BILL ANALYSIS
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|Hearing Date:July 6, 2009 |Bill No:AB |
| |1009 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 1009Author:V. Manuel Perez
As Amended:June 29, 2009 Fiscal: Yes
SUBJECT: Small business: Direct Loan Program.
SUMMARY: Requires the Secretary of the Business, Transportation and
Housing Agency to develop and implement a Direct Loan Program to
provide a loan of up to $500,000 to small businesses that meet certain
requirements until January 1, 2015. Authorizes public entities to
deposit money into the account. Requires the Direct Loan Program
Director to review the capital of a small business prior to its
receipt of loan money. Requires an annual report on activities
independent audit be submitted to the Governor and Legislature.
Existing law:
1) Establishes the Small Business Loan Guarantee Program (SBLGP)
within the state Business, Transportation and Housing Agency (BTH)
which provides guarantees on bank loans to small businesses that
would otherwise not be made. A network of 11 Small Business
Financial Development Corporations, who are working closely with
small business borrowers and local community banks, issues the
guarantees on behalf of the state. The guarantees are backed by a
trust fund that can be leveraged four times.
2) Establishes the California Small Business Expansion Fund
(Expansion Fund).
This bill:
1) Creates the Direct Loan Account (Account) fund in the Expansion
Fund.
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2) Requires the Secretary of BTH to establish the Direct Loan
Program (Program) until January 1, 2013.
3) Requires the director of the SBLGP to develop and implement the
program review and evaluation process.
4) Establishes a maximum of $500,000 for program loans.
5) Requires applicants to demonstrate they cannot otherwise
reasonably obtain a loan from a private lender.
6) Authorizes public entities, with the approval of the director,
to deposit money in the account for the purpose of providing
capitalization for the Program.
7) Defines "public entity" as: the state; the Regents of the
University of California; a county; city; city and county; district;
public authority; public agency and any other political subdivision
or public corporation in the state or United States.
8) Requires information on the direct loan program be annually
reported to the Legislature as part of an existing annual reporting
requirement of SBLGP.
9) Requires an independent audit of the direct loan program and
its findings be reported to the Governor and Legislature by January
1, 2012.
FISCAL EFFECT: According to the Assembly Appropriations Committee
analysis dated May 20, 2009, administrative costs for the program are
likely in excess of $150,000 per year and costs for the required
independent audit of the program and annual reports to the Legislature
are in the range of $50,000.
COMMENTS:
1.Purpose. 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."
2.Small Businesses in California. Small businesses form the core of
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California's $1.7 trillion economy, comprising more than 98% of all
businesses and are responsible for employing more than 50% of all
workers in the state. In 2006, the state had an estimated 3.6
million small businesses.
3.Effect of the Economy. Small businesses routinely cite access to
capital as a roadblock to successful development of new or growth of
existing ventures. The current economic slowdown and banking crisis
have a dramatic impact on the state's small businesses. According
to the October 2008 Federal Reserve Board Senior Loan Officer
Survey, 75 percent of U.S. banks have tightened their lending
standards on small business loans. With even less opportunity to
receive critical resources from banks, the National Small Business
Association acknowledges an increased reliance on credit cards to
finance operations by its members. As credit card financing comes
with unpredictable and typically very high interest rates, future
eligibility for more stable capital sources may be jeopardized.
By authorizing the expansion of a state program to offer direct loans,
this measure aims to address a very real problem many California
small businesses currently face.
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4.Related Legislation.
SB 358 and SB 1200 (Ducheny). These bills authorize the
establishment of a Native American Business Revolving Loan and
Guarantee Program, which would be administered through the SBLGP at
BTH. The purpose of the program is to promote the long-term
economic viability of tribal communities by providing capital to
create or retain jobs, offer business development and employment
training, and provide general education to tribal members. SB 358
was held in the Senate Appropriations Committee this year; SB 1200
was held in the Senate Appropriations Committee last year.
AB 610 (Price, Chapter 601, Statutes of 2007). The bill enhanced
the SBLGP's ability to leverage existing program dollars resulting
in the ability to serve small businesses financial needs per year.
AB 1104 (Aghazarian, Chapter 624, Statues of 2007). The bill
modified the SBLGP relating to small business disaster guarantees
and eligible investments of SBLGP funds.
AB 1431 (Arambula). The bill would have established the Early Stage
Investment Guarantee Program, administered through the SBLGP, for
the purpose of assisting small businesses in attracting investors
during the early years of their company's growth, as specified. The
measure was held in the Assembly Appropriations Committee last year.
5.Arguments in Support. According to the Association of Financial
Development Corporations , California's success in overcoming the
economic downturn will greatly depend on its ability to creatively
provide assistance to small businesses.
SUPPORT AND OPPOSITION:
Support:
Association of Financial Development Corporations
Opposition:
None on file as of June 30, 2009.
Consultant:Sarah Mason
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