SENATE BILL REPORT

SB 5588

BYSenators Smitherman, Fleming, Sellar, Lee, Warnke, Bailey and Bauer

Establishing the Washington small business loan program.

Senate Committee on Commerce & Labor

Senate Hearing Date(s):February 12, 1987

Senate Staff:Jack Brummel (786-7428)

AS OF FEBRUARY 9, 1987

BACKGROUND:

Because banks are highly regulated and insured to protect depositors, they must limit their conventional lending to low risk loans.  Dollar loss rates on banks' business loan portfolios are typically less than 1 percent.  Many well-operated small businesses cannot provide security adequate to qualify for normal bank loans, nor can they offer sufficiently high returns to attract venture capital.  Yet small businesses have been shown to be the primary generator of new jobs and innovations.  The Small Business Loan Program is designed to give banks an uncomplicated method of making small business loans that are somewhat riskier than a conventional loan.

SUMMARY:

The Small Business Loan Program creates a loan reserve fund administered by the State Supervisor of Banking and an Executive Director appointed by the Governor.  A bank making a loan under the program negotiates a premium charge which the bank and the borrower contribute to the loan reserve fund.  The state makes a matching payment to the loan reserve fund.  Both the premium charge and the matching payment are registered in the bank's name and may be used to cover future losses from any loans registered in the program by that bank.  Payments made to cover losses on loans made under the program are limited to the amount in the fund attributable to the bank suffering the loss.  Reports on the program are to be made to the Governor and the Legislature.

Appropriation:    $1 million

Fiscal Note:      requested

Effective Date:July 1, 1987