David Chase, Small Business Majority
A Small Business Approach To Accessing Credit
& Healthcare Reform in California
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
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.
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
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
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
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
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 www.treasury.gov
o 31 banks (186 locations) in California
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
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
How does a state bank work?
Main Street Partnership
Bank
Bank of Small Town Friends Bank Local Bank
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.
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
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
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
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
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
Preexisting Condition Insurance Plan (formerly called high-risk pools)
• Available to individuals -- incl. self-employed
• Takes effect immediately (accepting applications now at www.pcip.ca.gov)
• 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
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
• Businesses with fewer than 50 workers – 96% of all businesses – are exempt from any requirement to offer insurance
Shared responsibility
• 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
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
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
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
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
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
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?
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!
For more information
• Our website: www.smallbusinessmajority.org
o Information Summary
o Detailed FAQ
o Tax Credit Calculator
• CA Healthcare Coverage Guide: healthcoverageguide.org
• California Health Benefit Exchange www.healthexchange.ca.gov
• National HHS website: www.healthcare.gov
Join Our Network
• Erica Dowell, Network Coordinator
• Email: [email protected]
• 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
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