Legislature(2011 - 2012)BELTZ 105 (TSBldg)
02/03/2011 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB34 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 34 | TELECONFERENCED | |
SB 34-SMALL BUSINESS REVOLVING FUND
1:37:02 PM
CHAIR EGAN announced the consideration of SB 34.
1:37:17 PM
SENATOR WIELECHOWSKI, sponsor of SB 34, said that small
businesses provide a huge amount of employment in Alaska. The
problem is that businesses continue to have a difficult time
getting credit, and this bill would allow small businesses to
receive small loans or microloans. This bill could help rural
Alaska grow, he said.
1:39:20 PM
MICHELLE SYDEMAN, Staff to Senator Wielechowski, said the
purpose of the fund would be to promote economic development by
helping small businesses in Alaska to access critically needed
capital.
The Need: in just two years there has been a substantial
tightening of credit available to small business. The National
Small Business Association does a survey twice a year and they
have seen a very steady decline in reporting access to adequate
credit. Two years ago almost 80 percent of businesses said they
did have access to the credit they need; now it's under 60
percent. There were a third fewer loans in 2009 than there were
in 2008, and fewer loans are being made now than in 2000.
Why is this a problem, she asked and answered that start-up
businesses have a particularly big effect on job creation. Some
25 percent of new jobs are created as start-ups. So, they want
to foster development of new enterprises.
Is Alaska different than other states in the US on this credit
issue? She said she called various economists in the state and
found that the answer was no, but the problem may be worse in
Alaska because business costs are higher, markets are smaller,
and the number of lenders is fewer. This is a problem that needs
to be addressed here. The best thing that government can do
right now is make sure that credit is available. Small business
credit is where we should be focusing our attention.
MS. SYDEMAN said 46 states have micro-lending programs under the
auspices of the Federal Small Business Administration, and two
other states participate through neighboring states. So that
leaves two states without a micro-lending program. Alaska does
not have one because there are no private lenders willing to do
so. So government should step in and be that intermediary lender
that is required by the federal government.
She said that HB 412 [26th Legislature] passed the House
unanimously, but it did not pass the Senate, which is one of the
reasons a Senator decided to advance a bill. They contacted
various small business owners to ask them their opinion. The one
comment they got back several times was that last year's bill
was fantastic, but the maximum loan limits are a little lower
than they would like to see. HB 412 had a maximum loan limit of
$35,000 for a sole proprietorship and $70,000 for a business
owned by two or more people. They decided that increasing that
slightly - to $50,000 for one person and $100,000 for two -
wouldn't run them into a loan size that would be more attractive
to private lenders. Coincidentally, the federal government did
the same thing. So, SB 34 mirrors the federal limit.
1:44:36 PM
MS. SYDEMAN said the Governor has reintroduced microloans as
part of a broader loan package that has similar details. So,
what she says applies to the Governor's bill as well.
Loan Eligibility: Applicants must be Alaska residents. They must
provide at least 10 percent equity and sufficient collateral to
secure the loan. Loans would have an interest rate of between 6-
8 percent and the maximum term would be six years. The program
would be operated by the Division of Investments, Department of
Commerce, Community and Economic Development, and it fits nicely
within other programs that the division administers. One of them
is the Small Business Economic Development Fund. But, though
that fund is financed with federal money, it's only available to
communities that have been identified as experiencing economic
hardship. Anchorage and Juneau businesses would not qualify, and
further it targets long-term financing, not a short-term fairly-
quick turn-around kind of microloan.
The second program, the Rural Development Fund, is a compliment
to an existing program. It is available only to small
communities with less than a population of 5,000 if not road-
connected and 2,000 if road-connected.
She recapped that microloans would be available state-wide, they
are of modest size, they're short term and they can actually be
used for a fairly broad array of purposes from working capital
to making improvements to any land one might be leasing, and
purchasing inventory. This may be a little different than what
private lenders would do as they are sometimes reluctant to lend
to a start-up business because they don't have a proven track
record or major assets.
1:47:05 PM
The application process would be streamlined; a simple process
with a $100-application fee and a 1-percent origination fee. The
fiscal note calls for the fund to be capitalized at $3.5
million. That could be done with general funds. Last year's bill
explicitly called for use of the AIDEA dividend, which has about
$35 million available, but for the last six years the co-chairs
of both Finance Committees have agreed to use those funds for
the capital budget.
1:48:32 PM
Another option for $1.5 billion in funding is a new federal
program called the Small Business Jobs Act of 2010. It's a
formula-driven program and Alaska's share would be more than $13
million. She said the administration has filed a letter of
intent to participate in this program. The application deadline
is June 27, 2011.
She noted that interest earnings go back into the revolving loan
funds so they are self-sustaining. The DCCED has estimated that
this program could let 20 loans in the first year and 25 in each
year thereafter. By FY17 all of the funding would be pushed out,
but money would start coming back in. So once the program is
capitalized. it is self sustaining and has no further cost to
the state. She said they have seen wide-spread support for this
kind of loan program.
1:50:31 PM
The Bristol Bay Economic Development Corporation commented that
in their part of the state traditional sources of capital really
are not available; so having a state program like this that
makes modest loans would be helpful, particularly to bridge
short-term financing problems that small businesses might
experience. It would, in fact, enable those businesses to employ
more Alaskans, which is the goal here.
The Small Business Development Center commented that many banks
have less interest in making small loans. Nationally the average
size of a microloan is in the $12,000 to $13,000 range, too low
for a private bank to consider. The Southwest Alaska Municipal
Conference said the types of businesses that would benefit from
this would be very small mom and pop operations - small mechanic
shops, bed and breakfast operations, small day care centers, and
small fishing processing businesses - the kind of things you
might see in small Alaskan communities.
1:52:16 PM
MS. SYDEMAN'S closing thoughts:
-Very small loans, available only to residents
-Quick turn around
-For many businesses this could be the difference between
success or failure - the ability to start up at all
-Possibility of a federal source
-Self-sustaining fund
MS. SYDEMAN explained that the administration "is the brains"
behind this bill.
1:53:37 PM
SENATOR MENARD asked what the "I" stands for on slide 10 under
the Rural Development Fund.
MS. SYDEMAN answered "Initiative."
SENATOR MENARD said that she understands the difficulties with
getting a loan right now and she would appreciate not having to
hear this bill again before moving it out. She strongly
supported SB 34.
1:56:07 PM
CHAIR EGAN said he has a tendency to agree with her. However, he
notified the committee that they would hold this bill until next
week.
SENATOR GIESSEL asked if Ms. Sydeman could clarify where the
money will from relative to the federal money she mentioned.
MS. SYDEMAN answered that the deadline for application is June
27 of this year.
SENATOR GIESSEL said her dilemma is the closeness of the
application deadline; yet the effective date of the bill is July
1. She wanted to know if there was another source for the $3.5
million in case the federal money didn't come through.
MS. SYDEMAN answered that she pointed out a hole in her logic.
She said she did not know what would have to be done in the
Finance Committee in terms of authorizing general funds in the
event that federal funds were not available.
SENATOR GIESSEL said language on page 2, lines 1-19, describes
where the money can come from, and mentions "grant", but then
language on line 24(2) also talks about "grant". Is that an
oversight?
MS. SYDEMAN said she could not answer that question, and she
would have to look at it.
1:59:46 PM
SENATOR MENARD confirmed that she would clarify with the banks
don't feel this is a competition with them.
MS. SYDEMAN answered that she would not be able to make that
clarification today. Yesterday she talked with bank industry and
there is now some concern about the loan limits in this bill
even thought the limits were acceptable in the previous bill.
She hoped there will be testimony from someone representing the
banking industry.
Another issue that came up yesterday was regarding some of the
DCCED loan programs that require an applicant first go to a
private lender and be turned down for a loan before coming to
the state. Her understanding before yesterday afternoon was that
lenders felt in some ways that creates "non-revenue traffic" to
their banks and that people are just there to be turned down and
have no intention of applying for an interest rate that may be
at the higher lending level that a private lender would need to
ask for. Some bankers said if such a provision were included,
that would make them oppose the bill. She thought the committee
would want to look at the maximum loan limit and a turn down
provision.
2:02:23 PM
SENATOR MENARD said the reason it is important to advocate for a
loan limit of $50,000 is because there are many individuals who
have some great ideas but do not have the start up money to
begin. This revolving loan for small businesses is a reasonable
bill to put forward. Small business is the heart of America.
SENATOR WIELECHOWSKI noted that Senator Menard was a co-prime
sponsor and Senator Davis was added as a co-sponsor of SB 34.
2:04:08 PM
SENATOR GIESSEL repeated her question about the inclusion of the
word "grant" in the money received in the bill and if it is an
oversight.
WANETTA AYERS, Director, Division of Economic Development,
Department of Commerce, Community and Economic Development
(DCCED), said she believes that it is a drafting oversight. She
added that they have submitted, through the Governor's Office, a
package of three revolving loan funds (HB 121 and SB 67) that
have a microloan provision. The Governor has been very
supportive of this for several sessions, and for all of the
reasons Ms. Sydeman outlined, it follows the logic and
information they received from both borrowers and the lending
community about the need and support for the program.
She said that a number of bankers participate in the
Commissioner's Economic Advisory Council that said the idea of a
turn down provision was probably not necessary for a microloan
bill. However, it is a standard practice within the department's
other loan funds and she didn't see that as a tremendous hurdle.
MS. AYERS also mentioned that Ms. Sydeman's slides refer to the
Division of Investments, which has been merged with the Office
of Economic Development into the Division of Economic
Development, and that would be the operating entity that would
be responsible for implementing this loan fund.
2:07:18 PM
MIKE BORGFORD, Executive Director, Made in Mat-Su Association,
Wasilla, said SB 34 has complete support. It is really an
important tool especially for those in the core from Homer to
Fairbanks, because there are other programs that none of them
are eligible for. The biggest thing they see with SB 34 is that
it will add viability for existing businesses, which are all in
manufacturing. With the credit crunch and even before then, it
was very difficult for small businesses to go into the local
lending establishments and get small loans.
One important question was brought up that the bill doesn't
require the business to be located in Alaska. It came up because
one of their members who is a long-term resident of the MatSu
also owns a company in Oregon. He thought he could apply for a
loan through this program and actually spend the money on his
business in Oregon. They found that unique, but he hoped that
loophole would be closed before this bill is enacted into law.
SENATOR MENARD said it would be a good idea to address this
loophole.
2:10:17 PM
JIM DODSON, President, Fairbanks Economic Development
Corporation, said that he agrees with limiting the bill to
businesses in Alaska. Nationally, he stated over the last 15
years small businesses have generated over 64 percent of all new
jobs in the US. It's important to remember that economies are
measured by the success of individuals and availability of jobs,
personal quality of life and individual opportunity, not the
success of government. Since 1990, the average per capita income
of Alaskans has been in decline relative to the national per
capita, a trend that must be reversed, and SB 34 is a move in
the right direction.
2:12:12 PM
CHAIR EGAN announced that the committee would hold SB 34 until
next week. There being no further business to come before the
committee, he adjourned the meeting at 2:12 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 34 Sponsor Statement.PDF |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB034-CCED-DED-01-28-11(B).pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| Small Biz Revolving Loan Fund PP2.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| microloan support SB34 SWAMC.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB 34 Support lttr Lower Kuskokwim Econ Dvlpmnt Council.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB 34 Support lttr PWS Econ. Dvlpmnt Dist..pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB 34 News Articles.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB034-CCED-DED-01-28-11(A).pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB034-CCED-DED-01-28-11(A) REVISED.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |
| SB034-CCED-DED-01-28-11(B) REVISED.pdf |
SL&C 2/3/2011 1:30:00 PM |
SB 34 |