California Incentives and Workforce Development Guide
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- The California Capital Access Program (CalCAP):
- Encourages participating banks and lending institutions to provide loans to small businesses that fall outside of conventional underwriting standards. Small business owners that have difficulty in obtaining conventional financing may qualify for a CalCAP loan through any CalCAP lender. CalCAP is a form of loan portfolio insurance that provides up to 100% coverage on certain loan defaults. CalCAP insures loans made by Participating Lenders to small businesses in order to assist their growth efforts with eligible use of fund proceeds to acquire land, construct or renovate buildings, purchase equipment, working capital, energy efficiency improvement projects as well as bridge financing needed prior to obtaining permanent financing (including SBA 504 bridge loans). There is no minimum loan amount however, the maximum loan amount is $5 million and the maximum enrolled amount is $2.5 million. Borrowers are limited to a maximum $2.5 million enrolled over a three year period. The borrower’s primary business and at least 50% of employees or income, sales or payroll, must be located in California. Borrowers with over 500 employees are ineligible for this program. The Participating Lender sets all the terms and conditions of the loan (including premium levels, maturity dates, fixed or variable interest rates, secured or unsecured, amortization schedule, etc.) and determine which loans to enroll into the CalCAP program. For more information, please visit this link.
- CalCAP Collateral Support (CalCAP CS) Program:
- Pledges cash to cover the collateral shortfall of a loan made by Eligible Lenders in order to enable financing that otherwise might not be available to a small business. The Collateral Support Program provides up to 40% of the loan value, in the form of a cash deposit, with the possibility of an additional 10% for businesses located in a Severely Affected Community. To determine if a business is located in a Severely Affected Community, open this pdf.
- The minimum loan amount is $100,000, the maximum loan amount is $20 million, and the maximum support amount is $5 million per borrower. The term of the collateral support will be based on the original term of the loan not to exceed seven years for any one loan.
- Participating Lenders are free to determine the amount of collateral support they wish to request and may choose to reduce the collateral coverage at any time and for any reason.
- The borrower must have their “Primary Economic Effect” in California where one of the following conditions exists: at least 51% of the total revenues of the business activity are generated in California; or at least 51% of the total jobs of the business are created or retained in California. Borrowers must have fewer than 750 employees to be considered eligible for this program.
The lender must certify its participation to use federal funds, apply to become a Participating Lender and must submit a request and risk assessment for CPCFA’s approval prior to the issuance of a loan. For more information, please visit this link.
- Industrial Development Bond (IDB):
- IDB financing is a competitive financing option available for the acquisition of manufacturing facilities and equipment providing a financing option for manufacturers to access private capital markets at tax-exempt rates. The benefits of IDB financing include interest rates generally 20% to 30% lower than conventional financing. Historically, interest rates have been about 2% below prime and recently have been below 1%. The Securities Industry and Financial Markets Association tracks the weekly average municipal interest rate from 2000 to current. Bonds can be issued over longer terms (30 years) than conventional financing as fixed or variable rates and can be prepaid at any time without penalty. The bonds are assumable if the business is sold to an entity engaged in a qualified use. Funds can be used for construction and take-out financing for land, buildings and equipment. Certain federal and state regulations apply.
- The IDB financed project must be a facility used for the manufacturing, production or processing of tangible property. At least 95% of bond proceeds must be spent on qualifying costs (generally includes land, building, equipment as well as capitalized interest during construction).
- Bond proceeds cannot be used for working capital or inventory.
- The capital expenditures for the project, when added to the company’s other capital expenditures in the same public jurisdiction as the project for the three years immediately preceding and three years following the closing of the financing of the project, cannot exceed $20,000,000.
- The project must meet certain public benefit criteria established by the California Debt Limit Allocation Committee (CDLAC), which among other things, includes the creation or retention of jobs. Prevailing wage must be paid to workers involved in the construction or renovation.
- Pre-application fee ($1,500), issuer fee (0.25%). Transaction costs generally range between 2%-5% of the bond amount, depending on complexity. Transaction costs include bond counsel, underwriter, trustee and financial advisor (if utilized) fees as well as letter of credit costs. Up to 2% of these “costs of issuance” can be included in the bond amount and amortized over time. The term of the bond is determined by the useful life of the assets involved. On-going annual costs, in addition to interest, include trustee fees (flat fee of $1,000-3,000), letter of credit fees as well as the I-Bank’s $500 annual fee until the bonds are redeemed. For more information, please visit this link.
- Small Business Loan Guarantee Program (SBLGP):
- Assists businesses with the creation and retention of jobs while encouraging investment into low- to moderate-income communities. The SBLGP enables small businesses to not only obtain a loan it could not otherwise obtain but more importantly helps to establish a favorable credit history with a lender so the business may obtain loans in the future on its own without the assistance of the program. The SBLGP is administered by designated Financial Development Corporations (FDC) in guaranteeing the loan to the borrower.
- Loan proceeds may be used for start-up costs, working capital, business procurement, equipment and inventory purchases, contract financing, franchise fees, business expansion, lines of credit, as well as real estate construction, renovation or tenant improvements of an eligible place of business.
- Proceeds must be used for small businesses located in the State of California employing no more than 750 employees. Borrowers must show repayment ability.
- The maximum loan amounts vary between federal and state programs. For the federal program the maximum loan amount is $20 million and there is no defined state amount. Please contact a FDC of your choice to determine the maximum loan amount applicable to your needs.
- The maximum loan guarantee is 80% for federal programs and 90% for state programs. The actual loan amount and guarantee percentage is set on a case by case basis. The State’s current loan guarantee can be up to $2.5 million
- For more information please visit this link.
- Energy Innovations Small Grant (EISG) Program:
- Provides up to $95,000 for hardware projects and $50,000 for modeling projects to small businesses, non-profits, individuals and academic institutions to conduct research that establishes the feasibility of new, innovative energy concepts. Research projects must target one of the specified R&D areas, address a California energy problem and provide a potential benefit to California electric and natural gas ratepayers. To encourage participation in the program the application and award process has been simplified and assistance is available in gaining access to technical experts. For more information, please visit this link.
- Alternative and Renewable Fuel and Vehicle Technology Program (AB 118):
- Demonstrating California’s leadership in the national push to reduce dependency on petroleum and greenhouse gas emissions while improving energy security, AB 118 provides financial incentives (as much as $100 million annually through competitive grants, loans, loan guarantees, revolving loans and other appropriate measures or means) for businesses, vehicle and technology manufacturers, workforce training partners, fleet owners, consumers and academic institutions to develop and deploy alternative and renewable fuels as well as advanced transportation technologies that help the state meet its policy objectives on climate change. For more information, please visit this link.
- Hybrid Truck and Bus Voucher Incentive Project (HVIP):
- Designed to accelerate California’s deployment of new hybrid and zero-emission trucks and buses. The program has $18 million in funds as of October 2012. Air Resources Board (ARB) has teamed with CALSTART to implement this streamlined, first-come, first-serve program. The HVIP Implementation Manual defines the roles and responsibilities of ARB, CALSTART, vehicle dealers and vehicle purchasers in project implementation. ARB must approve hybrid truck and bus models for them to become eligible for the program. This program is a component of the AB118 program. For more information, please visit this link.
- Air Quality Improvement Program Clean Rebate Project:
- Intended to encourage and accelerate zero emission vehicle deployment and technology innovation. Rebates range from $900 for zero-emission motorcycles and neighborhood electric vehicles to $1,500 for plug-in hybrid electric vehicles and $2,500 for full function zero emission vehicles. There is a maximum cap of 20 per applicant. This program is a component of the AB118 program. For more information, please visit this link.
- California Pollution Control financing Authority (CPCFA):
- Provides tax-exempt bond financing for pollution control projects. The Tax-Exempt Bond Financing Program provides California businesses assistance with acquisition or construction of qualified pollution control, waste disposal, waste recovery facilities and the acquisition and installation of new equipment. As a “conduit issuer” of tax-exempt private activity bonds, CPCFA is able to facilitate low cost financing to qualified waste and recycling projects. Projects that control pollution may qualify for tax-exempt financing as allowed by federal tax law. Examples of recent assistance include projects to purchase clean-air vehicles by waste companies, recyclers of used oil, animal waste conversions to clean burning fuel, and construction and demolition debris recycling programs. CPCFA works with participating financial institutions to assist small business with loans of up to $2.5 million. CPCFA also assists with the cleanup of contaminated sites through a $60 million grant and loan program as well as a site-assessment loan program. For more information, please visit this link.
- Brownfields Revolving Loan Fund Program:
- Provides low-interest rate loans between $200,000 and $900,000 for financing cleanup activities of sites by eligible public or private property owners including government agencies, private property owners as well as non-profit organizations. Up to $200,000 in sub-grants can also be awarded to government agencies and non-profit organizations. For more information, please visit this link.
- Rural Energy for America Program (REAP):
- The REAP Guaranteed Loan Program encourages the commercial financing of renewable energy (bioenergy, geothermal, hydrogen, solar, wind and hydro power) and energy efficiency projects. Under the program, project developers will work with local lenders who in turn can apply to USDA Rural Development for a loan guarantee up to 85% of the loan amount. Maximum percentage of guarantee (applies to whole loan):
- 85% for loan of $600,000 or less
- 80% for loans greater than $600,000 but $5 million or less
- 70% for loans greater than $5 million up to $10 million
- 60% for loans greater than $10 million up to $25 million
Loans are limited to 75% of the project’s cost with a maximum amount of $25 million and a minimum of $5,000. For more information, click this link.
- Investment in Advanced Manufacturing:
- In September 2012, Governor Brown signed SB 1128 (Padilla) to encourage investment, job creation and economic growth by allowing advanced manufacturers sales and use tax exemptions on the purchase of manufacturing equipment. SB 1128 builds upon the current sales tax exemption program administered by the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) by including “advanced manufacturing” companies in industries such as biotechnology, computers, appliances, machinery, furniture, fabricated metals and transportation goods.
- Employment Training Tax (ETT):
- Provides funds to train employees in targeted industries to promote a healthy labor market and help California businesses invest in a skilled and productive workforce, develop the skills of workers who directly produce or deliver goods and services and improve the overall competitiveness of California’s businesses. ETT is an employer-paid tax. Employers are subject to an assessment of one-tenth of 0.1% (.001) on the first $7,000 in wages paid to each employee in a calendar year. The tax rate is set by statute at 0.1% (.001) of UI taxable wages for employers with positive UI reserve account balances and employers subject to Section 977(c) of the California Unemployment Insurance Code (CUIC). The maximum tax is $7 per employee, per year ($7,000 x .001).
- Enterprise Zone Program:
- Businesses located within one of California’s 42 Enterprise Zones are eligible for the following incentives:
- Hiring Tax Credit – State tax credit of $37,000 or more over five years for each qualified employee hired.
- Sales or Use Tax Credit – State tax credit for sales and use taxes paid on qualified machinery and machinery parts purchases on the first $20 million per year for corporations and on the first $1 million per year for individuals.
- Increased Expense Deduction – Accelerated expense deductions for certain depreciable property.
- Net Operating Loss Carryforward – Up to 100% net operating loss deduction and a 20-year carryforward.
- Net Interest Deduction for Lenders – Net Interest Deductions for lenders on loans made to firms within an Enterprise Zone.
- State Preference Points – Enterprise Zone companies can earn preference points on state contracts.
Each Enterprise Zone is administered by a local jurisdiction. For more information, please visit this link.
- Local Agency Military Base Recovery Area (LAMBRA):
- Program developed to attract reinvestment and create re-employment opportunities on certain former military bases in California which were closed in the Base Closure and Realignment process. The program has tax incentives which are similar to those offered in the Enterprise Zone Program. The LAMBRA’s boundaries encompass all or part of the former military base and the term of the program designation is eight years. For more information, please visit this link.
- Research & Development Tax Credit:
- The California R&D tax credit program reduces income or franchise tax. You may qualify for the credit if you paid or incurred qualified research expenses while conducting qualified research activity in California. You may receive 15% of the excess of current year research expenditures over a computed base amount (minimum of 50% of current year research expenses) or a 24% credit for basic research payments to third party organizations. You may claim the credit on the return for the taxable year you incurred the qualified expenses. Qualified research expenses include wages, supplies and contract research costs. To qualify, the research must be conducted within California and include basic or applied research of scientific inquiry, original investigation for the advancement of scientific or engineering knowledge or improved function of a business component. California has several exceptions to the federal law that can affect your computations for the credit. For more specific information, please review the Franchise Tax Board’s Frequently Asked Questions.
- New Jobs Tax Credit:
- Small businesses comprise 99% of the State’s economy. In order to stimulate small business job creation efforts, the State provides a $3,000 tax credit for each new full-time employee hired by businesses that employed 20 or less on the last day of the preceding taxable year. The credit is prorated on an annual full-time equivalent basis for employees employed less than a full year. For more information, please visit this link.
- California Film & Television Tax Credit Program:
- The California Film Commission offers a tax credit incentive program to qualified motion pictures. $100 million has been allocated annually beginning in fiscal year 2009-2010 through 2016-2017 on a first-come first-served basis. The Program allows a 20% tax credit for qualified production related expenses to a taxpayer against State income taxes. The program offers a special 5% additional tax credit bonus for those TV series that return from out of state and to “independent films.” A qualified taxpayer may, in lieu of claiming the credit, apply the credit amount against sales and use taxes. For more information, please visit this link.
- Advanced Transportation and Alternative Source Manufacturing Sales & Use Tax Exclusion Program (SB71):
- Designed to promote the creation of California-based manufacturing, California-based jobs and the reduction of greenhouse gases, air and water pollution or energy consumption through an approved sales and use tax exclusion (STE) for eligible projects on property utilized for the design, manufacture, production or assembly of advanced transportation technologies or alternative source–including energy efficiency–products, components or systems. To receive sales or use tax exclusion on qualified green-tech manufacturing property, businesses must apply through the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA). The following fees apply: an Application Fee equal to 0.0005 of the total amount of Qualified Property identified in the Application as originally submitted (minimum fee of $250 not exceed $10,000) and an Administrative Fee amount equal to 0.004 of the total amount of the Qualified Property purchased (no less than $15,000 nor more than $350,000). Applicants will receive a resolution and written notice of their approval by CAEATFA. For more information, please visit this link.
- Sales & Use Tax Exclusion for Advanced Manufacturing Projects (SB1128):
- Approved by the Governor during the 2012 legislative session, which expanded the scope of this program. Program regulations are currently being drafted to include the expanded definition for “Advanced Manufacturers.” For more information, please visit this link.
- New Markets Tax Credit (NMTC) Program:
- Permits taxpayers to receive a credit against federal income taxes for qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39% of the cost of the investment and is claimed over a seven-year period. In each of the first three years, the investor receives a credit equal to 5% of the total amount paid for the stock or capital interest at the time of purchase. For more information visit this link.
- Investment Tax Credit (ITC):
- Reduces federal income taxes for qualified tax-paying owners based on capital investment in renewable energy projects (measured in dollars). The ITC generally allows taxpayers to take a single tax credit against the project’s tax basis equal to 30% in its first year and allows a taxpayer to elect certain qualified facilities to be characterized as energy property eligible for a 10% or 30% ITC, depending on the technology. Incentives are dependent on the type of energy. Fuel cells can receive a $1500 credit per 0.5 kW. Eligibility: wind; closed-loop biomass; open- loop biomass; geothermal; solar; small irrigation power; municipal solid waste; qualified hydropower production; marine and hydrokinetic renewable energy. System must be placed in service between December 31, 2005 and December 31, 2012. Certain geothermal and open- or closed- loop biomass systems qualify through December 31, 2013. For more information, visit this link.
- Employment Training Panel (ETP):
- A business and labor supported state initiative that assists employers in strengthening their competitive edge by providing funds to off-set the costs of job skills training necessary to maintain high-performance workplaces. Since its inception in 1983, the ETP has funded the training of over 800,000 employees, served over 78,000 businesses and expended over $1.25 billion in funds. ETP uses a pay-for-performance contract to provide a specific, fixed-fee cash reimbursement for the costs of employer- customized, job-specific skills training conducted by a company for new hires or existing employees. Common training topics include: Business Skills, Computer Skills, Commercial Skills, Manufacturing Skills, Continuous Improvement, Hazardous Materials and OSHA 10/30, Management Skills and Literacy Skills. The ETP reimbursement is based on the contract specified reimbursement rate and the number of training hours delivered and tracked. The rate is inclusive of all administration and training costs. Contracts are based on a two-year term. ETP funding is earned once the trainee completes a minimum number of ETP funded training hours and a post training employment retention period earning a contract specific wage. ETP uses a web-based tracking system for tracking of training hours, invoicing and supporting the contract with free development and monitoring services. For more information, please visit this link.