Santa Clara County is considering establishing a $50 million to $100 million small business loan program, despite county executives insisting it’s a bad idea.
The Board of Supervisors started entertaining the idea in October, with Supervisor Joe Simitian saying loan amounts should be distributed in increments of $50,000 to $100,000 per business to increase impact. Simitian plans to push for these ideas at today’s meeting of the board.
“Our budget is constrained by virtue of the economy,” Simitian said. “If we could put together a rigorous loan program, instead of spending the money, then the money would be returned and we can recycle the money again and again potentially… This is not a proposal for a grant program, this is a loan program.”
Leaders of the Silicon Valley Organization, the South Bay’s largest business networking group, want supervisors to go for the whole $100 million to create the loan program. The SVO also advocates for breaking up loans into smaller amounts.
“We live in a high cost-of-living region. The rent, operating costs, salaries, everything is inflated in Silicon Valley,” said Eddie Truong, director of government relations at the SVO.”Ten thousand dollars per business may not make a difference. That could easily be only one month’s rent, maybe a little more.”
Truong noted some small businesses might be able to make $10,000 stretch.
“The goal (of the program) is to serve as many businesses as possible but they’re all going to have huge variations depending on their needs or the size of their business,” Truong said. The SVO has encouraged subscribers of its newsletter for months to advocate to the county for the program.
Simitian said he wants to issue larger loans that offer survival, not just a Band-aid.
“It is important to underscore that the (loan) proposal is helpful, yes, to business owners but in my view what is most notable is the fact that it helps to provide jobs for working people who would otherwise be without a paycheck,” said Simitian. “And those without a paycheck can’t provide for their families.”
But County Executive Jeff Smith and Budget Director Gregory Iturria warn that even a revolving loan program has costs, and especially if recipients default.
County officials pointed out that large loan programs in the state, such as those offered by the California Small Business Administration (SBA) and the California Capital Access Program for Small Business, have an average default rate of nearly 14%.
Based on research from the Congressional Research Service, county staff reported guaranteed loans are more likely to default before and after economic downturns.
As of November, the county was facing a budget deficit of $200 million to $500 million. The county predicts another $245 million in costs related to dealing with COVID-19 through June, in excess of state and federal funding received.
County officials summarized that a small loan program would incur significant losses and risk county funds at a time when the county is facing a serious deficit.
Instead of creating its own loan program, county administrators say the county should support existing programs, advocate more heavily for federal and state stimulus money and consider courting donors and investors to support existing county programs to help struggling businesses.