Bill Bolsters Small Business Loans, Improves Investment in Struggling Communities

SB 936 allows state IBank to back more private lending to small businesses that need it, stimulating economic development

February 2, 2016

SACRAMENTO – Sen. Bob Hertzberg, D-Van Nuys, introduced legislation today allowing the California Infrastructure and Economic Development Bank (IBank) to expand the private lending it guarantees for small businesses that cannot qualify for standard loans.

The bill is part of Hertzberg’s ongoing efforts to lift people out of poverty, rebuild the middle class and improve economic development in struggling communities across California.

SB 936 makes more private loans possible through the IBank’s Small Business Loan Guarantee Program by adopting the federal standard for leveraging the financing, which means less money is required to back the private loans than under the current state standard. In essence, the change allows the state and federal funding used to guarantee the loans to go farther.

“It is smart public policy to use our resources to maximize private lending available to small businesses,” Hertzberg said. “This legislation will help spur economic development and create jobs where they are needed most.”

The state-backed small business loans are especially beneficial in economically depressed areas where loans with favorable interest rates are hard to come by.

For the year ending June 30, 2015, the state-funded portion of the program made a total of 124 loans, with $21.1 million of loan guarantees supporting $37.4 million in small business loans, according to IBank’s Annual Report to the Governor and Legislature. This guarantee activity contributed to a total of $197.4 million of overall capital that was injected into the state’s small business community, which, in turn, supported 2,813 jobs, the report said.

The federally funded portion of the program issued 252 additional loans resulting in $92.8 million of loan guarantees and supporting $130.1 million in small business loans, and that injected $211.6 million of overall capital, which supported 11,781 jobs.

In total for the year ending June 30, 2015, the Small Business Loan Guarantee Program supported 376 loans for $113.9 million of loan guarantees supporting $167.5 million in small business loans and 14,594 jobs.

The program uses state and federal funding to create a loan loss reserve. This loan loss reserve reduces the risk of lending to small businesses, thereby stimulating investment that helps create and retain jobs that are often in low- to moderate-income communities.

Current state law limits IBank’s leverage ratio to 5:1, meaning that 20 percent of the private loan must be backed by the loan loss reserve fund. Under SB 936, the leverage ratio will rise to the federal standard of 10:1, meaning that only 10 percent of the private loan must be backed by the loan loss reserve fund.

The bill is sponsored by the Governor’s Office of Business and Economic Development (GO-Biz).

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Bob Hertzberg, chair of the Senate Committee on Governance and Finance, represents nearly 1 million San Fernando Valley residents of Senate District 18, which includes part of Burbank and the following communities in Los Angeles: Arleta, Granada Hills, Hansen Dam, Lake View Terrace, Mission Hills, North Hills, North Hollywood, part of Northridge, Pacoima, Panorama City, Sherman Oaks, Studio City, part of Sun Valley, Sylmar, Toluca Lake, Valley Glen, Valley Village, Van Nuys, the City of San Fernando and Universal City. See a district map at http://sd18.senate.ca.gov/district.  After serving in the Assembly from 1996-2002, including two years as Speaker, Hertzberg invested in solar, wind and electric-car projects; and worked for structural changes in government through the Think Long Committee of California. Learn more at www.senate.ca.gov/hertzberg.

MEDIA CONTACT: Andrew LaMar
Communications Director
Senator Robert M. Hertzberg
Capitol Building, Room 4038
Sacramento, CA 95814
(916) 651-4018

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