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A Small Business Approach To Accessing Credit & Healthcare Reform in California


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This webinar provided tips about accessing traditional bank loans and directed small business owners to state and federal programs that may be right for their business. We also talked about some long-term policy solutions that could ensure that small businesses get the credit they deserve.

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A Small Business Approach To Accessing Credit & Healthcare Reform in California

  1. 1. David Chase, Small Business Majority A Small Business Approach To Accessing Credit & Healthcare Reform in California
  2. 2. About Small Business Majority •  Public policy advocacy organization – founded and run by small business owners •  National – based in California – with offices in Bay Area, Sacramento, Washington, DC and New York •  Research and advocacy on issues of top importance to small businesses (<100 employees) and the self-employed •  Very focused on access to credit and healthcare costs – top concerns in our recent research
  3. 3. The Credit Squeeze •  Higher reserve requirements mean less money to lend for banks •  Banks rather lend to larger companies because the effort is the same, and a perception that small business lending is more risky •  Traditional collateral assets have been degraded (real estate and receivables). •  FDIC approving very few new banks. Fewer banks means less credit.
  4. 4. Who Cares and Why? •  Small business owners want to create new jobs, but need loans to get them going •  Banks are being cautious – right policy for them, but that hurts small business and the economy •  Policymakers trying to jumpstart the economy know small businesses typically produce the jobs that lead to economic recovery
  5. 5. What Should Small Employers Do? •  Talk to your existing bank o  Ask to speak to a lending specialist or business loan consultant o  If your bank has refused you credit, tell them you will leave for a lender that offers credit. •  Shop for a new bank •  Small or medium sized community bank •  Large bank that is small-business friendly •  Banks with dedicated SBA specialists
  6. 6. SBA Loans •  7(a) - Lending Program o  Loan guarantee program o  Financing up to $750,000 from qualified lenders o  Working capital, asset purchases and leasehold purchases o  Personal guarantees required from owners with 20% stake or more o  10-year term o  Available only to people with no other resources
  7. 7. SBA Loans •  7(m) - Microloan Program o  Loans funded entirely by SBA o  Financing up to $35,000 o  Funds use unrestricted; available to start-ups o  Typically loans come with required enrollment in technical assistance classes o  Program not fully funded
  8. 8. Small Business Lending Fund •  Treasury Department initiative to deploy $30 billion to small and medium sized banks (part of 2010 Jobs and Credit Act) •  Funding is based on lending practices (the more they lend, more $$ they will receive) •  Participating banks listed at o  31 banks (186 locations) in California
  9. 9. Factoring •  What is factoring? o  Using your unpaid invoices as collateral for a loan, which the lender collects •  Ideal for new businesses or firms with strong client base •  Dependent on credit history of clients •  Beneficial for a quick-start
  10. 10. Main Street Partnership Banks Legislation •  State tax dollars usually held by Wall Street banks •  A partnership bank is established by the state and keeps those dollars in the state to be used to develop local business •  Partnership bank acts like a banker s bank; no direct-to-consumer loans. •  Purchases loans exclusively from local banks to provide them liquidity. •  Leads to more and stronger local banks; more lending to small businesses
  11. 11. How does a state bank work? Main Street Partnership Bank Bank of Small Town Friends Bank Local Bank
  12. 12. North Dakota and Vermont Vermont N. Dakota Population 622,000 647,000 General Fund budgets (2009) $1.1 b. $1.56 b. Unemployment (%, 2010) 6.2 3.2 Budget deficit ($24 m.) $400 m. Banks (2009) 22 102 Deposits held by out-of-state banks (%, 2009) 65 24 Total state loan portfolio (2009) $3,100 m. $2,619 m. Commercial/Econ. Development lending (2009) $102 m. $1,333 m. Net state banking revenue (2009) ($21 m.) $30 m.
  13. 13. Partnership Banks in California? •  California estimated to take in $120B in 2011-12; most will sit in out-of-state bank on Wall Street •  Assembly Bill 750 passed September 2011 o  Bi-partisan support •  Would have created blue ribbon commission to study issue of Partnership Bank in California •  Bill vetoed by Governor Brown •  Governor asked the Legislature study the issue themselves, not create a new commission
  14. 14. Healthcare Reform for California Small Businesses •  Tax credits available to most employers who cover their workers •  California high-risk pool that sells insurance to individuals with pre-existing condition •  Grandfather provisions to allow employers to keep plans they already have •  Employer responsibilities for healthcare benefits •  Cost containment provisions to cut waste and improve efficiency •  Open marketplace to maximize choice and competition •  Your questions and comments
  15. 15. Small business tax credits •  In effect now (as of tax year 2010) o  $40 billion in credits by 2019 •  Which businesses are eligible?  Fewer than 25 full-time employees  Average annual wages <$50,000  Employer pays at least 50% of the premium cost
  16. 16. Small business tax credits •  Tax credits on a sliding scale: o  Up to 35% of premium expenses for 2010–13 o  Up to 50% of premium expenses for any two years beginning 2014 •  Tax credits do not cover premium expenses of owners or their families •  Tax credits can not be claimed by the self- employed
  17. 17. Small business tax credits Our report: 456,500 CA businesses are eligible (80% of all businesses); 135,900 CA businesses are eligible for the maximum credit
  18. 18. Preexisting Condition Insurance Plan (formerly called high-risk pools) •  Available to individuals -- incl. self-employed •  Takes effect immediately (accepting applications now at •  Eligibility: People who have been uninsured for six months and have been denied for a preexisting condition •  California plan runs on federal funding ($761 million over 5 years) – No state dollars spent •  Available until full implementation in 2014 -- no gap in coverage
  19. 19. Grandfathering: If you like what you have, you can keep it •  A grandfathered plan is a health plan in which a small business was enrolled on March 23, 2010 •  Grandfathered plans do not need to comply with several insurance reforms, but do need to comply with some provisions •  Regulations allow for making several changes (adding employees, changing carriers) without jeopardizing grandfather status o  Significant changes (dropping benefits, etc.) is cause for losing grandfather status
  20. 20. •  Businesses with fewer than 50 workers – 96% of all businesses – are exempt from any requirement to offer insurance Shared responsibility
  21. 21. •  As of 2014, businesses with > than 50 employees + not offering minimum coverage + at least one employee receiving a subsidy = must pay a fee •  Two options on how the fee is calculated o  $2,000 per # of employees minus 30 o  $3,000 for each employee receiving subsidy Shared responsibility
  22. 22. Cost Containment – Cutting costs saves small businesses money •  Exchanges leverage pooled purchasing power to lower premiums •  Ensure that more $$ go to medical care •  Premium increases are now reviewed by state •  Incentives for prevention and wellness o  Grants for up to 5 years to small employers that establish new wellness programs •  Other incentives for administrative efficiency and modernization (e.g. pay for performance) •  Expanded coverage and individual responsibility requirement – reduce hidden tax
  23. 23. What is a Health Benefit Exchange? •  One-stop shop web portal Small Business Exchange INSURANCE PLANS EXCHANGE Choice Comparison Billing Tax Credits SMALL BUSINESSES •  Large marketplace to shop for commercial insurance •  Compare plans for information about price, quality and service •  Plans organized by level: bronze, silver, gold, platinum •  Calculator to compare costs across plan options •  Streamlined billing process
  24. 24. What is a Health Benefit Exchange? •  Opening on January 1, 2014 •  Voluntary o (Unless you re a Member of Congress!!) •  Individuals and small businesses eligible to participate •  Exchanges designed by states -- or by federal gov t if a state so choses •  State-based exchanges mean increased flexibility and more input from small businesses and other stakeholders •  Not a new concept - Business groups, non-profits and state gov t already run similar programs in CA, CT, MA, NY, OH, UT
  25. 25. California s Key Decisions •  Bi-partisan legislation in 2010 created CA Exchange •  Separate individual and small business pools •  Exchange acts as active purchaser which will negotiate with insurers •  Standalone government agency; exempt from some state personnel and procurement requirements •  Governed by five member board: Secretary of the Health and Human Services Agency, two gubernatorial appointees and two legislative appointees •  Strict conflict of interest requirements; unpaid
  26. 26. California Health Benefit Exchange •  Current status: o  Held several public meetings and webinars o  Hired former business leader as Executive Director; hiring more staff now o  Received $39M for planning; no state dollars spent o  Stakeholder advisory panels providing input from small business owners and business organizations o  Planning meetings around the state in 2012 to collect feedback from employers et al. o  Will focus more on small business issues in January 2012
  27. 27. Decisions still to be made •  Additional administrative services – Should the exchange offer other human resource department type services? o COBRA administration o Section 125 plans o Flexible spending accounts o Wellness plans o Eligibility determination for tax credits and public programs •  Brokers/agents - What role should brokers/agents play? How should they be compensated?
  28. 28. Decisions still to be made •  Employee choice – Can employees select their own plans? •  Risk management – How do we ensure a well- balanced risk pool? •  Web portal – What features for the web portal? o One-stop shopping o Streamlined billing o Tax credit calculator Your input is essential now!
  29. 29. For more information •  Our website: o  Information Summary o  Detailed FAQ o  Tax Credit Calculator •  CA Healthcare Coverage Guide: •  California Health Benefit Exchange •  National HHS website:
  30. 30. Join Our Network •  Erica Dowell, Network Coordinator •  Email: •  Direct: (202) 535-3244 Connect with us! @SmlBizMajority Small Business Majority Ways to Get Involved: Contact •  Receive a monthly newsletter •  Share your story for media requests •  Letters to the editor/Op-eds •  State events/Roundtables •  Fly-ins •  Webinars for business organizations