Amended in Senate June 5, 2013

Amended in Assembly April 17, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 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 Chapter 6 (commencing with Section 63088) to Division 1 of Title 6.7 to, to repeal Sections 63089.5, 63089.63, 63089.64, and 63089.66 of, the Government Code, relating to business,begin delete andend delete making an appropriation thereforbegin insert, and declaring the urgency thereof to take effect immediatelyend insert.

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 California Infrastructure and Economic Development Bank and a program manager designated by the executive director of the Infrastructure and Economic Development Bank, 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.

begin insert

This bill would declare that it is to take effect immediately as an urgency statute.

end insert

Vote: 23. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

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

P2    1

SECTION 1.  

Chapter 1 (commencing with Section 14000) of
2Part 5 of Division 3 of Title 1 of the Corporations Code is repealed.

3

SEC. 2.  

Chapter 1 (commencing with Section 14000) is added
4to Part 5 of Division 3 of Title 1 of the Corporations Code, to read:

5 

6Chapter  1. California Small Business Financial
7Development Corporations
8

8 

9Article 1.  Introduction
10

 

11

14000.  

This chapter shall be known and may be cited as the
12California Small Business Financial Development Corporation
13Law.

P3    1

14001.  

(a) It is the intent of the Legislature in enacting this
2chapter to promote the economic development of small businesses
3by making available capital, general management assistance, and
4other resources, including loan and equity investment services,
5personnel, and business education to small business entrepreneurs,
6including women and minority owned businesses, for the purpose
7of promoting the health, safety, and social welfare of the citizens
8of California, to eliminate unemployment of the economically
9disadvantaged of the state, and to stimulate economic development,
10employment, minority group, women, and disabled persons
11entrepreneurship.

12(b) It is the further intent of the Legislature to provide a flexible
13means to mobilize and commit all available and potential resources
14in the various regions of the state to fulfill these objectives,
15including federal, state, and local public resources, and private
16debt and equity investment.

17(c) It is the further intent of the Legislature that corporations
18operating pursuant to this law, shall to the maximum extent
19feasible, coordinate with other job and business development
20efforts within their region directed toward implementing the
21purpose of thisbegin delete partend deletebegin insert chapterend insert.

22(d) It is the further intent of the Legislature to provide expanded
23resources allowing participation by small and emerging contractors
24in state public works contracts. Increased access to surety bonding
25resources will assist in supporting participation by those firms in
26public works contracts, and by stimulating increased participation
27by small firms, the state will benefit from increased competition
28and lower bid costs.

29

14002.  

If any provision of this chapter or the application thereof
30to any person or circumstances is held invalid, this invalidity shall
31not affect other provisions or applications of the chapter which
32can be given effect without the invalid provision or application,
33and to this end the provisions of this chapter are severable.

34 

35Article 2.  Definitions
36

 

37

14003.  

Unless the context otherwise requires, the definitions
38in this section shall govern the construction of this chapter.

39(a) “Bank board” means the board of directors of the California
40Infrastructure and Economic Development Bank.

P4    1(b) “Board” means the California Small Business Board.

2(c) “Board of directors” means the board of directors of the
3corporation.

4(d) “Corporation” means any nonprofit California small business
5financial development corporation created pursuant to this chapter.

6(e) “Executive director” means the executive director of the
7Infrastructure and Economic Development Bank.

8(f) “Expansion fund” means the California Small Business
9Expansion Fund.

10(g) “Financial company” means banking organizations, including
11national banks and trust companies, savings and loan associations,
12certified community development financial institutions,
13begin delete microlenders,end deletebegin insert microbusiness lenders,end insert state insurance companies,
14mutual insurance companies, and other public and private banking,
15lending, retirement, and insurance organizations.

16(h) “Financial institution” means regulated banking
17organizations, including national banks and trust companies
18authorized to conduct business in the state and state-chartered
19commercial banks, trust companies, credit unions, and savings and
20loan associations.

21(i) “Loan committee” means a committee appointed by the board
22of directors of a corporation to determine the course of action on
23a loan application pursuant to Chapter 6 (commencing with Section
2463088) of Division 1 of Title 6.7 of the Government Code.

25(j) “Program Manager” means thebegin delete personend deletebegin insert manager of a specific
26program asend insert
designated to this title by the executive director of the
27Infrastructure and Economic Development Bank.

28(k) “Trust fund” means the money from the expansion fund that
29is held in trust bybegin insert aend insert financial institution or financial company. A
30trust fund is not a deposit of state funds and is not subject to the
31requirements of Section 16506 of the Government Code.

32(l) “Trust fund account” means an account within the trust fund
33that is allocated to a particular small business financial
34development corporation for the purpose of paying loan defaults
35and claims on bond guarantees for a specific small business
36financial development corporation.

37 

38Article 3.  Program Manager
39

 

40

14004.  

(a) The program manager shall do all of the following:

P5    1(1) Administer this chapter.

2(2) Make recommendations to the board on the approval or
3disapproval of the articles of incorporation. This determination
4shall be based upon the following:

5(A) Review of the articles of incorporation and bylaws of the
6corporation to determine whether they contain the provisions
7required by this chapter and conform with the regulations adopted
8pursuant to this chapter.

9(B) A determination as to whether the legislative intent
10expressed in Section 14001 shall be served by the proposed
11corporation.

12(C) A determination as to whether the responsibility, character,
13and general fitness of the individuals who will manage the
14corporation are such as to command the confidence of the state
15and to warrant the belief that the business of the proposed
16corporation will be honestly and efficiently conducted in
17accordance with the intent and purpose of this chapter and that
18they include representatives of the financial and business
19community, as well as the economically disadvantaged.

20(3) Have the accounts of each corporation formed under this
21chapter audited as of the close of business on June 30 of each year.

22(4) Have the portfolio of each corporation audited a minimum
23of once a year. Material audit exceptions that are not corrected by
24the corporation within a reasonable period of time may result in
25the suspension of the corporation pursuant to Section 63089.3 of
26the Government Code.

27(5) Review reports from the Department of Business Oversight
28and inform corporations as to what corrective action is required.

29(6) Examine, or cause to be examined, at any reasonable time,
30all books, records, and documents of every kind, and the physical
31properties of a corporation. The inspection shall include the right
32to make copies, extracts, and search records.

33(b) The program manager may attend and participate at
34corporation meetings. The program manager, or his or her designee,
35shall be an ex officio, nonvoting representative on the board of
36directors and loan committees of each corporation. The program
37manager shall meet with the board of directors of each corporation
38at least once each fiscal year, commencing January 1, 2014.

P6    1

begin delete1404.1.end delete
2begin insert14004.1.end insert  

(a) The California Small Business Board is hereby
3continued and created asbegin delete a subcommittee ofend deletebegin insert an advisory board toend insert
4 the California Infrastructure and Economic Development Bank
5Boardbegin insert, the executive director, and the program managerend insert. The
6California Small Business Board consists of the following
7membership:

8(1) The Director of Finance or his or her designee.

9(2) The Director of the Office of the Small Business Advocate
10or his or her designee.

11(3) The Treasurer or his or her designee.

12(4) Two corporations selected by the corporations.

13(5) Two members appointed by the Governor, one of whom
14will serve as chair of the board, who are actively involved in the
15California small business community.

begin insert

16(6) Two persons actively involved in the business or agricultural
17communities, one appointed by the Speaker of the Assembly and
18one appointed by the Senate Committee on Rules.

end insert
begin insert

19(7) Two Members of the Legislature, or their designees, one
20appointed by the Speaker of the Assembly and one appointed by
21the Senate Committee on Rules, so long as it does not conflict with
22the duties of their duties as legislators.

end insert

23(b) The California Small Business Board shall do each of the
24following:

25(1) Advise the program manager on matters regarding this part
26and Chapter 6 (commencing with Section 63088) of Division 1 of
27Title 6.7 of the Government Code.

28(2) Approve new corporations recommended by the program
29manager, based on an examination of each of the following:

30(A) Review of the articles of incorporation and bylaws of the
31corporation to determine whether they contain the provisions
32required by this chapter and conform with the regulations adopted
33pursuant to this part.

34(B) Determination as to whether the legislative intent expressed
35in Section 14002 will be served by the proposed corporation.

36(C) Determination as to whether the responsibility, character,
37and general fitness of the individuals who will manage the
38corporation are able to command the confidence of the state and
39to warrant the belief that the business of the proposed corporation
40will be honestly and efficiently conducted in accordance with the
P7    1intent and purpose of this chapter and that they include
2representatives of the financial and business community, as well
3as the economically disadvantaged.

4(c) The public members of the board, at the discretion of the
5bank board, may be reimbursed per diem and travel expenses
6pursuant to state law.

7 

8Article 4.  New Corporations
9

 

10

14005.  

Upon approval by the board to become a corporation,
11an entity shall adopt or amend its articles of incorporation to
12comply with the following:

13(a) The name of the corporation shall include the words “small
14business financial development corporation,” except for those
15corporations formed pursuant to this chapter prior to 2002, which
16may also be called “small business development corporations,” or
17those formed prior to 1985, which may also be called “rural or
18urban development corporations.”

19(b) The purposes for which the corporation is formed, which
20shall be those specified in Section 14001. This requirement shall
21not be deemed to preclude a statement of powers.

22(c) A geographical description of the corporation’s primary
23service area.

24(d) The name and addresses of seven or more persons who are
25to act in the capacity of directors until the selection of their
26successors.

27(e) That the corporation is organized pursuant to the California
28Small Business Financial Development Corporation Law.

29

14006.  

If the board determines that the facts disclosed by the
30investigation provided by Section 14004 are true and finds that
31the proposed incorporation meets all the requirements of this
32chapter, the program manager shall approve the articles of
33incorporation and endorse the approval thereon and forward the
34same to the Secretary of State for his or her approval and filing.
35Likewise, the program manager shall review all amendments to
36the articles to ensure consistency with the purposes of the article.

37

14007.  

(a) The corporation’s existence as a small business
38development corporation begins upon the filing of the articles with
39the Secretary of State and continues perpetually, unless otherwise
40expressly provided for by law.

P8    1(b) If a corporation is suspended, the corporation may continue
2its existence as a nonprofit corporation pursuant to the Nonprofit
3Public Benefit Corporation Law (Part 2 (commencing with Section
45110) of Division 2 of Title 1 of the Corporations Code), but shall
5no longer be registered with the Secretary of State as a small
6business financial development corporation. A corporation shall
7not enjoy any of the benefits of a small business financial
8development corporation following suspension.

9

14008.  

(a) Any request for proposal for selection of a
10corporation shall be approved by the bank and require the winning
11bidder to adopt or amend its bylaws to include provisions governing
12the election and qualification of directors, the establishment and
13functions of loan committees of the corporation, and the method
14of selecting the representative of the corporation on the board.

15(b) The bylaws shall provide for removal of officers only by a
16two-thirds vote of the directors of the corporation.

17

14009.  

Each corporation shall have provisions establishing a
18grievance procedure for employees, clients, or potential clients,
19to appeal a decision or obtain redress of an action done by the staff
20or loan committee of the corporation. The procedures shall be
21established in writing during the probationary period of a new
22corporation.

23

14010.  

The program manager may authorize the establishment
24of a new corporation using a request for proposal process.

25

14011.  

The Nonprofit Public Benefit Corporation Law (Part
262 (commencing with Section 5110) of Division 2 of this title)
27applies to corporations formed under this chapter, except as to
28matters otherwise provided for in this chapter.

29

14012.  

For six months following the establishment of a
30corporation, commencing upon filing of the articles of
31incorporation with the Secretary of State, a corporation shall be
32on probation. While on probation, a corporation may be suspended
33if suspension is recommended by the program manager. This
34suspension is nonappealable and not subject to the procedures for
35suspension applicable to a corporation not on probation.

36 

37Article 5.  Corporation Board
38

 

39

14013.  

The corporate powers of a corporation shall be exercised
40by the board of directors.

P9    1

14014.  

A request for proposal for selection of a corporation
2shall require the winning bidder to adopt or amend its bylaws to
3state that:

4(a) A person may not serve on a board of directors who is not
5a resident of, or person conducting business in, the service area
6described in the articles of incorporation.

7(b) Each board of directors shall include representatives from
8all of the following:

9(1) The financial community.

10(2) The business community.

11(3) The economically disadvantaged.

12(c) Not more than one employee of the corporation may serve
13on the board of directors at any one time.

14(d) A person who has a financial interest related to a matter over
15which the board has authority may not make, participate in making,
16or in any way attempt to influence that matter.

17

14015.  

If any director ceases to meet the qualifications
18established in Section 14014, he or she shall immediately vacate
19his or her position as a director and such position shall be deemed
20vacant.

21

14016.  

If any vacancy occurs in the elective membership of
22the board of directors through death, resignation, or otherwise, the
23remaining directors shall elect a person representing the appropriate
24category to fill the vacancy for the unexpired term.

25

14017.  

(a) The California Infrastructure and Economic
26Development Bank shall establish new small business financial
27development corporations pursuant to the procedures otherwise
28established by this chapter. In approving the request for proposal,
29the bank shall ensure small businesses in all areas of the state
30would have reasonable access to the financialbegin delete programs,end deletebegin insert programsend insert
31 in which they are eligible. Establishment of a new corporation is
32dependent upon sufficient funding being available.

33(b) Additional corporations have been proposed in the following
34areas:

35(1) San Jose.

36(2) Santa Ana.

37(3) San Fernando Valley.

38(4) Ontario.

39(c) Upon an appropriation in the annual Budget Act for this
40purpose, the California Infrastructure and Economic Development
P10   1Bank shall approve the issuance of a request for a proposal to
2establish a small business financial development corporation in
3southeast Los Angeles.

4(d) In furtherance of the purposes of this chapter, up to one-half
5of the trust funds may be used to guarantee loans utilized to
6establish a Business and Industrial Development Corporation
7(BIDCO) under Division 15 (commencing with Section 31000)
8of the Financial Code.

9 

10Article 6.  Corporations, Miscellaneous
11

 

12

14018.  

Every corporation shall provide for, and maintain a
13central staff to perform, all administrative requirements of the
14corporation, including all those functions required of a corporation
15by the director.

16

14019.  

Reasonable costs incurred by a corporation in the
17creation and maintenance of a central staff shall be paid to the
18corporation from state funds, including a portion of the interest
19earned on the expansion fund and the corporation’s trust fund
20account, if the corporation has a trust fund account, otherwise, on
21the expansion fund.

22

14020.  

A corporation shall report to the program manager, or
23his or her designated representative, all statistical and other reports
24required by this chapter, responses to audit reports, budget
25requirements, and other information relating to the establishment,
26monitoring, and suspension of a corporation.

27

14021.  

A corporation shall make a report to the program
28manager, as of the close of business on June 30 of each year,
29describing the corporation’s activities and any additional
30information requested by the program manager, on or before
31August 1 of each year.

32 

33Article 7.  Conflict of Interest
34

 

35

14022.  

It shall be unlawful for the executive director, program
36manager, or any person who is an officer, director, or employee
37of a corporation, or who is a member of a loan committee, or who
38is an employee of the California Infrastructure and Economic
39Development Bank to do any of the following:

P11   1(a) Ask for, consent, or agree to receive, any commission,
2emolument, gratuity, money, property, or thing of value for his or
3her own use, benefit, or personal advantage, for procuring or
4endeavoring to procure for any person, partnership, joint venture,
5association, or corporation, any loan, guarantee, financial, or other
6assistance from any corporation.

7(b) Borrow money, property, or to benefit knowingly, directly
8or indirectly, from the use of the money, credit, or property of any
9corporation.

10(c) Make, maintain, or attempt to make or maintain, a deposit
11of the funds of a corporation with any other corporation or
12association on condition, or with the understanding, expressed or
13implied, that the corporation or association receiving the deposit
14shall pay any money or make a loan or advance, directly or
15indirectly, to any person, partnership, joint venture, association,
16or corporation, other than to a corporation formed under this
17chapter.

18

14023.  

It shall be unlawful for the executive director, program
19manager, or any person who is an officer or director of a
20corporation, or who is an employee of the California Infrastructure
21and Economic Development Bank to purchase or receive, or to be
22otherwise interested in the purchase or receipt, directly or
23indirectly, of any asset of a corporation, without paying to the
24corporation the fair market value of the asset at the time of the
25transaction.

26

14024.  

Violation of any provision of this article shall constitute
27a felony.

28

SEC. 3.  

Chapter 6 (commencing with Section 63088) is added
29to Division 1 of Title 6.7 of the Government Code, to read:

30 

31Chapter  6. Small Business Financial Assistance Act of
322013
33

33 

34Article 1.  Introduction
35

 

36

63088.  

This chapter shall be known, and may be cited, as the
37Small Business Financial Assistance Act of 2013.

38

63088.1.  

The Legislature finds all of the following:

39(a) Small businesses form the core of the California economy
40and that it is in the interest of the state to increase opportunities
P12   1for entrepreneurs, the self-employed, and microbusiness and small
2business owners to have better access to capital and other technical
3resources.

4(b) Unemployment in California is a matter of statewide concern
5requiring concerted public and private action to develop
6employment opportunities for the disadvantaged, unemployed
7persons, veterans, and youth.

8(c) It is necessary to direct additional capital, general
9management assistance, business education, and other resources
10to encourage the development of small business opportunities,
11particularly for minorities, women, and disabled persons, to
12alleviate unemployment.

13 

14Article 2.  Definitions
15

 

16

63088.3.  

Unless the context otherwise requires, the definitions
17in this section shall govern the construction of this chapter.

18(a) “Bank” means the California Infrastructure and Economic
19Development Bank.

20(b) “Bank board” means the board of directors of the California
21Infrastructure and Economic Development Bank.

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

23(d) “Corporation” means any nonprofit California small business
24financial development corporation created pursuant to Chapter 1
25(commencing with Section 14000) of Part 5 of Division 3 of Title
261 of the Corporations Code.

27(e) “Employment incentive loan” means a loan to a qualified
28business or to a business located within an enterprise zone, as
29defined in subdivision (d) of Section 7072.

30(f) “Executive director” means the executive director of the
31Infrastructure and Economic Development Bank.

32(g) “Expansion fund” means the California Small Business
33Expansion Fund.

34(h) “Financial company” means banking organizations, including
35national banks and trust companies, savings and loan associations,
36certified community development financial institutions,
37microlenders, state insurance companies, mutual insurance
38 companies, and other public and private banking, lending,
39retirement, and insurance organizations.

P13   1(i) “Financial institution” means regulated banking
2organizations, including national banks and trust companies
3authorized to conduct business in California and state-chartered
4commercial banks, trust companies, credit unions, and savings and
5loan associations.

6(j) “Loan committee” means a committee appointed by the board
7of directors of a corporation to determine the course of action on
8a loan application pursuant to this title.

9(k) “Program manager” means the person designated to this title
10by the executive director of the California Infrastructure and
11Economic Development Bank.

12(l) Unless otherwise defined by the executive director by
13regulation, “small business loan” means a loan to a business
14defined as an eligible small business as set forth in Section
15121.3-10 of Part 121 of Chapter 1 of Title 13 of the Code of Federal
16Regulations, including those businesses organized for agricultural
17purposes that create or retain employment as a result of the loan.
18From time to time, the executive director shall provide guidelines
19as to the preferred ratio of jobs created or retained to total funds
20borrowed for guidance to the corporations.

21(m) “Trust fund” means the moneys from the expansion fund
22that is held in trust by a financial institution or financial company.
23A trust fund is not a deposit of state funds and is not subject to the
24requirements of Section 16506.

25(n) “Trustee” means the lending institution or financial company
26selected by the office to hold and invest the trust funds. An
27agreement made pursuant to this title and the trustee shall not be
28construed to be a deposit of state funds.

29(o) “Trust fund account” means an account within the trust fund
30that is allocated to a particular small business financial
31development corporation for the purpose of paying loan defaults
32and claims on bond guarantees for a specific small business
33financial development corporation.

34 

35Article 3.  Program Purpose
36

 

37

63088.5.  

(a) There is within the Governor’s Office of Business
38and Economic Development the California Infrastructure and
39Economic Development Bank, which shall, among other things,
40assist businesses seeking new capital resources.

P14   1(b) Pursuant to this title, the bank may establish one or more
2programs administered regionally under contract with small
3business financial development corporations. Programs established
4pursuant to this title may include the following types of financial
5products:

6(1) Loan guarantees.

7(2) Direct loans.

8(3) Disaster assistance loans.

9(4) Surety bond guarantees.

10(c) In all of their state-funded programs, the corporations shall,
11to the extent practicable, be complementary to, and not competitive
12with, commercial lenders and other state and federal programs.

13(d) In carrying out this chapter the bank may call on the
14California Small Business Board for advice and recommendations.
15All actions by the California Small Business Board are advisory
16except where specifically assigned a duty and authority.

17(e) The Small Business Board may also advise the Governor,
18the director, and the Small Business Advocate regarding issues
19and programs affecting California’s small business community,
20including, but not limited to, business innovation and expansion,
21export finance, state procurement, management and technical
22assistance, venture capital, and financial assistance.

23

63088.6.  

To implement its responsibilities, a corporation shall
24undertake a program that shall include, but not be limited to, the
25following:

26(a) Outreach to low-resource small businesses and
27microbusinesses. The corporations located in rural areas shall give
28priority to low-resource farmers and rural and agriculturally related
29businesses.

30(b) Collaboration with other organizations and lenders to identify
31and assist those businesses that are creditworthy but face
32impediments to accessing conventional sources because of reasons,
33such as low equity, inadequate collateral, unacceptable legal
34structure (such as a co-op or nonprofit organization), management
35inadequacies, and language problems.

36(c) To the extent possible, bringing all possible financial
37resources (low-interest lenders, BIDCOs, MESBICs, other
38guarantors, etc.) to bear on the borrower’s problems.

39(d) Technical assistance to businesses receiving loans or
40guarantees that will maximize the probability of loan repayment.

P15   1(e) Ongoing strategies for increasing program resources through
2private sector involvement and nonstate funds.

3(f) A program for collecting and liquidating defaulted loans so
4that the corporations can qualify to become full-service lenders
5under the Small Business Administration. Corporations located in
6rural areas shall, in addition, try to qualify for lender status under
7the United States Department of Agriculture’s Rural Development
8and Farm Services Agency.

9(g) Become an agent for other financial institutions and financial
10companies.

11 

12Article 4.  Administrative Structure
13

 

14

63089.  

If regulations have not already been adopted under
15Chapter 1 (commencing with Section 14000) of Part 5 of Division
163 of Title 1 of the Corporations Code, as that chapter read on
17January 1, 2013, then the bank shall adopt regulations concerning
18the implementation of this title, Chapter 1 (commencing with
19Section 14000) of Part 5 of Division 3 of Title 1 of the
20Corporations Code, and direct lending as emergency regulations
21in accordance with Chapter 3.5 (commencing with Section 11340)
22of Part 1 of Division 3 of Title 2. The adoption of these regulations
23is an emergency and necessary for the immediate preservation of
24the public peace, health and safety, or general welfare within the
25meaning of subdivision (b) of Section 11346.1. Notwithstanding
26subdivision (e) of Section 11346.1, the regulations shall not remain
27in effect for more than 180 days unless the office complies with
28all provisions of Chapter 3.5 (commencing with Section 11340)
29of Part 1 of Division 3 of Title 2, as required by subdivision (e) of
30Section 11346.1. This section also applies to any direct loan
31program administered by the bank.

32

63089.1.  

The program manager shall do all of the following:

33(a) Administer this chapter.

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

37(c) In accordance with available resources, use branch offices
38for the purposes of making these programs under this chapter
39accessible to all areas of the state.

P16   1(d) Require each corporation to submit an annual written plan
2of operation.

3(e) Authorize the distribution, transfer, and withholding of
4moneys in the expansion fund and trust funds.

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

6(g) Oversee the operations of one or more programs authorized
7pursuant to this title.

8(h) Approve, suspend, or terminate a corporation’s ability to
9participate in a program under this title.

10

63089.2.  

The use of state funds paid out to the trust fund and
11the return on those funds from investment pursuant to Section
1263089.56 is conditional pursuant to Sections 63089.3 and 63089.57.
13Each corporation shall enter into a written signed agreement with
14the state at the beginning of each fiscal year. The agreement shall
15govern the activities in which the corporations engage, the
16investment of state funds and its return, and the budgeted
17administrative expenses the corporations may incur. In the event
18the state and corporation do not reach an agreement, or the state
19finds the corporation has violated the terms of an active agreement,
20the state may take any action under Section 63089.3 or 63089.57,
21or any other action as appropriate. In the event the state and
22corporation do not reach agreement or the state finds the
23corporation has violated the terms of an active agreement, the
24corporation shall have no authority to withdraw or encumber the
25trust fund or the return of those funds by the issuance of guarantees,
26by incurring expenses against the fund and its return in any manner
27whatsoever, and the state may take any action under Section
2863089.3 or 63089.57, or any other action as appropriate. Any
29guarantee or other encumbrance made by the corporation in
30violation of this section shall be null and void, and neither the state
31nor the trust fund will be liable therefor.

32

63089.3.  

(a) Upon a finding by the program manager that
33irreparable harm may occur if guarantee or direct loan authority
34is not temporarily withdrawn from a corporation, the program
35manager may temporarily withdraw guarantee or direct loan, or
36both, authority from a corporation. The notice of temporary
37withdrawal sent to the corporation shall specify the reasons for the
38action.

39(1) As used in this section, “guarantee and direct loan authority”
40means the authority to make or guarantee any loan that encumbers
P17   1funds in a trust fund account, any account or subaccount under the
2direct control of the office or other state entity, or the expansion
3fund.

4(2) The program manager shall make one of the determinations
5specified in subdivision (c) within 30 days of the effective date of
6the temporary withdrawal, unless the corporation and the executive
7director mutually agree to an extension. The corporation shall have
8the opportunity to submit written material to the program manager
9addressing the items stated in the temporary withdrawal notice. If
10the program manager does not make any determinations within
1130 days, the temporary withdrawal shall be negated. The
12corporation’s yearly contract shall remain in effect during the
13period of temporary withdrawal, and the corporation shall continue
14to receive reimbursement of necessary operating expenses.

15(b) Failure of a corporation to substantially comply with the
16following may result in the suspension of a corporation:

17(1) Regulations implementing the California Small Business
18Development Corporation Law (Chapter 1 (commencing with
19Section 14000) of Part 5 of Division 3 of Title 1 of the
20Corporations Code).

21(2) Fiscal and portfolio requirements, as contained in the fiscal
22and portfolio audits specified in Section 14004 of the Corporations
23Code.

24(3) Milestones and scope of work as contained in the annual
25contract between the corporation and the office.

26(c) Pursuant to subdivision (a) or (b), the program manager may
27do the following:

28(1) Terminate the temporary withdrawal.

29(2) Terminate the temporary withdrawal subject to the
30corporation’s adoption of a specified remedial action plan.

31(3) Temporarily withdraw, or continue to withdraw, guarantee
32 authority until a specified time. This determination by the program
33manager shall require a finding that the corporation has failed to
34comply with the California Small Business Development
35Corporation Law (Chapter 1 (commencing with Section 14000)
36of Part 5 of Division 3 of Title 1 of the Corporations Code).

37(4) Suspend the corporation.

38(5) Suspend the corporation, with suspension stayed until the
39corporation provides a remedial action plan to the executive
P18   1director, and the executive director decides whether to repeal or
2implement the stayed suspension.

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

6(e) In considering a determination regarding the recommended
7suspension and possible remedial action plans, the program
8manager shall consider, along with other criteria as specified in
9subdivision (b), the corporation’s history and past performance.

10(f) Upon suspension of a corporation, the program manager
11shall transfer all funds, whether encumbered or not, in the trust
12fund account of the suspended corporation into either the expansion
13fund or temporarily transfer the funds to another corporation.

14(g) If the program manager decides to take any action against
15the corporation pursuant to paragraphs (2) to (5), inclusive, of
16subdivision (c), the corporation shall be notified of the action 10
17days before the effective date of the action. The corporation shall
18have the right to appeal the program manager’s decision to the
19director of the California Small Business Board within that 10-day
20period by sending notice to the executive director. Once the
21executive director receives notice that the action is being appealed,
22the program manager’s action shall be stayed except for temporary
23withdrawal of guarantee authority. Upon receipt of the notice from
24the corporation, the executive director shall notify the small
25business board within three working days. The California Small
26Business Board shall consider and make a final determination on
27the appeal within 30 days of receiving notice. The small business
28board may elect to take any of the actions listed in subdivision (h).
29The temporary withdrawal of corporation guarantee authority shall
30remain in effect until the executive director small business board
31 issues a decision.

32(h) Pursuant to subdivision (g), the small business board may
33do any of the following:

34(1) Terminate the action taken by the program manager.

35(2) Modify the action taken by the program manager subject to
36the adoption by the corporation of a specified remedial action plan.

37(3) Affirm the action taken by the program manager.

38(i) Following suspension, the corporation may continue its
39existence as a nonprofit corporation pursuant to the Nonprofit
40Public Benefit Corporation Law (Part 2 (commencing with Section
P19   15110) of Division 2 of Title 1 of the Corporations Code), but shall
2no longer be registered with the Secretary of State as a small
3business financial development corporation. A corporation shall
4not enjoy any of the benefits of a small business financial
5development corporation following suspension.

6(j) The funds in the trust fund account of a corporation under
7temporary withdrawal shall be transferred to the expansion fund.
8Upon termination of the temporary withdrawal, unless the
9termination is caused by suspension, the funds of the corporation
10that were transferred to the expansion fund from the trust fund
11account shall be returned to the corporation’s trust fund account,
12notwithstanding Section 63089.53. While the funds of a
13corporation’s trust fund account reside in the expansion fund, use
14of the principal on the funds shall be governed by the implementing
15regulations specifying use of funds in the expansion fund. Interest
16on the funds moved from a corporation’s trust fund account upon
17temporary withdrawal shall be limited to payment of the
18corporation’s administrative expenses, as contained in the contract
19between the corporation and the state pursuant to this title.

20 

21Article 5.  Expansion Fund
22

 

23

63089.5.  

(a) There is hereby continued in existence in the State
24Treasury the California Small Business Expansion Fund. All or a
25portion of the funds in the expansion fund may be paid out, with
26the approval of the Department of Finance, to a lending institution
27or financial company that will act as trustee of the funds.

28(b) The expansion fund and the trust fund shall be used to pay
29for defaulted loan guarantees issued pursuant to this title, surety
30bond losses, administrative costs of corporations, and those costs
31necessary to protect a real property interest in a defaulted loan or
32guarantee.

33(c) The expansion fund and trust fund are created solely for the
34purpose of receiving state, federal, or local government moneys,
35and other public or private money to make loans, guarantees, and
36restricted investments pursuant to this title.

37(d) One or more accounts may be created by the program
38manager for corporations participating in one or more programs
39authorized under this title. Each account is a legally separate
P20   1account, and shall not be used to satisfy loan or surety bond
2guarantees or other obligations of another corporation.

3(e) The amount of guarantee liability outstanding at any one
4time shall not exceed five times the amount of funds on deposit in
5the expansion fund plus any receivables due from funds loaned
6from the expansion fund to another fund in state government as
7directed by the Department of Finance pursuant to a statute enacted
8by the Legislature, including each of the trust fund accounts within
9the trust fund.

10(f) This section shall remain in effect only until January 1, 2018,
11and as of that date is repealed, unless a later enacted statute, that
12is enacted before January 1, 2018, deletes or extends that date.

13

63089.51.  

(a) All money deposited in the expansion fund is
14hereby continuously appropriated, without regard to fiscal years,
15for the purposes of this title.

16(b) Except as specified in subdivision (a) of Section 63089.53,
17the state shall not be liable or obligated in any way beyond the
18state money that is allocated in the expansion fund from moneys
19from the General Fund moneys appropriated for those purposes.

20

63089.52.  

(a) The program manager at his or her discretion,
21with the approval of the Director of Finance, may request the
22trustee to invest those funds in the trust fund in any of the securities
23described in Section 16430. Returns from these investments shall
24be deposited in the expansion fund and shall be used to support
25the programs of this title.

26(b) Any investments made in securities described in Section
2716430 shall be governed by the statement of investment policy
28prepared by the Treasurer pursuant to subdivision (a) of Section
2916481.2.

30

63089.53.  

(a) The state shall not be liable or obligated in any
31way beyond the money that is allocated and deposited in the
32corporation’s trust fund account.

33(b) The program manager may reallocate funds held within a
34corporation’s trust fund account.

35(1) The program manager shall reallocate funds based on which
36corporation is most effectively using its guarantee funds. If funds
37are withdrawn from a less effective corporation as part of a
38reallocation, the program manager shall make that withdrawal only
39after giving consideration to that corporation’s fiscal solvency, its
40ability to honor loan guarantee defaults, and its ability to maintain
P21   1a viable presence within the region it serves. Reallocation of funds
2shall occur no more frequently than once per fiscal year. Any
3decision made by the program manager pursuant to this subdivision
4may be appealed to the bank board unless otherwise specified. The
5program manager has the authority to repeal or modify any decision
6to reallocate funds.

7(2) The program manager may authorize a corporation to exceed
8the leverage ratio specified in Section 63089.5 or subdivision (a)
9of Section 63089.66, or subdivision (c) of Section 14017 of the
10Corporations Code, pending the annual reallocation of funds
11pursuant to this section. However, no corporation shall be permitted
12to exceed an outstanding guarantee liability of more than five times
13its portion of funds on deposit in the expansion fund.

14

63089.54.  

(a) There is hereby created in the State Treasury
15the Small Business Disaster Recovery Loan Loss Reserve Account,
16as part of the expansion fund. This account shall be used to pay
17for unrecovered losses resulting from loan guarantees issued
18pursuant to subdivision (a) of Section 63089.90 or subdivision (b)
19of this section, and disaster loan guarantees issued prior to the
20effective date of this section that are in default.

21(b) Any lending institution that issues a low-interest loan that
22is guaranteed by resources in this account shall be fully reimbursed
23for the guaranteed portion of principal and interest that result from
24a loan or loans that are in default. If there are insufficient funds in
25this account to fully satisfy all claimants, the full faith of the
26resources in the General Fund are pledged to satisfy the obligations
27of this account. This account may only guarantee as much loan
28dollar value as is specifically authorized by the Director of Finance
29with the concurrence of the Governor. This account shall receive
30all moneys transferred pursuant to Section 63089.55, and any
31unencumbered balances transferred to the California Small
32Business Expansion Fund pursuant to Chapters 11 and 12 of the
33First Extraordinary Session of the Statutes of 1989, and Chapter
341525 of the Statutes of 1990, as of July 1, 1992.

35(c) The Governor may utilize this authority to prevent business
36insolvencies and loss of employment in an area affected by a state
37of emergency within the state and declared a disaster by the
38President of the United States, by the Administrator of the United
39States Small Business Administration, or by the United States
P22   1Secretary of Agriculture, or declared to be in a state of emergency
2by the Governor of California.

3

63089.55.  

The Director of Finance, with the approval of the
4Governor, may transfer moneys in the Special Fund for Economic
5Uncertainties to the California Small Business Expansion Fund
6for use as authorized by the bank board, in an amount necessary
7to make loan guarantees pursuant to this title.

8

63089.56.  

(a) The funds in the expansion fund shall be paid
9out to trust fund accounts by the Treasurer on warrants drawn by
10the Controller and requisitioned by the executive director, pursuant
11to the purposes of this title. The program manager may transfer
12funds allocated from the expansion fund to accounts, established
13solely to receive the funds, in lending institutions designated by
14the office to act as trustee. The lending institutions so designated
15shall be approved by the state for the receipt of state deposits.
16Interest earned on the trust fund accounts in lending institutions
17may be utilized by the corporations pursuant to the purposes of
18this title.

19(b) Except as specified in subdivision (d), the program manager
20shall allocate and transfer money to trust fund accounts based on
21performance-based criteria. The criteria shall include, but not be
22limited to, the following:

23(1) The default record of the corporation.

24(2) The number and amount of loans guaranteed by a
25corporation.

26(3) The number and amount of loans made by a corporation if
27state funds were used to make those loans.

28(4) The number and amount of surety bonds guaranteed by a
29corporation.

30(c) Any decision made by the executive director pursuant to
31subdivision (b) may be appealed to the director within 15 days of
32notice of the proposed action. The director may repeal or modify
33any reallocation and transfer decisions made by the executive
34director.

35(d) The criteria specified in subdivision (b) shall not apply to a
36corporation that has been in existence for five years or less. If not
37already adopted, the office shall develop regulations specifying
38the basis for transferring account funds to those corporations that
39have been in existence for five years or less.

P23   1

63089.57.  

Pursuant to this section and any regulations adopted
2pursuant to this title, the state has residual interest in the funds
3deposited by the state to a trust fund account and to the return on
4these funds from investments. On dissolution or suspension of the
5corporation, these funds shall be withdrawn by the executive
6director from the trust fund account and returned to the expansion
7fund or temporarily transferred to another trust fund account. This
8provision shall be contained in the trust instructions to the trustee.

9

63089.58.  

Each trust fund account shall consist of a loan
10guarantee account, and, upon recommendation by the program
11manager, a bond guarantee account, each of which is a legally
12separate account, and the assets of one account shall not be used
13to satisfy loan guarantees or other obligations of another
14corporation. Not more than one-third of a trust fund account shall
15be allocated to a bond guarantee account. A corporation shall not
16use trust fund accounts to secure a corporate indebtedness. State
17funds deposited in the trust fund accounts, with the exception of
18guarantees established pursuant to this title, shall not be subject
19to liens or encumbrances of the corporation or its creditors.

20

63089.59.  

(a) The financial institution that is to act as trustee
21of the trust fund shall be designated after review by the program
22manager. The corporation shall not receive money on deposit to
23support guarantees issued under this title without the approval of
24the program manager.

25(b) State funds may not be used to finance an expense incurred
26by a corporation in a location not approved pursuant to a statewide
27plan. The prohibition against use of state funds also applies to the
28location of satellite offices, and the area served from a corporation
29office.

begin delete

30 

31Chapter  6. Guarantee Program
32

 

33

63089.61.  

end delete

34 

begin insert
35Article begin insert6.end insert  begin insertGuarantee Programend insert
end insert
36
37begin insert

begin insert63089.61.end insert  

end insert

(a) The Small Business Loan Guarantee Program,
38which is hereby continued in existence, shall provide guarantees
39to loans offered by financial institutions to small businesses.

P24   1(b) The Legislature finds and declares that the Small Business
2Loan Guarantee Program has enabled participating small businesses
3that do not qualify for conventional business loans or Small
4Business Administration loans to secure funds to expand their
5businesses. These small businesses would not have been able to
6expand their businesses in the absence of the program. The program
7has also provided valuable technical assistance to small businesses
8to ensure growth and stability. The study commissioned by former
9Section 14069.6 of the Corporations Code, as added by Chapter
10919 of the Statutes of 1997, documented the return on investment
11of the program and the need for its services. The value of the
12program has also been recognized by the Governor through
13proposals contained in the May Revision to the Budget Act of
142000 for the 2000-01 fiscal year.

15

63089.62.  

The program manager, following notification to the
16bank director, may do all of the following:

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

18(b) Hold public hearings.

19(c) Act as liaison between corporations, other state and federal
20agencies, lenders, and the Legislature.

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

22(e) Attend board meetings.

23(f) Attend and participate at corporation meetings. The program
24manager, or his or her designee, shall be an ex officio, nonvoting
25representative on the board of directors and loan committees of
26each corporation. The program manager shall meet with the board
27of directors of each corporation at least once each fiscal year.

28(g) Assist corporations in applying for public and private funding
29opportunities, and in obtaining program support from the business
30community.

31

63089.63.  

(a) The program manager shall recommend whether
32the expansion fund and trust fund accounts are to be leveraged,
33and if so, by how much. Upon the request of the corporation, the
34program manager’s decision may be repealed or modified by a
35bank board resolution.

36(b) The amount of guarantee liability outstanding at any one
37time shall not exceed five times the amount of funds on deposit in
38the expansion fund plus any receivables due from funds loaned
39from the expansion fund to another fund in state government as
40directed by the Department of Finance pursuant to a statute enacted
P25   1by the Legislature, including each of the trust fund accounts within
2the trust fund.

3(c) This section shall remain in effect only until January 1, 2018,
4and as of that date is repealed, unless a later enacted statute, that
5is enacted before January 1, 2018, deletes or extends that date.

6

63089.63.  

(a) The program manager shall recommend whether
7the expansion fund and trust fund accounts are to be leveraged,
8and if so, by how much. Upon the request of the corporation, the
9program manager’s decision may be repealed or modified by an
10office resolution.

11(b) The amount of guarantee liability outstanding at any one
12time shall not exceed four times the amount of funds on deposit
13in the expansion fund plus any receivables due from funds loaned
14from the expansion fund to another fund in state government as
15directed by the Department of Finance pursuant to a statute enacted
16by the Legislature, including each of the trust fund accounts within
17the trust fund, unless the program manager has permitted a higher
18leverage ratio for an individual corporation pursuant to subdivision
19(b) of Section 63089.53.

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

21

63089.64.  

(a) The corporate guarantee shall be backed by
22funds on deposit in the corporation’s trust fund account, or by
23receivables due from funds loaned from the corporation’s trust
24fund account to another fund in state government, as directed by
25the Department of Finance pursuant to a statute enacted by the
26Legislature.

27(b) Loan guarantees shall be secured by a reserve of at least 20
28percent to be determined by the executive director.

29(c) The expansion fund and trust fund accounts shall be used
30exclusively to guarantee obligations and pay the administrative
31costs of the corporations.

32(d) This section shall remain in effect only until January 1, 2018,
33and as of that date is repealed, unless a later enacted statute, that
34is enacted before January 1, 2018, deletes or extends that date.

35

63089.64.  

(a) The corporate guarantee shall be backed by
36funds on deposit in the corporation’s trust fund account, or by
37receivables due from funds loaned from the corporation’s trust
38fund account to another fund in state government, as directed by
39the Department of Finance pursuant to a statute enacted by the
40Legislature.

P26   1(b) Loan guarantees shall be secured by a reserve of at least 25
2percent to be determined by the executive director, unless the
3executive director authorizes a higher leverage ratio for an
4individual corporation pursuant to subdivision (b) of Section
563089.53.

6(c) The expansion fund and trust fund accounts shall be used
7exclusively to guarantee obligations and pay the administrative
8costs of the corporations.

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

10

63089.65.  

A corporation may charge the borrower or financial
11institution a loan fee on all loans made or guaranteed by the
12corporation to defray the operating expenses of the corporation.
13The amount of the fee shall be determined by the program manager.

14

63089.66.  

(a) It is the intent of the Legislature that the
15corporations make maximal use of their statutory authority to
16guarantee loans and surety bonds, including the authority to secure
17loans with a minimum loan loss reserve of only 20 percent, so that
18the financing needs of small business may be met as fully as
19possible within the limits of corporations’ loan loss reserves. The
20office shall report annually to the Legislature on the financial status
21of the corporations and their portfolio of loans and surety bonds
22guaranteed pursuant to Section 9795.

23(b) Any corporation that serves an area declared to be in a state
24of emergency by the Governor or a disaster area by the President
25of the United States, the Administrator of the United States Small
26Business Administration, or the United States Secretary of
27Agriculture shall increase the portfolio of loan guarantees where
28the dollar amount of the loan is less than one hundred thousand
29dollars ($100,000), so that at least 15 percent of the dollar value
30of loans guaranteed by the corporation is for those loans. The
31corporation shall comply with this requirement within one year of
32the date the emergency or disaster is declared. Upon application
33of a corporation, the executive director may waive or modify the
34rule for the corporation if the corporation demonstrates that it made
35a good faith effort to comply and failed to locate lending
36institutions in the region that the corporation serves that are willing
37to make guaranteed loans in that amount.

38(c) This section shall remain in effect only until January 1, 2018,
39and as of that date is repealed, unless a later enacted statute, that
40is enacted before January 1, 2018, deletes or extends that date.

P27   1

63089.66.  

(a) It is the intent of the Legislature that the
2corporations make maximal use of their statutory authority to
3guarantee loans and surety bonds, including the authority to secure
4loans with a minimum loan loss reserve of only 25 percent, unless
5the office authorizes a higher leverage ratio for an individual
6corporation pursuant to subdivision (b) of Section 63089.53, so
7that the financing needs of small business may be met as fully as
8possible within the limits of corporations’ loan loss reserves. The
9bank shall report annually to the Legislature on the financial status
10of the corporations and their portfolio of loans and surety bonds
11guaranteed pursuant to Section 9795.

12(b) Any corporation that serves an area declared to be in a state
13of emergency by the Governor or a disaster area by the President
14of the United States, the Administrator of the United States Small
15Business Administration, or the United States Secretary of
16Agriculture shall increase the portfolio of loan guarantees where
17the dollar amount of the loan is less than one hundred thousand
18dollars ($100,000), so that at least 15 percent of the dollar value
19of loans guaranteed by the corporation is for those loans. The
20corporation shall comply with this requirement within one year of
21the date the emergency or disaster is declared. Upon application
22of a corporation, the program manager may waive or modify the
23rule for the corporation if the corporation demonstrates that it made
24a good faith effort to comply and failed to locate lending
25institutions in the region that the corporation serves that are willing
26to make guaranteed loans in that amount.

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

28

63089.67.  

(a) A corporation shall establish one or more loan
29committees, each of which shall be composed of five or more
30persons, a majority of whom shall be experienced in banking and
31lending operations.

32(b) A loan committee shall review applications to the corporation
33for a loan or guarantee and shall do each of the following:

34(1) Determine the feasibility of the proposed transaction. The
35loan committee shall recommend approval of the application only
36upon a determination that there is a reasonable chance that the loan
37will be repaid.

38(2) On the basis of that determination, recommend to the board
39of directors any action that the loan committee deems appropriate
40under the circumstances, or, in the event that approval authority
P28   1has been delegated to the loan committee by the board of directors,
2approve or disapprove the loan application.

3(c) A loan committee shall expeditiously act to accept or reject
4loan applications.

5(d) A person who has a financial interest related to a matter over
6which the loan committee has authority may not make, participate
7in making, or in any way attempt to influence that matter.

8

63089.68.  

Unless delegated to its loan committee, the
9corporation’s board of directors, upon a recommendation from its
10loan committeebegin insert,end insert shall do all of the following:

11(a) Emphasize consideration to applications that will increase
12employment of disadvantaged, disabled, or unemployed persons,
13or increase employment of youth residing in areas of high youth
14unemployment and high youth delinquency.

15(b) Give consideration to applications from traditional and
16safety-net providers of Medi-Cal services that will promote access
17to quality medical care for individuals enrolled in Medi-Cal
18managed health care networks that are contracting with or owned
19or operated by a county board of supervisors, a county health
20commission, or a county health authority organized pursuant to
21Section 14018.7, 14087.31, 14087.35, 14087.36, 14087.38, or
2214087.9605 of the Welfare and Institutions Code.

23(c) Not grant a loan or guarantee, unless it determines that the
24conditions of Section 200033 are satisfied.

25

63089.69.  

(a) Among other priorities, corporations shall give
26high priority to the issuance of loan guarantees to small business
27incubators and to businesses that lease space in incubators.

28(b) For the purposes of this section, “incubator” means a facility
29that allows new small businesses to increase their probability of
30success by sharing needed capital equipment, services, and
31facilities, which may include, but are not limited to, the following:

32(1) Reception and meeting area.

33(2) Secretarial services, such as collating, telephone answering,
34or mailhandling.

35(3) Accounting and bookkeeping services.

36(4) Research libraries.

37(5) Onsite financial and management counseling.

38(6) Parking.

39(7) Flexible lease arrangements for flexible space.

40(8) Computer or word processing facilities.

P29   1(9) Day care facilities.

2(10) Office furniture rentals.

3(11) A graduation policy sometimes requiring firms to leave
4after three to five years in a subsidized, nurturing environment.

5(12) Employee training and placement services.

6(c) Among other priorities, corporations shall give high priority
7to marketing their services to Phase 1 or Phase 2 Small Business
8Innovation Research (SBIR) recipients and providing loan
9guarantees, whenever possible.

begin delete

10 

11Chapter  7. Direct Lending
12

 

13

63089.80.  

end delete

14 

begin insert
15Article begin insert7.end insert  begin insertDirect Lendingend insert
end insert
16
17begin insert

begin insert63089.80.end insert  

end insert

(a) A corporation may utilize funds for direct
18lending as long as at least 80 percent of the corporate funds,
19calculated by dollar amount, and all expansion funds are guaranteed
20by another public or private financial institution.

21(b) The amount of funds available for direct lending shall be
22determined by the program manager. In its capacity as a direct
23lender, the corporation may sell in the secondary market the
24guaranteed portion of each loan so as to raise additional funds for
25direct lending. The office shall issue regulations governing these
26direct loans, including the maximum amount of these loans.

27(c) To execute the direct loan programs established in this
28chapter, the program manager may loan trust funds to a corporation
29located in a rural area for the express purpose of lending those
30funds to an identified borrower. The loan authorized by the
31program manager to the corporation shall be on terms similar to
32the loan between the corporation and the borrower.

33(d) The amount of the loan may be in excess of the amount of
34a loan to any individual borrower, but actual disbursements
35pursuant to the office loan agreement shall be required to be
36supported by a loan agreement between the borrower and the
37corporation in an amount at least equal to the requested
38disbursement. The loan between the bank and the corporation shall
39be evidenced by a credit agreement. In the event that any loan
40between the corporation and borrower is not guaranteed by a
P30   1governmental agency, the portion of the credit agreement
2attributable to that loan shall be secured by assignment of any note,
3executed in favor of the corporation by the borrower to the bank.
4The terms and conditions of the credit agreement shall be similar
5to the loan agreement between the corporation and the borrower,
6which shall be collateralized by the note between the corporation
7and the borrower.

8(e) In the absence of fraud on the part of the corporation, the
9liability of the corporation to repay the loan to the bank is limited
10to the repayment received by the corporation from the borrower,
11except in a case where the United States Department of Agriculture
12requires exposure by the corporation in rule or regulation. The
13corporation may use trust funds for loan repayment to the office
14if the corporation has exhausted a loan loss reserve created for this
15purpose. Interest and principal received by the office from the
16corporation shall be deposited into the same account from which
17the funds were originally borrowed.

18(f) Upon the approval of the program manager, a corporation
19shall be authorized to borrow trust funds from the bank for the
20purpose of relending those funds to small businesses. A corporation
21shall demonstrate to the program manager that it has the capacity
22to administer a direct loan program, and has procedures in place
23to limit the default rate for loans to startup businesses. Not more
24than 25 percent of any trust fund account shall be used for the
25direct lending established pursuant to this subdivision. A loan to
26a corporation shall not exceed the amount of funds likely to be
27lent to small businesses within three months following the loan to
28the corporation.

29(g) The maximum loan amount to a small business shall be set
30by the program manager, but in no case shall it be more than three
31hundred thousand dollars ($300,000). In the absence of fraud on
32the part of the corporation, the repayment obligation pursuant to
33the loan to the corporation shall be limited to the amount of funds
34received by the corporation for the loan to the small business and
35any other funds received from the office that are not disbursed.
36The corporation shall be authorized to charge a fee to the small
37business borrower, in an amount determined by the executive
38director pursuant to regulation. The program provided for in this
39subdivision shall be available in all geographic areas of the state.

begin delete

 

P31   1Chapter  8. Disaster Loan Guarantees
2

 

3

63089.90.  

end delete

4 

begin insert
5Article begin insert8.end insert  begin insertDisaster Loan Guaranteesend insert
end insert
6
7begin insert

begin insert63089.90.end insert  

end insert

(a) A corporation may, in an area affected by a state
8of emergency within the state and declared a disaster by the
9President of the United States, the Administrator of the United
10States Small Business Administration, or the United States
11Secretary of Agriculture, or declared to be in a state of emergency
12by the Governor of California, provide loan guarantees from funds
13allocated in Section 63089.55 to small businesses, small farms,
14nurseries, and agriculture-related enterprises that have suffered
15actual physical damage or significant economic injury as a result
16of the disaster.

17(b) If regulations have not otherwise been adopted, the bank
18board may adopt or readopt regulations to implement the loan
19guarantee program authorized by this section. The bank board may
20adopt these regulations as emergency regulations in accordance
21with Chapter 3.5 (commencing with Section 11340) of Part 1 of
22Division 3 of Title 2, and for purposes of that chapter, including
23Section 11349.6, the adoption of the regulations shall be considered
24by the Office of Administrative Law to be necessary for the
25immediate preservation of the public peace, health and safety, and
26general welfare. Notwithstanding subdivision (e) of Section
2711346.1, the regulations shall be repealed within 180 days after
28their effective date unless the office complies with Chapter 3.5
29(commencing with Section 11340) of Part 1 of Division 3 of Title
302, as provided in subdivision (e) of Section 11346.1.

31(c) Allocations pursuant to subdivision (a) shall be deemed to
32be for extraordinary emergency or disaster response operations
33costs incurred by the office.

begin delete

34 

35Chapter  9. Energy Efficiency Loans
36

 

37

63089.93.  

end delete

 

begin insert
P32   1Article begin insert9.end insert  begin insertEnergy Efficiency Loansend insert
end insert
2
3begin insert

begin insert63089.93.end insert  

end insert

(a) Corporations may grant energy efficiency
4improvement loans.

5(b) The bank shall enter into an agreement with the California
6Energy Extension Service of the Office of Planning and Research
7to assist small business owners in reducing their energy costs
8through low-interest loans and by providing assistance and
9information.

begin delete

10 

11Chapter  10. Surety Bonds
12

 

13

63089.95.  

end delete

14 

begin insert
15Article begin insert10.end insert  begin insertSurety Bondsend insert
end insert
16
17begin insert

begin insert63089.95.end insert  

end insert

In furtherance of the purposes set forth in Section
1863088.1 of this code and Section 14002 of the Corporations Code,
19a corporation may do any one or more of the following activities,
20but only to the extent that the activities are authorized pursuant to
21the contract between the bank and corporation: guarantee, endorse,
22or act as surety on the bonds, notes, contracts, or other obligations
23of, or assist financially, any person, firm, corporation, or
24association, and may establish and regulate the terms and
25conditions with respect to any such loans or financial assistance
26and the charges for interest and service connected therewith, except
27that the corporation shall not make or guarantee any loan, unless
28and until it determines:

29(a) There is no probability that the loan or other financial
30assistance would be granted by a financial company under
31reasonable terms or conditions, and the borrower has demonstrated
32a reasonable prospect of repayment of the loan.

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

34(c) The loan qualifies as a small business loan or an employment
35incentive loan.

36(d) That the borrower has a minimum equity interest in the
37business as determined by the director.

38(e) As a result of the loan, the jobs generated or retained
39demonstrate reasonable conformance to the regulations specifying
40employment criteria.

P33   1

63089.96.  

(a) In addition to the authority granted by Section
263089.95, upon approval of the executive director, a corporation
3may act as guarantor on a surety bond for any small business
4contractor, including, but not limited to, women, minority, and
5disabled veteran contractors.

6(b) The provisions of subdivision (a) allowing a corporation to
7act as a guarantor on surety bonds may be funded through
8appropriate federal funding sources. Federal funds shall be
9deposited in the Federal Trust Fund in the State Treasury in
10accordance with Section 16360, for transfer to the expansion fund.

begin delete

11 

12Chapter  11. Reporting
13

 

14

63089.97.  

end delete

15 

begin insert
16Article begin insert11.end insert  begin insertReportingend insert
end insert
17

 

18begin insert

begin insert63089.97.end insert  

end insert

(a) Except as otherwise provided in this title, the
19trust fund account shall be used solely to make loans, guarantee
20bonds, and guarantee loans, approved by the corporation, that meet
21the loan criteria under this chapter. The state shall not be liable or
22obligated in any way as a result of the allocation of state moneys
23to a trust fund account beyond the state moneys that is allocated
24and deposited in the fund pursuant to this title, and that is not
25otherwise withdrawn by the state pursuant to this chapter.

26(b) A summary of all loans and bonds to which a state guarantee
27is attached shall be submitted to the program manager upon
28execution of the loan agreement and periodically thereafter.

29(c) A summary of all loans made by a corporation shall be
30submitted to the program manager upon execution of the loan
31agreement and periodically thereafter.

32

63089.98.  

(a) Annually, not later than January 1 of each year
33commencing January 1, 2014, the program manager shall prepare
34a report regarding the loss experience for the expansion fund for
35loan guarantees, loss reserves, and surety bond guarantees for the
36preceding fiscal year. At a minimum, the report shall also include
37data regarding numbers of surety bond and loan guarantees awarded
38through the expansion fund, including ethnicity and gender data
39of participating contractors and other entities, and experience of
40surety insurer participants in the bond guarantee program. The
P34   1report shall include the information described in Section 63089.66.
2The program manager shall post the information on the bank’
3Internet Web site and submit notice report to the Governor and
4the Legislature when that information begin deletein end deletebegin insertis end insertavailable on its Internet
5Web site.

6(b) A corporation shall also report to the program manager, or
7his or her designated representative, all statistical and other reports
8required by this title, responses to audit reports, budget
9requirements, invoices submitted for payment by the state, and
10information concerning loans made or guaranteed.

11

63089.99.  

Pursuant to subdivision (f) of Section 8684.2, within
1260 days of the conclusion of the period for guaranteeing loans
13under any small business disaster loan guarantee program
14conducted for a disaster as authorized by Section 8684.2 or 200030,
15the bank shall provide a report to the Legislature on loan guarantees
16approved and rejected by gender, ethnic group, type of business
17and location, and each participating loan institution pursuant to
18Section 9795. The bank need only submit one report to comply
19with this section and subdivision (f) of Section 8684.2.

20

SEC. 4.  

No reimbursement is required by this act pursuant to
21Section 6 of Article XIII B of the California Constitution because
22the only costs that may be incurred by a local agency or school
23district will be incurred because this act creates a new crime or
24infraction, eliminates a crime or infraction, or changes the penalty
25for a crime or infraction, within the meaning of Section 17556 of
26the Government Code, or changes the definition of a crime within
27the meaning of Section 6 of Article XIII B of the California
28Constitution.

29begin insert

begin insertSEC. 5end insertbegin insert.end insert  

end insert
begin insert

This act is an urgency statute necessary for the
30immediate preservation of the public peace, health, or safety within
31the meaning of Article IV of the Constitution and shall go into
32immediate effect. The facts constituting the necessity are:

end insert
begin insert

33It is necessary that this bill take effect immediately in order to
34provide, as is necessary to timely implement the Governor’s
35reorganization plan, for a better managed and more efficient
36transition of small business assistance programs from the soon to
37be defunct Business, Transportation and Housing Agency to the
38California Infrastructure and Economic Development Bank within
39the Governor’s Office of Business and Economic Development.

end insert


O

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