Small Business Lead California Economic Growth

California's dominance in many economic areas is based, in part, on the significant role small businesses play in the state's $2.9 trillion economy. Two separate studies, one by the U.S. Census Bureau and another by the Kaufman Foundation, found that net job growth was strongest among businesses with less than 20 employees. Among other advantages, small businesses are crucial to the state's international competitiveness and are an important means for dispersing the positive economic impacts of trade within the California economy. Among other advantages, small businesses are crucial in the state's international competitiveness and are an important means for dispersing the positive economic impacts of trade within the California economy.

Sole proprietorships comprise the single largest component of businesses in California, 3.2 million out of an estimated 4.2 million firms in 2016, representing over $162 billion in revenues with the highest number of businesses (over 539,000) in the professional, scientific, and technical services industry sector.  As these non-employer businesses grow, they continue to serve as an important component of California's dynamic economy.   Excluding sole proprietorships, businesses with less than 20 employees comprise over 88% of all businesses and employ approximately 18.2% of all workers.  Businesses with less than 100 employees represent 97% of all businesses and employ nearly 36% of all workers.  These non-employer and small employer firms create jobs, generate taxes, support important industry sectors, and revitalize communities. Since the recession, these businesses have become increasingly important because of their ability to be more flexible and suited to niche foreign and domestic market needs. 

However, their small size also results in certain market challenges, including having difficulty in meeting the procedural requirements of the state's complex regulatory structure and the traditional credit and collateral requirements of mainstream financial institutions.  Specialized technical assistance, access to credit enhancements, and targeting of state procurement activities help many small businesses overcome or at least minimize these difficulties.

      Additional information on small businesses can be found in the JEDE Small Business Summary from the 2019 Mid-Session Report.

     Handout on California Small Business Resources can be found at this link.

     Additional information on the activities of the Office of the Small Business Advocate can be found at this link.

Small Businesses Access to Capital Challenge

In today's financial environment, small businesses and start-ups face many challenges including accessing sufficient capital to meet day-to-day expenses and longer term investments in marketing, new equipment and other business expansion requirements.  California currently provides several loan and loan guarantee programs including the Capital Access Program, administered through the State Treasurer's Office, and the Small Business Loan Guarantee Program, administered through the California Infrastructure and Economic Development Bank and a statewide network of small business financial development corporations

Both of these programs are offered through private for-profit and nonprofit lenders.  Small businesses needing seeking capital can access these programs by contracting a small business financial development corporation or a lender directly.

California Capital Access Program for Small Business

In 2017, participating lenders enrolled 2,271 small business loans for $91 million, representing $99 million in total loan dollars.The average size loan in 2017 was $43,682 and loans were enrolled from businesses located in 44 counties.In 2017, loans enrolled in CalCAP helped to create 1,052 new jobs and retain 9,445 existing jobs.  Of the 2,271 total loans made in 2017, 1,771 were microloans representing $20 million of the $91 million of loans.  As of May 31, 2018, there were 15 participating lenders in the CalCAP for Small Business program.

The California Capital Access Program for Small Business annual report 

California Small Business Loan Guaranetee Program

In fiscal year 2016-17, there were 252 guarantees made on a total loan package of $206.6 million with a loan guarantee amount of $74.1 million.  The leverage amount of SSBCI moneys vary under the Small Business Loan Guarantee Program based on the assessed risk in the loan portfolio.Borrowers reported that 6,847 jobs were created or retained during 2016-17.  By law, the reserve amount could be as low as 10%, meaning $10 is in reserve for every $100 of loans guaranteed. 

In 2016-17, 17 new lenders agreed to participate in the Small Business Loan Program.  As of May 2018, there were 84 participating lenders.  If you are looking for capital, the first step is to contact the small business financial development corporation in your area who will assist you in preparing and applying for a loan.

The California Small Business Loan Program annual report

State Procurement and Small Businesses

The Small Business Procurement Act, administered through DGS, was implemented more than 30 years ago to establish a small business preference within the state's procurement process for the purpose of increasing the number of contracts between the state and small businesses.A DVBE component was added in 1989.Today, approximately 85% of DVBEs have dual certification as a small business or microbusiness.

While statute sets an annual 3% DVBE participation goal, the 25% small business goal is provided through two executive orders, EO D-43-01 issue by Governor Gray Davis in 2001 and EO S-02-06 issue by Governor Arnold Schwarzenegger in 2006.  In the last 10 report periods, the 25% small business procurement participation goal has been met six times.

This chart chart below shows small business and microbusiness aggregate procurement participation rates for the approximately 80% of mandatory reporting agencies that chose to report in the 2011-12 through 2015-16 fiscal years.

In order to assist state entities reach the small business participation goals, contracting entities are provided a number of specific tools, including a streamlined procurement method, bid preferences, and lead small business procurement contacts at every agency.

Under the streamlined procurement process, the awarding state entity is authorized to bypass the advertising, bidding, and protest provisions in the State Contract Act.  This allows a contract to be awarded directly to a certified small business at a contract price established by checking the proposed rate with two other small businesses.  Contracts offered under the streamlined procurement process are currently limited to contracts between $5,000 and $100,000.  Of the $5.8 billion of state contracts that were awarded to small businesses in 2015-169, $225.4 million (17,310 contracts) were awarded through the streamlined procurement process.  The actual number may be higher as only 78 of 124 departments reported their small business procurement activities to DGS.

Certified small business bidders and other bidders that commit to using certified small businesses are also eligible for a 5% bid preference where the solicitations are made either on the basis of lowest responsible dollar bid, or on the basis of highest score, considering factors in addition to price.  A single bid preference is limited to $50,000 and the combined costs of preferences shall not exceed $100,000.  More information on how bid preferences work.

Another important component of the state's effort to increase small business participation in state contracts is through the work of the Small Business Advocate and the network of small business liaisons.  Under existing law, every state agency is also required to have a single point of contact for small business state procurement opportunities.  

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