Legislature(2009 - 2010)BELTZ 105 (TSBldg)
03/09/2010 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB153 | |
| SB302 | |
| SB129 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 129 | TELECONFERENCED | |
| *+ | SB 302 | TELECONFERENCED | |
| += | SB 153 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 302-MICROLOAN REVOLVING FUND
2:16:04 PM
CHAIR PASKVAN announced SB 302 to be up for consideration.
2:16:11 PM
GREG WINEGAR, Director, Division of Investments, Department of
Commerce, Community & Economic Development (DCCED), said he
supported SB 302. He said it would really benefit small
businesses in the state, which in turn would help the Alaskan
economy. As background, he said, his agency had administered a
number of different state loan programs for many years and has
the infrastructure in place to successfully run this one.
MR. WINEGAR explained that this bill would create a new program
aimed at helping small businesses access critically needed
capital. This will help them not only start businesses, but grow
existing ones. It is modeled after a very similar program that
is available through the Small Business Administration (SBA) in
46 other states, but not Alaska. The reason is that that SBA
requires having an intermediary lender, and no one in Alaska has
stepped forward to run that program. This is an effort to
provide similar types of loans for Alaska businesses that are
available through SBA in other states.
He said that essentially the program could loan up to $35,000 to
an individual and up to $70,000 to two or more individuals;
applicants need to be Alaskan residents. The loan proceeds can
be used for a variety of things - working capital, equipment,
construction or other commercial purposes. The maximum term is
six years and they need to be fully collateralized. The interest
rate would be based on prime plus one with a floor of 6 percent
and a cap of 8. With existing interest rates that would work out
to a 6-percent fixed interest rate.
In terms of capitalization, Mr. Winegar said, his division had
submitted a fiscal note for $3.5 million that would come from
AIDEA. This funding mechanism is actually contingent on the
passage of either SB 301 or its companion, HB 411.
He said the fiscal note also had some operating expenses for one
loan officer to process the requests, some start up expenses and
a small amount of travel. He said they tried very hard to keep
the fiscal note as low as possible, because they wanted the loan
fund to "cash-flow" and be successful. They anticipate about 75
loans in the first year and about 100 in the second; then 25
loans thereafter.
2:20:36 PM
SENATOR BUNDE asked how this loan program would be any different
than the current AIDEA program that helps businesses that can't
get loans through conventional means.
MR. WINEGAR replied that this is a smaller, much shorter-term
program. The maximum term is six years and it doesn't require
going through a bank, which an AIDEA loan requires. It's
targeted to smaller businesses that need a little bit of working
capital.
SENATOR BUNDE asked if rampant inflation occurs and the interest
rate goes above 8 percent the state would be in a situation of
either subsidizing these loans or not being able to make them,
so why the cap?
MR. WINEGAR replied that the thinking was to provide an interest
rate that wouldn't get out of hand. The cap could be taken off
and the rate could be just prime-plus 1. The division felt that
it could successfully administer the program for much less than
that.
SENATOR BUNDE said while he was confident they wouldn't go above
8 percent, but if it did, that would either prevent loans from
being granted or the dollars that would subsidize them would
come from some other essential state service. He was concerned
about the state having limited dollars in the relatively near
future.
MR. WINEGAR responded that he should have clarified that the
original $3.5 million is actually set up as a revolving loan
fund, so it won't need additional funding. The program would
continue based on the interest it collects from the initial
capitalization.
SENATOR BUNDE asked if for some reason the interest rate went
above 8, would running the program cost them more than they
would be taking in.
MR. WINEGAR replied that the funding is already there. The loan
officer position over time might go up slightly, but he was
comfortable that the program could be administered at the 6
percent level including risk.
SENATOR BUNDE said the $3.5 million to capitalize this loan
program comes as an AIDEA dividend and is money that could have
been used somewhere else, and asked where that money would have
potentially been used.
2:24:34 PM
MR. WINEGAR replied that basically it reduces AIDEA's dividend,
and he is correct that it could be used by AIDEA for something
else. But this program ties into AIDEA's purpose, which is to
promote economic development and help small businesses, as well.
CHAIR PASKVAN said the interest rate is tied to the concept of
being fully collateralized. What does that mean?
MR. WINEGAR replied that they wanted to make sure if someone
ends up in a default situation, that the division has a way to
recover those funds for the state. So they left a lot of
flexibility in terms of collateral to secure each individual
project as best they can. It could be a variety of different
things and loan terms plays into that. It could be secured with
inventory, but that is fairly high risk. Others might have a
building or a second deed of trust on a home.
2:26:15 PM
CHAIR PASKVAN closed public testimony.
SENATOR BUNDE said the micro-loan idea has done well in third-
world countries, but his hesitancy comes from what he has heard
that inventories have been left sitting and public funds hadn't
been adequately protected.
CHAIR PASKVAN said he believed it was a good bill and should
move forward.
SENATOR THOMAS asked what the definition of a small business is.
MR. WINEGAR answered that the bill has a residency requirement;
other than that it is pretty general.
SENATOR THOMAS asked if it mentioned businesses over a certain
gross amount of sales.
MR. WINEGAR answered no.
2:29:51 PM
SENATOR BUNDE asked for an estimate of the demand for these
loans.
MR. WINEGAR answered that the division estimated about 75
applications in the first year and about 100 in the second year.
This capitalization would allow them to continue at the rate of
about 25 loans per year.
2:30:58 PM
SENATOR BUNDE asked for an example of some typical businesses
that might be interested.
MR. WINEGAR replied all types of little retail outlets, mom and
pop businesses that need working capital or help putting in
leasehold improvements, and things like that.
SENATOR BUNDE remembered subsidizing the "made in Alaska
program."
CHAIR PASKVAN said he thought it would be important to hear how
the program is doing in one and two years.
MR. WINEGAR answered that was an excellent point. He said the
division has some experience with other small business programs
like the small business economic development program that
involves EDA money, and a rural development initiative fund; he
could provide delinquency rates on those programs, but they have
been very successful.
CHAIR PASKVAN noted letters of support in members' packets and
read one from the Fairbanks Economic Development Corporation.
2:33:55 PM
SENATOR MEYER moved to report SB 302 from committee with
individual recommendations and attached fiscal note(s). There
were no objections and it was so ordered.
2:34:18 PM
CHAIR PASKVAN announced an at ease from 2:34 p.m. to 2:38 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CS SB 129 Bill Packet.pdf |
SL&C 3/2/2010 1:30:00 PM SL&C 3/9/2010 1:30:00 PM |
SB 129 |
| SB 153 Bill Packet.pdf |
SL&C 3/9/2010 1:30:00 PM |
SB 153 |
| SB 302 Bill Packet.pdf |
SFIN 3/23/2010 9:00:00 AM SL&C 3/9/2010 1:30:00 PM |
SB 302 |
| CS for SB 129 Side-by-Side.pdf |
SL&C 3/9/2010 1:30:00 PM |
SB 129 |