Santa Clara County to offer small-business loans through state fund

Rather than create its own pot of money to help local businesses suffering through the pandemic, Santa Clara County will invest in a statewide fund that offers loans to small businesses.

The Board of Supervisors on Dec. 8 voted unanimously to invest $6 million into the California Rebuilding Fund with the intent of offering loans to local small businesses.

Supervisors expect to sign on in January. The county’s portion would be in addition to the state’s pot of $125 million.

The Rebuilding Fund, which launched in November, loans up to $100,000 to small businesses in economically disadvantaged areas, as well as those businesses that typically are unable to get bank loans.

Later next year, supervisors will have the option to contribute an additional $19 million into the Rebuilding Fund, dedicating a total of $25 million toward Santa Clara County businesses.

The loans would be disbursed and repaid over a period of three to five years, with the money reinvested in the program until $100 million of Santa Clara County-specific loans have been issued.

Currently, businesses with 50 or fewer full-time equivalent employees and $2.5 million or less in gross revenues in 2019 are eligible to apply for Rebuilding Fund loans.

Supervisor Joe Simitian, who along with Supervisor Susan Ellenberg in October proposed the county create its own small-business loan program, retooled the idea after a 45-page staff report cautioned against it.

County Executive Jeff Smith pointed out that large loan programs, 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%. Furthermore, guaranteed loans are more likely to default before and after economic downturns, such as the one the country is facing now, he said.

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.

“We’re 5% of the population of the state,” said Ellenberg. “I will advocate that our businesses get 5% of that $125 million,” plus the additional $6 million set aside, she said.

But even the $6 million has to come from somewhere, and that would likely be from the county’s general fund.

Wendy Ho, policy officer from the Silicon Valley Council of Nonprofits, cautioned against dipping into the general fund for expenses related to the loan program, citing budget cuts and the county’s large deficit.

“It would impact the county’s ability to provide its current level of safety net services, very likely triggering further reduction to county staff,” Ho said.

But many others were supportive, stating business owners have few options left to survive.

“Small businesses are out of options. Period,” said Peter Katz, CEO of the Mountain View Chamber of Commerce. “Through no fault of their own they have been forced to cut staff, cut hours, change operations and install new equipment — all of which have incurred significant costs.”

Most businesses have been through multiple closures and openings in the past 10 months, Katz said.

“Each of these changes have had dramatic changes in their already thin margins,” Katz said. “Half measures will not work. We cannot wait and we cannot short change our small businesses.”

With the board’s approval, it’s up to Smith and his staff to find $6 million to put toward the program.

“We used all of our one-time funds to balance the 2021 fiscal year. There’s no real reserves left except for the contingency reserves,” Smith said. “And we’re working on trying to put every cent of fund balance back into the budget so we can avoid further reductions.”

Smith said he’s nervous about this new expense.

“But I think we can find a way to come up with $6 million one-time funds,” he said.

Contact Madelyn Reese at [email protected] or follow her @MadelynGReese.