BILL ANALYSIS Ó SB 936 Page 1 Date of Hearing: August 3, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 936 (Hertzberg) - As Amended June 29, 2016 ----------------------------------------------------------------- |Policy |Jobs, Economic Development, |Vote:|9 - 0 | |Committee: |and the Economy | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill makes changes to the California Small Business Expansion Fund (Expansion Fund) under the Small Business Loan Guarantee Program (SBLGP). Specifically, this bill: 1)Decreases the required reserve for purposes of backing loan guarantees under the Expansion Fund from 20 percent to 10 percent and removes a sunset on this provision, thereby making it permanent. SB 936 Page 2 2)Increases the maximum amount of liability outstanding at any one time in the Expansion Fund from five to ten times the amount of funds on deposit, plus any receivables due from funds loaned from the expansion fund to another fund in state government. FISCAL EFFECT: Minor/absorbable costs to the Governor's Office of Business and Economic Development (GO-Biz) to administer program changes to the SBLGP. COMMENTS: 1)Purpose. The Governor's Office of Business and Economic Development (GO-Biz) administers the Small Business Loan Guarantee Program (SBLGP) which provides guarantees to commercial lenders for loans issued to business owners that otherwise would not qualify, such as low- to moderate-income individuals. Current law requires 20% of each dollar of a loan guarantee to be set aside on reserve in the Expansion Fund. After January 1, 2018, the minimum reserve is scheduled to increase to 25%. This bill, sponsored by GO-Biz, will reduce the current reserve level from 20% to 10%. GO-Biz is seeking this change to make more funds available to lend to small businesses. GO-Biz believes the current loan loss reserve percentage of 20 and the maximum amount required on deposit in the Expansion Fund is overly conservative. For the 2015-15 fiscal year, the SBLGP had losses of less than 1% and historically the SBLGP has never endured losses over 5.5%. The reserve level change will also bring the SBLGP ratio in line with the federal 10% ratio requirement for the federal State Small Business Credit SB 936 Page 3 Initiative (SSBCI). Analysis Prepared by:Misty Feusahrens / APPR. / (916) 319-2081