Magazine article American Banker

California Program Aids the Marginal Borrower

Magazine article American Banker

California Program Aids the Marginal Borrower

Article excerpt

CALIFORNIA COMMUNITY BANKS are hoping that a low-paperwork state program will help them lend to more small businesses.

The lack of credit to small businesses took on a special urgency in California in the last year, as the state's economy continued to emerge from the recession at a slower pace than the rest of the country. The California Bankers Association and other business groups in the state pushed for a program that would give small businesses easier access to capital and, hopefully, create jobs in the process.

To that end, the California Legislature this year passed a law creating the Capital Access Loan Program, modeled on programs in Michigan and several other states. A CAP loan, as its called, uses a lender-specific, dedicated loss-reserve account to provide the necessary credit support to transform a marginal borrower into an acceptable credit risk.

Gregory Wilhelm, director of government relations at the California bankers group, said he hopes banks will find the loan program "as useful and hassle-free as other states with successful programs."

Indeed, California's community banks could benefit most from the program, because they are more likely to identify promising new businesses that wouldn't otherwise qualify for credit. Also, these loans require less paperwork than a Small Business Administration loan and utilize the bank's own underwriting procedures.

Yet, some bankers aren't sure another program is needed to stimulate small-business lending in the state, which has been ravaged by defense industry layoffs. …

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