PRIOR PRINTER'S NO. 3202 PRINTER'S NO. 3241
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
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES,
JUNE 18, 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
1 have the meanings given to them in this section unless the
2 context clearly indicates otherwise:
3 "Appalachian Regional Commission." The Appalachian Regional
4 Commission created and established by the Appalachian Regional
5 Development Act.
6 "Appalachian Regional Development Act." The Appalachian
7 Regional Development Act of 1965 (40 U.S.C. App. § 1 et seq.),
8 as amended.
9 "Area loan organization" or "organization." A local
10 development district of the Appalachian Regional Commission, an
11 industrial development corporation organized and existing under
12 the act of May 17, 1956 (1955 P.L.1609, No.537), known as the
13 Pennsylvania Industrial Development Authority Act, or any other
14 nonprofit economic development organization certified or
15 designated by the secretary as possessing an acceptable loan
16 review committee, professional staff support and such other
17 qualifications necessary to evaluate and administer loans made
18 under the provisions of this act.
19 "Capital development project" or "project." Land, buildings,
20 equipment and machinery and working capital which is acquired,
21 constructed, renovated or used by a small business enterprise as
22 part of a for-profit project or venture not of a mercantile or
23 services-related nature other than; EXCEPT THAT SMALL BUSINESS <--
24 ENTERPRISES SHALL INCLUDE international export-related services
25 or AND international export-related mercantile ventures or AND <--
26 advanced technology or AND computer-related services or AND <--
27 mercantile ventures which will increase Pennsylvania's national
28 or international market shares.
29 "Class I loans." Loans made under the provisions of this
30 act, utilizing funds made available to the department under the
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1 Appalachian Regional Development Act of 1965 (40 U.S.C. § 302).
2 "Class II loans." Loans made under the provisions of this
3 act, utilizing funds made available to the department under the
4 Public Works and Economic Development Act of 1965 (42 U.S.C. §
5 3121 et seq.).
6 "Class III loans." All loans made under the provisions of
7 this act other than Class I or Class II loans.
8 "Department." The Department of Commerce.
9 "Fund." The Capital Loan Fund created and established by
10 this act.
11 "Public Works and Economic Development Act." The Public
12 Works and Economic Development Act of 1965 (42 U.S.C. § 3121 et
13 seq.), as amended.
14 "Secretary." The Secretary of Commerce.
15 "Small business enterprise." A for-profit corporation,
16 partnership or proprietorship which together with its parents,
17 affiliates and subsidiaries, employs, in the aggregate, less
18 than 50 full-time employees, including small business
19 enterprises located in small business incubator facilities.
20 "Working capital." Capital used by a small business
21 enterprise for operations, excluding fixed assets and production
22 machinery and equipment.
23 Section 3. Capital Loan Fund.
24 (a) Creation.--There is hereby created a special account in
25 the Treasury Department, to be known as the Capital Loan Fund to
26 which shall be credited all program appropriations made by the
27 General Assembly, Federal funds made available under the
28 Appalachian Regional Development Act of 1965, the Public Works
29 and Economic Development Act of 1965, or any other statute,
30 regulation or program, the designated proceeds from the bond
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1 issue authorized by the act of February 24, 1984 (P.L.99,
2 No.19), entitled "An act authorizing the indebtedness, with the
3 approval of the electors, of $190,000,000 to promote economic
4 redevelopment throughout Pennsylvania through job producing
5 programs; grants and loans for industrial and small business
6 development; acquisition of equipment for vocational programs in
7 secondary schools, community colleges and engineering degree-
8 granting schools; agricultural development; and the acquisition,
9 rehabilitation or development of facilities for community
10 services and public recreation purposes," and approved by the
11 electors of the Commonwealth on April 10, 1984, all proceeds
12 from loan repayments and any and all other deposits, payments
13 and contributions from any other source made available to the
14 department for the purposes enumerated herein.
15 (b) Requisitions.--The department shall requisition from the
16 fund such amounts as may be necessary to provide adequate funds
17 for payments under this act. No more than 2% of the funds
18 appropriated to the fund in any fiscal year from the Economic
19 Revitalization Fund shall be used by area loan organizations for
20 administrative costs necessary for carrying out the provisions
21 of this act. Area loan organizations may establish and charge
22 reasonable fees for processing loans or loan guarantees under
23 this act, with the approval of the secretary. When and as the
24 amounts so allocated and appropriated by the department as loans
25 are repaid to the department pursuant to the terms of the bonds,
26 notes or other agreements made and entered into by the
27 department, the department shall pay such amounts into the fund,
28 it being the intent of this act that the fund shall operate as a
29 revolving fund whereby all appropriations, deposits,
30 contributions and payments and interest made thereto may be
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1 applied and reapplied to the purposes of this act, including the
2 costs to the area loan organization as specified in this
3 subsection.
4 (c) Credits to fund.--All appropriations, deposits and
5 contributions made to the fund shall be immediately credited in
6 full to the fund and earnings on the moneys held in the fund
7 shall also be credited to the fund for the purposes of this act.
8 (d) Proceeds from repayments of loans.--Any other provisions
9 of this act notwithstanding, proceeds from repayments of loans
10 made with funds provided pursuant to the bond issue authorized
11 by the act of February 24, 1984 (P.L.99, No.19), and approved by
12 the electors of the Commonwealth on April 10, 1984, shall be
13 deposited into such accounts and disposed of as shall be
14 otherwise provided by law.
15 Section 4. Eligibility for loans; terms and conditions.
16 (a) Class I loans.--Eligibility requirements for Class I
17 loans shall be established by the secretary and shall conform in
18 all respects to those requirements imposed by the Appalachian
19 Regional Commission for use of Federal funds under the
20 Appalachian Regional Development Act.
21 (b) Class II loans.--Eligibility requirements for Class II
22 loans shall be established by the secretary and shall conform in
23 all respects to those requirements imposed by the Economic
24 Development Administration for use of Federal funds under the
25 Public Works and Economic Development Act of 1965.
26 (c) Class III loans.--
27 (1) The secretary may make advances from the fund,
28 subject to the terms, conditions and restrictions provided
29 under this act, to area loan organizations for the purpose of
30 making loans to small business enterprises for capital
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1 development projects which demonstrate a substantial
2 likelihood of providing long term increases in NET new <--
3 employment opportunities: Provided, however, That no loans
4 shall be made which would do any of the following:
5 (i) Cause, aid or assist in, directly or indirectly,
6 the relocation of any business operations from one part
7 of the Commonwealth to another, unless there is at least
8 a 10% increase in net employment.
9 (ii) Supplant funding that is otherwise available
10 expeditiously from private sector sources on commercially
11 reasonable terms.
12 (iii) Be for the purpose of refinancing any portion
13 of the total project cost or other existing loans or
14 debt.
15 (iv) Be for the purpose of financing projects
16 located outside the geographic boundaries of this
17 Commonwealth.
18 (v) Be for the purpose of paying off a creditor
19 which is inadequately secured and is in a position to
20 sustain a loss.
21 (vi) Provide funds, directly or indirectly, for
22 payment, distribution, or as a loan to owners, partners
23 or shareholders of the small business enterprise, except
24 as ordinary compensation for services rendered.
25 (vii) Be for the purpose of repaying a debt owed to
26 a small business investment company.
27 (viii) Provide funds for speculation in any kind of
28 property, real or personal, tangible or intangible.
29 (2) Loans may be made in an amount not exceeding 20% of
30 the total project cost, or $50,000, whichever is less:
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1 Provided, however, That no loans shall be made which will
2 exceed $15,000 for each new employment opportunity created by
3 the project.
4 (3) All loans shall be secured by lien positions on
5 collateral at the highest level of priority which can
6 accommodate the borrower's ability to raise sufficient debt
7 and equity capital and be made for such period and shall bear
8 such interest as may be determined by the area loan
9 organization with the approval of the secretary: Provided,
10 however, That:
11 (i) The term of any loan shall not exceed five years
12 for machinery and equipment and working capital loans or
13 ten years for land and building loans.
14 (ii) The interest rate shall in no case be less than
15 5%.
16 (iii) The secretary may defer interest AND PRINCIPAL <--
17 payments at his discretion.
18 (4) Funds appropriated from the Economic Revitalization
19 Fund for fiscal year 1984-1985 shall be allocated to area
20 loan organizations on the basis of the population of the
21 counties they serve. In subsequent fiscal years, the <--
22 secretary may weigh the allocation of funds appropriated from
23 the Economic Revitalization Fund based on performance and
24 other factors, including, but not limited to, the number of
25 net new jobs for the Commonwealth created by loans made in
26 previous years and the economic distress of the area served
27 by the particular area loan organization.
28 (5) No Class III loans or other Class III aid may occur <--
29 BE APPROVED after June 30, 1987. <--
30 Section 5. Application and administration.
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1 (a) Class I loans.--Application and administration
2 procedures for Class I loans shall be established by the
3 secretary and shall conform in all respects to those procedures
4 required or established by the Appalachian Regional Commission
5 for use of Federal funds under the Appalachian Regional
6 Development Act of 1965.
7 (b) Class II loans.--Application and administration
8 procedures for Class II loans shall be established by the
9 secretary and shall conform in all respects to those procedures
10 required or established by the Economic Development
11 Administration for use of Federal funds under the Public Works
12 and Economic Development Act of 1965.
13 (c) Class III loans.--
14 (1) The secretary may designate an area loan
15 organization to receive loan applications from small business
16 enterprises and administer loan portfolios in each area of
17 the Commonwealth. Applications shall be made to the area loan
18 organization in the form and manner as the secretary and the
19 organization may require.
20 (2) Upon receipt of the application, the area loan
21 organization shall investigate and review the application and
22 either approve or disapprove the loan application by proper
23 action of the governing body of the organization. The
24 decision action of the organization shall be based, in whole
25 or in part, upon the following criteria:
26 (i) Ability of applicant to meet and satisfy all
27 debt service as it becomes due and payable.
28 (ii) Sufficiency of available collateral, including
29 satisfactory lien positions on real and personal
30 property.
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1 (iii) Relevant criminal and credit history and
2 ratings of applicant as determined from outside credit
3 reporting services and other sources.
4 (iv) Number of net new employment opportunities
5 created by the proposed project.
6 (v) Eligibility of applicant as a small business
7 enterprise.
8 (vi) Capital needs of the small business enterprise.
9 (vii) Whether the small business enterprise will
10 enhance this Commonwealth's national and international
11 market shares.
12 (viii) Conformity or nonconformity of the project,
13 in all respects, to the provisions of this act.
14 (3) Upon approval of the loan application by the area
15 loan organization, the organization shall forward the
16 application and all supporting documentation which the
17 secretary shall require, including a copy of the proper
18 resolution of the governing body, to the secretary for review
19 and final approval or disapproval. The secretary shall review
20 each application and supporting documentation to ensure the
21 following:
22 (i) Eligibility of the business enterprise and the
23 project for which loan proceeds will be used.
24 (ii) Creation of a satisfactory number of new net
25 employment opportunities within the Commonwealth.
26 (iii) Compliance with the loan amount limitations
27 provided by this act.
28 (iv) Proper procedural action by the area loan
29 organization.
30 (v) Payment to date of all tax obligations due and
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1 owing to the Commonwealth or any political subdivision
2 thereof.
3 (vi) Conformity of all aspects of the loan
4 transaction with the substantive and procedural
5 provisions of this act and regulations promulgated
6 hereunder.
7 All decisions of the secretary regarding the approval or
8 disapproval of loans under this act, including eligibility of
9 business enterprises and loan projects, shall be final.
10 (4) The secretary shall, to the extent practicable,
11 notify the area loan organization and the applicant business
12 enterprise of his or her final approval or disapproval of the
13 loan application, within 30 business days after the receipt
14 of the application. In the case of approval of a loan
15 application, the secretary shall arrange to draw the loan
16 amount from the Capital Loan Fund and advance the sum to the
17 area loan organization. The advance shall be a debt
18 obligation of the organization to the Commonwealth and shall
19 be evidenced by a note or bond issued by the organization in
20 an amount equal to the amount actually advanced and secured
21 in a manner as the secretary shall require. Upon receipt of
22 the advance, the area loan organization shall make the
23 advance available to the small business enterprise in the
24 form of a loan transaction, which loan shall be evidenced by
25 a note executed by the small business enterprise, secured in
26 a manner as the organization and the secretary shall require
27 and conform in all respects to the loan package as approved
28 by the organization and the secretary.
29 (5) All loans shall be administered and monitored by the
30 appropriate area loan organization in accordance with
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1 policies and procedures prescribed by the secretary. Each
2 area loan organization shall submit reports to the department
3 as the secretary shall require, but in no case less than
4 twice a year. Said report shall show the following:
5 (i) Each outstanding loan.
6 (ii) The date approved.
7 (iii) The original principal amount.
8 (iv) The current principal balance.
9 (v) The interest rate.
10 (vi) The purpose for which the loan was made.
11 (vii) An enumeration of any problems or issues which
12 have arisen with regard to each loan.
13 (viii) A statement regarding the progress of the
14 small business enterprise in creating its requisite
15 number of new long-term employment opportunities.
16 (ix) Such other information and documentation as the
17 secretary shall require.
18 (6) In the event that a small business enterprise shall
19 fail to comply with and create the number of new employment
20 opportunities specified in its approved application, the
21 secretary shall impose SMALL BUSINESS ENTERPRISE SHALL BE <--
22 LIABLE FOR a penalty equal to an increase in the interest
23 CHARGED to 2% greater than the current prime interest rate <--
24 for the remainder of the loan unless the penalty is waived by
25 the secretary because the failure is due to circumstances
26 outside of the control of the small business enterprise. The
27 penalty shall be payable in installments which the secretary
28 deems appropriate. Immediate notice of penalties and waivers
29 of penalties (with reasons therefor) shall be submitted by
30 the secretary to the Chief Clerk of the House of
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1 Representatives and the Secretary of the Senate.
2 Section 6. Loan guarantees; other programs.
3 (a) Guarantees; endorsements and sureties.--The secretary
4 may make advances or provide other means of guaranteed payment
5 from the Capital Loan Fund to area loan organizations for the
6 purpose of guaranteeing, endorsing or acting as surety on the
7 bonds, notes, contracts, mortgages or other obligations of small
8 business enterprises on such terms and conditions, and according
9 to such policies and procedures as the secretary may prescribe.
10 Such guarantees, endorsements or sureties may be provided only
11 for those small business enterprises and in connection with
12 those capital development projects which conform in all respects
13 to the provisions of section 4(c). Further, area loan
14 organizations and the secretary shall, in reviewing applications
15 for guarantees, endorsements or sureties, base their respective
16 decisions regarding approval or disapproval upon the findings
17 and determinations required under section 5(c).
18 (b) Grants for loan reserve funds or reimbursing loan
19 losses.--The secretary may provide grants and other financial
20 assistance to area loan organizations for the purpose of
21 establishing loan reserve funds or reimbursing loan losses to
22 commercial banks and other financial institutions in order to
23 encourage the expansion and financing of small business
24 enterprises in the Commonwealth consistent with the purposes of
25 this act.
26 Section 7. Powers of the secretary; rules and regulations.
27 The secretary shall have and may exercise all powers and
28 authority necessary to the proper administration and
29 implementation of this act and shall have authority to adopt
30 policies, procedures and guidelines and promulgate rules and
19840H2296B3241 - 12 -
1 regulations necessary to effectuate the provisions of this act.
2 Section 8. Reporting and inspection.
3 (a) Inspection.--Each small business enterprise which
4 applies for or receives assistance under this act, upon
5 reasonable request of the department or area loan organization,
6 shall permit duly authorized employees of the department and
7 area loan organization to inspect the plant, books and records
8 of the small business enterprise.
9 (b) Updating.--Each small business enterprise shall update
10 the information given to the department and area loan
11 organization in the application if conditions change or to the
12 extent that the information given originally becomes inaccurate
13 or misleading.
14 (c) Periodic reports.--Each recipient of assistance under
15 this act shall provide the department and the area loan
16 organization with such periodic financial reports as the
17 department or area loan organization may require until such time
18 as the loan is paid off.
19 Section 9. Nondiscrimination.
20 No loan or loan guarantee shall be made to a small business
21 enterprise unless the small business enterprise certifies to the
22 department, in a form satisfactory to the department, that it
23 shall not discriminate against any employee or against any
24 applicant for employment because of race, religion, color,
25 national origin, sex or age, including, but not limited to, the
26 following: employment, upgrading, demotion or transfer;
27 recruitment or recruitment advertising; layoff or termination;
28 rates of pay or other forms of compensation; and selection for
29 training, including apprenticeship. The small business shall
30 also certify to the department that it is not currently under
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1 citation for pollution violations and that in the future it will
2 meet all applicable antipollution standards.
3 Section 10. Conflict of interest.
4 No employee of the department and no officer or employee of
5 any area loan organization shall, either directly or indirectly,
6 be a party to or have any financial interest in any contract or
7 agreement arising pursuant to this act.
8 Section 11. Reports to General Assembly.
9 (a) Annual reports.--On or before March 1 of each year, the
10 secretary shall provide a report to the Chief Clerk of the House
11 of Representatives and to the Secretary of the Senate. The
12 report shall describe all relevant activities of the department
13 pursuant to this act and shall include the following:
14 (1) Types of businesses receiving aid and the amounts
15 and terms of the aid.
16 (2) Loans or other aid repaid.
17 (3) Loans or other aid outstanding and balances due,
18 including delinquent payments.
19 (4) Jobs created by businesses receiving aid in all
20 previous years.
21 (5) Increases in retail sales of the businesses
22 receiving aid.
23 (6) Estimated tax revenue increase due to aid from the
24 fund.
25 (b) Copies of policies, guidelines and rules.--The secretary
26 shall provide copies of all official policies, guidelines or
27 rules regarding the program to the Chief Clerk of the House of
28 Representatives and to the Secretary of the Senate. Reports
29 received by the department under section 5(c)(5) shall be made
30 available upon request to members of the General Assembly.
19840H2296B3241 - 14 -
1 Section 12. Appropriations.
2 The sum of $5,000,000 is hereby appropriated to the Capital
3 Loan Fund from the Economic Revitalization Fund, pursuant to the
4 restrictions established by section 3(e).
5 Section 13. Effective date.
6 This act shall take effect immediately.
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