California Capital Access Program for Small Business
The California Capital Access Program for Small Business (CalCAP SB or Program) encourages banks and other financial institutions to make loans to small businesses that have difficulty obtaining financing.
CalCAP is a loan loss reserve program 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 supports 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, start-up costs, the purchase of equipment or inventory, other capital projects and working capital. There are limitations on real estate loans, business acquisitions, 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.
The maximum loan amount is $5 million and the maximum enrolled amount is $2.5 million. Each individual borrower is limited to a maximum $2.5 million enrolled over a 3 year period. Lenders set all the terms and conditions of the loans and decide which loans to enroll into CalCAP. Lenders determine the fees to be paid by the borrower and lender (within the parameters of the Program).
CalCAP offers lenders a mechanism to provide loans to small businesses that have difficulty obtaining financing. With CalCAP support, a lender may be more comfortable underwriting small business loans. The Program allows:
- Almost any small business loan, with a few exceptions.
- Lenders to enroll all or a portion of a loan.
- Lenders to enroll up to $2.5 million for loans as large as $5 million.
- Secured or unsecured loans.
Any federal or state-chartered bank, savings association, certified Community Development Financial Institutions (CDFI), 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 micro business lenders and finance companies may also be eligible.
How The Program Works
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, funds are paid into the loss reserve account and Borrowers must pay fees between 2 and 3.5% of the enrolled loan amount, lenders must pay an amount equal to the borrower fee, and CalCAP will typically match lender amount. For instance, if the lender and borrower each pay a 2% fee, CalCAP will typically pay a 2% contribution. For this one loan a total of 6% is added to the lender's loss reserve account for its entire CalCAP portfolio.
Loan enrollment applications must be received at CalCAP within 15 business days of the 'Date of First Disbursement' (Date of Loan).
Businesses with addresses in High Unemployment Areas are located within a Severely Affected Community (SAC). If the loan enrollment is for a business located within a SAC it may qualify for an additional contribution amount that is equal to half of the lender’s fee.
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 loss reserve account grows, providing up to 17.5% (with addition of SAC premium) loss coverage on a portfolio of loans. For example, if a lender makes 10 loans totaling $500,000, the lender may have as much as $45,000 in its loss reserve account (using an average fee of 3% each from the lender and borrower and 3% contribution from the Authority). If one loan of $35,000 defaults, the lender has immediate coverage of 100% of the loss. The lender must return recoveries from the borrower, less expenses, to the 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.