California Pollution Control Financing Authority (CPCFA)

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 their 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 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 refinancing.

Ineligible Uses of Loan Proceeds

CalCAP prohibits financing certain projects. Examples of ineligible uses of loan proceeds include gambling facilities, bars and adult entertainment businesses.

Terms

The maximum loan amount is $5 million and the maximum enrolled amount is $2.5 million. 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 lender (within the parameters of the program).

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

Program Flexibility

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

• Almost any business loan is eligible under CalCAP, with a few exceptions.
• 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 Lender 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 $5 million ($2.5 million enrollment max) can be included in the CalCAP portfolio.
• The maximum lender/borrower contribution for any single borrower in a three year period is $100,000.

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, Federal Deposit Insurance Corporation (FDIC), Comptroller of Currency, Thrift Supervision, National Credit Union Administration (NCUA), or state banking authority). Other lenders, such as certified community development financial institutions, and finance companies may also be eligible.

• Participating Financial Institutions

How The Program Works

Borrower

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

Lender

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

CPCFA

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

When a lender's first loan is enrolled, CalCAP establishes a loss reserve account for that lender. Each time a loan is enrolled under CalCAP, premiums are paid into the portfolio loss reserve account and CalCAP matches the premiums. For instance, if the lender and borrower each pay a 2% premium, CalCAP will typically 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 its CalCAP portfolio.

How the Loss Reserve Account Grows

Over time, as more loans are enrolled, a lender's loss reserve account grows, providing 8% to 14% loss coverage on a portfolio of loans that will likely only experience a lower rate of loss. For example, if a lender makes 10 loans totaling $500,000, the lender may have as much as $60,000 in its loss reserve account (using an average premium of 3% each from the lender and borrower, 6% from the Authority). If one loan of $50,000 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 (SIC) or the North American Industry Classification System (NAICS) codes list.
• The borrower's primary business and at least 51% 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) and have fewer than 500 employees.