NEWS RELEASE
From the Office of State Senator Rodney Ellis

For Immediate Release
February 20, 1997
Contact: Rick Svataro, (512) 463-0113

Texas Senate Passes Capital Access Program to Facilitate Lending to Small Business

AUSTIN, Tx. Legislation aimed at increasing access to capital for small businesses in Texas passed the Texas Senate today by unanimous consent. The legislation (SB 266), sponsored by State Senators Rodney Ellis (D-Houston), Eddie Lucio (D-Brownsville) and Jerry Patterson (R-Houston), creates a Capital Access Program to facilitate private lending to small and medium-sized businesses that often face barriers in obtaining business loans.

"Small businesses play a vital role in the Texas economy," said Senator Ellis. "Texas should join 20 other states in helping small businesses succeed by enabling banks to lend to businesses that would otherwise not qualify for a commercial loan."

Businesses that can take advantage of the Capital Access Program range from micro-enterprises with fewer than 20 employees to small- and medium-sized businesses with up to 500 employees. These firms make up 95 percent of businesses in Texas. They employ almost 4 million Texans and generate a total payroll of about $100 billion annually.

"Access to capital is a top concern among business owners statewide," said Ellis. "Many small businesses have good management and a solid business plan, but for a variety of reasons they cannot qualify for a conventional bank loan."

According to the bill's sponsors, many businesses require small loans of less than $50,000, which can be prohibitively expensive for banks to underwrite and service, even under the Small Business Administration's loan programs.

"A Capital Access Program would enable a bank to prudently invest in the success of small businesses," said Senator Lucio. The program is based on an insuring concept rather than a traditional guarantee program, such as the SBA 7(a) program, which guarantees some percentage of a loan on a loan-by-loan basis.

If a bank participates in a Capital Access Program, a special reserve fund is set up to cover future losses from a portfolio of loans that the bank makes under the program. Each time a bank makes a Capital Access loan, the lender and borrower make a combined contribution of at least 3 percent of the loan amount to the reserve fund. The state then makes a matching contribution, which would help insure against any losses in the program.

"A key feature of the Capital Access Program is the return on the state's investment," said Senator Patterson. "Each dollar invested in the fund could generate as much as $20 in private lending to businesses and non-profit organizations."

In its tenth year, Michigan's Capital Access Program has achieved a leveraging ratio of 24.5 to 1, and it continues to rise. Other states that have successfully used Capital Access Programs are New Hampshire, California and Massachusetts. The Texas legislation was developed with the assistance of Small Business United of Texas, a coalition of small business groups.

"It is time for the legislature to address the needs of small businesses in Texas," said Sen. Ellis. "Their role in our economy is too important not to help them grow and succeed."

The legislation now goes to the Texas House of Representatives where Representative Rene Oliveira (D-Brownsville) will sponsor the proposal.

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