BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1465 (Yee) - Economic development; export loan financing.
Amended: May 9, 2012 Policy Vote: GO 7-5
Urgency: No Mandate: No
Hearing Date: May 14, 2012 Consultant: Bob Franzoia
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1465 would require the Secretary of Business,
Transportation and Housing (BT&H) and the State Treasurer's
Office (STO) to enter into loans and loan guarantees that
provide export financing.
Fiscal Impact: Minor, absorbable costs in federal funds to BT&H
and the STO through 2016-17 for administration of an export loan
program.
Unknown, potentially hundreds of thousands of dollars in
federal funds for increased participation in the Small
Business Loan Guarantee Program (SBLGP) and the California
Pollution Control Financing Authority (CPCFA) through
2016-17.
Average cost of $4,000 to $7,000 generally per $100,000
CPCFA loan.
Potential General Fund loans by the CPCFA.
Background: The federal State Small Business Credit Initiative
Act of 2010 allocated $168.6 million to the state, split between
the SBLGP in BT&H and the CPCFA in the STO. Funds not allocated
by 2017 revert to the federal government.
For the SBLGP, any small business is eligible for a loan used
primarily in the state and for any standard business purpose
beneficial to the applicant's business, such as expansion into
new facilities or purchase of new equipment. Guarantees can
cover up to 90 percent of the loan amount, with the guaranteed
portion of the loan not exceeding $500,000. The term of the
loan guarantee may extend up to seven years. Interest rates are
negotiated between the borrower and the lender. Collateral is
generally required with each transaction tailored to meet the
borrower's financial situation.
SB 1465 (Yee)
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Within the CPCFA, the California Capital Access Program (CalCAP)
insures loans to finance the acquisition of land, construction
or renovation of buildings, the purchase of equipment, other
capital projects and working capital. CalCAP is a loan loss
insurance program that aims to help small businesses obtain
loans for which they would otherwise be ineligible.
Participating financial institutions establish all the terms and
conditions of CalCAP loans. Once the financial institution
approves a CalCAP loan, it establishes a loan loss reserve
account. The financial institution and the borrower pay an
equal amount to the reserve account that is equal to 2 to 3.5
percent, as set forth in statute, of the loan principal,
depending on the lender's perception of the borrower's
creditworthiness. CalCAP matches the total paid into the
reserve account.
The maximum loan amount is $5 million and the maximum enrolled
amount is $2.5 million. Each individual borrower is limited by
a maximum $2.5 million enrolled over a three year period.
CalCAP allows a maximum lender/borrower contribution for any
single borrower in a three year period of $100,000.
Proposed Law: This bill would require the Secretary of BT&H, to
the extent that the secretary determines to be practical, enter
into loans or loan guarantee agreements with financial
institutions that provide export financing in the state for the
purpose of increasing exports to out-of-state markets and
increasing jobs in California.
This bill would require CalCAP, to the extent that the authority
determines to be practical, enter into qualified loans with
financial institutions that provide export financing, for the
purpose of increasing exports to out-of-state markets and
increasing jobs in California.
Related Legislation: SB 1116 (Leno), also on today's agenda,
would (1) reduce the minimum contribution paid by financial
institutions and borrowers from two to one percent of the loan
into a loan loss reserve account under CalCAP and would (2)
extend the time that financial institutions have to enroll a
loan into CalCAP.
The Governor is proposing to consolidate the SBGLP into the
Governor's Office of Business and Economic Development (GO-Biz).
SB 1465 (Yee)
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Staff Comments: A loan guarantee, in finance, is a promise by
one party (the guarantor) to assume the debt obligation of a
borrower if that borrower defaults.
The term can be used to refer to a government to assume a
private debt obligation if the borrower defaults. Most loan
guarantee programs are established to correct perceived market
failures by which small borrowers, regardless of
creditworthiness, lack access to the credit resources available
to large borrowers.
A loan loss reserve program requires a portion of a bank's cash
or cash equivalents holdings to be set aside to cover estimated
potential losses in its loan portfolio. When loans are repaid,
this reserve shrinks accordingly, and when loans are made, it
increases. In the event of defaulted loans, repossessed
collateral is liquidated and credited to the loan loss reserve
Recommended Amendments: Staff recommends the provisions of this
bill be amended to sunset on March 31, 2017 when the allocation
agreement between the US Treasury and the state expires.