have suffered
actual physical damage or significant economic injury as a result
of the disaster.

(b) If regulations have not otherwise been adopted, the bank
board may adopt or readopt regulations to implement the loan
guarantee program authorized by this section. The bank board
may adopt these regulations as emergency regulations in
accordance with Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2, and for purposes of that chapter,
including Section 11349.6, the adoption of the regulations shall
be considered by the Office of Administrative Law to be necessary
for the immediate preservation of the public peace, health and
safety, and general welfare. Notwithstanding subdivision (e) of
Section 11346.1, the regulations shall be repealed within 180 days
after their effective date unless the office complies with Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2, as provided in subdivision (e) of Section 11346.1.

(c) Allocations pursuant to subdivision (a) shall be deemed to
be for extraordinary emergency or disaster response operations
costs incurred by the office.

 

Chapter   begin insert 9. end insert Energy Efficiency Loans

 

begin insert 63089.93. end insert   

(a) Corporations may grant energy efficiency
improvement loans.

(b) The bank shall enter into an agreement with the California
Energy Extension Service of the Office of Planning and Research
to assist small business owners in reducing their energy costs
through low-interest loans and by providing assistance and
information.

 

Chapter   begin insert 10. end insert Surety Bonds

 

begin insert 63089.95. end insert   

In furtherance of the purposes set forth in Section
63088.1 of this code and Section 14002 of the Corporations Code,
a corporation may do any one or more of the following activities,
but only to the extent that the activities are authorized pursuant
to the contract between the bank and corporation: guarantee,
endorse, or act as surety on the bonds, notes, contracts, or other
obligations of, or assist financially, any person, firm, corporation,
or association, and may establish and regulate the terms and
conditions with respect to any such loans or financial assistance
and the charges for interest and service connected therewith, except
that the corporation shall not make or guarantee any loan, unless
and until it determines:

(a) There is no probability that the loan or other financial
assistance would be granted by a financial company under
reasonable terms or conditions, and the borrower has
demonstrated a reasonable prospect of repayment of the loan.

(b) The loan proceeds shall be used exclusively in this state.

(c) The loan qualifies as a small business loan or an employment
incentive loan.

(d) That the borrower has a minimum equity interest in the
business as determined by the director.

(e) As a result of the loan, the jobs generated or retained
demonstrate reasonable conformance to the regulations specifying
employment criteria.

begin insert 63089.96. end insert   

(a) In addition to the authority granted by Section
63089.95, upon approval of the executive director, a corporation
may act as guarantor on a surety bond for any small business
contractor, including, but not limited to, women, minority, and
disabled veteran contractors.

(b) The provisions of subdivision (a) allowing a corporation to
act as a guarantor on surety bonds may be funded through
appropriate federal funding sources. Federal funds shall be
deposited in the Federal Trust Fund in the State Treasury in
accordance with Section 16360, for transfer to the expansion fund.

 

Chapter   begin insert 11. end insert Reporting

 

begin insert 63089.97. end insert   

(a) Except as otherwise provided in this title, the
trust fund account shall be used solely to make loans, guarantee
bonds, and guarantee loans, approved by the corporation, that
meet the loan criteria under this chapter. The state shall not be
liable or obligated in any way as a result of the allocation of state
moneys to a trust fund account beyond the state moneys that is
allocated and deposited in the fund pursuant to this title, and that
is not otherwise withdrawn by the state pursuant to this chapter.

(b) A summary of all loans and bonds to which a state guarantee
is attached shall be submitted to the program manager upon
execution of the loan agreement and periodically thereafter.

(c) A summary of all loans made by a corporation shall be
submitted to the program manager upon execution of the loan
agreement and periodically thereafter.

begin insert 63089.98. end insert   

(a) Annually, not later than January 1 of each year
commencing January 1, 2014, the program manager shall prepare
a report regarding the loss experience for the expansion fund for
loan guarantees, loss reserves, and surety bond guarantees for
the preceding fiscal year. At a minimum, the report shall also
include data regarding numbers of surety bond and loan
guarantees awarded through the expansion fund, including
ethnicity and gender data of participating contractors and other
entities, and experience of surety insurer participants in the bond
guarantee program. The report shall include the information
described in Section 63089.66. The program manager shall post
the information on the bank’ Internet Web site and submit notice
report to the Governor and the Legislature when that information
in available on its Internet Web site.

(b) A corporation shall also report to the program manager, or
his or her designated representative, all statistical and other
reports required by this title, responses to audit reports, budget
requirements, invoices submitted for payment by the state, and
information concerning loans made or guaranteed.

begin insert 63089.99. end insert   

Pursuant to subdivision (f) of Section 8684.2, within
60 days of the conclusion of the period for guaranteeing loans
under any small business disaster loan guarantee program
conducted for a disaster as authorized by Section 8684.2 or
200030, the bank shall provide a report to the Legislature on loan
guarantees approved and rejected by gender, ethnic group, type
of business and location, and each participating loan institution
pursuant to Section 9795. The bank need only submit one report
to comply with this section and subdivision (f) of Section 8684.2.

end insert

SEC. 4.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.