Money flowing into California’s small-business loan programs

Money from the federal government is flowing into California’s small-business loan programs.

The state received about $56 million by last month as a first payment. Eventually, under the federal Small Business Jobs Act passed in September, the programs could get a total of $168 million.

The funds will be used to help back loans to small businesses that don’t qualify for conventional loans.


The state loan programs — California Capital Access Program (CalCAP) and Small Business Loan Guarantee Program (SBLGP) — were slowed in recent years by budget cuts.

But Joe Pinto, who runs his family’s 61-year-old foundry and machine shop in Huntington Park, knows how valuable they can be. His company got a loan in 2006, backed by CalCAP funds, that was used as a line of credit so that he could take on larger jobs.

“We can be aggressive with the price because we have cash flow, we have the money to do things with,” said Pinto, president of Los Angeles Pump & Valve Products. “We are not sitting there waiting to be paid.”

The loan helped the 40-person company hang on to its core industrial customers, he said.

Tight credit in the wake of the recession has made it even tougher now for many small businesses to get loans. “These new funds can help bridge that gap,” said Scott Whitfield, vice president at Plaza Bank in Irvine, which used the CalCAP program to make the loan to Pinto’s company.

Under the CalCAP program, the state puts money equal to about 4% of a loan, or an agreed upon portion of it, into an account at the bank as a so-called loan loss reserve. This reserve can be tapped by the bank if the loan fails.

The bank and the borrower also contribute to the reserve — about 2% of the loan each.

CalCAP also provides loans in partnership with the California Air Resources Board for truckers to help them comply with the state’s new air-quality rules.

The federal funding is being split between the two state programs. SBLGP is putting its $28 million into a trust fund that will help pay a lender if a loan issued under the program goes bad.

Bob and Ruth Mitchell used a loan guaranteed by the SBLGP in 2008 to start Wide Scanners & Systems Inc. The company, run out of the couple’s home in Rancho Cucamonga, wholesales wide-format scanners used to produce large documents, such as architectural plans.

“We started out calling our local bank,” said Bob Mitchell, chief executive of the company. “But they had just more or less given up on their small-business lending.”

With an SBLGP guarantee, they got a loan for $135,000. Despite struggling in the recession, the Mitchells kept up the payments. They hope to get a conventional, less-expensive business loan in the fall.

The state will have to make use of most of the federal funding it has received under the Small Business Jobs Act before it can receive a second payment of about $56 million. Then if it uses up that one, it can get a third and final payment.

The funding could play a role in lifting the state out of its economic downturn. Credit is seen as crucial for businesses to be able to buy equipment and cover operation costs.

“If the economy in the state is going to improve, it is going to be because small businesses create jobs,” said Nestor Correa, vice president at Pacific Coast Regional Small Business Development Corp. But that won’t happen “without business lending.”