BILL ANALYSIS
AB 1009
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Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1009 (V. Manuel Perez) - As Amended: May 6, 2009
Policy Committee: Jobs, Economic
Development & the Economy Vote: 6 - 1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates a direct loan program within the Small
Business Loan Guarantee Program (SBLGP) to provide business
loans to qualified small businesses. Specifically, this bill:
1)Requires the Secretary of the Business, Transportation, and
Housing Agency to develop and implement a direct loan program
to provide loans to small businesses that meet certain
requirements.
2)Sets a maximum loan limit of $500,000 and would require all
loans to have a guarantee from a federal agency or department.
3)Establishes the Direct Loan Account in the California Small
Business Expansion Fund and would continuously appropriate all
money in that account for the purposes of administering the
program.
4)Requires the director of the SBLGP to develop and implement an
application and review process that minimally includes
eligibility standards, rating, and ranking criteria.
5)Requires as a condition of applying for a loan, that the
business has not been successful in accessing capitol in the
private market.
6)Requires the director of SBLGP to determine that the direct
loan program is sufficiently capitalized prior to the
programs' commencement.
7)Requires the director of SBLGP to report annually to the
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Legislature on the activities of the program.
8)Requires an independent audit of the program and that the
findings be reported to the governor and Legislature no later
than six months after the second full fiscal year of
operations.
9)Sunsets the program on January 1, 2015.
FISCAL EFFECT
1)Administrative costs for the program, likely in excess of
$150,000 per year.
2)Costs in the range of $50,000 for the required independent
audit of the program and annual reports to the Legislature.
COMMENTS
1)Rationale . According to the author, California small
businesses face many challenges during this current economic
downturn. Debt markets are frozen, unemployment is rising,
and production is stalled. Although the federal government is
working aggressively to improve the flow of capital, the fact
remains that many small businesses do not have sufficient
access to necessary financial resources.
AB 1009 addresses this issue by authorizing the expansion of
an existing state program to offer direct loans. The SBLGP
has been operated by the state for over 20 years and has an
established network of financial development corporations
(FDCs) to undertake the expansion of the existing program to
include direct loans. In fact, the SBLGP already provides
direct loans for farmers who can secure a federal farm loan
guarantee.
2)Small Business Loan Guarantee Program . The SBLGP has four
program components: a loan guarantee, a direct farm loan, a
disaster assistance loan guarantee, and a metal plating
facility loan guarantee. The program is managed by BT&H and
locally administered through 11 local FDCs, which review and
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approve state-backed guarantees on loans made through private
lending institutions.
In order to qualify for SBLGP financial assistance, a business
must meet the federal definition of a small business and be
able to demonstrate that it cannot access private financing
without the use of the guarantee. The program has a default
rate at or below traditional lenders: 0.45% in 2006-07 and
0.25% in 2005-06. The five-year average default rate as of
June 30, 2007 was 0.59%. The default rate for the comparable
portfolio of the Small Business Administration is 3.5% to 5%.
In 2007-08, approximately $38 million was available for loan
guarantees under the SBLGP, which leveraged $169 million in
small business loans. During this period, 1,358 guarantees
were provided, creating and/or retaining 16,301 jobs. The
total outstanding loan portfolio in 2007-08 was $365 million,
representing 2,437 outstanding guarantees.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081