Federal Program

Federal Small Business Credit Initiative Loan Guarantee Guidelines

Small Business Credit Initiative Loan Guarantee Terms

• Must target an average borrower-size of 500 employees (as defined in 13 CFR 121.106) or less and cannot extend credit support to borrowers with more than 750 employees.

Acceptable Loan Purposes

The proceeds of loans financed through the program shall be used in California for any standard business purpose, such as expansion into new facilities, the purchase of new equipment, or development of a new market.

Unacceptable Loan Purposes

The proceeds of loans financed through the program shall not be used for the following prohibited purposes (in addition to the prohibited purposes in Section 3005(e)(7) of the Act):

1. Refinancing existing debt where the lender is in a position to sustain a loss and the government (state and/or federal) would take over that loss through refinancing;
2. Effecting a partial change of business ownership or a change that will not benefit the business;
3. Permitting the reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business’s continuance;
4. Repaying delinquent state or federal withholding taxes or other funds that should be held in trust or escrow; and
5. Financing a non-business purpose.
6. Making loans to real estate investment firms, when the real property will be held for investment purposes as opposed to loans to otherwise eligible small business concerns for the purpose of occupying the real estate being acquired.
7. Making loans to firms involved in speculative activities that develop profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the regular activities of the business.
8. Making loan to firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies (but excluding agents of insurance companies), and any other firm whose stock in trade is money.
9. For pyramid sales plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants.
10. Making loans to firms engaged in activities that are prohibited by federal law or applicable law in the jurisdiction where the business is located or conducted. Included in these activities are the production, servicing, or distribution of otherwise legal products that are to be used in connection with an illegal activity, such as selling drug paraphernalia or operating a motel that knowingly permits illegal prostitution.
11. For gambling activities, including any business whose principal activity is gambling. While this precludes loans to racetracks, casinos, and similar enterprises, the rule does not restrict loans to otherwise eligible businesses, which obtain less than one-third of their annual gross income from either the sale of official state lottery tickets under a state license, or legal gambling activities licensed and supervised by a state authority.
12. For charitable, religious, or other non-profit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives are not eligible.