THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY EARLL, M. WHITE, MENSCH, ARGALL, FOLMER AND WAUGH, SEPTEMBER 21, 2011

REFERRED TO COMMUNITY, ECONOMIC AND RECREATIONAL DEVELOPMENT, SEPTEMBER 21, 2011  

AN ACT

Amending Titles 12 (Commerce and Trade) and 64 (Public

Authorities and Quasi-Public Corporations) of the

Pennsylvania Consolidated Statutes, providing for the Liberty

Financing Authority; imposing duties on the Department of

Community and Economic Development; and making related

repeals.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Chapters 23 and 29 of Title 12 of the

Pennsylvania Consolidated Statutes are repealed:

[CHAPTER 23

SMALL BUSINESS FIRST

Sec.

2301.  Scope.

2302.  Definitions.

2303.  Establishment.

2304.  Fund and accounts.

2305.  Department responsibilities.

2306.  Capital development loans.

2307.  EDA loans.

2308.  Loans in distressed communities.

2309.  Pollution prevention assistance loans.

2310.  Export financing loans.

2311.  Reporting and inspection.

2312.  Limitations.

§ 2301.  Scope.

This chapter relates to the Small Business First Program.

§ 2302.  Definitions.

The following words and phrases when used in this chapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Agricultural processor."  A person that adds value by

subjecting one or more farm commodities to a process of

manufacture, development or preparation for sale or a person

that converts a farm product into a marketable form.

"Agricultural producer."  A person involved in the management

and use of a normal agricultural operation for the production of

a farm commodity.

"Apparel products."  Products manufactured, woven, cut, sewn

or otherwise similarly processed by mechanical or human effort

from fabrics, leather or cloth and made for use as clothing,

shoes or other attire.

"Applicant."  A person that applies for a loan in accordance

with this chapter.

"Area loan organization."  A local development district, an

industrial development agency organized and existing under the

act of May 17, 1956 (1955 P.L.1609, No.537), known as the

Pennsylvania Industrial Development Authority Act, or any other

nonprofit economic development organization certified by the

department as possessing the qualifications necessary to

evaluate and administer loans made under this chapter.

"Capital development project."  Land, buildings, equipment

and machinery and working capital which is acquired,

constructed, renovated or used by a small business in accordance

with any of the following:

(1)  As part of a for-profit project or venture not of a

mercantile or service-related nature, except for hospitality

industry projects.

(2)  As part of an effort to:

(i)  bring a small business into compliance with

Federal or State environmental laws or regulations;

(ii)  complete an approved remediation project; or

(iii)  permit a small business to adopt generally

acceptable pollution prevention practices.

(3)  As part of an effort to provide assistance to a

small business that is a recycler of municipal or commercial

waste or that is a manufacturer using recycled municipal or

commercial waste materials.

(4)  As part of an effort to assist a small business with

defense conversion activities.

(5)  As part of a for-profit project or venture to

manufacture products to be exported out of the United States

by a small business which is not of a mercantile or service-

related nature, except for export-related services and

international export-related mercantile ventures or advanced

technology and computer-related services and mercantile

ventures and which will increase this Commonwealth's national

or international market shares.

(6)  As part of a for-profit project or venture that

meets the requirements of section 2308 (relating to loans in

distressed communities)

(7)  As part of an effort to assist in the start-up or

expansion of a for-profit or not-for-profit child day-care

center subject to licensure by the Commonwealth.

"Child day-care center."  Any premises in which child day

care is provided simultaneously for seven or more children who

are not related to the provider.

"Community development institution."  Any of the following:

(1)  An area loan organization for a distressed

community.

(2)  A community development financial institution

located in a distressed community and approved by the

department.

"Distressed community."  A community which has any of the

following:

(1)  A census tract or other specifically defined

geographic area in which there is any of the following:

(i)  A median income below 80% of the median income

for the United States or this Commonwealth.

(ii)  Twenty percent or more of the population is

below the poverty level by family size published by the

Bureau of the Census.

(iii)  An unemployment rate 50% higher than the

national average.

(2)  An area which is designated a subzone, expansion

subzone or improvement subzone under the act of October 6,

1998 (P.L.705, No.92), known as the Keystone Opportunity Zone

and Keystone Opportunity Expansion Zone Act.

(3)  Any other geographic area designated by the

department as distressed. The designation shall be published

in the Pennsylvania Bulletin.

"EDA loan."  A loan made under this chapter utilizing funds

made available to the department under the Public Works and

Economic Development Act of 1965 (Public Law 89-136, 42 U.S.C. §

3121 et seq.).

"Ex-Im Bank."  The Export-Import Bank of the United States.

"Export activity."  An activity undertaken by a person within

this Commonwealth related to exports.

"Export business."  A person that is engaged in a for-profit

enterprise involving export activities and that employs 250 or

fewer individuals.

"Exports."  Goods or services to be sold or performed outside

the United States.

"Farm commodity."  Any Pennsylvania-grown agricultural,

horticultural, aquacultural, vegetable, fruit and floricultural

product of the soil, livestock and meats, wools, hides, furs,

poultry, eggs, dairy products, nuts, mushrooms, honey products

and forest products.

"Fund."  The Small Business First Fund continued under

section 2304 (relating to fund and accounts).

"Hazardous substance."  Any element, compound or material

which is any of the following:

(1)  Regulated as a hazardous air pollutant under section

6.6 of the act of January 8, 1960 (1959 P.L.2119, No.787),

known as the Air Pollution Control Act.

(2)  Defined as a hazardous waste under section 103 of

the act of July 7, 1980 (P.L.380, No.97), known as the Solid

Waste Management Act.

(3)  Regulated under the act of December 7, 1990

(P.L.639, No.165), known as the Hazardous Material Emergency

Planning and Response Act.

"Hospitality industry project."  A for-profit project or

venture which involves a small business that operates a hotel,

motel or other lodging facility and that employs at least five

full-time equivalent employees at the time an application is

submitted to the department for financing. The term includes a

for-profit project or venture which involves a small business

that operates a restaurant or food service operation open to the

public, that has been in continuous operation for at least five

years and that employs at least five full-time equivalent

employees at the time an application is submitted.

"Insurance policy."  An export credit insurance policy for

small businesses offered by the Export-Import Bank of the United

States.

"Natural disaster."  As defined in 35 Pa.C.S. § 7102 

(relating to definitions).

"Normal agricultural operation."  As defined in section 2 of

the act of June 10, 1982 (P.L.454, No.133), entitled "An act

protecting agricultural operations from nuisance suits and

ordinances under certain circumstances."

"Pollution prevention."  The reduction or elimination of

pollution at its source. The term does not include any of the

following:

(1)  A substitution of one hazardous or toxic substance

for another which will cause an increased risk to the

environment or to human health.

(2)  A cross-media transfer.

(3)  A delisting of a hazardous waste or toxic chemical.

"Pollution prevention assistance agency."  Any of the

following:

(1)  An area loan organization.

(2)  An industrial resource center created pursuant to

the act of June 22, 2001 (P.L.400, No.31), known as the

Industrial Resources Center Partnership Act.

"Pollution prevention infrastructure."  A capital development

project which permits a small business to adopt or install

pollution prevention equipment or processes to:

(1)  Reduce or reuse raw materials onsite.

(2)  Reduce the production of waste.

(3)  Reduce energy consumption.

"Program."  The Small Business First Program established

under section 2303 (relating to establishment).

"Reuse."  Use of a product or component in its original form

more than once.

"Small business."  A person that is engaged in a for-profit

enterprise and that employs 100 or fewer individuals. The term

includes the following:

(1)  An enterprise located in a small business incubator

facility.

(2)  An agricultural processor.

(3)  An agricultural producer.

(4)  An enterprise which manufactures apparel products.

(5)  An enterprise which is a for-profit or not-for-

profit child day-care center subject to licensure by the

Commonwealth.

"Working capital."  Capital used by a small business for

operations, excluding fixed assets and production machinery and

equipment.

§ 2303.  Establishment.

There is established within the department a program to be

known as the Small Business First Program. The program shall be

administered by the department and provide loans to eligible

persons for certain projects which encourage job-creating and

job-preserving economic development within this Commonwealth.

§ 2304.  Fund and accounts.

(a)  Fund.--The Small Business First Fund, created under

section 1302(a) of the act of June 29, 1996 (P.L.434, No.67),

known as the Job Enhancement Act, is continued. The Treasury

Department shall credit the following to the fund:

(1)  Appropriations made by the General Assembly to the

department for the program.

(2)  Federal funds made available under the Public Works

and Economic Development Act of 1965 (Public Law 89-136, 42

U.S.C. § 3121 et seq.) or any other Federal statute,

regulation or program for the program.

(3)  Payments from recipients of loans made from the

fund.

(4)  Payments from recipients of loans made under the

former act of July 2, 1984 (P.L.545, No.109), known as the

Capital Loan Fund Act.

(5)  Interest income derived from investment of the money

in the fund.

(6)  Any other deposits, payments or contributions from

any other source made available to the department for the

program.

(b)  Pollution prevention assistance.--The Pollution

Prevention Assistance Account, created under the act of June 29,

1996 (P.L.434, No.67), known as the Job Enhancement Act, is

continued. The Treasury Department shall credit the following to

this account:

(1)  Appropriations made by the General Assembly to the

department for pollution prevention assistance.

(2)  Payments from recipients of loans made from the

Pollution Prevention Assistance Account.

(3)  Transfers from the Hazardous Sites Cleanup Fund as

established in section 602.3 of the act of March 4, 1971

(P.L.6, No.2), known as the Tax Reform Code of 1971.

(4)  Interest income derived from investment of the money

in the Pollution Prevention Assistance Account.

(5)  Any other deposits, payments or contributions from

any other source made available to the department for

pollution prevention assistance.

(c)  Use of fund.--

(1)  Money in the fund may be used as follows:

(i)  By the department to make loans in accordance

with this chapter and for administrative costs of the

department in administering the program.

(ii)  By area loan organizations for administrative

costs associated with the program which are approved by

the department.

(2)  Money from the fund derived from appropriations

specified for export financing assistance may be deposited by

the department in banks or trust companies in special

accounts. The special accounts must be continuously secured

by a pledge of direct obligations of the United States or of

the Commonwealth having an aggregate market value, exclusive

of accrued interest, at least equal to the balance on deposit

in the account. The securities shall be deposited with the

department to be held by a trustee or agent satisfactory to

the department. Banks and trust companies are authorized to

give security under this paragraph. Money in these special

accounts shall be paid out on order of the department.

(d)  Use of Pollution Prevention Assistance Account.--Money

in the Pollution Prevention Assistance Account may be used by

the department to provide loans to small businesses for the

adoption or installation of pollution-prevention or energy-

efficient equipment or processes in accordance with section 2309

(relating to pollution prevention assistance loans).

§ 2305.  Department responsibilities.

(a)  General rule.--The department shall do all of the

following:

(1)  Administer the program.

(2)  Establish written guidelines as necessary. Any

guidelines established shall be included in the report

required by Chapter 3 (relating to economic development

financing strategy).

(3)  Deposit payments made by recipients in the fund or

the Pollution Prevention Assistance Account, as appropriate.

(4)  Approve standards for area loan organization

application fees.

(5)  Approve community development financial

institutions.

(b)  Program.--In administering the program, the department

may do any of the following:

(1)  Provide grants or other financial assistance to area

loan organizations for any of the following purposes:

(i)  To establish loan reserve funds.

(ii)  To reimburse loan losses to commercial banks

and other financial institutions as a means of

encouraging the expansion and financing of small

businesses.

(2)  Apply to the Ex-Im Bank for delegated authority

lender status under the Ex-Im Bank's Working Capital Guaranty

Program.

(3)  Utilize the outstanding portfolio of loans made

under this chapter to raise additional funds by selling,

securing, hypothecating or otherwise using such loan proceeds

as a financing vehicle if the funds raised are used by the

department for either of the following purposes:

(i)  To make new and additional loans under this

chapter.

(ii)  To pay costs associated with financing.

§ 2306.  Capital development loans.

(a)  Application.--A small business may submit an application

and any applicable application fee to its area loan organization

requesting a loan for certain costs of a capital development

project. The application shall be on the form required by the

department and shall include or demonstrate all of the

following:

(1)  The name and address of the applicant.

(2)  A statement of the amount of loan assistance sought.

(3)  A statement of the capital development project,

including a detailed statement of the cost of the project.

(4)  A financial commitment from a responsible source for

any cost of the capital development project in excess of the

amount requested.

(5)  Any other information required by the department.

(b)  Area loan organization review.--

(1)  Upon receipt of a completed application, an area

loan organization shall investigate and determine all of the

following:

(i)  If the applicant is a small business.

(ii)  If the project is a capital development

project.

(iii)  If, when the applicant is a small business,

the capital development project demonstrates a

substantial likelihood of creating or preserving

employment activities in this Commonwealth or if, when

the applicant is an agricultural producer, the project

demonstrates a substantial likelihood of enhancing and

growing normal agriculture operations.

(iv)  The ability of the applicant to meet and

satisfy the debt service as it becomes due and payable.

(v)  The existence and sufficiency of collateral for

the loan.

(vi)  Relevant criminal and credit history and

ratings of the applicant as determined from outside

credit reporting services and other sources.

(vii)  The number of employment opportunities to be

created or preserved by the proposed capital development

project.

(viii)  If the applicant complied with all other

criteria established by the department.

(2)  Upon being satisfied that all requirements have been

met, the area loan organizations shall recommend the

applicant to the department and forward the application with

all supporting documentation to the department for its review

and approval.

(c)  Department review.--

(1)  Within 30 days of receiving a recommendation and a

completed application, the department shall review the

application. If the department is satisfied that all

requirements have been met, the department may approve the

loan request in accordance with the following:

(i)  A loan for land, buildings and machinery and

equipment may not exceed $200,000 or 50% of the total

capital development project costs, whichever is less. For

the purposes of this subparagraph, capital development

project costs incurred during the 12-month period prior

to the date of submission of the application to the

department shall be considered part of the total capital

development project costs.

(ii)  A loan for working capital may not exceed

$100,000 or 50% of the total capital development project

costs, whichever is less.

(iii)  Except for loans to agricultural producers, a

loan must create or preserve one job for every $25,000

loaned.

(2)  The department shall notify the area loan

organization and applicant of its decision.

(d)  Approvals.--For applications which are approved, the

department shall draw an advance equal to the principal amount

of the loan from the fund. The advance shall be forwarded to the

area loan organization and, upon receipt by the area loan

organization, shall become an obligation of the area loan

organization. Prior to providing loan funds to the applicant,

the area loan organization shall require the applicant to

execute a note and to enter into a loan agreement. In addition

to the requirements of subsection (e), the loan agreement shall

include a provision requiring the recipient to use the loan

proceeds to pay the costs of the capital development project.

The department may require the area loan organization to impose

other terms and conditions on the recipient if the department

determines that they are in the best interests of this

Commonwealth, including a provision requiring collateral for any

penalty imposed under subsection (g).

(e)  Loan terms.--A loan agreement entered into in accordance

with subsection (c) shall do all of the following:

(1)  State the collateral securing the loan. All loans

shall be secured by lien positions on collateral at the

highest level of priority as may be determined by the area

loan organization with the approval of the department.

(2)  State the repayment period in accordance with the

following:

(i)  A loan for real property shall have a repayment

period of up to 15 years.

(ii)  A loan for machinery and equipment shall have a

repayment period of up to ten years.

(iii)  A loan for working capital shall have a

repayment period of up to three years.

(iv)  If, in a capital development project, there are

two or more uses planned, the loan terms may be blended.

(3)  State the interest rate in accordance with the

following:

(i)  Except as provided in subparagraph (ii), loans

shall be made at an interest rate not to exceed 5% for

the term of the loan.

(ii)  A loan to a small business which is an

agricultural producer shall be made at an interest rate

of not less than 2% for the term of the loan if all of

the following apply:

(A)  A declaration under 35 Pa.C.S. § 7301(c) 

(relating to general authority of Governor) is in

effect for at least ten days prior to the date of

application.

(B)  The application is made within nine months

of termination of the declaration.

(C)  The agricultural producer is in the area

which has been declared to be a natural disaster

area.

(f)  Loan administration.--A loan made under this section

shall be administered in accordance with departmental policies

and procedures by the area loan organization which made the

loan. Each area loan organization shall submit an annual report

on the form required by the department and which includes or

demonstrates all of the following:

(1)  Each outstanding loan.

(2)  The date approved.

(3)  The original principal amount.

(4)  The current principal balance.

(5)  The interest rate.

(6)  The purpose for which the loan was made.

(7)  An enumeration of any problems or issues which have

arisen with regard to each loan.

(8)  A statement regarding the progress of the small

business in creating or preserving its requisite number of

employment opportunities.

(9)  Any other information or documentation required by

the department.

(g)  Penalty.--

(1)  Except as provided in paragraph (2), the department

shall impose a penalty upon a recipient if the recipient

fails to create or preserve the number of employment

opportunities specified in its approved application.

(2)  The department may waive the penalty required by

paragraph (1) if the department determines that the failure

was due to circumstances outside the control of the

recipient.

(3)  The amount of the penalty imposed under paragraph

(1) shall be equal to an increase in the interest rate to 2%

greater than the current prime interest rate for the

remainder of the loan.

(h)  Defaults.--The department may by foreclosure take title

to a capital development project which it financed if

acquisition is necessary to protect a loan made under this

section. The department shall pay all costs arising out of the

foreclosure and acquisition from moneys held in the fund. The

department may, in order to minimize financial losses and

sustain employment, lease the capital development project. The

department may withdraw moneys from the fund to purchase first

mortgages and to make payments on first mortgages on any capital

development project which it financed where purchase or payment

is necessary to protect a loan made under this section. The

department may sell, transfer, convey and assign the first

mortgages and shall deposit any moneys derived from the sale of

any first mortgages in the fund.

§ 2307.  EDA loans.

(a)  Application and administration procedures.--The

department shall establish application and administration

procedures to be used for EDA loans. The procedures shall be

established by guidelines and shall conform in all respects to

those procedures required or established by the Economic

Development Administration for use of Federal funds under the

Public Works and Economic Development Act of 1965 (Public Law

89-136, 42 U.S.C. § 3121 et seq.).

(b)  Eligibility for EDA loans.--The department shall

establish eligibility requirements to be used for EDA loans. The

requirements shall be established by guidelines and shall

conform in all respects to those procedures required or

established by the Economic Development Administration for use

of Federal funds under the Public Works and Economic Development

Act of 1965.

§ 2308.  Loans in distressed communities.

(a)  Application.--A small business located in a distressed

community may submit an application and any applicable

application fee to a community development institution

requesting a loan for certain costs of a capital development

project. The application shall be on the form required by the

department and shall include or demonstrate all of the

following:

(1)  The name and address of the applicant.

(2)  A statement that the small business is engaged in

business-to-public service or in the mercantile, commercial

or point-of-sale retail business sectors.

(3)  A statement of the amount of loan assistance sought.

(4)  A statement of the capital development project,

including a detailed statement of the cost of the project.

(5)  A financial commitment from a responsible source for

the cost of the capital development project in excess of the

amount requested.

(6)  Any other information required by the department.

(b)  Community development institution review.--

(1)  Upon receipt of a completed application, a community

development institution shall investigate and determine all

of the following:

(i)  If the applicant is a small business which is

engaged in business-to-public service or in the

mercantile, commercial or point-of-sale retail business

sectors in accordance with conditions or criteria

established by the department.

(ii)  If the project is a capital development

project.

(iii)  If the applicant has demonstrated a direct

impact on the community in which the capital development

project is or will be located, on residents of that

community or on the local and/or regional economy. The

department shall establish criteria that will assist in

making this demonstration.

(iv)  Number of employment opportunities to be

created or preserved by the proposed capital development

project.

(v)  If the applicant complied with all other

criteria established by the department.

(2)  Upon being satisfied that all requirements have been

met, the community development institution shall recommend

the applicant to the department and forward the application

with all supporting documentation to the department for its

review and approval.

(c)  Department review.--

(1)  Upon receipt of a recommendation and a completed

application, the department shall investigate and determine

all of the following:

(i)  The ability of the applicant to meet and satisfy

the debt service as it becomes due and payable. In

reviewing repayment obligations, loans shall not be

approved on the basis of direct financial return on

investment and shall not be held to the loan loss

standards of private commercial lenders. Loans shall be

reviewed for the purpose of establishing a strong

economic base and promoting entrepreneurial activity

within the distressed community.

(ii)  The existence and sufficiency of collateral for

the loan.

(iii)  Relevant criminal and credit history and

ratings of the applicant as determined from outside

credit reporting services and other sources.

(2)  If the department is satisfied that all requirements

have been met, the department may approve the loan request in

an amount not to exceed $200,000 or 50% of the total capital

development project costs, whichever is less. For the purpose

of this paragraph, capital development project costs, except

the costs related to working capital, incurred during the 12-

month period prior to the date of submission of the

application to the department shall be considered part of the

total capital development project costs.

(3)  The department shall notify the community

development institution and applicant of its decision.

(d)  Approvals.--For applications which are approved, the

department shall draw an advance equal to the principal amount

of the loan from the fund and, prior to providing loan funds to

the applicant, the department shall require the applicant to

execute a note and to enter into a loan agreement. In addition

to the requirements of subsection (e), the loan agreement shall

include a provision requiring the recipient to use the loan

proceeds to pay the costs of the capital development project.

The department may impose other terms and conditions on the

recipient if the department determines they are in the best

interests of this Commonwealth, including a provision requiring

collateral for any penalty imposed under subsection (g).

(e)  Loan terms.--A loan agreement entered into in accordance

with subsection (d) shall do all of the following:

(1)  State any collateral securing the loan. The

department may use its best judgment to identify and secure

collateral.

(2)  State the repayment period which may be flexible.

(3)  State the interest rate which may not be less than

2% nor more than 5% for the term of the loan.

(4)  State that the recipient agrees to maintain, at a

minimum, the number of jobs in existence as of the date of

loan application.

(f)  Loan administration.--A loan made under this section

shall be administered in accordance with departmental policies

and procedures.

(g)  Penalty.--

(1)  Except as provided in paragraph (2), the department

shall impose a penalty upon a recipient if the recipient

fails to preserve the number of employment opportunities

specified in its approved application.

(2)  The department may waive the penalty required by

paragraph (1) if the department determines that the failure

was due to circumstances outside the control of the

recipient.

(3)  The amount of any penalty imposed under paragraph

(1) shall be equal to an increase in the interest rate to 2%

greater than the current prime interest rate for the

remainder of the loan.

(h)  Defaults.--The department may take title by foreclosure

to a capital development project which it financed where

acquisition is necessary to protect a loan made under this

section. The department shall pay all costs arising out of the

foreclosure and acquisition from money held in the fund. The

department may, in order to minimize financial losses and

sustain employment, lease the capital development project. The

department may withdraw money from the fund to purchase first

mortgages and to make payments on first mortgages on any capital

development project which it financed if purchase or payment is

necessary to protect a loan made under this section. The

department may sell, transfer, convey and assign the first

mortgages and shall deposit in the fund money derived from the

sale of any first mortgages.

§ 2309.  Pollution prevention assistance loans.

(a)  Application.--A small business may submit an application

and any application fee to a pollution prevention assistance

agency requesting a loan for a pollution prevention

infrastructure. The application shall be on the form required by

the department and shall include or demonstrate all of the

following:

(1)  The name and address of the applicant.

(2)  A statement of the amount of loan assistance sought.

(3)  A statement of the pollution prevention

infrastructure, including a detailed statement of the cost of

the infrastructure.

(4)  A financial commitment from a responsible source for

the cost of the pollution prevention infrastructure in excess

of the amount requested.

(5)  Any other information required by the department.

(b)  Pollution prevention assistance agency review.--

(1)  Upon receipt of a completed application, a pollution

prevention assistance agency shall investigate and determine

all of the following:

(i)  If the applicant is a small business.

(ii)  If the project is for pollution prevention

infrastructure.

(iii)  If the applicant complied with all other

criteria established by the department.

(2)  Upon being satisfied that all requirements have been

met, the pollution prevention assistance agency shall

recommend the applicant to the department and forward the

application with all supporting documentation to the

department for its review and approval.

(c)  Department review.--

(1)  Upon receipt of a recommendation and a completed

application, the department shall investigate and determine

all of the following:

(i)  If the pollution prevention infrastructure

demonstrates a substantial likelihood of preventing or

reducing pollution. The Department of Environmental

Protection shall assist the department in reviewing the

applications and provide technical assistance.

(ii)  The ability of the applicant to meet and

satisfy the debt service as it becomes due and payable.

In reviewing repayment obligations, loans shall not be

approved on the basis of direct financial return on

investment and shall not be held to the loan loss

standards of private commercial lenders. Loans shall be

reviewed for the purpose of reducing pollution through

source reduction technologies or processes.

(iii)  The existence and sufficiency of collateral

for the loan.

(iv)  Relevant criminal and credit history and

ratings of the applicant as determined from outside

credit reporting services and other sources.

(2)  If the department is satisfied that all requirements

have been met, the department may approve the loan request. A

loan approved under this subsection may not exceed the lesser

of:

(i)  $100,000; or

(ii)  75% of infrastructure costs.

(3)  The department shall notify the pollution prevention

assistance agency and applicant of its decision.

(d)  Approvals.--For applications which are approved, the

department shall draw an advance equal to the principal amount

of the loan from the Pollution Prevention Assistance Account.

Prior to providing loan funds to the applicant, the department

shall require the applicant to execute a note and to enter into

a loan agreement. In addition to the requirements of subsection

(e), the loan agreement shall include a provision requiring the

recipient to use the loan proceeds to pay the costs of the

pollution prevention infrastructure. The department may impose

other terms and conditions on the recipient if the department

determines they are in the best interests of this Commonwealth,

including a provision requiring collateral for any penalty

imposed under subsection (g).

(e)  Loan terms.--A loan agreement entered into in accordance

with subsection (d) shall do all of the following:

(1)  State the collateral securing the loan. All loans

shall be secured by lien positions on collateral at the

highest level of priority as may be determined by the

department.

(2)  State the repayment period which may not exceed 10

years.

(3)  State that the interest rate is 2%.

(4)  State that any loan fee is not to exceed 5% of the

loan amount.

(f)  Loan administration.--A loan made under this section

shall be administered in accordance with departmental policies

and procedures.

(g)  Penalty.--

(1)  Except as provided in paragraph (2), the department

shall impose a penalty upon a recipient if the recipient

fails to carry out the pollution prevention infrastructure

project as specified in its approved application.

(2)  The department may waive the penalty required by

paragraph (1) if the department determines that the failure

was due to circumstances outside the control of the

recipient.

(3)  The amount of any penalty imposed under paragraph

(1) shall be equal to an increase in the interest rate to 2%

greater than the current prime interest rate for the

remainder of the loan.

(h)  Defaults.--The department may take title by foreclosure

to a pollution prevention infrastructure which it financed if

acquisition is necessary to protect a loan made under this

section. The department shall pay all costs arising out of the

foreclosure and acquisition from money held in the Pollution

Prevention Assistance Account. The department may, in order to

minimize financial losses and sustain employment, lease the

pollution prevention infrastructure. The department may withdraw

money from the Pollution Prevention Assistance Account to

purchase first mortgages and to make payments on first mortgages

on any pollution prevention infrastructure which it financed if

the purchase or payment is necessary to protect a loan made

under this section. The department may sell, transfer, convey

and assign the first mortgages and shall deposit any money

derived from the sale of any first mortgages in the Pollution

Prevention Assistance Account.

§ 2310.  Export financing loans.

(a)  Application.--A person may submit an application and any

applicable application fee to the department or its area loan

organization requesting a loan for certain costs of a capital

development project which will be used in export activities. The

application must be on the form required by the department and

must include or demonstrate all of the following:

(1)  The name and address of the applicant.

(2)  A statement of the amount of loan assistance sought.

(3)  A statement of the capital development project,

including a detailed statement of the cost of the project.

(4)  A financial commitment from a responsible source for

any cost of the capital development project in excess of the

amount requested.

(5)  A statement that the loan, if approved, would not

supplant funding from private sector sources on commercially

reasonable terms.

(6)  Any other information required by the department.

(b)  Review.--Upon receipt of a completed application, the

department shall investigate and determine all of the following:

(1)  If the applicant is an export business.

(2)  If the project is a capital development project.

(3)  The ability of the applicant to meet and satisfy the

debt service as it becomes due and payable.

(4)  The existence and sufficiency of collateral for the

loan.

(5)  Relevant criminal and credit history and ratings of

the applicant as determined from outside credit reporting

services and other sources.

(6)  Number of employment opportunities to be created or

preserved by the proposed capital development project.

(7)  If the applicant complied with all other criteria

established by the department.

(c)  Approvals.--If the department is satisfied that all

requirements have been met, the department may approve the loan

request. A loan approved under this section may not exceed

$350,000. The department shall notify the applicant and, if

applicable, the area loan organization of its decision. The

department shall reserve an amount equal to the principal amount

of the loan within the fund or the special account authorized by

section 2304(c)(2) (relating to fund and accounts). Prior to

providing funds to the applicant, the department shall require

the applicant to execute a note and enter into a loan agreement.

In addition to the requirements of subsection (d), the loan

agreement shall include a provision requiring the recipient to

use the loan proceeds to pay the costs of the capital

development project. The department may impose other terms and

conditions on the recipient if the department determines they

are in the best interests of this Commonwealth, including any of

the following:

(1)  A provision requiring collateral for any penalty

imposed under subsection (f).

(2)  A provision requiring the person to be eligible for

an insurance policy.

(3)  A provision requiring the loan to be guaranteed by

the Working Capital Guaranty Program offered by the Ex-Im

Bank.

(4)  A provision requiring an export credit sales

contract insured by an insurance policy.

(d)  Loan terms.--A loan agreement entered into in accordance

with subsection (c) shall do all of the following:

(1)  State the collateral securing the loan. All loans

shall be secured by lien positions on collateral at the

highest level of priority as may be determined by the

department.

(2)  State the repayment period as determined by the

department.

(3)  State the interest rate as determined by the

department.

(e)  Loan administration.--A loan made under this section

shall be administered in accordance with departmental policies

and procedures.

(f)  Penalty.--

(1)  Except as provided in paragraph (2), the department

shall impose a penalty upon a recipient if the recipient

fails to carry out the export activities specified in its

approved application.

(2)  The department may waive the penalty required by

paragraph (1) if the department determines that the failure

was due to circumstances outside the control of the

recipient.

(3)  The amount of the penalty imposed under paragraph

(1) shall be equal to an increase in the interest rate to 2%

greater than the current prime interest rate for the

remainder of the loan.

(g)  Defaults.--The department may, by foreclosure, take

title to a capital development project which it financed if

acquisition is necessary to protect a loan made under this

section. The department shall pay all costs arising out of the

foreclosure and acquisition from money held in the fund or a

special account authorized by section 2304(c)(2). The department

may, in order to minimize financial losses and sustain

employment, lease the capital development project. The

department may withdraw money from the fund or a special account

authorized by section 2304(c)(2) to purchase first mortgages and

to make payments on first mortgages on any capital development

project which it financed if purchase or payment is necessary to

protect a loan made under this section. The department may sell,

transfer, convey and assign the first mortgages and shall

deposit any money derived from the sale of any first mortgages

in the fund or a special account authorized by section 2304(c)

(2).

§ 2311.  Reporting and inspection.

(a)  Inspection.--An applicant or a recipient shall, upon

request, permit authorized employees of the department or its

agent to inspect the plant, books and records of the applicant

or recipient.

(b)  Updating.--An applicant or a recipient shall provide

updated information to the department and its agents if

conditions change or to the extent that the information

originally given becomes inaccurate or misleading.

(c)  Periodic reports.--A recipient shall provide the

department and its agents with such periodic financial reports

as the department may require until the loan is repaid in full.

(d)  Financial and performance audits.--An agent of the

department shall annually submit to the department, at the

agent's expense, an independent financial audit. If the audit

reveals misconduct of a material nature on the part of the

agent, the department shall take appropriate action.

§ 2312.  Limitations.

No loans shall be recommended or approved if the proceeds of

the loan could do any of the following:

(1)  Cause, aid or assist directly in the relocation of

any business operations from one part of this Commonwealth to

another unless there is at least a 25% net increase in

employment.

(2)  Refinance any portion of the total cost of a capital

development project, pollution prevention infrastructure or

other existing loans or debt.

(3)  Finance a capital development project or pollution

prevention infrastructure located outside the geographic

boundaries of this Commonwealth.

(4)  Provide funds, directly or directly, for payment

distribution or as loan owners, partners or shareholders of a

small business, except as ordinary compensation for services

rendered.

(5)  Provide funds for speculation in real or personal

property, whether tangible or intangible.

CHAPTER 29

MACHINERY AND EQUIPMENT LOANS

Sec.

2901.  Scope.

2902.  Definitions.

2903.  Establishment.

2904.  Machinery and Equipment Loan Fund.

2905.  Eligibility for loans; terms and conditions.

2906.  Application and administration.

2907.  Powers of secretary.

2908.  Reporting and inspection.

2909.  Nondiscrimination.

2910.  Conflict of interest.

2911.  Reports to General Assembly.

2912.  Guidelines.

§ 2901.  Scope.

This chapter relates to the Machinery and Equipment Loan

Program.

§ 2902.  Definitions.

The following words and phrases when used in this chapter

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Business enterprise."  A for-profit corporation, partnership

or proprietorship. The term includes a medical facility.

"Farm commodity."  Any Pennsylvania-grown agricultural,

horticultural, aquacultural, vegetable, fruit and floricultural

product of the soil, livestock and meats, wools, hides, furs,

poultry, eggs, dairy products, nuts, mushrooms, honey products

and forest products.

"Fund."  The Machinery and Equipment Loan Fund created and

established by this chapter.

"Medical facility."  An entity licensed as a hospital under

the act of June 13, 1967 (P.L.31, No.21), known as the Public

Welfare Code, or the act of July 19, 1979 (P.L.130, No.48),

known as the Health Care Facilities Act.

"Normal agricultural operation."  The term shall have the

same meaning as given to it in section 2 of the act of June 10,

1982 (P.L.454, No.133), entitled "An act protecting agricultural

operations from nuisance suits and ordinances under certain

circumstances."

"Production agriculture."  The management and use of a normal

agricultural operation for the production of a farm commodity.

§ 2903.  Establishment.

There is established within the department a program to be

known as the Machinery and Equipment Loan Program. The program

shall be administered by the department and provide loans to

business enterprises for machinery and equipment.

§ 2904.  Machinery and Equipment Loan Fund.

(a)  Creation.--There is created a special account in the

Treasury Department, to be known as the Machinery and Equipment

Loan Fund, to which shall be credited all program appropriations

made by the General Assembly, all proceeds from loan repayments

and any and all other deposits, payments or contributions from

any other source made available to the fund. The fund shall

operate as a revolving fund whereby all appropriations, payments

and interest made thereto may be applied and reapplied to the

purposes of this chapter.

(b)  Credits to fund.--All appropriations, deposits and

contributions made to the fund shall be immediately credited in

full to the fund, and earnings on the moneys held in the fund

shall also be credited to the fund for the purposes of this

chapter.

§ 2905.  Eligibility for loans; terms and conditions.

(a)  Loans; general rules.--The secretary may make advances

from the fund, subject to the terms, conditions and restrictions

provided under this chapter, for the purpose of making loans to

business enterprises involved in industrial processes, mining,

manufacturing, production agriculture, information technology,

biotechnology, service as a medical facility or other industrial

or technology sectors, as defined by the department, to acquire

and install new machinery and equipment or upgrade existing

machinery and equipment, including the acquisition, application

and utilization of computer hardware and software.

(1)  All loans shall be subject to all of the following

conditions:

(i)  Be made to eligible business enterprises under

the provisions of this chapter.

(ii)  Have a maximum loan ceiling of $5,000,000 or

50% of the cost of the project, whichever is less.

(iii)  Be limited to the purchase and installation of

new equipment and machinery or the upgrade of existing

machinery and equipment. This subparagraph includes the

acquisition, application and utilization of computer

hardware and software.

(iv)  Be limited to projects that demonstrate the

creation or retention of one job for every $25,000

received from the fund. This subparagraph does not apply

to loans made to business enterprises involved in

production agriculture or to loans made to medical

facilities.

(v)  Have an interest rate which shall be established

by the secretary.

(vi)  Have a term of not in excess of ten years.

(2)  For loans to medical facilities, loan funds may be

used only to finance the acquisition, installation and

utilization of machinery and equipment, including computer

hardware and software components, to be used in the

prescribing and dispensing of medication for medical facility

patients.

(b)  Restrictions.--No loans shall be made that do any of the

following:

(1)  Cause, aid or assist in, directly or indirectly, the

relocation of any business enterprise from one part of this

Commonwealth to another unless there is at least a 25%

increase in net employment.

(2)  Supplant funding that is otherwise available

expeditiously from private sector sources on commercially

reasonable terms.

(3)  Be for the purpose of refinancing any portion of the

total project cost or other existing loans or debt.

(4)  Be for the purpose of financing projects located

outside the geographic boundaries of this Commonwealth.

(5)  Be for the purpose of paying off a creditor that is

inadequately secured and is in a position to sustain a loss.

(6)  Be for the purpose of repaying a debt owed to a

small business investment company.

(7)  Provide funds for speculation in any kind of

property, real or personal, tangible or intangible.

(c)  Security.--All loans shall be secured by no less than a

second lien position on the equipment purchased and other

sufficient collateral as determined by the secretary.

§ 2906.  Application and administration.

(a)  Procedures.--Application and administration procedures

for fund loans shall be established by the secretary.

(b)  Receipt.--The secretary shall receive applications from

eligible business enterprises for machinery and equipment loans.

Applications shall be made to the secretary in the form and

manner as the department may require.

(c)  Investigation.--Upon receipt of the application, the

secretary shall investigate and review the application and

either approve or disapprove the loan application by proper

action of the department. The decision of the secretary shall be

based, in whole or in part, upon the following criteria:

(1)  Ability of the applicant to meet and satisfy all

debt service as it becomes due and payable.

(2)  Sufficiency of available collateral, including

satisfactory lien positions on real and personal property.

(3)  Eligibility of the applicant as a business

enterprise involved in industrial processes, manufacturing,

mining, production agriculture, information technology,

biotechnology, services as a medical facility or other

industrial or technology sectors as defined by the secretary.

(4)  Sufficient evidence that funds shall be used only to

acquire and install new equipment and machinery or upgrade

existing equipment and machinery, including the acquisition,

application and utilization of computer hardware and

software.

(5)  Capital needs of the applicant.

(6)  Conformity of the project to the provisions of this

chapter.

(7)  Relevant criminal and credit history and ratings of

applicant as determined from outside credit reporting

services and other sources.

(8)  Number of net employment opportunities created and

retained by the proposed project. This paragraph does not

apply to business enterprises involved in production

agriculture or medical facilities.

(9)  Supporting evidence that the loan project will

increase the firm's competitiveness and value added within

its respective industry.

(10)  Explanation of how the loan will aid the

Commonwealth in its efforts to assist business enterprises to

increase their productivity and improve the future

competitive position of this Commonwealth's industries.

(11)  Compliance with the loan amount limitations

provided for machinery and equipment loans.

(12)  Payment to date of all tax obligations due and

owing to the Commonwealth or any political subdivision

thereof.

(13)  Conformity of all aspects of the loan transaction

with the substantive and procedural provisions of this

chapter and regulations promulgated hereunder.

(14)  Such information and documentation as the secretary

shall require.

(d)  Notification.--The secretary shall notify the applicant

of final approval or disapproval of the loan application within

a reasonable period of time following the receipt of the

application. In the case of approval of a loan application, the

secretary shall arrange to draw the loan amount from the fund

and advance the sum to the recipient. The advance shall be made

available in the form of a loan transaction, which loan shall be

evidenced by a note executed by the recipient and secured in a

manner as the secretary shall require in conformity in all

respects to the loan as approved by the secretary.

(e)  Policy requirements and report.--All loans shall be

administered and monitored by the department in accordance with

the policies and procedures prescribed by the secretary. On or

before September 1 of each year, the secretary shall prepare a

report that includes the following:

(1)  Each outstanding loan.

(2)  The date of approval.

(3)  The original principal balance.

(4)  The current principal balance.

(5)  The interest rate.

(6)  The purpose for which the loan was made.

(7)  An enumeration of any problems or issues which have

arisen with regard to each loan.

(8)  A statement regarding the progress of the business

enterprise in creating and retaining its requisite number of

employment opportunities.

(9)  Such other information and documentation as the

secretary shall require.

(f)  Penalty for noncompliance.--In the event that a loan

recipient shall not comply with its approved application by

failing to create or preserve the number of employment

opportunities specified in its approved application, the

secretary shall impose a penalty equal to an increase in the

interest rate to 2% greater than the current prime interest rate

for the remainder of the loan unless the penalty is waived by

the secretary because the failure is due to circumstances

outside the control of the loan recipient. The penalty shall be

payable in installments that the secretary deems appropriate.

§ 2907.  Powers of secretary.

The secretary shall have and may exercise all powers and

authority necessary to the proper administration and

implementation of this chapter and shall have the authority to

adopt policies, procedures and guidelines and promulgate rules

and regulations necessary to effectuate the provisions of this

chapter.

§ 2908.  Reporting and inspection.

(a)  Inspection.--Each business enterprise which applies for

or receives assistance under this chapter, upon reasonable

request of the department, shall permit duly authorized

employees of the department to inspect the plant, books and

records of the business enterprise.

(b)  Updating.--Each business enterprise shall update the

information given to the department in its application if

conditions change or to the extent that the information given

originally becomes inaccurate or misleading.

(c)  Periodic reports.--Each recipient of assistance under

this chapter shall provide the department with periodic

financial reports as the secretary may require until such time

as the loan is paid off.

§ 2909.  Nondiscrimination.

No loan shall be made to a business enterprise unless the

business enterprise certifies to the department, in a form

satisfactory to the department, that it shall not discriminate

against any employee or any applicant for employment because of

race, religion, color, national origin, sex or age. The business

enterprise shall also certify to the department that it is not

currently under citation for pollution violations and that in

the future it will meet all applicable antipollution standards.

§ 2910.  Conflict of interest.

No employee of the department shall, either directly or

indirectly, be a party to or have any financial interest in any

contract or agreement arising pursuant to this chapter.

§ 2911.  Reports to General Assembly.

(a)  Annual reports.--On or before September 1 of each year,

the secretary shall provide a report to the Secretary of the

Senate and to the Chief Clerk of the House of Representatives.

The report shall describe all relevant activities of the

department pursuant to this chapter and shall include the

following:

(1)  List of business enterprises receiving loans from

the fund and the amounts and terms of this assistance.

(2)  Loan amounts repaid. Information under this

paragraph may be reported in the aggregate.

(3)  Loans outstanding, balances due and any penalties

imposed. Information under this paragraph may be reported in

the aggregate.

(4)  Jobs created by businesses receiving funds in

previous years. Information under this paragraph may be

reported in the aggregate.

(5)  Other relevant information as determined by the

secretary.

(b)  Availability of departmental reports.--Reports prepared

by the secretary under section 2906(e) (relating to application

and administration) shall be made available upon request to

members of the General Assembly.

§ 2912.  Guidelines.

The department shall develop written guidelines for the

implementation of this chapter.]

Section 2.  Title 64 is amended by adding a section to read:

§ 1545.  Transfer of funds.

The authority may transfer funds to the Liberty Financing

Authority established under Chapter 17 (relating to Liberty

Financing Authority) with the approval of a super-majority of

the board. The Liberty Financing Authority may approve a

transfer from the authority by acting under section 1712(e)

(relating to board).

Section 3.  Title 64 is amended by adding a chapter to read:

CHAPTER 17

LIBERTY FINANCING AUTHORITY

Subchapter

A.  General Provisions

B.  Structure and Powers

C.  Bonds

D.  Accounts

E.  Programs

F.  Miscellaneous Provisions

SUBCHAPTER A

GENERAL PROVISIONS

Sec.

1701.  Scope of chapter.

1702.  Construction.

1703.  Findings and declaration of policy.

1704.  Definitions.

§ 1701.  Scope of chapter.

This chapter relates to the Liberty Financing Authority.

§ 1702.  Construction.

(a)  General rule.--This chapter shall be liberally construed

in order to effect the legislative and public purposes as set

forth in this subchapter.

(b)  Rights of obligees.--The provisions of this chapter

providing for security, rights and remedies of obligees of the

authority shall be liberally construed to achieve the

legislative and public purposes as set forth in this subchapter.

(c)  Limitation.--If a provision of this chapter is judged to

be invalid by a court of competent jurisdiction, the order or

judgment shall be confined in its operation to the controversy

in which it was rendered and shall not affect or invalidate a

remaining provision of this chapter.

§ 1703.  Findings and declaration of policy.

The General Assembly finds and declares as follows:

(1)  Many existing businesses in this Commonwealth could

expand or otherwise become more competitive if provided with

additional sources of financing for modernization, expansion

and other capital needs. This, in turn, could increase

employment levels, which would help to develop a stable and

healthy economy and revitalize communities, thereby improving

the health, safety and general welfare of the citizens of

this Commonwealth.

(2)  A minimum level of unemployment and a maximum level

of business opportunity can best be attained through the

promotion, stimulation and revitalization of industrial,

commercial, technological, agricultural and tourism

activities in this Commonwealth. Through such efforts, the

Commonwealth's competitiveness in the global economy may also

be enhanced.

(3)  The Commonwealth has developed a great number of

programs with the objective of furthering these economic

purposes. There have also been a correspondingly great number