Money Flowing into California's Small-Business Loan Programs

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The state loan programs, California Capital Access Program (CalCAP) and Small Business Loan Guarantee Program (SBLGP), were slowed in recent years by budget cuts.

Tight credit due to the recession has made it even tougher now for many small businesses to get loans. Under the CalCAP program, the state puts money equal to about 4 percent of a loan, or an agreed upon portion of it, into an account at the bank as a "loan loss reserve." This reserve can be tapped by the bank if the loan fails. In addition, both the bank and the borrower each contribute about 2 percent of the loan to the reserve.

CalCAP also provides loans in partnership with the California Air Resources Board for truckers to help them comply with the state's new air-quality rules.

The federal funding is being split between the two state programs. SBLGP is putting its $28 million into a trust fund that will help pay a lender if a loan issued under the program goes bad.

The state will have to make use of most of the federal funding it has received under the Small Business Jobs Act before it can receive a second payment of about $56 million. Then if it uses up that one, it can get a third and final payment.

The funding could play a role in lifting the state out of its economic downturn. Credit is seen as crucial for businesses to be able to buy equipment and cover operation costs.