SENATE BILL REPORT

SB 6275

BYSenators Smitherman, West, Fleming, Deccio, McMullen, Saling, Conner and Anderson

Providing for small business loans.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):January 12, 1988; January 29, 1988

Majority Report:  That Substitute Senate Bill No. 6275 be substituted therefor, and the substitute bill do pass and be referred to Ways & Means.

      Signed by Senators Lee, Chairman; Conner, Deccio, McMullen, Saling, Smitherman, Warnke.

Senate Staff:Jack Brummel (786-7428)

                  January 29, 1988

Senate Committee on Ways & Means

Senate Hearing Date(s):February 8, 1988

Majority Report:  That Second Substitute Senate Bill No. 6275 be substituted therefor, and the second substitute bill do pass.

      Signed by Senators McDonald, Chairman; Bauer, Bluechel, Deccio, Fleming, Gaspard, Hayner, Johnson, Lee, Saling, Vognild, Warnke, Wojahn.

Senate Staff:Kevin Johnson (786-7715)

                  February 9, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 8, 1988

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.

EFFECT OF PROPOSED ECONOMIC DEVELOPMENT & LABOR SUBSTITUTE:

The executive director of the program and administrative authority are placed in the Office of the Supervision of Banking rather than the Department of Community Development.

EFFECT OF PROPOSED WAYS & MEANS SUBSTITUTE:

This proposed second substitute limits the state liability not to exceed its appropriation.  It will also immune the state from suit for any claims, debt, obligation or liability in excess of appropriation.

All loans shall indicate the face value of the loan instrument and the limit of the state's obligation as set forth in the bill.

Appropriation:    none

Revenue:    yes

Fiscal Note:      requested January 5, 1988

Senate Committee - Testified: ECONOMIC DEVELOPMENT & LABOR:  William Cotto, EDEW; Keith Hopper, Washington Bankers Association; Mary Jean Ryan, Evergreen Community Development Association

Senate Committee - Testified: WAYS & MEANS:  No one