CalCAP for Small Business Technical Program Summary
Please refer to the Participating Financial Institution Lender Manual and Program Regulations for any clarifications or items not addressed here. No item shall be construed as contradicting or superseding Program Regulations.
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, financial institutions 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. Financial institutions set all the terms and conditions of the loans and decide which loans to enroll into CalCAP. Financial institutions determine the fees to be paid by the borrower and financial institution (within the Program parameters of 2-3.5%).
With CalCAP, a financial institution receives financial support when it underwrites small business loans. The Program allows participating financial institutions to receive support when they enroll:
- Almost any small business loan, with few exceptions
- Secured or unsecured small business loans
- All of or a portion of a loan (participating financial institutions can enroll up to $2.5 million per small business borrower, for total loan amount per small business borrower up to $5 million)
Eligible Financial Institutions
Any federal or state-chartered bank, savings association, certified Community Development Financial Institutions (CDFI), or credit union is eligible to participate in CalCAP. A financial institution 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 financial institutions, such as micro business lenders and finance companies may also be eligible.
How The Program Works
A financial institution applies to CalCAP to become a participating financial institution (PFI). After approval, CalCAP establishes a loan loss reserve account for the PFI’s CalCAP for Small Business portfolio. All loan loss reserve contributions for the PFI’s CalCAP for Small Business portfolio are pooled in the PFI’s loan loss reserve account. The purpose of the loan loss reserve account is to provide reimbursement to the PFI in the case of certain loan defaults, up to 100%, subject to the loan loss reserve account balance.
The next step is for the PFI to enroll eligible loans in the CalCAP for Small Business loan loss reserve program. Loan enrollment applications must be received at CalCAP within 15 business days of the 'Date of First Disbursement' (Date of Loan).
With each CalCAP for Small Business loan enrollment, the PFI determines the loan loss reserve contribution percentage which can be between 2 and 3.5% of the enrolled loan amount. The PFI contributes that percentage to the loan loss reserve account, the borrower contributes the matching percentage, and CalCAP matches both the PFI and the borrower’s contributions with SSBCI funds. In addition, an enrollment for a loan to a borrower located in a community defined as Severely Affected Community (SAC) is eligible to receive an additional contribution from CalCAP State funds that is equal to one-half the PFI contribution. The Authority's regulations define a Severely Affected Community as an "economically distressed geographic area", as designated by the Executive Director. In recognition of the economic impact of designated disasters, public safety power shutoffs, and COVID-19 to California small businesses, CalCAP will authorize a supplemental contribution for a credit enhancement for the 12 months following the designation for CalCAP for Small Business, CSP, CalCAP/ADA and CalCAP/Seismic Safety loans enrolled for borrowers located in areas designated as an emergency or disaster area by the Governor, and whose businesses are directly impacted by the emergency or disaster. This impact must be detailed on the Supplemental Severely Affected Community (SAC) Contribution Lender and Borrower Certification stating specifically how the business was affected, including the number of days, sales amount lost, and/or number of employees
For instance, if the PFI determines the contribution percentage is 2%, the borrower and PFI each contribute 2% and CalCAP contributes 4% for a total of 8% of the enrolled loan amount being added to the PFI’s loan loss reserve account. If the enrolled loan is eligible for SAC, an additional 1% contribution from CalCAP State funds would result in 9% of the enrolled loan amount being added to the PFI’s loan loss reserve account.
How the Loss Reserve Account Grows
The more loans a PFI makes, the more dollars are deposited into the loss reserve account for its CalCAP portfolio. For example, if a PFI makes 10 loans totaling $500,000, the PFI may have as much as $45,000 in its loan loss reserve account (assuming an average contribution percentage of 3% per loan, resulting in an average of 9% of the enrolled loan amount being added to the PFI’s CalCAP for Small Business loan loss reserve account). If one loan of $35,000 defaults, the PFI has immediate coverage of 100% of the loss. The PFI must return recoveries from the borrower, less expenses, to the loan 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.