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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 $3.2 trillion economy. Two 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.

Nonemployer businesses comprise the single largest component of businesses in California, 3.4 million out of an estimated 4.4 million firms in 2018, representing over $189.3 billion in revenues with the highest number of businesses 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.  This is a link to a chart showing additional information on the size of California businesses based on number of employees.  These non-employer and small employer firms create jobs, generate taxes, support important industry sectors, and revitalize communities.

Over the past decades, 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 Briefing.  Here is a link to California small business "Quick-Start" guides.  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 California Capital Access Program (CalCAP), administered through the California Pollution Control Financing Authority, 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 offer credit enhancements which encourage private for-profit and nonprofit financial institutions offer loans to small business borrowers.  In 2022, California will begin to draw down $1.1 billion federal State Small Business Credit Initiative (SSBCI) funds to expand the scale of these programs.   Additional information on the JEDE Committee's March 29, 2022, joint hearing with the Assembly Budget Subcommittee 4 that examined the state's proposed use of federal SSBCI funds can be found here.

California Capital Access Program for Small Business

In 2020, participating lenders enrolled 860 small business loans in CalCAP, down from 2,271 loans in 2017.  2020 program activity included $23.9 million in total enrolled loan dollars.  The average size of enrolled loans in 2020 was $39,087.  Of the 860 loans enrolled in CalCAP, 334 (38.8%) were located in a severely affected community.  Overall enrolled loans came from businesses located in 41 of the state's 58 counties.  In 2020, CalCAP enrolled loans helped to create 960 new jobs and retain 3,279 existing jobs.  Of the 860 total loans made in 2020, 690 were microloans representing $10.9 million (over 45% of all enrolled loans). 

Eleven lenders enrolled loans in CalCAP in 2020.  The top three participating lenders -- Opportunity Fund, Murphy Bank, and Working Solutions CDFI -- enrolled approximately 81% of the total loan volume.  The 2020 CalCAP annual report is available through this link.  

California Small Business Loan Guarantee 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.   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.

Borrower Demographics:

  • Just over 50% of borrowers self identified 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 identified as male-owned business.

The most recent California Small Business Loan Program annual report.

The Small Business Loan Guarantee Program provides more than a credit enhancement to small businesses seeking capital.  The program also offers 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 small business service providers.  The network of seven state-designated small business financial development corporations includes:

  • 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 

State Procurement and Small Businesses

The Small Business Procurement Act, administered through the Department of General Services, 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, over 80% of DVBEs have dual certification as a small business or microbusiness.  

In 2019-20, only 14% of DVBEs operated with only a single DVBE certification.  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.   

This chart 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 2019-20 fiscal years.

In order to assist state entities reach the small business participation goals, contracting entities are provided a number of specific tools, which are discussed below.

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 $250,000.  Of the $11.9 billion of state contracts that were awarded in 2019-20, $296.7 million (8,008 contracts) were awarded to small businesses and $31.5 million (1,321 contracts) were awarded to DVBEs through the streamlined procurement process.   

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.  

Copyright © 2011 State of California