The state of California’s Infrastructure and Economic Development Bank — known as IBank — announced deployment of $120 million in emergency funding, creating incentives for private lenders to loan to small businesses. As a result, in just two years, the $120 million was leveraged to enable more than $600 million in loans to businesses that otherwise wouldn’t qualify or only at higher interest rates.
The three IBank programs that received the emergency funding are the Small Business Loan Guarantee Program, the COVID-19 Micro Loan Guarantee initiative, and the Disaster Relief Loan Guarantee Program.
Private lenders enroll to use IBank’s loan guarantee programs. Should a small business not be able to pay back their loan, IBank’s loan guarantees can repay lenders between 80 to 95 percent of the outstanding loan, giving lenders the confidence they need to issue loans to small businesses — including those in underserved communities and others in high-risk situations such as declared disasters. Program performance has been strong, with very low default rates to date.
“Too many small businesses struggle to qualify for loans — especially from traditional banks. Many of the lenders using our programs are community-based and mission-driven. They just need a little added assurance to make these loans,” said IBank Small Business Finance Center Manager Megan Hodapp.
IBank works directly with nonprofits called Financial Development Corporations and private lenders to administer the programs.
“These are public-private partnerships in the truest sense providing jobs and enhancing communities,” said IBank Executive Director Scott Wu.
What started out as emergency funding is now sustainable financing that can continue to serve more and more small businesses well into the future.
“As a state department, IBank is fairly unique in that our programs don’t require annual replenishment from the state’s General Fund,” added Wu. “Prior to the emergency funds appropriated during the pandemic, IBank had not received General Funds to expand our programs since our initial capitalization. Yet our programs have proven to be self-sustaining in order to grow and continue to benefit California municipalities, communities, nonprofits, small businesses, and others, hopefully in perpetuity.”
Earlier this year, IBank submitted a joint application with the State Treasurer’s Office to the U.S. Treasury to bring nearly $1.2 billion from the federal State Small Business Credit Initiative to California. In anticipation of approval, IBank is working to enroll more lenders — including community development financial institutions and minority depository institutions — in its loan guarantee program. IBank has also proposed using $200 million of the $1.2 billion to launch a new venture capital program to create a more-equitable venture capital ecosystem.
IBank was created in 1994 to finance public infrastructure and private development that promote a healthy climate for jobs, contribute to a strong economy, and improve the quality of life for Californians and communities throughout the state. IBank is located within the Governor’s Office of Business and Economic Development and is governed by a five-member board of directors.
IBank issues tax-exempt and taxable revenue bonds, provides financing to public agencies, provides credit enhancements, acquires and leases facilities, leverages state and federal funds, and provides loan guarantees and other credit enhancements for small businesses. Visit them at www.ibank.ca.gov.