Bill Text: CA AB1247 | 2013-2014 | Regular Session | Chaptered
Bill Title: Business investments: Small Business Financial
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Passed) 2013-10-04 - Chaptered by Secretary of State - Chapter 537, Statutes of 2013. [AB1247 Detail]
Download: California-2013-AB1247-Chaptered.html
BILL NUMBER: AB 1247 CHAPTERED
BILL TEXT
CHAPTER 537
FILED WITH SECRETARY OF STATE OCTOBER 4, 2013
APPROVED BY GOVERNOR OCTOBER 4, 2013
PASSED THE SENATE SEPTEMBER 11, 2013
PASSED THE ASSEMBLY SEPTEMBER 12, 2013
AMENDED IN SENATE SEPTEMBER 6, 2013
AMENDED IN SENATE AUGUST 12, 2013
AMENDED IN SENATE JULY 8, 2013
AMENDED IN SENATE JUNE 18, 2013
AMENDED IN SENATE JUNE 5, 2013
AMENDED IN ASSEMBLY APRIL 17, 2013
INTRODUCED BY Assembly Members Medina and Bocanegra
(Principal coauthor: Senator Hueso)
FEBRUARY 22, 2013
An act to repeal and add Chapter 1 (commencing with Section 14000)
of Part 5 of Division 3 of Title 1 of the Corporations Code, and to
amend Section 8684.2 of, to add Chapter 6 (commencing with Section
63088) to Division 1 of Title 6.7 of, and to repeal Sections 63089.5,
63089.60, 63089.61, and 63089.62 of, the Government Code, relating
to business, making an appropriation therefor, and declaring the
urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 1247, Medina. Business investments: Small Business Financial
Assistance Act of 2013.
Existing law, the California Small Business Financial Development
Corporation Law, creates the California Small Business Board and the
California Small Business Expansion Fund, a continuously appropriated
fund which includes General Fund moneys. Existing law authorizes the
formation of small business financial development corporations to
grant loans from, or guarantee loans made by a financial institution
or financial company, as defined, against, moneys awarded to the
corporation from the expansion fund for the purpose of stimulating
small business development. Existing law authorizes a director
designated by the Secretary of Business, Transportation and Housing,
the latter office abolished by existing law and the Governor's
Reorganization Plan No. 2 of 2012, effective on July 3, 2012, and
operative July 1, 2013, to perform specified duties under that law. A
violation of certain conflict-of-interest provisions by the director
and other persons, as specified, is a crime.
This bill would revise and recast these provisions, and would
transfer the administration of the California Small Business
Financial Development Corporation Law to the California
Infrastructure and Economic Development Bank (I-Bank), located within
the Governor's Office of Business and Economic Development, and a
program manager designated by the executive director of the I-Bank,
as specified. The bill would expand the definitions of "financial
institution" and "financial company" for those purposes. The bill
would also describe the transition of oversight of the Small Business
Loan Guarantee Program from the Business, Transportation and Housing
Agency to the I-Bank and compliance with federal and state program
requirements. Because the above-described conflict-of-interest
provisions would apply to the members of the I-Bank's board of
directors, the program manager, the executive director, and other
officers and employees, as specified, the bill would extend the
application of a crime, and impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Because this bill would expand the purposes for which a
continuously appropriated fund is expended, the bill would make an
appropriation.
This bill would declare that it is to take effect immediately as
an urgency statute.
Appropriation: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Chapter 1 (commencing with Section 14000) of Part 5 of
Division 3 of Title 1 of the Corporations Code is repealed.
SEC. 2. Chapter 1 (commencing with Section 14000) is added to Part
5 of Division 3 of Title 1 of the Corporations Code, to read:
CHAPTER 1. CALIFORNIA SMALL BUSINESS FINANCIAL DEVELOPMENT
CORPORATIONS
Article 1. Introduction
14000. This chapter shall be known and may be cited as the
California Small Business Financial Development Corporation Law.
14001. (a) It is the intent of the Legislature in enacting this
chapter to promote the economic development of small businesses
through the California Small Business Finance Center by making
available capital, general management assistance, and other
resources, including financial services, personnel, and business
education to small business entrepreneurs, including women, veteran,
and minority-owned businesses, for the purpose of promoting the
health, safety, and social welfare of the citizens of California, to
eliminate unemployment of the economically disadvantaged of the
state, and to stimulate economic development and entrepreneurship.
(b) It is the further intent of the Legislature to provide a
flexible means to mobilize and commit all available and potential
resources in the various regions of the state to fulfill these
objectives, including federal, state, and local public resources, and
private debt and equity investment.
(c) It is the further intent of the Legislature that corporations
operating pursuant to this law, shall to the maximum extent feasible,
coordinate with other job and business development efforts within
their region directed toward implementing the purpose of this
chapter.
(d) It is the further intent of the Legislature to provide
expanded resources allowing participation by small and emerging
contractors in state public works contracts. Increased access to
surety bonding resources will assist in supporting participation by
those firms in public works contracts, and by stimulating increased
participation by small firms, the state will benefit from increased
competition and lower bid costs.
14002. If any provision of this chapter or the application
thereof to any person or circumstances is held invalid, this
invalidity shall not affect other provisions or applications of the
chapter which can be given effect without the invalid provision or
application, and to this end the provisions of this chapter are
severable.
Article 2. Definitions
14003. Unless the context otherwise requires, the definitions in
this section shall govern the construction of this chapter.
(a) "Bank" means the California Infrastructure and Economic
Development Bank.
(b) "Bank board" means the board of directors of the California
Infrastructure and Economic Development Bank.
(c) "Board of directors" means the board of directors of the
corporation.
(d) "California Small Business Board" means the advisory board
established pursuant to Section 14004.1 for the purpose of advising
on issues and programs affecting small business.
(e) "California Small Business Finance Center" means the
governmental unit within the bank, which is located within the
Governor's Office of Business and Economic Development, with the
administrative responsibility for the programs and activities
authorized pursuant to Section 8684.2 of the Government Code, the
Small Business Financial Assistance Act of 2013 (Chapter 6
(commencing with Section 63088) of Division 1 of Title 6.7 of the
Government Code), and this chapter.
(f) "Corporation" means any nonprofit California small business
financial development corporation created pursuant to this chapter,
or pursuant to Chapter 1 (commencing with Section 32000) of Division
15.5 of the Financial Code.
(g) "Directives and requirements" means a document adopted by the
bank board setting forth policy direction as well as key rules
governing a particular subject area.
(h) "Executive director" means the executive director of the
California Infrastructure and Economic Development Bank.
(i) "Expansion fund" means the California Small Business Expansion
Fund authorized pursuant to Section 63089.5 of the Government Code.
(j) "Financial company" means banking organizations, including
national banks and trust companies, savings and loan associations,
certified community development financial institutions, microbusiness
lenders, state insurance companies, mutual insurance companies, and
other public and private banking, lending, retirement, and insurance
organizations.
(k) "Financial institution" means regulated banking organizations,
including national banks and trust companies authorized to conduct
business in the state and state-chartered commercial banks, trust
companies, credit unions, and savings and loan associations.
(l) "Financial product" means the type of financial assistance
described in Section 63088.5 of the Government Code or that the
California Small Business Finance Center or a small business
financial development corporation is otherwise authorized to provide.
(m) "Loan committee" means a committee appointed by the board of
directors of a corporation to determine the course of action on a
loan application pursuant to Chapter 6 (commencing with Section
63088) of Division 1 of Title 6.7 of the Government Code.
(n) "Microbusiness lender" means a microbusiness lender as defined
in Section 13997.2 of the Government Code.
(o) "Program manager" means the manager of the California Small
Business Finance Center as designated to this title by the executive
director of the bank.
(p) "Trust fund" means the money from the expansion fund that is
held in trust by a financial institution or financial company. A
trust fund is not a deposit of state funds and is not subject to the
requirements of Section 16506 of the Government Code.
(q) "Trust fund account" means an account within the trust fund
that is either allocated to a particular corporation or shared by
multiple corporations for the purpose of paying loan defaults and
claims on bond guarantees or other financial products and program
uses provided in this chapter.
Article 3. Program Manager
14004. (a) The program manager shall do all of the following:
(1) Administer this chapter.
(2) Make recommendations to the executive director and the bank
board on the approval or disapproval of the articles of
incorporation. This determination shall be based upon the following:
(A) Review of the articles of incorporation and bylaws of the
corporation to determine whether they contain the provisions required
by this chapter and conform with the directives and requirements
adopted by the bank board pursuant to this chapter.
(B) A determination as to whether the legislative intent expressed
in Section 14001 shall be served by the proposed corporation.
(C) A determination as to whether the responsibility, character,
and general fitness of the individuals who will manage the
corporation are such as to command the confidence of the state and to
warrant the belief that the business of the proposed corporation
will be honestly and efficiently conducted in accordance with the
intent and purpose of this chapter and that they include
representatives of the financial and business community, as well as
the economically disadvantaged.
(D) A determination by the program manager that there is
significant need for a new corporation.
(3) Have the accounts of each corporation formed under this
chapter examined and audited as of the close of business on June 30
of each year. Material examination exceptions that are not corrected
by the corporation within a reasonable period of time may result in
the suspension or termination of the corporation pursuant to Section
63089.3 of the Government Code.
(4) Have the portfolio of each corporation examined a minimum of
once a year. Material examination exceptions that are not corrected
by the corporation within a reasonable period of time may result in
the suspension or termination of the corporation pursuant to Section
63089.3 of the Government Code.
(5) Review reports from the Department of Business Oversight and
inform corporations as to what corrective action is required.
(6) Examine, or cause to be examined, at any reasonable time, all
books, records, and documents of every kind, and the physical
properties of a corporation. The inspection shall include the right
to make copies, extracts, and search records.
(b) The program manager may attend and participate at corporation
meetings. The program manager, or his or her designee, shall be an ex
officio, nonvoting representative on the board of directors and loan
committees of each corporation. The program manager shall meet
through telecommunication or in person with the board of directors of
each corporation at least once each fiscal year, commencing January
1, 2014.
14004.1. (a) The California Small Business Board is hereby
continued and created as an advisory board to the California
Infrastructure and Economic Development Bank Board, the executive
director, and the program manager. The California Small Business
Board may also advise the Governor and the Small Business Advocate
regarding issues and programs affecting California's small business
community, including, but not limited to, business innovation and
expansion, export finance, state procurement, management and
technical assistance, venture capital, and financial assistance.
(b) The California Small Business Board consists of the following
membership:
(1) The Director of Finance or his or her designee.
(2) The Director of the Office of the Small Business Advocate or
his or her designee.
(3) The Treasurer or his or her designee.
(4) A representative from two different corporations selected by
the corporations.
(5) Four members appointed by the Governor, one of whom will serve
as chair of the California Small Business Board, who are actively
involved in the California small business community.
(6) Two persons actively involved in the business or agricultural
communities, one appointed by the Speaker of the Assembly and one
appointed by the Senate Committee on Rules.
(7) Two Members of the Legislature, or their designees, one
appointed by the Speaker of the Assembly and one appointed by the
Senate Committee on Rules, so long as it does not conflict with their
duties as legislators.
(c) The California Small Business Board shall advise the program
manager on matters regarding this chapter and Chapter 6 (commencing
with Section 63088) of Division 1 of Title 6.7 of the Government
Code.
(d) The public members of the California Small Business Board, at
the discretion of the bank board, may be reimbursed per diem and
travel expenses pursuant to state law.
14004.2. The bank board shall approve new corporations
recommended by the program manager, based on an examination of each
of the following:
(a) Review of the articles of incorporation and bylaws of the
corporation to determine whether they contain the provisions required
by this chapter and conform with the directives and requirements
adopted by the bank board pursuant to this chapter.
(b) Determination as to whether the legislative intent expressed
in Section 14001 will be served by the proposed corporation.
(c) Determination as to whether the responsibility, character, and
general fitness of the individuals who will manage the corporation
are able to command the confidence of the state and to warrant the
belief that the business of the proposed corporation will be honestly
and efficiently conducted in accordance with the intent and purpose
of this chapter and that they include representatives of the
financial and business community, as well as the economically
disadvantaged.
(d) Determination of the program manager that there is significant
need for a new corporation.
Article 4. New Corporations
14005. Upon approval by the bank board to become a corporation,
an entity shall adopt or amend its articles of incorporation to
comply with the following:
(a) The name of the corporation shall include the words "small
business financial development corporation," except for those
corporations formed pursuant to this chapter prior to 2002, which may
also be called "small business development corporations," or those
formed prior to 1985, which may also be called "rural or urban
development corporations."
(b) The purposes for which the corporation is formed, which shall
be those specified in Section 14001. This requirement shall not be
deemed to preclude a statement of powers.
(c) A geographical description of the corporation's primary
service area.
(d) The name and addresses of seven or more persons who are to act
in the capacity of directors until the selection of their
successors.
(e) That the corporation is organized pursuant to the California
Small Business Financial Development Corporation Law.
14006. If the bank board concurs with the findings of the program
manager pursuant to Section 14004, the bank board shall direct the
program manager to approve the articles of incorporation and endorse
the approval thereon and forward the same to the Secretary of State
for his or her approval and filing. Likewise, the program manager
shall review all amendments to the articles of incorporation to
ensure consistency with the purposes of this chapter.
14007. (a) The corporation's existence as a small business
financial development corporation begins upon the filing of the
articles with the Secretary of State and continues perpetually,
unless otherwise expressly provided for by law.
(b) If a corporation is terminated from participation in all
programs, in order to continue its existence as a nonprofit
corporation pursuant to the Nonprofit Public Benefit Corporation Law
(Part 2 (commencing with Section 5110) of Division 2 of Title 1 of
the Corporations Code), the corporation shall amend its articles of
incorporation in accordance with Chapter 8 (commencing with Section
5180) of Part 2 of Division 2 of Title 1 to remove the provisions
required by Section 14005, including an amendment to remove the words
"small business financial development corporation," "small business
development corporation," or "rural or urban development corporation,"
as applicable, from the corporate name, and shall no longer be
registered with the Secretary of State as a small business financial
development corporation. A corporation shall not enjoy any of the
benefits of a small business financial development corporation
following termination.
14009. (a) Each corporation shall have provisions establishing a
grievance procedure for employees, clients, or potential clients, to
appeal a decision or obtain redress of an action done by the staff or
loan committee of the corporation. The procedures shall be
established in writing during the probationary period of a new
corporation.
(b) The bylaws of the corporation shall authorize the removal of
officers only by a two-thirds vote of the directors of the
corporation.
14011. The Nonprofit Public Benefit Corporation Law (Part 2
(commencing with Section 5110) of Division 2 of this title) applies
to corporations formed under this chapter, except as to matters
otherwise provided for in this chapter.
14012. For six months following the establishment of a
corporation, commencing upon filing of the articles of incorporation
with the Secretary of State, a corporation shall be on probation.
While on probation, a corporation may be suspended if suspension is
recommended by the program manager and affirmed by the executive
director. This suspension is nonappealable and not subject to the
procedures for suspension applicable to a corporation not on
probation.
Article 5. Corporation Board
14013. The corporate powers of a corporation shall be exercised
by its board of directors.
14014. The bank shall enter into a contract with each corporation
that shall require that:
(a) A person may not serve on a corporation's board of directors
who is not a resident of, or person conducting business in, the
primary service area described in the articles of incorporation.
(b) A corporation's board of directors shall include
representatives from all of the following:
(1) The financial community.
(2) The business community.
(3) The economically disadvantaged.
(c) The chief executive officer of a corporation, or his or her
designee, is the only employee of the corporation who may serve on
its board of directors.
(d) A person who has a financial interest related to a matter over
which the board of directors has authority may not make, participate
in making, or in any way attempt to influence that matter.
14015. If any director ceases to meet the qualifications
established in Section 14014, he or she shall immediately vacate his
or her position as a director and the position shall be deemed
vacant.
14016. If any vacancy occurs in the elective membership of the
board of directors through death, resignation, or otherwise, the
remaining directors shall elect a person representing the appropriate
category to fill the vacancy for the unexpired term.
14017. The bank board shall direct the program manager to
establish new small business financial development corporations
pursuant to the directives and requirements. The directives and
requirements shall include steps to achieve a goal of ensuring that
small businesses in all areas of the state would have reasonable
access to the financial products authorized by Chapter 6 (commencing
with Section 63088) of Division 1 of Title 6.7 of the Government Code
for which they are eligible.
Article 6. Corporations, Miscellaneous
14018. Every corporation shall provide for, and maintain a
central staff to perform, all administrative requirements of the
corporation, including all those functions required of a corporation
by the contract and this chapter.
14019. Reasonable costs incurred by a corporation in the creation
and maintenance of a central staff shall be paid to the corporation
from state funds, including a portion of the interest earned on the
expansion fund and the corporation's trust fund account, if the
corporation has a trust fund account, otherwise, on the expansion
fund.
14020. A corporation shall report to the program manager, or his
or her designated representative, all statistical and other reports
required by this chapter and Chapter 6 (commencing with Section
63088) of Division 1 of Title 6.7 of the Government Code, including
responses to audit reports, budget requirements, and other
information relating to the establishment, monitoring, and suspension
or termination of a corporation.
14021. A corporation shall make a report to the program manager,
as required by Chapter 6 (commencing with Section 63088) of Division
1 of Title 6.7 of the Government Code.
Article 7. Conflict of Interest
14022. It shall be unlawful for a member of the bank board or for
the executive director, program manager, or any person who is an
officer, director, contractor, or employee of a corporation, or who
is a member of a loan committee, or who is an employee of the
California Infrastructure and Economic Development Bank to do any of
the following:
(a) Ask for, consent, or agree to receive, any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage, for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation, any loan, guarantee, financial, or other
assistance from any corporation.
(b) Borrow money, property, or to benefit knowingly, directly or
indirectly, from the use of the money, credit, or property of any
corporation.
(c) Make, maintain, or attempt to make or maintain, a deposit of
the funds of a corporation with any other corporation or association
on condition, or with the understanding, expressed or implied, that
the corporation or association receiving the deposit shall pay any
money or make a loan or advance, directly or indirectly, to any
person, partnership, joint venture, association, or corporation,
other than to a corporation formed under this chapter.
14023. It shall be unlawful for a member of the bank board or for
the executive director, program manager, or any person who is an
officer or director of a corporation, or who is an employee of the
California Infrastructure and Economic Development Bank to purchase
or receive, or to be otherwise interested in the purchase or receipt,
directly or indirectly, of any asset of a corporation, without
paying to the corporation the fair market value of the asset at the
time of the transaction.
14024. Violation of any provision of this article shall
constitute a felony.
SEC. 3. Section 8684.2 of the Government Code is amended to read:
8684.2. (a) It is the intent of the Legislature:
(1) To provide the Governor with appropriate emergency powers in
order to enable utilization of available emergency funding to provide
guarantees for interim loans to be made by lending institutions, in
connection with relief provided for those persons affected by
disasters or a state of emergency in affected areas during periods of
disaster relief assistance, for the purpose of supplying interim
financing to enable small businesses to continue operations pending
receipt of federal disaster assistance.
(2) That the Governor should utilize this authority to prevent
business insolvencies and loss of employment in areas affected by
these disasters.
(b) In addition to the allocations authorized by Section 8683 and
the loan guarantee provisions of Section 63089.90, the Governor may
allocate funds made available for the purposes of this chapter, in
connection with relief provided, in affected areas during the period
of federal disaster relief, to the Small Business Expansion Fund for
use by the California Infrastructure and Economic Development Bank,
pursuant to Chapter 1 (commencing with Section 14000) of Part 5 of
Division 3 of Title 1 of the Corporations Code and Chapter 6
(commencing with Section 63088) of Division 1 of Title 6.7 of this
code, to provide guarantees for low-interest interim loans to be made
by lending institutions for the purpose of providing interim
financing to enable small businesses that have suffered actual
physical damage or significant economic losses, as a result of the
disaster or state of emergency for which funding under this section
is made available, to continue or resume operations pending receipt
of loans made or guaranteed by the federal Small Business
Administration. The maximum amount of any loan guarantee funded under
this paragraph shall be limited by the directives and requirements .
Each loan guarantee shall not exceed 95 percent of the loan amount,
except that a loan guarantee may be for 100 percent of the loan
amount if the applicant can demonstrate that access to business
records pertinent to the loan application has been precluded by
official action prohibiting necessary reentry into the affected
business premises or that those business records pertinent to the
loan application have been destroyed. The term of the interim loan
shall be determined by the lending institution providing the loan or
shall be made payable on the date the proceeds of a loan made or
guaranteed by the federal Small Business Administration with respect
to the same damage or loss are made available to the borrower,
whichever event first occurs.
(c) Loan guarantees for which the initial 12-month term has
expired and for which an application for disaster assistance funding
from the federal Small Business Administration is still pending may
be extended until the federal Small Business Administration has
reached a final decision on the application. Applications for
guarantees of interim loans shall be processed in an expeditious
manner. Wherever possible, lending institutions shall fund
nonconstruction loans within 60 calendar days of application. Loan
guarantees for loans that have been denied funding by the federal
Small Business Administration, may be extended by the financial
institution provided that the loan is for no longer than a maximum of
seven years, if the business demonstrates the ability to repay the
loan with an extended loan term, and a new credit analysis is
provided. All loan guarantees whose term has been extended under this
provision shall be repaid in installments of principal and interest,
and be fully amortized over the term of the loan. Nothing in this
section shall preclude the lender from charging reasonable
administrative fees in connection with the loan.
(d) Allocations pursuant to this section shall, for purposes of
all provisions of law, be deemed to be for extraordinary emergency or
disaster response operation costs, as provided in Section 8690.6,
incurred by state employees assigned to work on the guarantees
authorized by this section.
(e) The California Infrastructure and Economic Development Bank,
which is located within the Governor's Office of Business and
Economic Development, may adopt directives and requirements to
implement the disaster loan guarantee program authorized by this
section.
(f) As long as there are any outstanding small business disaster
loan guarantees, as authorized by Section 8684.2 or 63089.90, the
bank shall provide a report to the Legislature on loan guarantees
approved and rejected by gender, ethnic group, type of business and
location, and each participating loan institution. The report may be
combined with the report required in Section 63089.98.
SEC. 4. Chapter 6 (commencing with Section 63088) is added to
Division 1 of Title 6.7 of the Government Code, to read:
CHAPTER 6. SMALL BUSINESS FINANCIAL ASSISTANCE ACT OF 2013
Article 1. Introduction
63088. (a) This chapter shall be known, and may be cited, as the
Small Business Financial Assistance Act of 2013.
(b) Notwithstanding any other provision of this division, this
chapter shall not apply to any other activities, powers, and duties
of the bank under any of the other chapters of this division.
63088.1. The Legislature finds all of the following:
(a) Small businesses form the core of the California economy and
that it is in the interest of the state to increase opportunities for
entrepreneurs, the self-employed, and microbusiness and small
business owners to have better access to capital and other technical
resources.
(b) Unemployment in California is a matter of statewide concern
requiring concerted public and private action to develop employment
opportunities for the disadvantaged,
unemployed persons, veterans, and youth.
(c) It is necessary to direct additional capital, general
management assistance, business education, and other resources to
encourage the development of small business opportunities,
particularly for minorities, women, and disabled persons, to
alleviate unemployment.
Article 2. Definitions
63088.3. Unless the context otherwise requires, the definitions
in this section shall govern the construction of this chapter. The
definitions provided in this section shall only apply to this chapter
and not to any other chapter of this division.
(a) "Bank" means the California Infrastructure and Economic
Development Bank.
(b) "Bank board" means the board of directors of the California
Infrastructure and Economic Development Bank.
(c) "Board of directors" means the board of directors of a
corporation.
(d) "California Small Business Board" means the advisory board
established pursuant to Section 14004.1 of the Corporations Code for
the purpose of advising on issues and programs affecting small
business.
(e) "California Small Business Finance Center" means the
governmental unit within the bank, which is located within the
Governor's Office of Business and Economic Development, with the
administrative responsibility for programs and activities authorized
pursuant to Section 8684.2 of this code, Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations
Code, and this chapter.
(f) "Corporation" means any nonprofit California small business
financial development corporation created pursuant to Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title 1 of
the Corporations Code, or pursuant to Chapter 1 (commencing with
Section 32000) of Division 15.5 of the Financial Code.
(g) "Directives and requirements" means a document adopted by the
bank board setting forth policy direction as well as key rules
governing a particular subject area.
(h) "Executive director" means the executive director of the
California Infrastructure and Economic Development Bank.
(i) "Expansion fund" means the California Small Business Expansion
Fund authorized pursuant to Section 63089.5.
(j) "Financial company" means banking organizations, including
national banks and trust companies, savings and loan associations,
certified community development financial institutions, microbusiness
lenders, state insurance companies, mutual insurance companies, and
other public and private banking, lending, retirement, and insurance
organizations.
(k) "Financial institution" means regulated banking organizations,
including national banks and trust companies authorized to conduct
business in California and state-chartered commercial banks, trust
companies, credit unions, and savings and loan associations.
(l) "Financial product" means the type of financial assistance
described in Section 63088.5, authorized by this chapter, or that the
California Small Business Finance Center or a small business
financial development corporation is otherwise authorized to provide.
(m) "Loan committee" means a committee appointed by the board of
directors of a corporation to determine the course of action on a
loan application pursuant to this chapter.
(n) "Microbusiness lender" means a microbusiness lender as defined
in Section 13997.2.
(o) "Program manager" means the manager of the California Small
Business Finance Center as designated to this title by the executive
director of the California Infrastructure and Economic Development
Bank.
(p) "Small business loan" means a loan to a business defined as an
eligible small business as set forth in Section 121.3-10 of Part 121
of Chapter 1 of Title 13 of the Code of Federal Regulations,
including those businesses organized for agricultural purposes that
create or retain employment as a result of the loan unless otherwise
defined by the directives and requirements. Directives and
requirements shall provide guidelines as to the preferred ratio of
jobs created or retained to total funds borrowed for guidance to the
corporations.
(q) "Trust fund" means the moneys from the expansion fund that is
held in trust by a financial institution or financial company. A
trust fund is not a deposit of state funds and is not subject to the
requirements of Section 16506.
(r) "Trustee" means the lending institution or financial company
selected by the bank board to hold and invest the trust funds, or
selected by a predecessor agency to the bank, if applicable. An
agreement made pursuant to this chapter and the trustee shall not be
construed to be a deposit of state funds.
(s) "Trust fund account" means an account within the trust fund
that is either allocated to a particular corporation or shared by
multiple corporations for the purpose of paying loan defaults and
claims on bond guarantees or other financial products and program
uses provided in this chapter.
Article 3. Purpose
63088.5. (a) There is within the Governor's Office of Business
and Economic Development the California Infrastructure and Economic
Development Bank, which shall, among other things, administer the
California Small Business Finance Center that administers programs to
assist businesses seeking new capital resources, including, but not
limited to, the Small Business Loan Guarantee Program.
(b) Pursuant to this chapter and Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations
Code, the bank board may continue programs funded by the Small
Business Expansion Fund or establish one or more programs
administered by the bank or under contract with small business
financial development corporations. Programs established pursuant to
this chapter or Chapter 1 (commencing with Section 14000) of Part 5
of Division 3 of Title 1 of the Corporations Code may include the
following types of financial products:
(1) Loan guarantees and other credit enhancements.
(2) Direct loans and other debt instruments.
(3) Disaster loan guarantees.
(4) Surety bond guarantees.
(c) In all of their state-funded programs, the corporations shall,
to the extent practicable, be complementary to, and not competitive
with, commercial lenders and other state and federal programs.
(d) In carrying out this chapter the program manager, the
executive director, and the bank board may call on the California
Small Business Board for advice and recommendations. All actions by
the California Small Business Board are advisory.
(e) The California Small Business Board may also advise the
Governor and the Small Business Advocate regarding issues and
programs affecting California's small business community, including,
but not limited to, business innovation and expansion, export
finance, state procurement, management and technical assistance,
venture capital, and financial assistance.
63088.6. To implement its responsibilities, a corporation shall
undertake program activities that shall include, but not be limited
to, the following:
(a) Outreach to low-resource small businesses and microbusinesses.
The corporations located in rural areas shall give priority to
low-resource farmers and rural and agriculturally related businesses.
(b) Collaboration with other organizations and lenders to identify
and assist those businesses that are creditworthy but face
impediments to accessing conventional sources because of reasons,
such as low equity, inadequate collateral, unacceptable legal
structure (such as a co-op or nonprofit organization), management
inadequacies, and language problems.
(c) To the extent possible, bringing all possible financial
resources to bear on the borrower's problems, including, but not
limited to, low-interest lenders, business and industrial development
corporations (BIDCOs), minority enterprise small business investment
companies (MESBICs), and other financial institutions, financial
companies, and grantors.
(d) Technical assistance to businesses receiving loans or
guarantees that will maximize the probability of loan repayment.
(e) Ongoing strategies for increasing program resources through
private sector involvement and nonstate funds.
(f) A program for collecting and liquidating defaulted loans so
that the corporations can qualify to become full-service lenders
under the Small Business Administration. Corporations located in
rural areas shall, in addition, try to qualify for lender status
under the United States Department of Agriculture's Rural Development
and Farm Services Agency.
(g) Become an agent for other financial institutions and financial
companies.
(h) Become an agent for other state or federal governmental
agencies that need a qualified financial service provider, including,
but not limited to, the State Energy Resources Conservation and
Development Commission.
Article 4. Administrative Structure
63089. The bank board shall adopt directives and requirements
concerning the implementation of this chapter and pursuant to Chapter
1 (commencing with Section 14000) of Part 5 of Division 3 of Title 1
of the Corporations Code. Any regulations adopted pursuant to
Chapter 1 (commencing with Section 14000) of Part 5 of Division 3 of
Title 1 of the Corporations Code, as that chapter read on January 1,
2013, shall remain in effect until the bank board adopts directives
and requirements relating to the specific policy or activity, but in
no case beyond June 1, 2015.
63089.1. (a) The program manager acting under the guidance of the
executive director shall do all of the following:
(1) Administer this chapter.
(2) Enter into a contract between the bank and each corporation
for services to be provided by the corporations for one or more
programs or financial products under this chapter and Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title 1 of
the Corporations Code.
(3) In accordance with available resources, allow the use of
branch offices for the purposes of making these programs under this
chapter accessible to all areas of the state.
(4) Require each corporation to submit an annual written plan of
operation.
(5) Authorize the distribution, transfer, and withholding of
moneys in the expansion fund and trust funds.
(6) Authorize the investment of expansion and trust fund moneys.
(7) Oversee the operations of one or more programs authorized
pursuant to this chapter and by Section 8684.2.
(8) Act as liaison between corporations, other state and federal
agencies, lenders, and the Legislature.
(9) Act as secretary to the California Small Business Board, and
attend meetings of the California Small Business Board and the bank
board.
(b) The program manager may attend and participate at corporation
meetings. The program manager or his or her designee shall be an ex
officio, nonvoting representative on the board of directors and loan
committees of each corporation. The program manager shall confer with
the board of directors of each corporation as appropriate and
necessary to carry out his or her duties, but in no case shall the
program manager confer less than once each fiscal year.
(c) In accordance with available resources, assist corporations in
applying for public and private funding opportunities, and in
obtaining program support from the business community.
63089.2. (a) The use of state funds paid out to the trust fund
and the return on those funds from investment pursuant to Section
63089.56 is conditional pursuant to Sections 63089.3 and 63089.57.
Each corporation shall enter into a written signed agreement with the
bank to provide program management services for one or more programs
or activities of the California Small Business Finance Center
authorized under Section 8684.2, this chapter, and Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title 1 of
the Corporations Code.
(b) Agreements with the corporations entered into pursuant to this
chapter are exempt from the requirements of Section 10295, and
Sections 10335 to 10381, inclusive, of the Public Contract Code. The
agreement shall, at a minimum, govern the activities in which the
corporation engages, the investment of state funds and its return,
and the budgeted administrative expenses the corporations may incur.
(c) In the event the program manager and corporation do not reach
an agreement, the corporation may appeal one or more conditions of
the contract to the executive director or the bank board by providing
written notice to the executive director within 10 days of the final
written contract proposal from the program manager. The executive
director or the bank board shall make a determination within 30 days
of receiving written notice.
(d) In the event that the program manager finds the corporation
has violated the terms of an active agreement, the program manager
may take any action under Section 63089.3 or 63089.57, or any other
action as appropriate. In the event the program manager finds the
corporation has substantively violated the terms of an active
agreement, the corporation shall have no authority to withdraw or
encumber the moneys in the trust fund or the return of those funds by
the issuance of guarantees, commitments for other financial
products, or by incurring expenses against the fund and its return in
any manner whatsoever, and the program manager may take any action
under Section 63089.3 or 63089.57, or any other action as
appropriate. Any guarantee or other encumbrance made by the
corporation in violation of this section shall be null and void, and
the state, the bank, the expansion fund, or the trust fund will not
be liable therefor.
63089.3. (a) The program manager may temporarily suspend the
guarantee authority or other financial product authority of a
corporation if in the determination of the program manager a
corporation has substantially failed to comply with any of the
requirements in subdivision (b), causing irreparable harm to the
program, the corporation's guarantee, or any other financial products
authority. The notice of temporary suspension sent to the
corporation shall specify the reasons for the action.
(1) As used in this section, "guarantee or any other financial
products authority" means the authority to make or guarantee or
administer any other financial products that encumber funds in a
trust fund account, any account or subaccount under the direct
control of the bank or other state entity, or the expansion fund.
(2) The program manager shall make one of the determinations
specified in subdivision (b) within 30 days of the effective date of
the temporary suspension, unless the corporation and the program
manager mutually agree to an extension. The corporation shall have
the opportunity to submit written material to the program manager
addressing the items stated in the temporary suspension notice. If
the program manager does not make any determinations within 30 days,
the temporary suspension shall be reversed. The corporation's yearly
contract shall remain in effect during the period of temporary
suspension, and the corporation shall continue to receive
reimbursement of necessary operating expenses.
(b) Failure of a corporation to substantially comply with the
following may result in the suspension or termination of a
corporation:
(1) Directives and requirements adopted by the bank board, for
implementing the California Small Business Development Corporation
Law (Chapter 1 (commencing with Section 14000) of Part 5 of Division
3 of Title 1 of the Corporations Code) and this chapter.
(2) Failure to meet any fiscal, audit, examination, or portfolio
requirement, as contained in the directives and requirements and
examination reports.
(3) Failure to significantly meet any milestones or scope of work
as contained in the performance contract between the corporation and
the bank.
(4) Any other action in the opinion of the program manager that
causes irreparable harm to the corporation, the expansion fund, or
the trust fund.
(c) Pursuant to subdivisions (a) and (b), the program manager may
take any of the following actions:
(1) Terminate the temporary suspension.
(2) Terminate the temporary suspension subject to the corporation'
s adoption of a specified remedial action plan approved by the
program manager.
(3) Continue the temporary suspension of guarantee and other
financial product authority until a specified time.
(4) Terminate the corporation's authority to administer specified
loan guarantees or other financial products.
(5) Terminate the corporation's authority to remain a corporation
authorized pursuant to the California Small Business Development
Corporation Law (Chapter 1 (commencing with Section 14000) of Part 5
of Division 3 of Title 1 of the Corporations Code) and this chapter.
(d) The program manager shall make one of the determinations
specified in subdivision (c) within 30 days of the effective date of
the temporary suspension notice, unless the corporation and the
program manager mutually agree to an extension. If the program
manager does not make any determinations within 30 days, the
temporary suspension shall be negated. The corporation's yearly
contract shall remain in effect during the period of temporary
suspension, and the corporation shall continue to receive
reimbursement of necessary operating expenses.
(e) The actions contained in paragraphs (3) to (5), inclusive, of
subdivision (c) require a finding that irreparable harm will occur
unless the action is taken, and a finding that the corporation has
failed to comply with the California Small Business Development
Corporation Law (Chapter 1 (commencing with Section 14000) of Part 5
of Division 3 of Title 1 of the Corporations Code) and this chapter.
(f) In considering any action specified in subdivision (c), the
program manager shall consider, along with other criteria as
specified in subdivision (b), the corporation's history and past
performance.
(g) If the program manager decides to take any action pursuant to
paragraphs (3) to (5), inclusive, of subdivision (c), the program
manager shall transfer all funds subject to the action, whether
encumbered or not, in the trust fund account of the suspended or
terminated corporation into either the expansion fund, or either
permanently or temporarily transfer the funds to the trust fund
account of another corporation or a holding account in the expansion
fund or trust fund established for this purpose, unless an appeal is
received from the corporation pursuant to subdivision (h).
(h) If the program manager intends to transfer funds as specified
in paragraph (g), the corporation shall be notified of the funds
transfer 10 days before the effective date of the transfer. The
corporation shall have the right to appeal the program manager's
decision to the executive director within that 10-day period by
sending written notice to the executive director. Once the executive
director receives notice that the action is being appealed, the
program manager's funds transfer shall be stayed.
(i) The corporation shall have the opportunity to submit written
material to the executive director addressing the actions and
findings stated in the program manager's determination. The executive
director shall consider and make a final determination on the appeal
within 30 days of receiving the appeal notice from the corporation,
or such longer time as agreed to by the executive director and the
corporation. The executive director may elect to take any of the
actions listed in subdivision (j). The action of the program manager
shall remain in effect until the executive director issues a
decision. The corporation's performance contract shall remain in
effect during the appeal period, and the corporation shall continue
to receive reimbursement of necessary operating expenses.
(j) Pursuant to subdivision (i), the executive director may
independently take action or seek the advice and recommendation of
the California Small Business Board prior to taking any of the
following actions:
(1) Rescind the action taken by the program manager.
(2) Modify the action taken by the program manager subject to the
adoption by the corporation of a specified remedial action plan
approved by the executive director.
(3) Affirm the action taken by the program manager.
(k) Following the executive director's concurrence any action
pursuant to paragraphs (3) to (5), inclusive, of subdivision (c), the
program manager shall transfer all funds subject to the action,
whether encumbered or not, in the trust fund account of the suspended
or terminated corporation into either the expansion fund, or either
permanently or temporarily transfer the funds to the trust fund
account of another corporation or a holding account in the expansion
fund or trust fund established for this purpose. The corporation
shall be notified of the funds transfer 10 days before the effective
date of the transfer. The corporation shall have the right to appeal
the executive director's decision to the bank board within that
10-day period by sending written notice to the chair of the bank
board. Once the chair of the bank board receives notice that the
executive director's determination is being appealed, the program
manager's funds transfer shall be stayed.
( l ) The corporation shall have the opportunity to
submit written material to the bank board addressing the actions and
findings stated in the executive director's determination. The bank
board shall consider and make a final determination on the appeal
within 30 days of receiving the appeal notice from the corporation,
or such longer time as agreed to by the chair of the bank board and
the corporation. The action of the executive director shall remain in
effect until the bank board issues a decision. The corporation's
performance contract shall remain in effect during the appeal period,
and the corporation shall continue to receive reimbursement of
necessary operating expenses.
(m) Pursuant to subdivision (l), the bank board may independently
take action or seek the advice and recommendation of the California
Small Business Board prior to taking any of the following actions:
(1) Rescind the action taken by the executive director.
(2) Modify the action taken by the executive director subject to
the adoption by the corporation of a specified remedial action plan
acceptable to the executive director.
(3) Affirm the action taken by the executive director.
(n) Following the bank board's concurrence with the executive
director's determination consistent with any action pursuant to
paragraphs (3) to (5), inclusive, of subdivision (c), the program
manager shall transfer all funds subject to the action, whether
encumbered or not, in the trust fund account of the suspended or
terminated corporation into either the expansion fund, or either
permanently or temporarily transfer the funds to the trust fund
account of another corporation or a holding account in the expansion
fund or trust fund established for this purpose. The corporation
shall be notified of the funds transfer 10 days before the effective
date of the transfer.
(o) Notwithstanding Section 63089.56, in the event a final
determination was made by the program manager, the executive director
or the bank board, whichever is applicable, to temporarily transfer
the funds of the corporation to the expansion fund or to the trust
fund account of another corporation or a holding account in the
expansion fund or trust fund established for this purpose, upon
compliance with all requirements of that final determination as
determined by the executive director, the transferred funds shall be
returned to the corporation's trust fund account. While the funds of
a corporation's trust fund account reside in the expansion fund, use
of the principal on the funds shall be governed by the implementing
directives and requirements specifying use of funds in the expansion
fund. Interest on the funds moved from a corporation's trust fund
account upon temporary withdrawal shall be limited to payment of the
corporation's administrative expenses, as contained in the contract
between the corporation and the bank pursuant to this chapter.
(p) Following a final determination of termination of all
activities of an active corporation, in order to continue its
existence as a nonprofit corporation pursuant to the Nonprofit Public
Benefit Corporation Law (Part 2 (commencing with Section 5110) of
Division 2 of Title 1 of the Corporations Code), the corporation must
amend its articles of incorporation in accordance with Chapter 8 of
Part 2 of Division 2 of the Corporations Code to remove the
provisions required by Section 14005 of the Corporations Code,
including an amendment to remove the words "small business financial
development corporation," "small business development corporation,"
or "rural or urban development corporation," as applicable, from the
corporate name and shall no longer be registered with the Secretary
of State as a small business financial development corporation. A
corporation shall not enjoy any of the benefits of a small business
financial development corporation following suspension.
63089.4. The bank is authorized to:
(a) Approve new corporations recommended by the program manager.
(b) Enter into contracts with corporations for program management
and other financial product-related services.
(c) Select a financial institution or financial company to act as
trustee of the trust fund as specified in this chapter.
(d) Invest expansion fund and trust fund moneys as specified in
this chapter.
(e) Affirm, modify, or rescind the determinations of the program
manager and the executive director as specified in this chapter.
(f) Adopt directives and requirements as specified in this
chapter.
(g) Authorize new financial product programs and activities
pursuant to this chapter.
Article 5. Expansion Fund and Trust Fund
63089.5. (a) There is hereby continued in existence in the State
Treasury the California Small Business Expansion Fund. All or a
portion of the funds in the expansion fund may be paid out, with the
approval of the Department of Finance, to a financial institution or
financial company that will establish a trust fund and act as trustee
of the funds.
(b) The expansion fund and the trust fund shall be used for the
following purposes:
(1) To pay defaulted loan guarantee or surety bond losses, or
other financial product defaults or losses.
(2) To fund direct loans and other debt instruments.
(3) To pay administrative costs of corporations.
(4) To pay state support and administrative costs.
(5) To pay those costs necessary to protect a real property
interest in a financial product default.
(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government moneys, and
other public or private moneys to make loans, guarantees, and other
financial products that the California Small Business Finance Center
or a financial development corporation is authorized to provide. The
program manager shall provide written notice to the Joint Legislative
Budget Committee and to the Chief Clerk of the Assembly and the
Secretary of the Senate who shall provide a copy of the notice to the
relevant policy committees within 10 days of any nonstate funds
being deposited in the expansion fund. The notice shall include the
source, purpose, timeliness, and other relevant information as
determined by the bank board.
(d) (1) One or more accounts in the expansion fund and the trust
fund may be created by the program manager for corporations
participating in one or more programs authorized under this chapter
and Section 8684.2. Each account is a legally separate account, and
shall not be used to satisfy loan guarantees or other financial
product obligations of another corporation except when the expansion
fund or trust fund is shared by multiple corporations.
(2) The program manager may create one or more holding accounts in
the expansion fund or the trust fund, or in both, to accommodate the
temporary or permanent transfers of funds pursuant to Section
63089.3.
(e) The amount of guarantee liability outstanding at any one time
shall not exceed five times the amount of funds on deposit in the
expansion fund plus any receivables due from funds loaned from the
expansion fund to another fund in state government as directed by the
Department of Finance pursuant to a statute enacted by the
Legislature, including each of the trust fund accounts within the
trust fund.
(f) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
63089.5. (a) There is hereby continued in existence in the State
Treasury the California Small Business Expansion Fund. All or a
portion of the funds in the expansion fund may be paid out, with the
approval of the Department of Finance, to a financial institution or
financial company that will establish a trust fund and act as trustee
of the funds.
(b) The expansion fund and the trust fund shall be used for the
following purposes:
(1) To pay defaulted loan guarantee or surety bond losses, or
other financial product defaults or losses.
(2) To fund direct loans and other debt instruments.
(3) To pay administrative costs of corporations.
(4) To pay state support and administrative costs.
(5) To pay those costs necessary to protect a real property
interest in a financial product default.
(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government moneys, and
other public or private moneys to make loans, guarantees, and other
financial products that the California Small Business Finance Center
and a small business financial development corporation are authorized
to provide.
(d) One or more accounts in the expansion fund and the trust fund
may be created by the program manager for corporations participating
in one or more programs authorized under this chapter. Each account
is a legally separate account, and shall not be used to satisfy loan
guarantees or other financial product obligations of another
corporation except when the expansion fund or trust fund is shared by
multiple corporations.
(e) The amount of guarantee liability outstanding at any one time
shall not exceed four times the amount of funds on deposit in the
expansion fund plus any receivables due from funds loaned from the
expansion fund to another fund in state government as directed by the
Department of Finance pursuant to a statute enacted by the
Legislature, including each of the trust fund accounts within the
trust fund.
(f) This section shall become operative on January 1, 2018.
63089.51. (a) All money deposited in the expansion fund is hereby
continuously appropriated, without regard to fiscal years, for the
purposes of this chapter.
(b) Except as specified in subdivision (b) of Section 63089.54,
the state or the bank shall not be liable or obligated in any way
beyond the state money that is allocated in the expansion fund from
moneys from the General Fund appropriated for those purposes.
63089.52. (a) The program manager, at his or her discretion, with
the approval of the executive director, may request the trustee to
invest those moneys in the trust fund in any of the securities
described in Section 16430. Returns from these investments shall be
deposited in the expansion fund and shall be used to support the
programs of this chapter.
(b) Any investments made in securities described in Section 16430
shall be governed by the investment policy approved by the bank
board.
63089.53. Except as specified in subdivision (b) of Section
63089.54, the state or the bank shall not be liable or obligated in
any way beyond the money that is allocated and deposited in the trust
fund accounts.
63089.54. (a) There is hereby created in the State Treasury the
Small Business Disaster Recovery Loan Loss Reserve Account, as part
of the expansion fund. This account shall be used to pay for losses
resulting from loan guarantees issued pursuant to subdivision (a) of
Section 63089.90 or subdivision (b) of this section, and disaster
loan guarantees and other credit enhancement defaults issued prior to
the effective date of this section that are in default.
(b) Any lending institution that issues a loan that is guaranteed
by resources in this account shall be fully reimbursed for the
guaranteed portion of principal and interest that result from a loan
or loans that are in default. If there are insufficient funds in this
account to fully satisfy all claimants, the full faith of the
resources in the General Fund are pledged to satisfy the obligations
of this account. This account may only guarantee as much loan dollar
value as is specifically authorized by the Director of Finance with
the concurrence of the Governor. This account shall receive all
moneys transferred pursuant to Section 63089.55, and any unencumbered
balances transferred to the California Small Business Expansion Fund
pursuant to Chapters 11 and 12 of the First Extraordinary Session of
the Statutes of 1989, and Chapter 1525 of the Statutes of 1990, as
of July 1, 1992.
(c) The Governor may utilize this authority to prevent business
insolvencies and loss of employment in an area affected by a state of
emergency within the state and declared a disaster by the President
of the United States, by the Administrator of the United States Small
Business Administration, or by the United States Secretary of
Agriculture, or declared to be in a state of emergency by the
Governor of California.
63089.55. The Director of Finance, with the approval of the
Governor, may transfer moneys in the Special Fund for Economic
Uncertainties to the California Small Business Expansion Fund for use
as authorized by the bank board, in an amount necessary to make loan
guarantees pursuant to Section 8684.2 and this chapter.
63089.56. (a) The funds in the expansion fund shall be paid out
to trust fund accounts by the Treasurer on funds drawn by the
Controller and requisitioned by the program manager, pursuant to the
purposes of this chapter. The program manager may transfer funds
allocated from the expansion fund to accounts, established solely to
receive the funds, in financial institutions or financial companies
designated by the bank to act as trustee. The financial institutions
or financial companies so designated shall be approved by the state
for the receipt of state deposits. Interest earned on the trust fund
accounts in financial institutions or financial companies may be
utilized by the corporations or the bank pursuant to the purposes of
this chapter.
(b) The program manager may reallocate funds held within a
corporation's trust fund account.
(1) The program manager may reallocate funds based on which
corporation is most effectively using its guarantee funds. If funds
are withdrawn from a less effective corporation as part of a
reallocation, the program manager shall make that withdrawal only
after giving consideration to that corporation's fiscal solvency, its
ability to honor loan guarantee defaults, and its ability to
maintain a viable presence within the region it serves. Reallocation
of funds shall occur no more frequently than once per fiscal year.
Any decision made by the program manager pursuant to this subdivision
may be appealed to the executive director unless otherwise
specified. The executive director has the authority to repeal or
modify any decision to reallocate funds.
(2) The program manager may authorize a corporation to exceed the
leverage ratio specified in Section 63089.5 or subdivision (a) of
Section 63089.62, pending the annual reallocation of funds pursuant
to this section. However, no corporation shall be permitted to exceed
an outstanding guarantee liability of more than specified in
subdivision (a) of Section 63089.62 after a reallocation is made.
(c) Except as specified in subdivision (e), the program manager
shall allocate and transfer money to trust fund accounts based on
performance-based criteria. The criteria shall include, but not be
limited to, the following:
(1) The default record of the corporation.
(2) The number and amount of loans guaranteed by a corporation.
(3) The number and amount of loans made by a corporation if state
funds were used to make those loans.
(4) The number and amount of surety bonds guaranteed by a
corporation.
(5) The number and amount of other financial product activity.
(6) The number of jobs created or retained due to the financial
product activity.
(d) The criteria specified in subdivision (c) shall not apply to a
corporation that has been in existence for five years or less. If
not already adopted, the bank board shall develop directives and
requirements specifying the basis for transferring account funds to
those corporations that have been in existence for five years or
less.
(e) Any decision made by the program manager pursuant to this
section may be appealed to the executive director within 15 days of
notice of the proposed action. The executive director may repeal or
modify any reallocation and transfer decisions made by the program
manager. The appealing corporation shall submit, in writing, the
specific area or areas of appeal and set forth any recommendation to
the executive director for consideration. The executive director
shall render a final decision within five business days of receiving
the written appeal.
(f) Any decision made by the executive director shall be
appealable in writing to the bank board within 15 days of the
executive director's decision, or such longer period as agreed to
between the executive director and the corporation. The bank board
shall make a final reallocation or transfer decision within 30 days
of receiving the appeal, or such longer period agreed to between the
executive director and the corporation.
(g) In the event of an appeal under this section, all allocations
or transfers of money to trust fund accounts shall be on hold pending
resolution by the executive director or bank board, as applicable.
63089.57. Pursuant to this chapter and any directives and
requirements adopted pursuant to this chapter, the state has residual
interest in the funds deposited by the state to a trust fund account
and to the return on these funds from investments. On dissolution,
suspension, or termination of the corporation, these funds shall be
withdrawn by the program manager from the trust fund account and
returned to the expansion fund or temporarily transferred to another
trust fund account. This provision shall be contained in the trust
instructions to the trustee.
63089.58. Each trust fund account shall consist of a loan
guarantee account, and, upon recommendation by the program manager, a
bond guarantee account or other financial product account, each of
which is a legally separate account, and the assets of one account
shall not be used to satisfy loan guarantees or other financial
product obligations of another corporation, except when a trust fund
account is designated by the program manager to be shared by multiple
corporations. The amount of funds allocated to a bond guarantee
account shall be pursuant to the directives and requirements. A
corporation shall not use trust fund accounts to secure a corporate
indebtedness. State funds deposited in the trust fund accounts, with
the exception of guarantees established pursuant to this chapter,
shall not be subject to liens or encumbrances of the corporation or
its creditors.
63089.59. (a) The financial institution or financial company that
is to act as trustee of the trust fund shall be designated by the
bank. The corporation shall not receive money on deposit to support
guarantees or other financial products issued under this chapter
without the approval of the program manager.
(b) State funds may not be used to finance an expense incurred by
a corporation in a location not approved pursuant to the contract
between the bank and the corporation. The prohibition against use of
state funds also applies to the location of satellite offices, and
the area served from a corporation office.
(c) Except as otherwise provided in this chapter, the trust fund
account shall be used solely to make loans, guarantee bonds and
loans, and provide other financial products approved by the
corporation that meet the financial product criteria of the
directives and requirements. Except as provided in subdivision (b) of
Section 63089.54, the state or the bank shall not be liable or
obligated in any way as a result of the allocation of state moneys to
a trust fund account beyond the state moneys that are allocated and
deposited in the fund pursuant to this chapter, and that are not
otherwise withdrawn by the state pursuant to this chapter.
63089.60. (a) The program manager shall recommend whether the
expansion fund and trust fund accounts are to be leveraged, and if
so, by how much. Upon the request of the corporation, the program
manager's decision may be repealed or modified by the executive
director or the bank board.
(b) The amount of guarantee liability outstanding at any one time
shall not exceed five times the amount of funds on deposit in the
expansion fund plus any receivables due from funds loaned from the
expansion fund to another fund in state government as directed by the
Department of Finance pursuant to a statute enacted by the
Legislature, including each of the trust fund accounts within the
trust fund.
(c) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
63089.60. (a) The program manager shall recommend whether the
expansion fund and trust fund accounts are to be leveraged, and if
so, by how much. Upon the request of the corporation, the program
manager's decision may be repealed or modified by the executive
director or the bank board.
(b) The amount of guarantee liability outstanding at any one time
shall not exceed four times the amount of funds on deposit in the
expansion fund plus any receivables due from funds loaned from the
expansion fund to another fund in state government as directed by the
Department of Finance pursuant to a statute enacted by the
Legislature, including each of the trust fund accounts within the
trust fund, unless the program manager has permitted a higher
leverage ratio for an individual corporation pursuant to subdivision
(b) of Section 63089.56.
(c) This section shall become operative on January 1, 2018.
63089.61. (a) The corporate guarantee shall be backed by funds on
deposit in the corporation's trust fund account, or by receivables
due from funds loaned from the corporation's trust fund account to
another fund in state government, as directed by the Department of
Finance pursuant to a statute enacted by the Legislature.
(b) Loan guarantees shall be secured by a reserve of at least 20
percent to be determined by the program manager unless a higher
leverage ratio for an individual corporation has been approved
pursuant to subdivision (b) of Section 63089.56.
(c) The expansion fund and trust fund accounts shall be used to
guarantee obligations and other financial product obligations, to pay
the administrative costs of the corporations, and for other uses
pursuant to this chapter and Section 8684.2.
(d) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
63089.61. (a) The corporate guarantee shall be backed by funds on
deposit in the corporation's trust fund account, or by receivables
due from funds loaned from the corporation's trust fund account to
another fund in state government, as directed by the Department of
Finance pursuant to a statute enacted by the Legislature.
(b) Loan guarantees shall be secured by a reserve of at least 25
percent to be determined by the program manager, unless a higher
leverage ratio has been approved for an individual corporation
pursuant to subdivision (b) of Section 63089.56.
(c) The expansion fund and trust fund accounts shall be used to
guarantee obligations and other financial product obligations, to pay
the administrative costs of the corporations, and for other uses
pursuant to this chapter and Section 8684.2.
(d) This section shall become operative on January 1, 2018.
63089.62. (a) It is the intent of the Legislature that the
corporations make maximum use of their statutory authority to
guarantee loans and surety bonds, and administer other financial
products, including the authority to secure loans with a minimum loan
loss reserve of only 20 percent, unless the program manager
authorizes a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 63089.56, so that the
financing needs of small business may be met as fully as possible
within the limits of corporations' trust fund account balance.
(b) Any corporation that serves an area declared to be in a state
of emergency by the Governor or a disaster area by the President of
the United States, the Administrator of the United States Small
Business Administration, or the United States Secretary of
Agriculture shall increase the portfolio of loan guarantees where the
dollar amount of the loan is less than one hundred thousand dollars
($100,000), so that at least 15 percent of the dollar value of loans
guaranteed by the corporation is for those loans. The corporation
shall comply with this requirement within one year of the date the
emergency or disaster is declared. Upon application of a corporation,
the executive director may waive or modify the rule for the
corporation if the corporation demonstrates that it made a good faith
effort to comply and failed to locate lending institutions in the
region that the corporation serves that are willing to make
guaranteed loans in that amount.
(c) This section shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2018, deletes or extends
that date.
63089.62. (a) It is the intent of the Legislature that the
corporations make maximum use of their statutory authority to
guarantee loans and surety bonds, and administer other financial
products, including the authority to secure loans with a minimum loan
loss reserve of only 25 percent, unless the program manager
authorizes a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 63089.56, so that the
financing needs of small business may be met as fully as possible
within the limits of corporations' trust fund account balance.
(b) Any corporation that serves an area declared to be in a state
of emergency by the Governor or a disaster area by the President of
the United States, the Administrator of the United States Small
Business Administration, or the United States Secretary of
Agriculture shall increase the portfolio of loan guarantees where the
dollar amount of the loan is less than one hundred thousand dollars
($100,000), so that at least 15 percent of the dollar value of loans
guaranteed by the corporation is for those loans. The corporation
shall comply with this requirement within one year of the date the
emergency or disaster is declared. Upon application of a corporation,
the program manager may waive or modify the rule for the corporation
if the corporation demonstrates that it made a good faith effort to
comply and failed to locate lending institutions in the region that
the corporation serves that are willing to make guaranteed loans in
that amount.
(c) This section shall become operative on January 1, 2018.
Article 6. Corporations, Miscellaneous
63089.65. (a) A corporation shall establish one or more loan
committees, each of which shall be composed of five or more persons,
a majority of whom shall be experienced in banking and lending
operations.
(b) A loan committee shall review applications to the corporation
for a loan or guarantee and shall do each of the following:
(1) Determine the feasibility of the proposed transaction. The
loan committee shall recommend approval of the application only upon
a determination that there is a reasonable chance that the loan will
be repaid.
(2) On the basis of that determination, recommend to the board of
directors any action that the loan committee deems appropriate under
the circumstances, or, in the event that approval authority has been
delegated to the loan committee by the board of directors, approve or
disapprove the loan application.
(c) A loan committee shall expeditiously act to accept or reject
loan applications.
(d) A person who has a financial interest related to a matter over
which the loan committee has authority may not make, participate in
making, or in any way attempt to influence that matter.
63089.66. Unless delegated to its loan committee, the corporation'
s board of directors, upon a recommendation from its loan committee,
shall do all of the following:
(a) Emphasize consideration to applications that will increase
employment of disadvantaged, disabled, or unemployed persons, or
increase employment of youth residing in areas of high youth
unemployment and high youth delinquency.
(b) Give consideration to applications from traditional and
safety-net providers of Medi-Cal services that will promote access to
quality medical care for individuals enrolled in Medi-Cal managed
health care networks that are contracting with or owned or operated
by a county board of supervisors, a county health commission, or a
county health authority organized pursuant to Section 14018.7,
14087.31, 14087.35, 14087.36, 14087.38, or 14087.9605 of the Welfare
and Institutions Code.
63089.67. A corporation may charge the borrower or financial
institution a loan fee or credit enhancement fee on all loans made or
guaranteed by the corporation to defray the operating expenses of
the corporation. The amount of the fee shall be determined by the
directives and requirements.
Article 7. Loan Guarantees
63089.70. (a) The Small Business Expansion Fund, which is hereby
continued in existence, shall, among other things, provide guarantees
to loans offered by financial institutions and financial companies
to small businesses.
(b) The Legislature finds and declares that the Small Business
Loan Guarantee Program has enabled participating small businesses
that do not qualify for conventional business loans or Small Business
Administration loans to secure funds to expand their businesses.
These small businesses would not have been able to expand their
businesses in the absence of the program. The program has also
provided valuable technical assistance to small businesses to ensure
growth and stability. The study commissioned by former Section
14069.6 of the Corporations Code, as added by Chapter 919 of the
Statutes of 1997, documented the return on investment of the program
and the need for its services. The value of the program has also been
recognized by the Governor through proposals contained in the May
Revision to the Budget Act of 2000 for the 2000-01 fiscal year.
(c) A corporation shall not issue a guarantee under this section
unless it determines that the following conditions are satisfied:
(1) There is a low probability that the loan being guaranteed
would be granted by a financial company or financial institution
under reasonable terms and conditions and the borrower has
demonstrated a reasonable prospect of repayment.
(2) The loan proceeds will be used exclusively in this state.
(3) The loan qualifies as a small business loan or an employment
incentive loan.
(4) The borrower has a minimum equity interest in the business as
determined by the directives and requirements.
(5) As a result of the loan being guaranteed, the jobs generated
or retained demonstrate reasonable conformance to any directives and
requirements specifying employment criteria.
63089.71. (a) Among other priorities, corporations shall give
high priority to the issuance of loan guarantees to small business
incubators and to businesses that lease space in incubators.
(b) For the purposes of this section, "incubator" means a facility
that allows new small businesses to increase their probability of
success by sharing needed capital equipment, services, and
facilities, which may include, but are not limited to, the following:
(1) Reception and meeting area.
(2) Secretarial services, such as collating, telephone answering,
or mailhandling.
(3) Accounting and bookkeeping services.
(4) Research libraries.
(5) Onsite financial and management counseling.
(6) Parking.
(7) Flexible lease arrangements for flexible space.
(8) Computer or word processing facilities.
(9) Day care facilities.
(10) Office furniture rentals.
(11) A graduation policy sometimes requiring firms to leave after
three to five years in a subsidized, nurturing environment.
(12) Employee training and placement services.
(c) Among other priorities, corporations shall give high priority
to marketing their services to Phase 1 or Phase 2 Small Business
Innovation Research (SBIR) recipients and providing loan guarantees,
whenever possible.
Article 8. Direct Lending and Other Debt Instruments
63089.80. (a) A corporation may utilize funds for direct lending
or other debt instruments pursuant to the directives and
requirements.
(b) The amount of funds available for direct lending and other
debt instruments shall be determined by the directives and
requirements. In its capacity as a direct lender, the corporation may
sell in the secondary market the guaranteed portion of each loan, if
guaranteed, so as to raise additional funds for direct lending.
(c) To execute the direct loan and other debt instruments
authorized pursuant to this chapter, including, but not limited to,
those authorized pursuant to Section 63088.5, the bank may loan trust
funds to a corporation for the express purpose of lending those
funds to an identified borrower. The loan authorized by the bank to
the corporation shall be on terms similar to the loan between the
corporation and the borrower.
(d) The amount of the loan, made to the corporation by the bank,
may be in excess of the amount of a loan to any individual borrower,
but actual disbursements pursuant to the bank loan agreement shall be
required to be supported by a loan agreement between the borrower
and the corporation in an amount at least equal to the requested
disbursement. The loan between the bank and the corporation shall be
evidenced by a credit agreement. In the event that any loan between
the corporation and borrower is not guaranteed by a governmental
agency, the portion of the credit agreement attributable to that loan
shall be secured by assignment of any note, executed in favor of the
corporation by the borrower to the bank. The terms and conditions of
the credit agreement shall be similar to the loan agreement between
the corporation and the borrower, which shall be collateralized by
the note between the corporation and the borrower.
(e) In the absence of fraud on the part of the corporation, the
liability of the corporation to repay the loan to the bank is limited
to the repayment received by the corporation from the borrower,
except in a case where the United States Department of Agriculture
requires exposure by the corporation in rule or regulation. The
corporation may use trust funds for loan repayment to the bank if the
corporation has exhausted a loan loss reserve created for this
purpose. Interest and principal received by the bank from the
corporation shall be deposited into the same account from which the
funds were originally borrowed.
(f) Upon the approval of the program manager, a corporation shall
be authorized to borrow trust funds from the bank for the purpose of
relending those funds to small businesses. A corporation shall
demonstrate to the program manager that it has the capacity to
administer a direct loan program, and has procedures in place to
limit the default rate for loans to startup businesses. The
percentage of any trust fund account to be used for the direct
lending pursuant to this subdivision shall be established in the
directives and requirements.
(g) A corporation shall not issue a direct loan or other debt
instrument unless and until it determines that all of the following
conditions are satisfied:
(1) The direct loan or other debt instrument assistance would not
be granted by a financial company or financial institution under
reasonable terms and conditions and the borrower has demonstrated a
reasonable prospect of repayment.
(2) The direct loan or debt instrument proceeds will be used
exclusively in this state.
(3) The direct loan or debt instrument qualifies as a small
business loan or employment incentive loan.
(4) The borrower has a minimum equity interest in the business as
determined by the directives and requirements.
(5) As a result of the direct loan or other debt instrument, the
jobs generated or retained demonstrate reasonable conformance to any
directives and requirements specifying employment criteria.
(h) The maximum direct loan or other debt instrument amount to a
small business shall be set by the directives and requirements. In
the absence of fraud on the part of the corporation, the repayment
obligation pursuant to the loan or other debt instrument to the
corporation shall be limited to the amount of funds received by the
corporation for the direct loan or other debt instrument to the small
business and any other funds received from the bank that are not
disbursed. The corporation shall be authorized to charge a fee to the
small business borrower, in an amount determined pursuant to the
directives and requirements. The programs and debt instruments
provided for in this article shall be available in all geographic
areas of the state.
Article 9. Disaster Loan Guarantees
63089.90. (a) Pursuant to Section 8684.2 and the contract between
a corporation and the bank, a corporation may, in an area affected
by a state of emergency within the state and declared a disaster by
the President of the United States, the Administrator of the United
States Small Business Administration, or the United States Secretary
of Agriculture, or declared to be in a state of emergency by the
Governor of California, provide loan guarantees from funds allocated
in Section 63089.55 to small businesses, small farms, nurseries, and
agriculture-related enterprises that have suffered actual physical
damage or significant economic injury as a result of the disaster.
(b) The bank board may adopt directives and requirements to
implement the disaster loan guarantee program authorized by this
section. Any regulations adopted under Chapter 1 (commencing with
Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations
Code shall remain in effect until the bank adopts directives and
requirements, however, these regulations shall have no effect after
June 1, 2015.
(c) A corporation shall not issue a disaster loan guarantee unless
and until it determines that the following conditions are satisfied:
(1) The borrower cannot reasonably obtain a disaster loan without
some form of credit enhancement.
(2) The borrower has demonstrated a reasonable prospect of
repayment.
(3) The guaranteed loan will be used exclusively in this state.
(4) The disaster loan qualifies as a small business loan or
employment incentive loan.
(d) Allocations pursuant to subdivision (a) shall be deemed to be
for extraordinary emergency or disaster response operations costs
incurred by the issuance of disaster loan guarantees.
Article 10. Surety Bond Guarantees
63089.95. In furtherance of the purposes set forth in Section
63088.1 of this code and Section 14001 of the Corporations Code, a
corporation may do any one or more of the following activities, but
only to the extent that the activities are authorized pursuant to the
contract between the bank and corporation: guarantee, endorse, or
act as surety on the bonds, notes, contracts, or other obligations
of, or assist financially, any person, firm, corporation, or
association, and may establish and regulate the terms and conditions
with respect to any such guarantees or financial assistance and the
charges for interest and service connected therewith, except that the
corporation shall not make or guarantee any loan, unless and until
it determines:
(a) There is a low probability that the surety bond would be
granted by a financial institution or financial company under
reasonable terms or conditions, and the beneficiary has demonstrated
a reasonable prospect of successful completion of the project.
(b) The surety bond project coverage will be used exclusively in
this state.
(c) The beneficiary has a minimum equity interest in the business
as determined by the directives and requirements.
(d) As a result of the surety bond, the jobs generated or retained
demonstrate reasonable conformance to the directives and
requirements specifying employment criteria.
63089.96. (a) In addition to the authority granted by Section
63089.95, pursuant to the directives and requirements a corporation
may act as guarantor on a surety bond for any small business
contractor, including, but not limited to, women, minority, and
disabled veteran contractors.
(b) The provisions of subdivision (a) allowing a corporation to
act as a guarantor on surety bonds may be funded through appropriate
state or federal funding sources. Federal funds shall be deposited in
the Federal Trust Fund in the State Treasury in accordance with
Section 16360, for transfer to the expansion fund.
Article 11. Reporting
63089.97. Each corporation shall provide to the program manager,
in a format prescribed by him or her, the following data and
reports:
(a) A summary of all outstanding loans, bonds, and other credit
enhancements to which a corporation guarantee, as authorized by this
chapter, is attached, on a schedule determined by the program
manager.
(b) A summary of all outstanding direct loans and other debt
instruments made by a corporation, as authorized by this chapter, on
a schedule determined by the program manager.
(c) A summary of all outstanding other financial project
obligations made by a corporation, as authorized by this chapter, on
a schedule determined by the program manager.
(d) Statement of economic interests from each designated person
pursuant to Section 87302.
(e) No later than July 31 of each fiscal year, commencing January
1, 2014, each of the following documents:
(1) A copy of the corporation board approved budget for the
current fiscal year.
(2) Projected fiscal year summary of authorized program activities
including direct loans, loan guarantees, bond guarantees, and other
financial product activity supported by the expansion fund.
(3) A copy of the written plan of operation or strategic plan for
the current fiscal year as approved by the corporations board of
directors.
(4) A copy of the current and valid articles of incorporation and
bylaws of the corporation with noted amendments from the prior fiscal
year.
(f) No later than October 31 of each year commencing January 1,
2014, a copy of the corporation's prior fiscal year audit, auditor
findings, if any, and finding responses.
(g) Any other statistical and other data, reports, or other
information required by the directives and requirements or the
program manager.
63089.98. (a) Annually, not later than January 1 of each year
commencing January 1, 2014, the program manager shall prepare and
submit to the Governor and the Legislature, pursuant to Section 9795,
a report for the preceding fiscal year ending June 30, containing
the expansion fund and trust fund financial product activity of each
corporation, including all of the following:
(1) Direct loans, guarantees, and other financial products awarded
and outstanding balances.
(2) Default and loss statistics.
(3) Employment data.
(4) Ethnicity and gender data of participating contractors and
other entities, and experience of surety insurer participants in the
bond guarantee program.
(5) Significant events.
(b) The program manager shall post the report on the bank's
Internet Web site.
SEC. 5. Pursuant to the Governor's Reorganization Plan No. 2 of
2012, the Governor's Office of Business and Economic Development is
the successor entity for purposes of small business assistance
programs previously administered by the Business, Transportation and
Housing Agency, including the Small Business Loan Guarantee Program,
and is one of the implementing authorities for the federal State
Small Business Credit Initiative Act (Title III of the Small Business
Jobs Act of 2010, Public Law 111-240).
Placing the Small Business Loan Guarantee Program within the
California Small Business Finance Center within the California
Infrastructure and Economic Development Bank within the Governor's
Office of Business and Economic Development does not alter or impair
any control or oversight of the Governor's Office of Business and
Economic Development relating to funds allocated to this state
pursuant to the federal State Small Business Credit Initiative Act
(Title III of the Small Business Jobs Act of 2010, Public Law
111-240). The placement of the Small Business Loan Guarantee Program
is intended to improve program delivery, enhance oversight in order
to ensure compliance with federal and state program requirements, and
facilitate commitment of funds allocated to the state pursuant to
the federal State Small Business Credit Initiative Act of 2010.
SEC. 6. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 7. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
It is necessary that this bill take effect immediately in order to
provide, as is necessary to timely implement the Governor's
reorganization plan, for a better managed and more efficient
transition of small business assistance programs from the soon to be
defunct Business, Transportation and Housing Agency to the California
Infrastructure and Economic Development Bank within the Governor's
Office of Business and Economic Development.
