The CA Small Business Finance Center at the IBank

The Small Business Finance Center was established in 2013 following the implementation of the Governor’s Reorganization Plan GRP2, which transferred the IBank and the Small Business Loan Guarantee Program from the soon to be defunct Business, Transportation, and Housing Agency to GO-Biz. 

That same year, AB 1247 modified the GRP2 proposal for the placement of the Small Business Loan Program and established the Small Business Finance Center within the IBank [AB 1247 (Medina and Bocanegra), Chapter 537, Statutes of 2013].  It was the authors’ intent that the center become a multipurpose small business financing entity.  To accomplish this objective, the statutory framework of the Small Business Finance Center was drafted to be different from those of many departments.  While the Small Business Loan Guarantee Program was specifically codified within the administrative control of the Small Business Center, general statutory authority was also provided for the IBank board to approve and modify a range of financial products, including loans and other debt instruments, as well as loan guarantees and other credit enhancements.

According to information on the IBank website (2/24/2022):

  • More than 20,000 loan guarantees have been issued under this program since the early 2000s.

  • IBank loan guarantees have helped to create or retain 412,000 jobs.

  • During 2019-20, the Small Business Finance Center guaranteed 470 loans, resulting in $165 million in loan guarantees that supported $240 million in small business loans.

The IBank and the California Small Business Finance Center have very broad statutory authority to meet the evolving needs of small businesses.  In addition to the general loan guarantee program, the Governor has the authority to activate a disaster-specific loan guarantee program.  During the early months of the COVID-19 pandemic, the Disaster Loan Guarantee Program was activated for microloans, as well as new financing initiative launched, the California Rebuilding Fund.

The California Rebuilding Fund

The California Rebuilding Fund is a good example of the type of flexible and responsive program the IBank can quickly standup to meet new market needs.  The California Rebuilding Fund is structured as public-private partnership that aggregates funding from private, philanthropic, and public sector sources.  The program is externally adminstered by Calvery Capital and Kiva Capital Management serves as the fund manager.

To date, California has contributed a $25 million anchor commitment from IBank, as well as authority to contribute an additional $50 million.  There are currently 12 Community Development Financial Institutions (CDFIs) participating in the California Rebuilding Fund.

Small businesses seeking capital submit a relatively simple pre-application form through www.CALoanFund.org.  The form is reviewed by the group of particiapting CDFI lenders and, if matched, the business will be contacted by the CDFI.  Not every small business seeking capital is matched with a lender, which is why expanding the program and enrolling more lenders is very important.  

Eligibility is limited to businesses with less than 50 full-time employees and gross revenues under $5 million.  While all businesses that meet this criteria are eligible, there is a focus on those located in economically disadvantaged and historically under-banked areas of the state.  In general, loans are for a 3- or 5-year terms with a fixed annual interest rate that is currently 4.25%.  The maximum available loan amount is $100,000 or up to 100% of a business’ average monthly revenues for three months prior to the COVID pandemic outbreak (in 2019 or early 2020), whichever is less.  Each of the participating lenders may have their own underwriting methodologies.  In some cases, participating lenders have made modifications to this loan structure.  The San Fransico Recovery Fund, as an example, is currently offering qualified small businesses a loan with 0% interest. 

Another key aspect of the program is technical assistance.  The loan is only one element of helping small businesses access capital.  Research consistently shows that pre-application and ongoing technical assistance is central to small businesses successfully identifying the right type of capital, under the best terms, and using that capital to stregthen and grow the business.  CAMEO and Small Business Majority have been facilitating cross training for the state's network of small business technical assistance providers, many of which are funded through the Small Business Technical Assistance Expansion Program. 

As small businesses have different financial needs and business circumstances, having a range of financial products available is important.  As an example, the loan guarantee model has been shown to be most useful for mid-to-larger size loans, while the Californa Rebuilding Fund and the loss reserve model administered through the California Capital Access Program is very effective in facilitating microloans.

FDCs Deliver A Range of Small Business Programs

The Small Business Loan Guarantee Program (SBLGP) is more than a credit enhancement, but also includes one-on-one technical assistance to small businesses in identifying and applying for funds, as well as follow-on assistance and referrals to other nonprofit service providers.  The SBLGP is currently delivered through a network of seven nonprofits who have been specially designated by the state as a Small Business Finance Development Corporation (FDC). 

Through this partnership between the Small Business Finance Center and the FDCs, California is able to provide credit enhancements to loans issued by private and for-profit lenders.  The state's guarantee to cover up to 80% of the value of a loan in the case of a default by the small business borrower encourages lenders to provide credit in cases where they would not otherwise offer credit.   FDCs currently under contract with the Small Business Finance Center:

  • California Capital Financial Development Corporation

  • California Coastal Rural Development Corporation

  • California Southern Small Business Development Corporation

  • Nor-Cal Financial Development Corporation

  • Pacific Coast Regional Small Business Development Corporation

  • Small Business Development Corporation of Orange County

  • Valley Small Business Development Corporation 

The FDCs are authorized to deliver a range of financial products offered through the Small Business Finance Centers, including the Small Business Loan Guarantee, the Farm Loan Guarantee, the Disaster Loan Guarantee, and Jump Start Direct Loan Program.  Collectively, the FDCs have more than 1,230 years of lending expertise on staff and more than 522 years serving the Small Business Finance Center directly.  Many of the FDCs also administer other programs for governmental and financial partners.  

FDCs Have Other Small Business Certifications and Designations

  • Community Development Financial Institution – certified by US Treasury

  • Community Development Financial Institution – certified by California Organized Investment Network (COIN)

  • Women’s Business Center

  • Procurement Technical Assistance Center (PTAC)

  • Community Development Entity – certified by U.S. Treasury

  • Promise Zone – lead economic development implementation partner

  • Small Business Development Center

FDCs Deliver Loans, Grants, and Technical Assistance for Other Government Entities 

  • US Department of Commerce Economic Development Administration Revolving Loan Fund – for small business lending

  • US Department of Commerce Economic Development Administration Revolving Loan Fund – for disaster recovery and mitigation

  • US Small Business Administration Community Advantage (7a) Loan Program

  • US Small Business Administration Micro Loan Program

  • US Small Business Administration 504 Loan Program

  • US Department of Agriculture Intermediary Relending Program

  • US Department of Agriculture Farm Service Agency Loan Guarantee Program

  • US Department of Agriculture Rural Microenterprise Assistance Programs

  • Community Reinvestment Micro Loans – with grants from financial partners

  • Entrepreneur Loan Fund Micro Loan Program – in partnership with a financial institution

  • State Water Resources Control Board Repair and Removal of Underground Storage Tank Loan Program

  • Metro Business Interruption Fund – in partnership with the Los Angeles Metropolitan Transportation Authority

  • Various technical assistance programs with funding from financial institutions and local partners

  • Various revolving loan funds with funding from financial institutions and local partners

Small Business Loan Guarantee Program Requirements

  • Small businesses in California with 1-750 employees

  • Maximum loan amount IBank guarantees: $20 million

  • Maximum amount of a loan guarantee: $2.5 million

  • Eligible use of proceeds: Start-up costs, construction, inventory, working capital, business expansion,  agriculture, lines of credit, and more

2019-20 Loan Guarantee Activity

The IBank issues an annual report on its loan guarantee porgrams.  The following is from the Fiscal Year (FY) 2019-20 report.  In addition to the programs covered below, the annual report includes information on the general Disaster Loan Guanrantee Program, the Farm Loan Direct Loan Program, and the Jump Start Direct Loan Program.

In FY 2019-20, there were 470 guarantees made on a total loan package of $240 million with a loan guarantee amount of $165 million.  The leverage amount of SSBCI moneys vary under the Small Business Loan Guarantee Program based on the assessed risk in the loan portfolio.  This guarantee activity contributed to $303 million of overall capital injected into the state’s small business community.  Small business borrowers reported that 15,403 jobs were created or retained during 2019-20.  By law, the reserve amount could be as low as 10%, meaning $10 is in reserve for every $100 of loans guaranteed.

Borower Demographics:

  • Just over 50% of borrowers self idenitfied as a minority-owned businesses, including 18.9% Hispanic, 18.9% Asian/Pacific Islander, 6.6% Black, and 5.2% Other.

  • 31.3% of the borrowers self-identified as female-owned businesses (17.3%) or jointly owned-businesses (14%) and with 68% of the borrowers self-idenitifed as male-owned business.

As of May 2018, there were 84 participating lenders. [updated number pending]

The SBLGP is over 30 years old and has historically maintained a low default rate which is a testament to the diligence and skill of the small business financial development corporations which manage the program locally under a contract with the IBank.  For FY 2019-20, the SBLGP paid 42 claims amounting to $5.1 million. This resulted in a the net loss rate on reserves was 5.6% and the net loss rate on loan principle was 0.69%.

Small Business COVID-19 Disaster Relief Loan Guarantee

As noted above, the Governor activated the Small Business Loan Guarantee Program wiht a $50 million allocation to adress gaps in small businesses being served by the disaster loan programs being offered through the federal Small Business Administration and thier participating lenders.   

The COVID-19 Disaster Loan Guarantee Program could be accessed through the FDCs, as well as a number of provate lenders who the Small Business Finance Center has approved.  According to the annual report, from April to June of FY 19-20, 141 disaster guarantees were conditionally approved, resulting in more than $5.2 million in disaster loan guarantees that supported more than $5.6 million in small business loans.  These small business-borrowers reported 842 jobs retained because of these loan guarantees.  

Borower Demographics:

  • Just over  46% of borrowers self idenitfied as a minority-owned businesses, including  18.4% Hispanic,  17% Asian/Pacific Islander,  9.2% Black, and  2.1% Other.  Over 5% declined to state and 44% self-identified as Caucasian.

  •  Over 46% of the borrowers self-identified as female-owned businesses ( 36.1%) or jointly owned-businesses ( 10%) and with  53.2% of the borrowers self-idenitifed as male-owned business.

Disaster Relief Loan Guarnatee Program Requirements

  • Small businesses in California located in state- or federally declared disaster area or affected by COVID

  • Loans can be guaranteed for up to 7 years and cover up to 95% of the loan or $1 million, whichever is less

  • Maximum loan amount IBank guarantees: $1.25 million

  • Maximum amount of a loan guarantee: $1 million, bust the program is targeted to microloans under $50,000

  • Eligible use of proceeds: Business continuance or to cure “economic injury” as a result of a declared disaster  (including COVID)

Participating Lenders for COVID-19 Disaster Relief Loan Guarantee Financing

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