PRINTER'S NO. 3202
No. 2296 Session of 1984
INTRODUCED BY MANDERINO, RYAN, LLOYD, TELEK, PETERSON, HOEFFEL,
COY, GRIECO, COWELL, STAIRS, PIEVSKY, DAVIES, ITKIN,
MICHLOVIC, GANNON, AFFLERBACH, FREEMAN, DOMBROWSKI,
D. R. WRIGHT, RUDY, HAYES, KASUNIC, DALEY, HALUSKA, PETRONE,
COLAFELLA, JAROLIN, BLAUM, GALLAGHER, GRUITZA, WAMBACH,
PISTELLA, SALOOM, PETRARCA, WARGO, BELFANTI, STUBAN, GEORGE,
WACHOB, FEE, CALTAGIRONE, RYBAK, KOSINSKI, COLE, SERAFINI,
GREENWOOD, KUKOVICH, SHOWERS, PRESTON, BALDWIN, CORDISCO,
CAPPABIANCA, McCALL, McHALE, COHEN, STEIGHNER, FATTAH,
BATTISTO, RAPPAPORT, OLIVER, SEVENTY, CLARK, DUFFY, MRKONIC,
SWEET, GAMBLE, RICHARDSON, PRATT, MAYERNIK, STEWART, WOZNIAK,
DeLUCA AND IRVIS, JUNE 13, 1984
REFERRED TO COMMITTEE ON APPROPRIATIONS, JUNE 13, 1984
AN ACT
1 Establishing a loan program for capital development projects;
2 providing for the use of funds made available under the
3 Appalachian Regional Development Act of 1965 and the Public
4 Works and Economic Development Act of 1965; providing for
5 loans, loan guarantees and other programs for capital
6 development projects of small businesses; creating the
7 Capital Loan Fund; providing standards for and requirements
8 of the program; and making appropriations.
9 The General Assembly of the Commonwealth of Pennsylvania
10 hereby enacts as follows:
11 Section 1. Short title.
12 This act shall be known and may be cited as the Capital Loan
13 Fund Act.
14 Section 2. Definitions.
15 The following words and phrases when used in this act shall
16 have the meanings given to them in this section unless the
1 context clearly indicates otherwise:
2 "Appalachian Regional Commission." The Appalachian Regional
3 Commission created and established by the Appalachian Regional
4 Development Act.
5 "Appalachian Regional Development Act." The Appalachian
6 Regional Development Act of 1965 (40 U.S.C. App. § 1 et seq.),
7 as amended.
8 "Area loan organization" or "organization." A local
9 development district of the Appalachian Regional Commission, an
10 industrial development corporation organized and existing under
11 the act of May 17, 1956 (1955 P.L.1609, No.537), known as the
12 Pennsylvania Industrial Development Authority Act, or any other
13 nonprofit economic development organization certified or
14 designated by the secretary as possessing an acceptable loan
15 review committee, professional staff support and such other
16 qualifications necessary to evaluate and administer loans made
17 under the provisions of this act.
18 "Capital development project" or "project." Land, buildings,
19 equipment and machinery and working capital which is acquired,
20 constructed, renovated or used by a small business enterprise as
21 part of a for-profit project or venture not of a mercantile or
22 services-related nature other than international export-related
23 services or international export-related mercantile ventures or
24 advanced technology or computer-related services or mercantile
25 ventures which will increase Pennsylvania's national or
26 international market shares.
27 "Class I loans." Loans made under the provisions of this
28 act, utilizing funds made available to the department under the
29 Appalachian Regional Development Act of 1965 (40 U.S.C. § 302).
30 "Class II loans." Loans made under the provisions of this
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1 act, utilizing funds made available to the department under the
2 Public Works and Economic Development Act of 1965 (42 U.S.C. §
3 3121 et seq.).
4 "Class III loans." All loans made under the provisions of
5 this act other than Class I or Class II loans.
6 "Department." The Department of Commerce.
7 "Fund." The Capital Loan Fund created and established by
8 this act.
9 "Public Works and Economic Development Act." The Public
10 Works and Economic Development Act of 1965 (42 U.S.C. § 3121 et
11 seq.), as amended.
12 "Secretary." The Secretary of Commerce.
13 "Small business enterprise." A for-profit corporation,
14 partnership or proprietorship which together with its parents,
15 affiliates and subsidiaries, employs, in the aggregate, less
16 than 50 full-time employees, including small business
17 enterprises located in small business incubator facilities.
18 "Working capital." Capital used by a small business
19 enterprise for operations, excluding fixed assets and production
20 machinery and equipment.
21 Section 3. Capital Loan Fund.
22 (a) Creation.--There is hereby created a special account in
23 the Treasury Department, to be known as the Capital Loan Fund to
24 which shall be credited all program appropriations made by the
25 General Assembly, Federal funds made available under the
26 Appalachian Regional Development Act of 1965, the Public Works
27 and Economic Development Act of 1965, or any other statute,
28 regulation or program, the designated proceeds from the bond
29 issue authorized by the act of February 24, 1984 (P.L.99,
30 No.19), entitled "An act authorizing the indebtedness, with the
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1 approval of the electors, of $190,000,000 to promote economic
2 redevelopment throughout Pennsylvania through job producing
3 programs; grants and loans for industrial and small business
4 development; acquisition of equipment for vocational programs in
5 secondary schools, community colleges and engineering degree-
6 granting schools; agricultural development; and the acquisition,
7 rehabilitation or development of facilities for community
8 services and public recreation purposes," and approved by the
9 electors of the Commonwealth on April 10, 1984, all proceeds
10 from loan repayments and any and all other deposits, payments
11 and contributions from any other source made available to the
12 department for the purposes enumerated herein.
13 (b) Requisitions.--The department shall requisition from the
14 fund such amounts as may be necessary to provide adequate funds
15 for payments under this act. No more than 2% of the funds
16 appropriated to the fund in any fiscal year from the Economic
17 Revitalization Fund shall be used by area loan organizations for
18 administrative costs necessary for carrying out the provisions
19 of this act. Area loan organizations may establish and charge
20 reasonable fees for processing loans or loan guarantees under
21 this act, with the approval of the secretary. When and as the
22 amounts so allocated and appropriated by the department as loans
23 are repaid to the department pursuant to the terms of the bonds,
24 notes or other agreements made and entered into by the
25 department, the department shall pay such amounts into the fund,
26 it being the intent of this act that the fund shall operate as a
27 revolving fund whereby all appropriations, deposits,
28 contributions and payments and interest made thereto may be
29 applied and reapplied to the purposes of this act, including the
30 costs to the area loan organization as specified in this
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1 subsection.
2 (c) Credits to fund.--All appropriations, deposits and
3 contributions made to the fund shall be immediately credited in
4 full to the fund and earnings on the moneys held in the fund
5 shall also be credited to the fund for the purposes of this act.
6 (d) Proceeds from repayments of loans.--Any other provisions
7 of this act notwithstanding, proceeds from repayments of loans
8 made with funds provided pursuant to the bond issue authorized
9 by the act of February 24, 1984 (P.L.99, No.19), and approved by
10 the electors of the Commonwealth on April 10, 1984, shall be
11 deposited into such accounts and disposed of as shall be
12 otherwise provided by law.
13 Section 4. Eligibility for loans; terms and conditions.
14 (a) Class I loans.--Eligibility requirements for Class I
15 loans shall be established by the secretary and shall conform in
16 all respects to those requirements imposed by the Appalachian
17 Regional Commission for use of Federal funds under the
18 Appalachian Regional Development Act.
19 (b) Class II loans.--Eligibility requirements for Class II
20 loans shall be established by the secretary and shall conform in
21 all respects to those requirements imposed by the Economic
22 Development Administration for use of Federal funds under the
23 Public Works and Economic Development Act of 1965.
24 (c) Class III loans.--
25 (1) The secretary may make advances from the fund,
26 subject to the terms, conditions and restrictions provided
27 under this act, to area loan organizations for the purpose of
28 making loans to small business enterprises for capital
29 development projects which demonstrate a substantial
30 likelihood of providing long term increases in new employment
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1 opportunities: Provided, however, That no loans shall be made
2 which would do any of the following:
3 (i) Cause, aid or assist in, directly or indirectly,
4 the relocation of any business operations from one part
5 of the Commonwealth to another, unless there is at least
6 a 10% increase in net employment.
7 (ii) Supplant funding that is otherwise available
8 expeditiously from private sector sources on commercially
9 reasonable terms.
10 (iii) Be for the purpose of refinancing any portion
11 of the total project cost or other existing loans or
12 debt.
13 (iv) Be for the purpose of financing projects
14 located outside the geographic boundaries of this
15 Commonwealth.
16 (v) Be for the purpose of paying off a creditor
17 which is inadequately secured and is in a position to
18 sustain a loss.
19 (vi) Provide funds, directly or indirectly, for
20 payment, distribution, or as a loan to owners, partners
21 or shareholders of the small business enterprise, except
22 as ordinary compensation for services rendered.
23 (vii) Be for the purpose of repaying a debt owed to
24 a small business investment company.
25 (viii) Provide funds for speculation in any kind of
26 property, real or personal, tangible or intangible.
27 (2) Loans may be made in an amount not exceeding 20% of
28 the total project cost, or $50,000, whichever is less:
29 Provided, however, That no loans shall be made which will
30 exceed $15,000 for each new employment opportunity created by
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1 the project.
2 (3) All loans shall be secured by lien positions on
3 collateral at the highest level of priority which can
4 accommodate the borrower's ability to raise sufficient debt
5 and equity capital and be made for such period and shall bear
6 such interest as may be determined by the area loan
7 organization with the approval of the secretary: Provided,
8 however, That:
9 (i) The term of any loan shall not exceed five years
10 for machinery and equipment and working capital loans or
11 ten years for land and building loans.
12 (ii) The interest rate shall in no case be less than
13 5%.
14 (iii) The secretary may defer interest payments at
15 his discretion.
16 (4) Funds appropriated from the Economic Revitalization
17 Fund for fiscal year 1984-1985 shall be allocated to area
18 loan organizations on the basis of the population of the
19 counties they serve. In subsequent fiscal years, the
20 secretary may weigh the allocation of funds appropriated from
21 the Economic Revitalization Fund based on performance and
22 other factors, including, but not limited to, the number of
23 net new jobs for the Commonwealth created by loans made in
24 previous years and the economic distress of the area served
25 by the particular area loan organization.
26 (5) No Class III loans or other Class III aid may occur
27 after June 30, 1987.
28 Section 5. Application and administration.
29 (a) Class I loans.--Application and administration
30 procedures for Class I loans shall be established by the
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1 secretary and shall conform in all respects to those procedures
2 required or established by the Appalachian Regional Commission
3 for use of Federal funds under the Appalachian Regional
4 Development Act of 1965.
5 (b) Class II loans.--Application and administration
6 procedures for Class II loans shall be established by the
7 secretary and shall conform in all respects to those procedures
8 required or established by the Economic Development
9 Administration for use of Federal funds under the Public Works
10 and Economic Development Act of 1965.
11 (c) Class III loans.--
12 (1) The secretary may designate an area loan
13 organization to receive loan applications from small business
14 enterprises and administer loan portfolios in each area of
15 the Commonwealth. Applications shall be made to the area loan
16 organization in the form and manner as the secretary and the
17 organization may require.
18 (2) Upon receipt of the application, the area loan
19 organization shall investigate and review the application and
20 either approve or disapprove the loan application by proper
21 action of the governing body of the organization. The
22 decision action of the organization shall be based, in whole
23 or in part, upon the following criteria:
24 (i) Ability of applicant to meet and satisfy all
25 debt service as it becomes due and payable.
26 (ii) Sufficiency of available collateral, including
27 satisfactory lien positions on real and personal
28 property.
29 (iii) Relevant criminal and credit history and
30 ratings of applicant as determined from outside credit
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1 reporting services and other sources.
2 (iv) Number of net new employment opportunities
3 created by the proposed project.
4 (v) Eligibility of applicant as a small business
5 enterprise.
6 (vi) Capital needs of the small business enterprise.
7 (vii) Whether the small business enterprise will
8 enhance this Commonwealth's national and international
9 market shares.
10 (viii) Conformity or nonconformity of the project,
11 in all respects, to the provisions of this act.
12 (3) Upon approval of the loan application by the area
13 loan organization, the organization shall forward the
14 application and all supporting documentation which the
15 secretary shall require, including a copy of the proper
16 resolution of the governing body, to the secretary for review
17 and final approval or disapproval. The secretary shall review
18 each application and supporting documentation to ensure the
19 following:
20 (i) Eligibility of the business enterprise and the
21 project for which loan proceeds will be used.
22 (ii) Creation of a satisfactory number of new net
23 employment opportunities within the Commonwealth.
24 (iii) Compliance with the loan amount limitations
25 provided by this act.
26 (iv) Proper procedural action by the area loan
27 organization.
28 (v) Payment to date of all tax obligations due and
29 owing to the Commonwealth or any political subdivision
30 thereof.
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1 (vi) Conformity of all aspects of the loan
2 transaction with the substantive and procedural
3 provisions of this act and regulations promulgated
4 hereunder.
5 All decisions of the secretary regarding the approval or
6 disapproval of loans under this act, including eligibility of
7 business enterprises and loan projects, shall be final.
8 (4) The secretary shall, to the extent practicable,
9 notify the area loan organization and the applicant business
10 enterprise of his or her final approval or disapproval of the
11 loan application, within 30 business days after the receipt
12 of the application. In the case of approval of a loan
13 application, the secretary shall arrange to draw the loan
14 amount from the Capital Loan Fund and advance the sum to the
15 area loan organization. The advance shall be a debt
16 obligation of the organization to the Commonwealth and shall
17 be evidenced by a note or bond issued by the organization in
18 an amount equal to the amount actually advanced and secured
19 in a manner as the secretary shall require. Upon receipt of
20 the advance, the area loan organization shall make the
21 advance available to the small business enterprise in the
22 form of a loan transaction, which loan shall be evidenced by
23 a note executed by the small business enterprise, secured in
24 a manner as the organization and the secretary shall require
25 and conform in all respects to the loan package as approved
26 by the organization and the secretary.
27 (5) All loans shall be administered and monitored by the
28 appropriate area loan organization in accordance with
29 policies and procedures prescribed by the secretary. Each
30 area loan organization shall submit reports to the department
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1 as the secretary shall require, but in no case less than
2 twice a year. Said report shall show the following:
3 (i) Each outstanding loan.
4 (ii) The date approved.
5 (iii) The original principal amount.
6 (iv) The current principal balance.
7 (v) The interest rate.
8 (vi) The purpose for which the loan was made.
9 (vii) An enumeration of any problems or issues which
10 have arisen with regard to each loan.
11 (viii) A statement regarding the progress of the
12 small business enterprise in creating its requisite
13 number of new long-term employment opportunities.
14 (ix) Such other information and documentation as the
15 secretary shall require.
16 (6) In the event that a small business enterprise shall
17 fail to comply with and create the number of new employment
18 opportunities specified in its approved application, the
19 secretary shall impose a penalty equal to an increase in the
20 interest to 2% greater than the current prime interest rate
21 for the remainder of the loan unless the penalty is waived by
22 the secretary because the failure is due to circumstances
23 outside of the control of the small business enterprise. The
24 penalty shall be payable in installments which the secretary
25 deems appropriate. Immediate notice of penalties and waivers
26 of penalties (with reasons therefor) shall be submitted by
27 the secretary to the Chief Clerk of the House of
28 Representatives and the Secretary of the Senate.
29 Section 6. Loan guarantees; other programs.
30 (a) Guarantees; endorsements and sureties.--The secretary
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1 may make advances or provide other means of guaranteed payment
2 from the Capital Loan Fund to area loan organizations for the
3 purpose of guaranteeing, endorsing or acting as surety on the
4 bonds, notes, contracts, mortgages or other obligations of small
5 business enterprises on such terms and conditions, and according
6 to such policies and procedures as the secretary may prescribe.
7 Such guarantees, endorsements or sureties may be provided only
8 for those small business enterprises and in connection with
9 those capital development projects which conform in all respects
10 to the provisions of section 4(c). Further, area loan
11 organizations and the secretary shall, in reviewing applications
12 for guarantees, endorsements or sureties, base their respective
13 decisions regarding approval or disapproval upon the findings
14 and determinations required under section 5(c).
15 (b) Grants for loan reserve funds or reimbursing loan
16 losses.--The secretary may provide grants and other financial
17 assistance to area loan organizations for the purpose of
18 establishing loan reserve funds or reimbursing loan losses to
19 commercial banks and other financial institutions in order to
20 encourage the expansion and financing of small business
21 enterprises in the Commonwealth consistent with the purposes of
22 this act.
23 Section 7. Powers of the secretary; rules and regulations.
24 The secretary shall have and may exercise all powers and
25 authority necessary to the proper administration and
26 implementation of this act and shall have authority to adopt
27 policies, procedures and guidelines and promulgate rules and
28 regulations necessary to effectuate the provisions of this act.
29 Section 8. Reporting and inspection.
30 (a) Inspection.--Each small business enterprise which
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1 applies for or receives assistance under this act, upon
2 reasonable request of the department or area loan organization,
3 shall permit duly authorized employees of the department and
4 area loan organization to inspect the plant, books and records
5 of the small business enterprise.
6 (b) Updating.--Each small business enterprise shall update
7 the information given to the department and area loan
8 organization in the application if conditions change or to the
9 extent that the information given originally becomes inaccurate
10 or misleading.
11 (c) Periodic reports.--Each recipient of assistance under
12 this act shall provide the department and the area loan
13 organization with such periodic financial reports as the
14 department or area loan organization may require until such time
15 as the loan is paid off.
16 Section 9. Nondiscrimination.
17 No loan or loan guarantee shall be made to a small business
18 enterprise unless the small business enterprise certifies to the
19 department, in a form satisfactory to the department, that it
20 shall not discriminate against any employee or against any
21 applicant for employment because of race, religion, color,
22 national origin, sex or age, including, but not limited to, the
23 following: employment, upgrading, demotion or transfer;
24 recruitment or recruitment advertising; layoff or termination;
25 rates of pay or other forms of compensation; and selection for
26 training, including apprenticeship. The small business shall
27 also certify to the department that it is not currently under
28 citation for pollution violations and that in the future it will
29 meet all applicable antipollution standards.
30 Section 10. Conflict of interest.
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1 No employee of the department and no officer or employee of
2 any area loan organization shall, either directly or indirectly,
3 be a party to or have any financial interest in any contract or
4 agreement arising pursuant to this act.
5 Section 11. Reports to General Assembly.
6 (a) Annual reports.--On or before March 1 of each year, the
7 secretary shall provide a report to the Chief Clerk of the House
8 of Representatives and to the Secretary of the Senate. The
9 report shall describe all relevant activities of the department
10 pursuant to this act and shall include the following:
11 (1) Types of businesses receiving aid and the amounts
12 and terms of the aid.
13 (2) Loans or other aid repaid.
14 (3) Loans or other aid outstanding and balances due,
15 including delinquent payments.
16 (4) Jobs created by businesses receiving aid in all
17 previous years.
18 (5) Increases in retail sales of the businesses
19 receiving aid.
20 (6) Estimated tax revenue increase due to aid from the
21 fund.
22 (b) Copies of policies, guidelines and rules.--The secretary
23 shall provide copies of all official policies, guidelines or
24 rules regarding the program to the Chief Clerk of the House of
25 Representatives and to the Secretary of the Senate. Reports
26 received by the department under section 5(c)(5) shall be made
27 available upon request to members of the General Assembly.
28 Section 12. Appropriations.
29 The sum of $5,000,000 is hereby appropriated to the Capital
30 Loan Fund from the Economic Revitalization Fund, pursuant to the
19840H2296B3202 - 14 -
1 restrictions established by section 3(e).
2 Section 13. Effective date.
3 This act shall take effect immediately.
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