Lawmakers Look to Expand Small-Business Program

The phenomenal growth of small businesses in the state--nearly 1 million, not counting the 1 million self-employed Californians--and their role as job creators is making state legislators more interested than ever in programs that will keep them afloat in the often-perilous first years of existence.

So it was not surprising that in the recently concluded legislative year, lawmakers were tripping over themselves to expand the state Trade and Commerce Agency’s small-business development program and locate satellite offices in their districts.

For the last 30 years, mom-and-pop businesses have been able to turn to the state-supported program, which guarantees bank loans and lines of credit to firms getting off the ground.

“There are just two guarantors, the [federal] Small Business Administration and us--or relatives,” said Michael McCraw, who heads the San Diego-based California Southern Small Business Development Corp., one of eight nonprofit corporations established by the Trade and Commerce Agency to help small businesses, which are defined as firms with 500 employees or fewer.

What makes the state program so attractive, say its boosters, is its reputation for a more hands-on approach, a willingness to take on very small businesses and a closer relationship with smaller, independent banks. That has resulted in a default rate of just 2.5%.

About 40% of McCraw’s portfolio, for example, consists of lines of credit of up to $150,000 per business. The rest is made up of loan guarantees, with his office ready to back as much as 90% of loans up to $350,000. Most of the businesses that apply for assistance gross less than $1 million in revenue annually, and many--almost half in McCraw’s office--are women- and minority-owned firms, because “we go to the businesses that need us most.” The program languished, however, when it had to rely solely on the fund’s 5% to 7% interest earnings. And in 1990, as the state headed into a recession, it secured just 124 loans totaling $13 million.

But Gov. Pete Wilson’s administration decided in 1993 to pump $2 million a year into the program and issued a mandate to McCraw and the other corporation directors to promote the program and expand it fourfold.

Six satellite offices created in the last five years have extended the reach of the eight corporations. Last year, the offices guaranteed 414 loans totaling more than $50 million.

Earlier this year, Assemblyman Tony Cardenas (D-Sylmar) introduced a bill seeking funds to open an office in the northeastern San Fernando Valley, which has many Latino-owned small businesses.

Cardenas’ bill was joined by Assemblyman Robert Hertzberg (D-Sherman Oaks) and later in the year by Assemblyman Peter Frusetta (R-Tres Pinos). Assemblyman Joe Baca (D-Rialto), meanwhile, had his own bill seeking funds to reopen a site in San Bernardino.

None of the lawmakers proposing further expansion got their wish this year. The Trade and Commerce Agency called a halt until it could conduct a statewide assessment of which regions need the most help, then establish a priority “take a number” system for eager lawmakers.

Cardenas’ original bill, AB 633, was redrafted to give the agency $100,000 to come up with such a system by July 1, 1998. The bill was signed by Wilson on Oct. 12.

HOT BILLS

* Domestic Violence Victims

Bottom Line: The Department of Insurance, the California Medical Assn. and a variety of women’s groups were successful in pushing legislation that prohibits insurance companies from discriminating against an applicant who is a victim of domestic violence. Requires property and casualty insurers to keep histories of domestic violence private and prohibits them from using that information in quoting prices.

Chances: After passing the Senate on a 22-3 vote and clearing the Assembly 72 to 0 in August, AB 588 was signed into law by Wilson this month.

Next Step: The bill becomes law Jan. 1.

Details: AB 588 author Liz Figueroa (D-Fremont) can be reached at (916) 445-7874.