By Grace Gedye | Cal Matters
What do you choose: free money you can keep or money you have to repay with interest?
A recent report by the independent oversight body, the Little Hoover Commission, made a simple decision for some small businesses when California introduced two financial bailout programs at about the same time in late 2020. ..
In response to companies fighting the pandemic, Governor Gavin Newsom introduced a small business lending program called the California Reconstruction Fund in late November 2020.
About a week later, Newsum said the state would also distribute subsidies to SMEs affected by the pandemic.
“Loan funds cannot compete with free money,” said Scott Wu, managing director of IBank, California, a financial institution within the Governor’s Office for Economic Business Development that provided the initial funding for the fund.
In addition to state grants, repayable paycheck protection program loans were available from the federal government. As a result, IBank and the business group it worked with have withdrawn from marketing the loan program, Wu said.
Demand for loans is “much weaker” than expected, he said.
Initially, loan fund designers expected the loan fund to grow from $ 250 million to $ 500 million. Beth Buffford, vice president of Calvert Impact Capital, which organized the fund, said it has raised only $ 114 million so far.
However, Mr Wu said both types of bailouts were needed. Grants ranged from $ 5,000 to $ 25,000, but the loan limit is $ 100,000.
According to the report, the Reconstruction Fund distributed approximately $ 71 million in loans to approximately 1,200 companies in California, most of which were directed to companies with 10 or less employees.
Enterprises throughout the state do not benefit from the program as well. According to the report, no one was financed in 19 counties. In some counties, only one or two companies got one. All companies that have completed the application and meet eligibility and credit requirements have received a loan, Mr. Bufford said.
According to the report, 222 loans totaling approximately $ 15 million were issued to companies in San Francisco County. Companies in the county receive 17% of the total funds distributed so far, despite the fact that 2% of Californians live there.
This is because San Francisco relies on state programs and invests $ 4 million in its own funds, including $ 2 million in interest payments. This has allowed the city to offer interest-free loans to businesses, said Kate Sophis, director of the city’s Department of Economic Development and Labor.
Without interest-free loans, far fewer companies would have used the fund, Sophis said. He said the city plans to invest another $ 1 million in its own funds in the program.
Many other cities, towns and counties have moved to implement their own small business grant programs, Mr. Bufford said.
For example, Fresno has launched its own grant program, said Tatehill, CEO of Access Plus Capital, a small business lending fund that serves Central California. Another factor is that in some parts of California there are not many financial institutions dedicated to serving low-income communities and helping them carry out loan programs, but there are many in the Bay Area. I have.
Loans from the fund will be available until November 2022, Mr. Bufford said. She discusses with the country “what the future holds beyond us.”