(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)(1)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.

(2)The Legislature finds and declares the following:

(A)The federal State Small Business Credit Initiative Act of 2010 (SSBCI) (Public Law 111-240), as modified by the American Rescue Plan Act of 2021 (Public Law 117-2), will create additional funding for the Small Business Loan Guarantee Program.

(B)Corporations, the California Small Business Finance Center, and the bank are strongly encouraged to follow guidelines and regulations established by the United States Department of the Treasury to utilize funds from the SSBCI.

(C)These guidelines establish minimum national customer protection standards. These standards include, but are not limited to, prohibitions on confessions of judgment, as specified in subdivision (a) of Section 1132 of the Code of Civil Procedure, and a prohibition on “double-dipping” fees, a practice in which a lender issues new credit to refinance prior credit without forgiving a portion of the fee already paid and results in the borrower paying a fee on top of a fee.

(D)Corporations, the California Small Business Finance Center, and the bank are strongly encouraged to follow these guidelines to ensure that they are eligible for funds, to reinforce program integrity, and to ensure that the SSBCI will continue to primarily benefit small businesses.

(E)Corporations, the California Small Business Finance Center, and the bank are strongly encouraged to ensure that small businesses that utilize the Small Business Loan Guarantee Program are subject to responsible lending practices.

(F)A lender that conducts responsible lending practices may include, but is not limited to, a lender that ensures that guaranteed loan repayment information is sent to a commercial credit reporting agency, as defined in subdivision (b) of Section 1785.42 of the Civil Code, and that credit data is consulted when underwriting the guaranteed loan.

(G)A lender that conducts responsible lending practices may include, but is not limited to, a lender that ensures that, at the time of the loan offer, the borrower and any guarantors are informed if the lender intends to report the repayment performance on the borrower’s qualified loan to a commercial credit reporting agency if default occurs.

(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.

(d)A loan guarantee funded by the federal State Small Business Credit Initiative Act of 2010 (Public Law 111-240), as modified by the American Rescue Plan Act of 2021 (Public Law 117-2), shall be issued only if the lender certifies that the guaranteed loan meets all of the following conditions:

(1)The guaranteed loan shall consider repayment funds from a third party as equivalent to funds from the borrower, and the final payoff amount of the guaranteed loan shall not vary based upon the source of the funds used to make the final payoff.

(2)At the time of the loan offer, the guaranteed loan, including the guaranteed loan summary, shall have provisions that, in a clear and transparent manner, disclose each separate and applicable financing fee and charge and each prepayment fee, charge, and penalty. A “financing charge” does not include interest accrued since a prior payment.

(3)The guaranteed loan shall have provisions that, in a clear and transparent manner, disclose any actual prepayment penalties and prepayment charges or fees.

(4)The guaranteed loan shall be underwritten by the lender assessing the ability of the borrower’s business to succeed and repay. The guaranteed loan, if repaid through gross receipts, shall have a debt service coverage ratio of greater than 1.00 or shall be determined to have a credible path to a debt service coverage ratio of greater than 1.00 within the term of the financing. The guaranteed loan, if repaid through net receipts, shall only be offered with high confidence that the borrower can repay its entire debt burden without defaulting or reborrowing.

(5)The guaranteed loan shall require that information on prepayment and refinancing be provided to the borrower within five business days upon request.

(a)The Legislature finds and declares that small businesses are responsible for a significant amount of environmental emissions in the state, but are less able than larger businesses to afford the investment in new equipment or process modifications needed to comply with environmental regulations, with regard to controlling emissions, preventing the creation of pollutants, contaminants, or waste products, and remediating contamination of properties with a reasonable potential for economically beneficial reuse. Additionally, small businesses faced with financial pressures will be likely to reduce expenditures to achieve environmental compliance. Better access to capital will allow small businesses to more easily comply with environmental mandates, and to remediate contamination of properties with a reasonable potential of economically beneficial reuse, and to succeed economically, generating additional revenue to state and local governments that can be used for environmental improvements, all to the benefit of all the residents of the state.

(b)The Legislature also finds and declares that it is in the best interest of the state to expand the Capital Access Loan Program for small business regardless of whether the operations of the small business affect the environment, and to permit business loans to be included in the program for small businesses whose operations do not, necessarily, affect the environment. Small businesses have difficulty gaining access to capital for startup and expansion purposes. Small businesses owned by minorities and women have special capital access difficulties. In addition, small businesses operating in areas affected by military base closures are disadvantaged by limited access to capital. The Legislature finds that improving access to capital for these small businesses will spur investment, create jobs, expand economic opportunities, assist in the recovery of communities affected by defense and aerospace losses, assist in the recovery of neighborhoods and communities affected by contaminated properties that are not being used for economically beneficial purposes but which could be so used if the contamination was remediated, and help sustain and strengthen economic recovery in California.

(c)The Legislature finds and declares all of the following:

(1)The federal State Small Business Credit Initiative Act of 2010 (SSBCI) (Public Law 111-240), as modified by the American Rescue Plan Act of 2021 (Public Law 117-2), will create additional funding for the program.

(2)The authority is strongly encouraged to follow required guidelines and regulations established by the United States Department of the Treasury to utilize funds from the SSBCI.

(3)These guidelines establish minimum national customer protection standards. These standards include, but are not limited to, prohibitions on confessions of judgment, as specified in subdivision (a) of Section 1132 of the Code of Civil Procedure, and a prohibition on “double-dipping” fees, a practice in which a lender issues new credit to refinance prior credit without forgiving a portion of the fee already paid and results in the borrower paying a fee on top of a fee.

(4)The authority is strongly encouraged to follow such guidelines to ensure program integrity and that the SSBCI will continue to primarily benefit small businesses.

(5)The authority is strongly encouraged to follow such guidelines to ensure that they are eligible for funds, to reinforce program integrity, and to ensure that the SSBCI will continue to primarily benefit small businesses.

(6)The authority is strongly encouraged to ensure that small businesses that utilize the Small Business Loan Guarantee Program are subject to responsible lending practices.

(7)A lender that conducts responsible lending practices may include, but is not limited to, a lender that ensures that guaranteed loan repayment information is sent to a commercial credit reporting agency, as defined in subdivision (b) of Section 1785.42 of the Civil Code, and that credit data is consulted when underwriting the guaranteed loan.

(8)A lender that conducts responsible lending practices may include, but is not limited to, a lender that ensures that, at the time of the loan offer, the borrower and any guarantors are informed if the lender intends to report the repayment performance on the borrower’s qualified loan to a commercial credit reporting agency if default occurs.

As used in this article, unless the context requires otherwise, all of the following terms have the following meanings:

(a)“Authority” means the California Pollution Control Financing Authority.

(b)“California Capital Access Fund” means a fund created within the authority to be used for purposes of the program.

(c)“Executive director” means the Executive Director of the California Pollution Control Financing Authority.

(d)(1)“Financial institution” means a federal- or state-chartered bank, savings association, credit union, not-for-profit community development financial institution certified under Part 1805 (commencing with Section 1805.100) of Chapter XVIII of Title 12 of the Code of Federal Regulations, or a consortium of these entities. A consortium of those entities may include a nonfinancial corporation, if the percentage of capitalization by all nonfinancial corporations in the consortium does not exceed 49 percent.

(2)(A)“Financial institution” also includes a lending institution that has executed a participation agreement with the Small Business Administration under the guaranteed loan program pursuant to Part 120 (commencing with Section 120.1) of Chapter I of Title 13 of the Code of Federal Regulations and meets the requirements of Section 120.410 of Chapter I of Title 13 of the Code of Federal Regulations, a small business investment company licensed pursuant to Part 107 (commencing with Section 107.20) of Chapter I of Title 13 of the Code of Federal Regulations, and a small business financial development corporation, as defined in Chapter 1 (commencing with Section 14000) of Part 5 of Division 3 of Title 1 of the Corporations Code, or microbusiness lender, as defined in Section 12100 of the Government Code, that meets standards that shall be established by the authority. For loans where all or part of the fees and matching contributions are paid by an entity participating in the program pursuant to subdivision (e) of Section 44559.2, “financial institution” also includes financial lenders, as defined in Section 22009 of the Financial Code, making commercial loans, as defined in Section 22502 of the Financial Code.

(B)A financial institution described in this paragraph shall be domiciled or have its principal office in the State of California.

(3)“Financial institution” also includes an insured depository institution, insured credit union, or community development financial institution, as these terms are defined in Section 4702 of Title 12 of the United States Code.

(e)“Loss reserve account” means an account in the State Treasury or any financial institution that is established and maintained by the authority for the benefit of a financial institution participating in the Capital Access Loan Program established pursuant to this article for the purposes of the following:

(1)Depositing all required fees paid by the participating financial institution and the qualified business.

(2)Depositing contributions made by the state and, if applicable, the federal government or other sources.

(3)Covering losses on enrolled qualified loans sustained by the participating financial institution by disbursing funds accumulated in the loss reserve account.

(f)“Participating financial institution” means a financial institution that has been approved by the authority to enroll qualified loans in the program, has agreed to all terms and conditions set forth in this article and as may be required by any applicable federal law providing matching funding.

(g)“Passive real estate ownership” means ownership of real estate for the purpose of deriving income from speculation, trade, or rental, but does not include any of the following:

(1)The ownership of that portion of real estate being used or intended to be used for the operation of the business of the owner of the real estate.

(2)The ownership of real estate for the purpose of construction or renovation, until the completion of the construction or renovation phase.

(h)“Program” means the Capital Access Loan Program created pursuant to this article.

(i)“Qualified business” means a small business concern that meets both of the following criteria, regardless of whether the small business concern has operations that affect the environment:

(1)It is a corporation, partnership, cooperative, or other entity, whether that entity is a nonprofit entity or an entity established for profit, that is authorized to conduct business in the state.

(2)It has its primary business location within the boundaries of the state.

(j)(1)(A)“Qualified loan” means a loan or a portion of a loan made by a participating financial institution to a qualified business for any business activity that has its primary economic effect in California. A qualified loan may be made in the form of a line of credit, in which case the participating financial institution shall specify the amount of the line of credit to be covered under the program, which may be equal to the maximum commitment under the line of credit or an amount that is less than that maximum commitment. A qualified loan made under the program may be made with the interest rates, fees, and other terms and conditions agreed upon by the participating financial institution and the borrower.

(B)A loan funded with moneys received pursuant to the federal State Small Business Credit Initiative Act of 2010 (Public Law 111-240), as modified by the American Rescue Plan Act of 2021 (Public Law 117-2), is a “qualified loan” only if it meets the definition in subparagraph (A) and if, in a financial institution’s application to enroll a qualified loan, the financial institution also certifies all of the following:

(i)The loan is underwritten by the lender by reassessing the ability of the borrower’s business to succeed and repay. The loan, if repaid through gross receipts, shall have a debt service coverage ratio of greater than 1.00 or that is determined to have a credible path to a debt service coverage ratio of greater than 1.00 within the term of the financing. The loan, if repaid through net receipts, shall only be offered with high confidence that the borrower can repay its entire debt burden without defaulting or reborrowing.

(ii)The loan has provisions requiring any relevant prepayment and refinance information be provided to the borrower within five business days upon request.

(iii)The loan has provisions requiring its repayment information be sent to a commercial credit reporting agency, as defined in subdivision (b) of Section 1785.42 of the Civil Code, and credit data is consulted when underwriting the loan.

(iv)The borrower of the loan and any guarantors are informed at the time of the loan offer if the lender intends to report the repayment performance on the borrower’s loan to a commercial credit reporting agency if default occurs.

(v)At the time of the loan offer, the loan, including the loan summary, has provisions that, in a clear and transparent manner, disclose each separate and applicable financing fee and charge and each prepayment fee, charge, and penalty. A “financing charge” does not include interest accrued since a prior payment.

(vi)The loan has provisions that, in a clear and transparent manner, disclose any actual prepayment penalties and prepayment charges or fees.

(vii)The loan does not treat repayment funds from a third party differently than funds from the borrower or vary the repayment amount based on the source of the funds used to make the final payoff.

(2)“Qualified loan” does not include any of the following:

(A)A loan for the construction or purchase of residential housing.

(B)A loan to finance passive real estate ownership.

(C)A loan for the refinancing of an existing loan when and to the extent that the outstanding balance is not increased.

(D)A loan, the proceeds of which will be used in any manner that could cause the interest on any bonds previously issued by the authority to become subject to federal income tax.

(k)“Severely affected community” means any area classified as an enterprise zone pursuant to the Enterprise Zone Act (Chapter 12.8 (commencing with Section 7070) of Division 7 of Title 1 of the Government Code), any area, as designated by the executive director, contiguous to the boundaries of a military base designated for closure pursuant to Section 2687 of Title 10 of the United States Code, as amended, and any other comparable economically distressed geographic area so designated by the executive director from time to time.

(l) “Small Business Assistance Fund” means a fund created within the authority pursuant to Section 44548.

(m)“Small business concern” has the same meaning as in Section 632 of Title 15 of the United States Code, or as otherwise provided in regulations of the authority.