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Report Number : 2016-133

At Risk of Insolvency, It Needs Increased Oversight if It Is to Receive State Funding and Continue to Help Small Businesses in California Gain Financing



The Legislature authorized the creation of the State Assistance Fund for Enterprise, Business and Industrial Development Corporation (SAFE‑BIDCO) in 1981 to provide financing assistance to small business through loans for the manufacture or purchase of alternative energy equipment. In 1990 the Legislature amended SAFE‑BIDCO’s statutory purpose, expanding it to make more financial assistance available to the State’s small businesses, with a goal of increasing the competitiveness of California’s small businesses and of creating jobs. The Legislature originally provided SAFE‑BIDCO with a $750,000 appropriation and a loan of up to $2.5 million, but the State has not provided additional funding. Since 1981, SAFE‑BIDCO has operated using these resources as well as resources provided by federal and state programs.

Loan Programs

To fulfill its mission, SAFE‑BIDCO operates eight programs to provide loans for small businesses or to guarantee loans made to small businesses. Figure 1 shows the eight loan programs that SAFE‑BIDCO operates. According to a research report published by the U.S. Small Business Administration (SBA), the major constraint limiting the growth and expansion of small businesses is inadequate capital. SAFE‑BIDCO works to provide this needed capital by either making a loan to a small business itself or by guaranteeing a loan from a traditional bank, thereby reducing the bank’s risk.

Figure 1
SAFE‑BIDCO’s Loan Programs Assist Small Businesses in California

Figure 1 is a graphic displaying the names and descriptions of eight programs SAFE-BIDCO operates..

Sources: Loan program summary information from SAFE‑BIDCO’s website, the Native American Loan Program work plan application, Energy Efficiency Loan Program administrative practices, SAFE‑BIDCO’s audited financial statements, the RUST Program contract, and the Financial Development Corporation Policy Manual.

Note: In addition to the programs described in the figure, SAFE‑BIDCO performed such services as loan underwriting and loan fund development under contract with third‑party entities, including the city of Berkeley and the California Public Utilities Commission, during fiscal years 2011–12 through 2015–16.
* The full name of the RUST Program is the Replacing, Removing, or Upgrading Underground Storage Tanks Program.
SAFE‑BIDCO did not make any loans under this program during the five‑year period we audited.

When it guarantees a loan, SAFE‑BIDCO does not loan funds directly to a borrower; instead, as a participant in the California Small Business Loan Guarantee Program, it guarantees that the State will repay the lender a portion of the principal and interest on the loan if the borrower defaults. For example, for one loan guarantee we reviewed, a lender wanted to make a loan of $515,000 to a small business. To address its risk, the lender sought a guarantee from SAFE‑BIDCO, which approved a guarantee of 80 percent of the loan—$412,000. If the borrower subsequently failed to pay the lender, the State would pay the lender up to the $412,000 it guaranteed plus interest, and the lender would be at risk only for the remaining $103,000.

SAFE‑BIDCO supports itself primarily through fees, contract revenue, and interest generated from these lending programs. For example, for loans it makes under the SBA loan program, SAFE‑BIDCO earns interest on the outstanding loan amounts and may charge a loan packaging fee for assisting a small business applicant with completing the application and other documents related to the application. These fees ranged from $1,000 to $1,575 for the loans we examined during the five‑year period that we reviewed. Figure 2 presents the average annual revenue these loan and loan guarantee programs generated for SAFE‑BIDCO during our audit period.

Figure 2
SAFE‑BIDCO’s Loan Programs Assist Small Businesses in California

Figure 2 is a pie chart showing SAFE-BIDCO’s various revenue sources and the relative percentage attributable to each one.

Sources: California State Auditor’s analysis of SAFE‑BIDCO’s Budget vs. Actual reports for fiscal years 2011–12 through 2015–16.

Notes: Revenue is based on a five‑year average for fiscal years 2011–12 through 2015–16. SAFE‑BIDCO earns additional revenue from activities unrelated to its lending programs such as administrative fees and interest income that are not included in the figure. Over the past five fiscal years, this revenue has averaged roughly $107,000.

Interest income from SAFE‑BIDCO’s Agricultural Loans Program is not included in the figure because this income averaged less than $100 per year.

* SAFE‑BIDCO does not report separately loan fees and loan sale premiums for its different loan programs.

Fee‑for‑service contracts revenue includes revenue from the Replacing, Removing, or Upgrading Underground Storage Tanks Program, among others.

One of SAFE‑BIDCO’s goals is to create jobs in California, which it accomplishes by financing small businesses that create jobs. SAFE‑BIDCO estimates that it has helped create more than 13,000 jobs since it was founded in 1981. This number is in line with estimates developed by the SBA of roughly one job created per $14,400 in small‑business financing. According to that calculation, SAFE‑BIDCO would have helped to create about 2,992 jobs with the loans and loan guarantees it made from July 2011 to June 2016.

Organizational Structure

Located in Santa Rosa, SAFE‑BIDCO is a nonprofit organization governed by nine board members, three of whom are appointed by the Governor and two by the Legislature. The Governor’s three appointees must include one from the Governor’s Cabinet or his or her designee, one from California’s small business community, and one who is an officer or employee of a financial institution. The Legislature’s two appointees include one chosen by the Legislature’s Senate Rules Committee and one chosen by the Speaker of the California State Assembly. A commissioner for the California Energy Commission also sits on SAFE‑BIDCO’s board. These six appointed members select the remaining three members, who represent local businesses in the region served by SAFE‑BIDCO. State law requires SAFE‑BIDCO to have three regional members because it is a small business financial development corporation.

The board generally meets quarterly to review SAFE‑BIDCO’s management and finances, but it does not approve loans. State law requires the board to establish a loan committee whose members are appointed by and serve at the pleasure of the board. Further, state law requires the loan committee to approve or disapprove loan applications in accordance with procedures and criteria adopted by the board. The board establishes and appoints a loan committee—which currently includes local bankers, an individual from a state agency, and an individual from a local community college—whose responsibility is to review and approve loans.

As of February 2017, SAFE‑BIDCO had seven staff members, including its chief executive officer (CEO), who assist in operating its loan programs by performing a variety of tasks, including reviewing potential loans and loan guarantees and managing approved loans. SAFE‑BIDCO’s CEO has served in her position since 2000. SAFE‑BIDCO also uses contractors for its administrative functions, including human resources, retirement planning, information technology, legal, payroll, business development, and auditing services. Figure 3  shows SAFE‑BIDCO’s organizational structure.

Figure 3
SAFE‑BIDCO’s Organizational Structure
As of February 2017

Figure 3 is chart showing SAFE-BIDCO’s organizational structure.

Sources: Financial Code sections 32320, 32321, and 32352.5; agreements between SAFE‑BIDCO and its contractors; SAFE‑BIDCO’s website;
and SAFE‑BIDCO’s organizational chart.

* Regional directors are residents of the region served by SAFE‑sBIDCO and are appointed by the other six directors.

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