PRINTER'S NO. 2118
No. 1439 Session of 1984
INTRODUCED BY JUBELIRER, ZEMPRELLI, HELFRICK, LLOYD, SHAFFER,
SHUMAKER, SINGEL, STAPLETON, STOUT, STREET, WILLIAMS, WILT,
MOORE, MUSTO, O'CONNELL, O'PAKE, REIBMAN, RHOADES, ROCKS,
ROMANELLI, ROSS, SCANLON, HOPPER, HOWARD, KRATZER, LEWIS,
LINCOLN, LLOYD, LOEPER, LYNCH, MELLOW, ANDREZESKI, BODACK,
CORMAN, FISHER, HANKINS, HELFRICK, HESS AND HAGER, JUNE 15,
1984
REFERRED TO APPROPRIATIONS, JUNE 15, 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
17 context clearly indicates otherwise:
18 "Appalachian Regional Commission." The Appalachian Regional
1 Commission created and established by the Appalachian Regional
2 Development Act.
3 "Appalachian Regional Development Act." The Appalachian
4 Regional Development Act of 1965 (40 U.S.C. App. § 1 et seq.),
5 as amended.
6 "Area loan organization" or "organization." A local
7 development district of the Appalachian Regional Commission, an
8 industrial development corporation organized and existing under
9 the act of May 17, 1956 (1955 P.L.1609, No.537), known as the
10 Pennsylvania Industrial Development Authority Act, or any other
11 nonprofit economic development organization certified or
12 designated by the secretary as possessing an acceptable loan
13 review committee, professional staff support and such other
14 qualifications necessary to evaluate and administer loans made
15 under the provisions of this act.
16 "Capital development project" or "project." Land, buildings,
17 equipment and machinery and working capital which is acquired,
18 constructed, renovated or used by a small business enterprise as
19 part of a for-profit project or venture not of a mercantile or
20 services-related nature other than international export-related
21 services or international export-related mercantile ventures or
22 advanced technology or computer-related services or mercantile
23 ventures which will increase Pennsylvania's national or
24 international market shares.
25 "Class I loans." Loans made under the provisions of this
26 act, utilizing funds made available to the department under the
27 Appalachian Regional Development Act of 1965 (40 U.S.C. § 302).
28 "Class II loans." Loans made under the provisions of this
29 act, utilizing funds made available to the department under the
30 Public Works and Economic Development Act of 1965 (42 U.S.C. §
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1 3121 et seq.).
2 "Class III loans." All loans made under the provisions of
3 this act other than Class I or Class II loans.
4 "Department." The Department of Commerce.
5 "Fund." The Capital Loan Fund created and established by
6 this act.
7 "Public Works and Economic Development Act." The Public
8 Works and Economic Development Act of 1965 (42 U.S.C. § 3121 et
9 seq.), as amended.
10 "Secretary." The Secretary of Commerce.
11 "Small business enterprise." A for-profit corporation,
12 partnership or proprietorship which together with its parents,
13 affiliates and subsidiaries, employs, in the aggregate, less
14 than 50 full-time employees, including small business
15 enterprises located in small business incubator facilities.
16 "Working capital." Capital used by a small business
17 enterprise for operations, excluding fixed assets and production
18 machinery and equipment.
19 Section 3. Capital Loan Fund.
20 (a) Creation.--There is hereby created a special account in
21 the Treasury Department, to be known as the Capital Loan Fund to
22 which shall be credited all program appropriations made by the
23 General Assembly, Federal funds made available under the
24 Appalachian Regional Development Act of 1965, the Public Works
25 and Economic Development Act of 1965, or any other statute,
26 regulation or program, the designated proceeds from the bond
27 issue authorized by the act of February 24, 1984 (P.L.99,
28 No.19), entitled "An act authorizing the indebtedness, with the
29 approval of the electors, of $190,000,000 to promote economic
30 redevelopment throughout Pennsylvania through job producing
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1 programs; grants and loans for industrial and small business
2 development; acquisition of equipment for vocational programs in
3 secondary schools, community colleges and engineering degree-
4 granting schools; agricultural development; and the acquisition,
5 rehabilitation or development of facilities for community
6 services and public recreation purposes," and approved by the
7 electors of the Commonwealth on April 10, 1984, all proceeds
8 from loan repayments and any and all other deposits, payments
9 and contributions from any other source made available to the
10 department for the purposes enumerated herein.
11 (b) Requisitions.--The department shall requisition from the
12 fund such amounts as may be necessary to provide adequate funds
13 for payments under this act. No more than 2% of the funds
14 appropriated to the fund in any fiscal year from the Economic
15 Revitalization Fund shall be used by area loan organizations for
16 administrative costs necessary for carrying out the provisions
17 of this act. Area loan organizations may establish and charge
18 reasonable fees for processing loans or loan guarantees under
19 this act, with the approval of the secretary. When and as the
20 amounts so allocated and appropriated by the department as loans
21 are repaid to the department pursuant to the terms of the bonds,
22 notes or other agreements made and entered into by the
23 department, the department shall pay such amounts into the fund,
24 it being the intent of this act that the fund shall operate as a
25 revolving fund whereby all appropriations, deposits,
26 contributions and payments and interest made thereto may be
27 applied and reapplied to the purposes of this act, including the
28 costs to the area loan organization as specified in this
29 subsection.
30 (c) Credits to fund.--All appropriations, deposits and
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1 contributions made to the fund shall be immediately credited in
2 full to the fund and earnings on the moneys held in the fund
3 shall also be credited to the fund for the purposes of this act.
4 (d) Proceeds from repayments of loans.--Any other provisions
5 of this act notwithstanding, proceeds from repayments of loans
6 made with funds provided pursuant to the bond issue authorized
7 by the act of February 24, 1984 (P.L.99, No.19), and approved by
8 the electors of the Commonwealth on April 10, 1984, shall be
9 deposited into such accounts and disposed of as shall be
10 otherwise provided by law.
11 Section 4. Eligibility for loans; terms and conditions.
12 (a) Class I loans.--Eligibility requirements for Class I
13 loans shall be established by the secretary and shall conform in
14 all respects to those requirements imposed by the Appalachian
15 Regional Commission for use of Federal funds under the
16 Appalachian Regional Development Act.
17 (b) Class II loans.--Eligibility requirements for Class II
18 loans shall be established by the secretary and shall conform in
19 all respects to those requirements imposed by the Economic
20 Development Administration for use of Federal funds under the
21 Public Works and Economic Development Act of 1965.
22 (c) Class III loans.--
23 (1) The secretary may make advances from the fund,
24 subject to the terms, conditions and restrictions provided
25 under this act, to area loan organizations for the purpose of
26 making loans to small business enterprises for capital
27 development projects which demonstrate a substantial
28 likelihood of providing long term increases in new employment
29 opportunities: Provided, however, That no loans shall be made
30 which would do any of the following:
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1 (i) Cause, aid or assist in, directly or indirectly,
2 the relocation of any business operations from one part
3 of the Commonwealth to another, unless there is at least
4 a 10% increase in net employment.
5 (ii) Supplant funding that is otherwise available
6 expeditiously from private sector sources on commercially
7 reasonable terms.
8 (iii) Be for the purpose of refinancing any portion
9 of the total project cost or other existing loans or
10 debt.
11 (iv) Be for the purpose of financing projects
12 located outside the geographic boundaries of this
13 Commonwealth.
14 (v) Be for the purpose of paying off a creditor
15 which is inadequately secured and is in a position to
16 sustain a loss.
17 (vi) Provide funds, directly or indirectly, for
18 payment, distribution, or as a loan to owners, partners
19 or shareholders of the small business enterprise, except
20 as ordinary compensation for services rendered.
21 (vii) Be for the purpose of repaying a debt owed to
22 a small business investment company.
23 (viii) Provide funds for speculation in any kind of
24 property, real or personal, tangible or intangible.
25 (2) Loans may be made in an amount not exceeding 20% of
26 the total project cost, or $50,000, whichever is less:
27 Provided, however, That no loans shall be made which will
28 exceed $15,000 for each new employment opportunity created by
29 the project.
30 (3) All loans shall be secured by lien positions on
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1 collateral at the highest level of priority which can
2 accommodate the borrower's ability to raise sufficient debt
3 and equity capital and be made for such period and shall bear
4 such interest as may be determined by the area loan
5 organization with the approval of the secretary: Provided,
6 however, That:
7 (i) The term of any loan shall not exceed five years
8 for machinery and equipment and working capital loans or
9 ten years for land and building loans.
10 (ii) The interest rate shall in no case be less than
11 5%.
12 (iii) The secretary may defer interest payments at
13 his discretion.
14 (4) Funds appropriated from the Economic Revitalization
15 Fund for fiscal year 1984-1985 shall be allocated to area
16 loan organizations on the basis of the population of the
17 counties they serve. In subsequent fiscal years, the
18 secretary may weigh the allocation of funds appropriated from
19 the Economic Revitalization Fund based on performance and
20 other factors, including, but not limited to, the number of
21 net new jobs for the Commonwealth created by loans made in
22 previous years and the economic distress of the area served
23 by the particular area loan organization.
24 (5) No Class III loans or other Class III aid may occur
25 after June 30, 1987.
26 Section 5. Application and administration.
27 (a) Class I loans.--Application and administration
28 procedures for Class I loans shall be established by the
29 secretary and shall conform in all respects to those procedures
30 required or established by the Appalachian Regional Commission
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1 for use of Federal funds under the Appalachian Regional
2 Development Act of 1965.
3 (b) Class II loans.--Application and administration
4 procedures for Class II loans shall be established by the
5 secretary and shall conform in all respects to those procedures
6 required or established by the Economic Development
7 Administration for use of Federal funds under the Public Works
8 and Economic Development Act of 1965.
9 (c) Class III loans.--
10 (1) The secretary may designate an area loan
11 organization to receive loan applications from small business
12 enterprises and administer loan portfolios in each area of
13 the Commonwealth. Applications shall be made to the area loan
14 organization in the form and manner as the secretary and the
15 organization may require.
16 (2) Upon receipt of the application, the area loan
17 organization shall investigate and review the application and
18 either approve or disapprove the loan application by proper
19 action of the governing body of the organization. The
20 decision action of the organization shall be based, in whole
21 or in part, upon the following criteria:
22 (i) Ability of applicant to meet and satisfy all
23 debt service as it becomes due and payable.
24 (ii) Sufficiency of available collateral, including
25 satisfactory lien positions on real and personal
26 property.
27 (iii) Relevant criminal and credit history and
28 ratings of applicant as determined from outside credit
29 reporting services and other sources.
30 (iv) Number of net new employment opportunities
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1 created by the proposed project.
2 (v) Eligibility of applicant as a small business
3 enterprise.
4 (vi) Capital needs of the small business enterprise.
5 (vii) Whether the small business enterprise will
6 enhance this Commonwealth's national and international
7 market shares.
8 (viii) Conformity or nonconformity of the project,
9 in all respects, to the provisions of this act.
10 (3) Upon approval of the loan application by the area
11 loan organization, the organization shall forward the
12 application and all supporting documentation which the
13 secretary shall require, including a copy of the proper
14 resolution of the governing body, to the secretary for review
15 and final approval or disapproval. The secretary shall review
16 each application and supporting documentation to ensure the
17 following:
18 (i) Eligibility of the business enterprise and the
19 project for which loan proceeds will be used.
20 (ii) Creation of a satisfactory number of new net
21 employment opportunities within the Commonwealth.
22 (iii) Compliance with the loan amount limitations
23 provided by this act.
24 (iv) Proper procedural action by the area loan
25 organization.
26 (v) Payment to date of all tax obligations due and
27 owing to the Commonwealth or any political subdivision
28 thereof.
29 (vi) Conformity of all aspects of the loan
30 transaction with the substantive and procedural
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1 provisions of this act and regulations promulgated
2 hereunder.
3 All decisions of the secretary regarding the approval or
4 disapproval of loans under this act, including eligibility of
5 business enterprises and loan projects, shall be final.
6 (4) The secretary shall, to the extent practicable,
7 notify the area loan organization and the applicant business
8 enterprise of his or her final approval or disapproval of the
9 loan application, within 30 business days after the receipt
10 of the application. In the case of approval of a loan
11 application, the secretary shall arrange to draw the loan
12 amount from the Capital Loan Fund and advance the sum to the
13 area loan organization. The advance shall be a debt
14 obligation of the organization to the Commonwealth and shall
15 be evidenced by a note or bond issued by the organization in
16 an amount equal to the amount actually advanced and secured
17 in a manner as the secretary shall require. Upon receipt of
18 the advance, the area loan organization shall make the
19 advance available to the small business enterprise in the
20 form of a loan transaction, which loan shall be evidenced by
21 a note executed by the small business enterprise, secured in
22 a manner as the organization and the secretary shall require
23 and conform in all respects to the loan package as approved
24 by the organization and the secretary.
25 (5) All loans shall be administered and monitored by the
26 appropriate area loan organization in accordance with
27 policies and procedures prescribed by the secretary. Each
28 area loan organization shall submit reports to the department
29 as the secretary shall require, but in no case less than
30 twice a year. Said report shall show the following:
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1 (i) Each outstanding loan.
2 (ii) The date approved.
3 (iii) The original principal amount.
4 (iv) The current principal balance.
5 (v) The interest rate.
6 (vi) The purpose for which the loan was made.
7 (vii) An enumeration of any problems or issues which
8 have arisen with regard to each loan.
9 (viii) A statement regarding the progress of the
10 small business enterprise in creating its requisite
11 number of new long-term employment opportunities.
12 (ix) Such other information and documentation as the
13 secretary shall require.
14 (6) In the event that a small business enterprise shall
15 fail to comply with and create the number of new employment
16 opportunities specified in its approved application, the
17 secretary shall impose a penalty equal to an increase in the
18 interest to 2% greater than the current prime interest rate
19 for the remainder of the loan unless the penalty is waived by
20 the secretary because the failure is due to circumstances
21 outside of the control of the small business enterprise. The
22 penalty shall be payable in installments which the secretary
23 deems appropriate. Immediate notice of penalties and waivers
24 of penalties (with reasons therefor) shall be submitted by
25 the secretary to the Chief Clerk of the House of
26 Representatives and the Secretary of the Senate.
27 Section 6. Loan guarantees; other programs.
28 (a) Guarantees; endorsements and sureties.--The secretary
29 may make advances or provide other means of guaranteed payment
30 from the Capital Loan Fund to area loan organizations for the
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1 purpose of guaranteeing, endorsing or acting as surety on the
2 bonds, notes, contracts, mortgages or other obligations of small
3 business enterprises on such terms and conditions, and according
4 to such policies and procedures as the secretary may prescribe.
5 Such guarantees, endorsements or sureties may be provided only
6 for those small business enterprises and in connection with
7 those capital development projects which conform in all respects
8 to the provisions of section 4(c). Further, area loan
9 organizations and the secretary shall, in reviewing applications
10 for guarantees, endorsements or sureties, base their respective
11 decisions regarding approval or disapproval upon the findings
12 and determinations required under section 5(c).
13 (b) Grants for loan reserve funds or reimbursing loan
14 losses.--The secretary may provide grants and other financial
15 assistance to area loan organizations for the purpose of
16 establishing loan reserve funds or reimbursing loan losses to
17 commercial banks and other financial institutions in order to
18 encourage the expansion and financing of small business
19 enterprises in the Commonwealth consistent with the purposes of
20 this act.
21 Section 7. Powers of the secretary; rules and regulations.
22 The secretary shall have and may exercise all powers and
23 authority necessary to the proper administration and
24 implementation of this act and shall have authority to adopt
25 policies, procedures and guidelines and promulgate rules and
26 regulations necessary to effectuate the provisions of this act.
27 Section 8. Reporting and inspection.
28 (a) Inspection.--Each small business enterprise which
29 applies for or receives assistance under this act, upon
30 reasonable request of the department or area loan organization,
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1 shall permit duly authorized employees of the department and
2 area loan organization to inspect the plant, books and records
3 of the small business enterprise.
4 (b) Updating.--Each small business enterprise shall update
5 the information given to the department and area loan
6 organization in the application if conditions change or to the
7 extent that the information given originally becomes inaccurate
8 or misleading.
9 (c) Periodic reports.--Each recipient of assistance under
10 this act shall provide the department and the area loan
11 organization with such periodic financial reports as the
12 department or area loan organization may require until such time
13 as the loan is paid off.
14 Section 9. Nondiscrimination.
15 No loan or loan guarantee shall be made to a small business
16 enterprise unless the small business enterprise certifies to the
17 department, in a form satisfactory to the department, that it
18 shall not discriminate against any employee or against any
19 applicant for employment because of race, religion, color,
20 national origin, sex or age, including, but not limited to, the
21 following: employment, upgrading, demotion or transfer;
22 recruitment or recruitment advertising; layoff or termination;
23 rates of pay or other forms of compensation; and selection for
24 training, including apprenticeship. The small business shall
25 also certify to the department that it is not currently under
26 citation for pollution violations and that in the future it will
27 meet all applicable antipollution standards.
28 Section 10. Conflict of interest.
29 No employee of the department and no officer or employee of
30 any area loan organization shall, either directly or indirectly,
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1 be a party to or have any financial interest in any contract or
2 agreement arising pursuant to this act.
3 Section 11. Reports to General Assembly.
4 (a) Annual reports.--On or before March 1 of each year, the
5 secretary shall provide a report to the Chief Clerk of the House
6 of Representatives and to the Secretary of the Senate. The
7 report shall describe all relevant activities of the department
8 pursuant to this act and shall include the following:
9 (1) Types of businesses receiving aid and the amounts
10 and terms of the aid.
11 (2) Loans or other aid repaid.
12 (3) Loans or other aid outstanding and balances due,
13 including delinquent payments.
14 (4) Jobs created by businesses receiving aid in all
15 previous years.
16 (5) Increases in retail sales of the businesses
17 receiving aid.
18 (6) Estimated tax revenue increase due to aid from the
19 fund.
20 (b) Copies of policies, guidelines and rules.--The secretary
21 shall provide copies of all official policies, guidelines or
22 rules regarding the program to the Chief Clerk of the House of
23 Representatives and to the Secretary of the Senate. Reports
24 received by the department under section 5(c)(5) shall be made
25 available upon request to members of the General Assembly.
26 Section 12. Appropriations.
27 The sum of $5,000,000 is hereby appropriated to the Capital
28 Loan Fund from the Economic Revitalization Fund, pursuant to the
29 restrictions established by section 3(e).
30 Section 13. Effective date.
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1 This act shall take effect immediately.
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