California Pollution Control Financing Authority

California Capital Access Program

The California Capital Access Program (CalCAP) encourages banks and other financial institutions to make loans to small businesses that fall just outside of most banks' conventional underwriting standards.

CalCAP is a form of loan portfolio insurance which may provide up to 100% coverage on certain loan defaults. By participating in CalCAP, lenders have available to them a proven financing mechanism to meet the financing needs of California's small businesses.

Eligible Uses of Loan Proceeds

CalCAP insures bank loans made to small businesses to assist them in growing their business. Loans can be used to finance the acquisition of land, construction or renovation of buildings, the purchase of equipment, other capital projects and working capital. There are limitations on real estate loans and loan refinancings.

• Text of the Capital Access Regulations

Ineligible Uses of Loan Proceeds

CalCAP's current fund source, from which the Authority makes its premium contributions, prohibits financing certain projects. Examples of ineligible uses of loan proceeds include any type of luxury facility, such as a golf course or country club, racetrack, airplane, gambling facilities or any facility involved in the sale of alcoholic beverages consumed off site.

Terms

The maximum loan amount is $1.5 million. The maximum premium CPCFA will pay is $100,000 (per loan). Lenders set all the terms and conditions of the loans and decide which loans to enroll into CalCAP. Lenders determine the premium levels to be paid by the borrower and lender.

Loans can be short- or long-term, have fixed or variable rates, be secured or unsecured, and bear any type of amortization schedule.

CalCAP's Flexibility

CalCAP offers lenders a mechanism to provide loans to small businesses that may not otherwise be able to get a loan. With CalCAP's portfolio insurance, a lender is able to cover portions of loans that exceed the risk threshold normally set for most business loans. CalCAP's flexibility includes:

• With very few exclusions, virtually any business loan is eligible under CalCAP.
• CalCAP provides insurance on a lender's portfolio of loans. Funds are placed in the loss reserve account as each CalCAP loan is enrolled.
• A bank can enroll all or a portion of a loan. CalCAP allows a lender to cover loans beyond its conventional risk threshold whether it is for all of a loan or only a portion.
• Lenders can restructure loans by extending the terms of CalCAP loans, amending covenants or releasing collateral.
• Loans up to $1.5 million can be included in the CalCAP portfolio.

Eligible Lenders

Any federal or state-chartered bank, savings association or credit union is eligible to participate in CalCAP. A lender must certify that it is in good standing with its regulatory body (Federal Reserve, FDIC, Comptroller of Currency, Thrift Supervision, NCUA, or state banking authority). Other banks, such as community development banks, may also be eligible.

• Participating Financial Institutions

How The Program Works

Borrower

• "Near bankable" business applies to local bank for business loans
• Pays a premium to get the loan

Lender

• Applies to CPCFA to participate in CalCAP
• Enrolls each loan with CPCFA
• Contributes a premium to portfolio loss reserve account

CPCFA

• At time of loan enrollment, pays a matching premium into loss reserve account
• At time of loss, pays claims submitted by lender

When a lender's first loan is enrolled, CPCFA establishes a loss reserve account for that lender, using funds from its Small Business Assistance Fund. Each time a loan is enrolled under CalCAP, premiums are paid into the portfolio loss reserve account, CPCFA matches the premiums paid by the borrower and lender-dollar for dollar. For instance, if the lender and borrower each pay a 2% premium, CPCFA will pay 4%. For this one loan, a total of 8% is added to the lender's loss reserve account for its entire CalCAP portfolio.

The more loans a lender makes, the more dollars are deposited into the loss reserve account for CalCAP portfolio.

How the Loss Reserve Account Grows

Over time, as more and more loans are enrolled, a lender's loss reserve account grows substantially, providing 8 to 14% loss coverage on a portfolio of loans that will likely only experience a 4 to 8% loss. For example, if a lender makes 10 loans totaling $500,000, the lender may have as much as $50,000 in its loss reserve account (using an average premium of 2.5% each from the lender and borrower, 5% from the Authority). If one loan of $30,000 defaults, the lender has immediate coverage of 100% of the loss. The lender must return recoveries from the borrower, less expenses, to the portfolio loss reserve account.

Eligible Small Businesses

• The borrower's business must be in one of the industries listed in the qualified Standard Industry Classification codes list.
• The borrower's primary business and 50% of its employees or business income, sales or payroll must be in California.
• The business activity resulting from the bank's loan must be created and retained in California.
• The small business must be classified as a small business under U.S. Small Business Administration guidelines (Title 13 of the Code of Federal Regulations) or have fewer than 100 employees.

Special Benefits for Severely Affected Communities

CalCAP also provides additional risk coverage for loans that are made by lenders to businesses located in severely affected communities. CalCAP allows CPCFA to contribute up to 150% of the combined premium payments by the lender and borrower for each loan made in these communities. A severely affected community is any state Enterprise Zone as defined in the Enterprise Zone Act, as well as any other comparable economically distressed geographic area as designated by CPCFA.

Bill Lockyer
State Treasurer and Chair, California Pollution Control Financing Authority

Inquiries may be directed to CPCFA, attention CalCAP Program Manager

The California Pollution Control Financing Authority complies with the Americans With Disabilities Act (ADA). If you need additional information or assistance, please contact the Authority at (916) 654-5610 or TDD (916) 654-9922.