03/20/2018 01:30 PM Senate LABOR & COMMERCE

            SB 157-MICROLOAN REVOLVING FUND & LOANS                                                                         
                                                                                                                                
1:33:14 PM                                                                                                                    
CHAIR COSTELLO announced the consideration of SB [157].                                                                         
                                                                                                                                
1:33:35 PM                                                                                                                    
MIKE  NAVARRE, Commissioner,  Department  of Commerce,  Community                                                               
and Economic Development (DCCED),  Juneau, Alaska, stated that SB
  offers minor  changes  to  an existing  loan  fund to  allow                                                               
better access and utilization by  residents of Alaska and to help                                                               
promote the economy.                                                                                                            
                                                                                                                                
1:34:05 PM                                                                                                                    
BRITTENY   CIONI-HAYWOOD,   Director,    Division   of   Economic                                                               
Development,  Department  of  Commerce,  Community  and  Economic                                                               
Development  (DCCED),  Juneau, Alaska,  said  SB  157 amends  the                                                               
revolving microloan fund.  The purpose of the fund  is to promote                                                               
economic   development  in   Alaska   by   assisting  small   and                                                               
microbusinesses  that   may  not   have  access   to  traditional                                                               
financing. This  access is badly needed  capital that facilitates                                                               
startups, expansion,  and job creation  throughout Alaska  with a                                                               
specific  policy emphasis  on rural  communities. New  businesses                                                               
are responsible for  80 percent of new jobs in  the United States                                                               
and  small  startups  and businesses  have  difficulty  obtaining                                                               
funding. Having an effective microloan  fund focuses on lifestyle                                                               
businesses,   particularly  those   owned   by  rural   Alaskans,                                                               
immigrant  entrepreneurs,  and   minorities.  These  loans  could                                                               
unlock  a large  number of  new  businesses that  could serve  as                                                               
economic anchors in small communities.                                                                                          
                                                                                                                                
MS.  CIONI-HAYWOOD   said  that   the  legislature   created  the                                                               
microloan fund in  2012. The loans are made  for working capital,                                                               
equipment,  construction,  and  other  commercial  purposes.  The                                                               
applicant must be an Alaska resident  for a minimum of a year and                                                               
loans  may not  be  made to  pay for  costs  incurred six  months                                                               
before the loan application. The  current terms and conditions do                                                               
not  provide enough  flexibility to  allow micro  businesses with                                                               
limited cash flow  to take advantage of the  opportunity the loan                                                               
should provide. The terms of the  loan are one way to incentivize                                                               
small businesses  to take entrepreneurial risks  to create Alaska                                                               
jobs. The  proposed changes in  the bill will help  propel growth                                                               
in this sector and once  the business is established and growing,                                                               
it can avail itself of private sector financing.                                                                                
                                                                                                                                
1:36:52 PM                                                                                                                    
MS. CIONI-HAYWOOD said  the bill will correct the  lower tier for                                                               
a bank  denial from $34,999  to $5,000. It increases  the maximum                                                               
loan term  from six to 15  years and increases the  interest rate                                                               
calculation by one  percentage point. The interest  would be 6.25                                                               
percent today. It  takes it from prime plus one  percent to prime                                                               
plus two percent.                                                                                                               
                                                                                                                                
CHAIR COSTELLO stated support for the program.                                                                                  
                                                                                                                                
1:37:42 PM                                                                                                                    
SENATOR GARDNER asked  the rationale for extending  the loan term                                                               
to 15 years.                                                                                                                    
                                                                                                                                
MS. CIONI-HAYWOOD  cited the example  of a loan for  $35,000. The                                                               
loan  payment at  6  percent over  five years  is  almost $700  a                                                               
month. Amortizing that  over 15 years drops the  payment to under                                                               
$300 a month. This helps with  cash flow, which is often an issue                                                               
for small and micro businesses.  She pointed out that the maximum                                                               
loan amount is not always granted                                                                                               
                                                                                                                                
SENATOR GARDNER  asked if there  was a  standard for the  type of                                                               
collateral used.                                                                                                                
                                                                                                                                
MS. CIONI-HAYWOOD said it's a case-by-case determination.                                                                       
                                                                                                                                
1:39:34 PM                                                                                                                    
SENATOR STEVENS  asked her to share  information about successful                                                               
loans.                                                                                                                          
                                                                                                                                
MS. CIONI-HAYWOOD  said nine  loans are  outstanding and  14 have                                                               
been approved  over the life  of the  fund. Loans have  been used                                                               
for purchase  of a boat  trailer for a startup  charter business,                                                               
rebuilding  an engine  for a  water taxi,  remodeling a  bed-and-                                                               
breakfast,  overhauling an  aircraft  engine, commercial  kitchen                                                               
equipment, and equipment for a photographer.                                                                                    
                                                                                                                                
1:40:41 PM                                                                                                                    
SENATOR MEYER asked if the state has made money off the loans.                                                                  
                                                                                                                                
MS. CIONI-HAYWOOD said she didn't  have information on the amount                                                               
the state has made. One loan defaulted.                                                                                         
                                                                                                                                
SENATOR MEYER asked where the money goes.                                                                                       
                                                                                                                                
MS. CIONI-HAYWOOD  said it stays  within the revolving  loan fund                                                               
and is used for additional loans.                                                                                               
                                                                                                                                
1:42:02 PM                                                                                                                    
CHAIR COSTELLO opened public testimony on SB 157.                                                                               
                                                                                                                                
1:42:14 PM                                                                                                                    
JULIET SHEPERD,  Project Manager, Fairbanks  Economic Development                                                               
Corporation, Fairbanks,  Alaska, testified in support  of SB 157.                                                               
She said  she works closely  with startups and  small businesses.                                                               
Fairbanks Economic Development (FEDC) supports  SB 157. FEDC is a                                                               
trustee  for Kiva,  which makes  zero percent  crowdfunding loans                                                               
from $10,000  to $25,000 with  a 36-month repayment  period. Kiva                                                               
loans  fill a  unique  niche. The  proposed  improvements to  the                                                               
Alaska microloan revolving  loan fund will help  extend the reach                                                               
of   affordable,  traditional   funding   to  micro   businesses,                                                               
particularly  in rural  Alaska,  and will  help  grow the  Alaska                                                               
economy.                                                                                                                        
                                                                                                                                
1:45:07 PM                                                                                                                    
CHAIR COSTELLO closed public testimony on SB 157.                                                                               
                                                                                                                                
1:45:17 PM                                                                                                                    
SENATOR  MEYER  moved  to  report  SB  157  from  committee  with                                                               
individual recommendations and attached fiscal note(s).                                                                         
                                                                                                                                
1:45:31 PM                                                                                                                    
CHAIR  COSTELLO announced  that  without objection  SB 157  moved                                                               
from the Senate Labor and Commerce Standing Committee.