From the Office of State Senator Rodney Ellis
For Immediate Release
October 1, 1997
Contact: Rick Svataro, (512) 463-0113
Capital Access Fund to Facilitate Lending to Small Business.
AUSTIN, Tx. -- Legislation aimed at increasing access to capital for small businesses in Texas became effective today. The legislation, sponsored by State Senators Rodney Ellis (D-Houston), Eddie Lucio (D-Brownsville), Jerry Patterson (R-Houston) and State Representative Rene Oliveira (D-Brownsville), creates a $7 million Capital Access Fund 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. "The Capital Access Fund will help 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 Fund range from micro-enterprises with fewer than 20 employees to small-and medium-sized businesses with up to 500 employees. According to Comptroller John Sharp, these firms make up 95 percent of businesses in Texas, employ almost 4 million Texans and generate a total payroll of about $100 billion annually.
"Access to capital is a top concern among small business owners statewide," said Ellis. "Many businesses have good management and a solid business plan, but for a variety of reasons they cannot qualify for a 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.
"The Capital Access Fund enables a bank to prudently invest in the success of small businesses," said Senator Lucio.
The Capital Access Fund is based on an insurance 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 the Capital Access Fund, a special reserve fund is set up to cover potential losses from 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 4 percent of the loan amount to the reserve fund. The state then makes a matching contribution, which helps insure against any losses in the program.
"The Capital Access Fund delivers a significant economic impact 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 Fund has achieved a leveraging ratio of 24.5 to 1, and it continues to rise. Other states that have successfully used Capital Access Funds 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.
"Texas must do more to address the needs of small businesses," said Ellis. "Their role in our economy is too important not to help them grow and succeed."
For more information on the program or for a list of participating lenders, call or e-mail Craig Pinkley at the Texas Department of Economic Development at 512-936-0223 or firstname.lastname@example.org; or visit their web site at http://www.tded.state.tx.us/commerce/bizsrv/forum/capsheet.htm.