Earlier this month, California State Treasurer Fiona Ma and the Small Business Majority co-hosted a webinar on the California Rebuilding Fund, an innovative public-private partnership supporting the state’s small businesses.

During the webinar, the Small Business Majority emphasized that even in normal times, small businesses have difficulty accessing capital programs that are free from exorbitant fees or pre-payment penalties. Because of the pandemic, there are a lot of funding options available to small business owners but many of these options are either too small or very temporary. A California Rebuilding Fund loan, they emphasized, is an affordable long-term financing option for California small business owners looking to adapt to the economic impacts of the pandemic. It is also a promising approach for directing funding toward small businesses that have historically been underserved by the financial system.

In its December 2020 report, First Steps toward Recovery: Saving Small Businesses, the Little Hoover Commission emphasized the value of the California Rebuilding Fund in helping small businesses—especially those owned by Californians in underserved communities—recover from the pandemic.

During its study, the Commission found that the pandemic has had a devastating impact on California’s small businesses—thousands of businesses closed permanently while others shut their doors for months on end. Crucially, the impact has fallen most heavily on minority-owned businesses, which historically have had uneven access to financial relief and were in a weaker position to withstand the effects of the pandemic. They have less cash on hand, appear to be underserved by federal relief programs, and are more likely to receive loans from less-regulated lending companies with higher interest rates and less favorable repayment schedules.

California’s economic recovery from the pandemic is dependent on the viability of its small businesses, which accounted for half of the state’s workforce prior to the start of the pandemic. To equitably support small business recovery, the state must intentionally work to help those in underserved communities overcome longstanding barriers to capital. 

But California’s small businesses need more than just capital. They also need financial and technical assistance to help them adapt to a new business climate—from navigating the loan process to adjusting to an increased reliance on e-commerce.

Recognizing these needs, California must work with the institutions that focus on helping small businesses in underserved communities. The Commission underscored the importance of backing Community Development Financial Institutions (“community lenders”), which already have a history of supporting minority- and women-owned businesses with credit and hands-on financial advice. The problem is that community lenders do not have enough resources on their own to address the extensive needs of California’s small businesses.

That is where the California Rebuilding Fund comes in. The Rebuilding Fund is a partnership between state and local governments and private organizations—some for-profit, some nonprofit—that provides loans (mostly through community lenders) to small businesses in underserved communities. Through this partnership, California leverages private sector resources toward addressing the pandemic’s impact rather than relying on public resources alone to support the enormous needs of California’s small businesses.

In September, state and private investors contributed an additional $56.5 million to the Fund bringing the total amount raised to over $100 million. So far, the fund has been used to provide loans to over 700 small businesses—90 percent of which have gone to businesses previously unable to access loans from a traditional bank.

California’s additional investment in the Rebuilding Fund offers a critical step forward in helping the state’s small businesses access the affordable capital and technical assistance they need to recover from the pandemic. The Commission’s recommendations from our report will help state leaders build on this momentum and better support small business recovery:

  • Develop a strategy to expand and maximize participation in the California Rebuilding Fund and, based on initial results, make it permanent through a reoccurring, annual contribution.
  • Gather data to determine whether the Rebuilding Fund is reaching underserved communities. Where needed, work with local governments and community organizations to improve access.
  • Raise awareness of Community Development Financial Institutions, especially among investors.
  • Partner with the technology sector to make informational resources more accessible to California’s small business owners.

As California seeks to equitably build back from the pandemic, the Commission urges policymakers to consider its recommendations for supporting small businesses.