BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 936|
|Office of Senate Floor Analyses | |
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CONSENT
Bill No: SB 936
Author: Hertzberg (D), et al.
Amended: 4/4/16
Vote: 21
SENATE BUS, PROF. & ECON. DEV. COMMITTEE: 9-0, 4/11/16
AYES: Hill, Bates, Berryhill, Block, Galgiani, Hernandez,
Jackson, Mendoza, Wieckowski
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: California Small Business Expansion Fund: corporate
guarantees
SOURCE: Governor's Office of Business and Economic
Development
California Infrastructure and Development Bank
DIGEST: This bill reduces the required reserve leverage ratio
of the California Small Business Expansion Fund, which funds the
California Small Business Loan Guarantee Program, from 20
percent to 10 percent.
ANALYSIS:
Existing law:
1)Establishes the Governor's Office of Business and Economic
Development (GO-Biz), which is administered by a director
appointed by the Governor for the purpose of serving as the
lead state entity for economic strategy and marketing of
California on issues relating to business development, private
sector investment, and economic growth. (Government Code (GC)
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§§ 12096 - 12098.5)
2)Establishes, by the Small Business Financial Assistance Act of
2013, the California Small Business Expansion Fund (Fund);
authorizes the approval of certain small business financial
development corporations (FDCs) to act as intermediaries
between the state, small business, and financial institution
in administering loan guarantees; requires the loan guarantees
made under the Fund to be backed by money on deposit or by
receivables due from funds loaned from the expansion fund.
(GC §§ 63088 - 63089.98)
3)Specifies the reserve leverage ratio of the Fund at 20 percent
and will increase that ratio to 25 percent on January 1, 2018.
(GC §§ 63089.5 - 63089.62)
This bill:
1)Reduces the reserve leverage ratio required to back loan
guarantees made under the Fund, which funds the Small Business
Loan Guarantee Program, to 10 percent.
2)Updates several references to the Fund reserve leverage ratio
and makes other technical conforming code changes.
Background
GO-Biz is the sponsor of this bill. According to the Author,
nearly one-third of small business owners are unable to obtain
adequate financing for their companies. The California Small
Business Loan Guarantee Program (SBLGP) provides collection
guarantees to financial institutions for loans issued to small
businesses that otherwise would not qualify for a term loan or
line of credit. According to the SBLGP 2014-2015 Annual Report,
the SBLGP promotes statewide economic development and allows
participating small businesses to secure financing that allows
growth and expansion of their business. In addition to
assisting small businesses in obtaining an initial loan, the
SBLGP in turn also helps small businesses establish credit with
a lender, which makes additional future financing without
assistance more likely.
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Business size eligibility for the SBLGP generally follows the
U.S. Small Business Administration 7(a) program guidelines,
which vary based on industry. Specific market rate loan terms
and interest rates are negotiated between the borrower and the
lender. The SBLGP provides guarantees covering up to 80 percent
of the loan, but not exceeding $2,500,000.
The State of California was approved for an allocation of $168
million in federal funds from the U.S. Treasury under the State
Small Business Credit Initiative (SSBCI); a component of
President Obama's Small Business Jobs Act of 2010. The
allocation was split between two state agencies, with the SBLGP
under
GO-Biz to receive half or $84 million in three disbursements.
The SSBCI funds have unique requirements. Consequently, the
SSBCI-funded loan guarantees are administered separately as a
subset of the SBLGP. Thus, since 2011, the SBLGP has consisted
of two subsets: the state-funded portion of the SBLGP program
and the federal SSBCI-funded portion.
In FY 2014-15 alone, a total of 252 SSBCI loans were granted
resulting in $92.8 million of loan guarantees that supported
$130.1 million in small business loans. This guarantee activity
contributed to a total of $211,617,415 of overall capital that
was injected into California's small business community. In
addition, the borrowers reported 11,781 jobs were created or
retained during this period as a result of these loan
guarantees. For the federally-funded SSBCI loans, I-Bank paid
claims amounting to $40,383 during the FY 2014-15, equivalent to
0.08 percent of the reserve account and 0.02 percent of the over
$210 million outstanding principal.
During FY 2014-15, the state-funded program was limited to
guarantee loans and renewals within the managed SBLGP portfolio
that did not meet the requirements in the federal SSBCI program.
In this year, a total of 124 loans were granted resulting in
$21.1 million of loan guarantees that supported $37.4 million in
small business loans. This guarantee activity contributed to a
total of $197,393,686 of overall capital that was injected into
California's small business community. The small business
owners reported 2,813 jobs created or retained as a result of
these loan guarantees. For fiscal year 2014-2015, I-Bank paid
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out $457,331 in claims while recovering $164,633 for the
state-funded portion of the SBLGP. This resulted in losses of
less than one percent in the program on the reserve account and
about one-third of a percent of the outstanding principal amount
of the loans.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified4/19/16)
Governor's Office of Business and Economic Development
(co-source)
California Infrastructure and Economic Development Bank
(co-source)
Association of Financial Development Corporations
California Asian Pacific Chamber of Commerce
California Association for Local Economic Development
California Association for Micro Enterprise Opportunity
California Association of Independent Business
California Bankers Association
California Black Chamber of Commerce
California Capital Financial Development Corporation
California Chamber of Commerce
California City Economic Development Corporation
California Community Banking Network
California Small Business Association
California Southern Small Business Development Corporation
City of Dublin
City of Fountain Valley
City of Long Beach
Mayor and City Council of the City of Sacramento
Northern California Financial Development Corporation
Orange County Business Council
Pacific Coast Regional Small Business Development Corporation
San Gabriel Valley Economic Partnership
Silicon Valley Economic Development Alliance
Small Business California
Small Business Development Corporation of Orange County
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Small Business Majority
Solano Economic Development Corporation
Stanislaus Business Development Center
Sun Village Park Association
Superior California Economic Development
Tuolumne County Economic Development Authority
Valley Small Business Development Corporation
OPPOSITION: (Verified4/19/16)
None received
ARGUMENTS IN SUPPORT: Supporters state that the bill allows
GO-Biz to help more small businesses by providing additional
lending capacity under the SBLGP. They argue that, while the
reserve account protects lenders against losses, the SBLGP has a
promising track record with losses on federal funds less than
one percent since 2011.
Prepared by:Nicole Billington / B., P. & E.D. / (916) 651-4104
4/20/16 15:39:01
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