PRIOR PRINTER'S NO. 3198 PRINTER'S NO. 3237
No. 2292 Session of 1984
INTRODUCED BY MANDERINO, RYAN, FREEMAN, GEIST, IRVIS,
E. Z. TAYLOR, PIEVSKY, HOEFFEL, LLOYD, AFFLERBACH, GALLAGHER,
ITKIN, COWELL, DOMBROWSKI, D. R. WRIGHT, RUDY, SALOOM,
PETRARCA, WARGO, BELFANTI, STUBAN, MICHLOVIC, GANNON, McHALE,
GRUITZA, KASUNIC, DALEY, CESSAR, STEIGHNER, HALUSKA, WASS,
COHEN, WAMBACH, DEAL, PUNT, FARGO, GEORGE, DORR, FEE,
SAURMAN, WACHOB, D. W. SNYDER, CALTAGIRONE, VROON, WOGAN,
POTT, SIRIANNI, HERMAN, FLICK, HONAMAN, GRIECO, DAVIES,
RYBAK, KOSINSKI, COLE, DeLUCA, REINARD, G. M. SNYDER,
COSLETT, PISTELLA, KUKOVICH, PRATT, BALDWIN, CAPPABIANCA,
McCALL, SHOWERS, STEWART, WOZNIAK, CORDISCO, MAYERNIK,
PRESTON, COY, MURPHY, BATTISTO, JOHNSON, SCHULER, RAPPAPORT,
OLIVER, SEVENTY, CLARK, DUFFY, MRKONIC, SWEET AND GAMBLE,
JUNE 13, 1984
AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES,
JUNE 18, 1984
AN ACT
1 Creating a small business incubator program; providing for loans
2 and loan guarantees to small business incubators; specifying
3 the conditions of and requirements for grants and loans;
4 providing for seed grants; and making appropriations.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.
8 This act shall be known and may be cited as the Small
9 Business Incubators Act.
10 Section 2. Definitions.
11 The following words and phrases when used in this act shall
12 have the meanings given to them in this section unless the
1 context clearly indicates otherwise:
2 "Board." The board of the Ben Franklin Partnership Fund as
3 established by the act of December 6, 1982 (P.L.774, No.223),
4 entitled "An act amending the act of April 9, 1929 (P.L.177,
5 No.175), entitled 'An act providing for and reorganizing the
6 conduct of the executive and administrative work of the
7 Commonwealth by the Executive Department thereof and the
8 administrative departments, boards, commissions, and officers
9 thereof, including the boards of trustees of State Normal
10 Schools, or Teachers Colleges; abolishing, creating,
11 reorganizing or authorizing the reorganization of certain
12 administrative departments, boards, and commissions; defining
13 the powers and duties of the Governor and other executive and
14 administrative officers, and of the several administrative
15 departments, boards, commissions, and officers; fixing the
16 salaries of the Governor, Lieutenant Governor, and certain other
17 executive and administrative officers; providing for the
18 appointment of certain administrative officers, and of all
19 deputies and other assistants and employes in certain
20 departments, boards, and commissions; and prescribing the manner
21 in which the number and compensation of the deputies and all
22 other assistants and employes of certain departments, boards and
23 commissions shall be determined,' changing the name of the
24 Pennsylvania Science and Engineering Foundation and further
25 providing for membership on and duties of the board."
26 "Incubator." A facility in which small units of space may be
27 leased by a tenant and in which management maintains or provides
28 access to business development services for use by tenants.
29 "Local sponsor" or "sponsor." An organization which enters
30 into a written agreement with the board to establish, operate
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1 and administer a small business incubator facility or to provide
2 funding to an organization which operates such a facility,
3 including municipalities, local development districts of the
4 Appalachian Regional Commission, industrial and commercial
5 development authorities established pursuant to the act of
6 August 23, 1967 (P.L.251, No.102), known as the Industrial and
7 Commercial Development Authority Law, redevelopment authorities
8 established pursuant to the act of May 24, 1945 (P.L.991,
9 No.385), known as the Urban Redevelopment Law, municipal
10 authorities organized pursuant to the act of May 2, 1945
11 (P.L.382, No.164), known as the Municipality Authorities Act of
12 1945, or any private nonprofit or for-profit organization
13 approved by the board.
14 "Seed capital fund." A special investment vehicle which
15 provides equity and other capital to small businesses during the
16 earliest stages of business growth, including businesses in
17 incubators.
18 "Tenant." A sole proprietorship, business partnership or
19 corporation operating a business for profit and leasing or
20 otherwise occupying space in an incubator.
21 Section 3. Creation of program.
22 There is hereby established under the direction of the board
23 a Statewide loan and loan guarantee program for the
24 establishment, operation and administration of small business
25 incubators, to be known as the Small Business Incubator Program.
26 Section 4. Incubator loans and loan guarantees.
27 (a) Application.--A local sponsor may submit an application
28 to the board to obtain a loan or loan guarantee to establish an
29 incubator. Each application shall:
30 (1) Demonstrate that a facility exists that can be
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1 transformed into an incubator at a specified cost.
2 (2) Demonstrate the ability to provide or access <--
3 DIRECTLY PROVIDE OR ARRANGE FOR THE PROVISION OF business <--
4 development services for tenants of the incubator. These
5 services shall include, but not be limited to, financial
6 consulting assistance, management and marketing assistance
7 and physical services.
8 (3) Demonstrate a potential for sustained use of the
9 incubator facility by eligible tenants, through a market
10 study or other means.
11 (4) Demonstrate the ability to manage and operate the
12 incubator facility in accordance with section 5.
13 (5) Include other information as the board may require
14 through guidelines.
15 (b) Review of application.--The board shall review and
16 accept applications based on the following criteria:
17 (1) Ability of the local sponsor to carry out the
18 provisions of section 5.
19 (2) Economic impact of the incubator on the community.
20 (3) Conformance with areawide and local economic
21 development plans if such exist.
22 (4) Location of the incubator, in order to encourage
23 geographic distribution of incubators across the State.
24 (5) Such other criteria as may be established by the
25 board through guidelines.
26 (c) Loan conditions.--
27 (1) Loans awarded or guaranteed shall be used only for
28 the acquisition and leasing of land and existing buildings,
29 the rehabilitation of buildings or other facilities and the
30 purchase of equipment and furnishings, which are necessary
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1 for the creation and operation of the incubator.
2 (2) Loans and loan guarantees may not exceed 50% of
3 total eligible project costs, or $650,000, whichever is less.
4 (3) Funds loaned 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. When the obligation of a local sponsor is
8 guaranteed, the financial institution holding the obligation
9 shall be required to adequately secure the obligation.
10 (4) Loans and loan guarantees for an incubator in which
11 the facility is currently leased shall only be made if the
12 applicant intends to buy the facility. These loans shall be
13 secured by a leasehold mortgage.
14 (5) Payment of interest and principal on loans may be
15 deferred at the discretion of the board.
16 (6) Interest on all loans shall be no less than the
17 AVERAGE interest paid on the bonds used to fund this act. <--
18 SOLD PURSUANT TO THE ACT OF FEBRUARY 24, 1984 (P.L.99, <--
19 NO.19), ENTITLED "AN ACT AUTHORIZING THE INDEBTEDNESS, WITH
20 THE APPROVAL OF THE ELECTORS, OF $190,000,000 TO PROMOTE
21 ECONOMIC REDEVELOPMENT THROUGHOUT PENNSYLVANIA THROUGH JOB
22 PRODUCING PROGRAMS; GRANTS AND LOANS FOR INDUSTRIAL AND SMALL
23 BUSINESS DEVELOPMENT; ACQUISITION OF EQUIPMENT FOR VOCATIONAL
24 PROGRAMS IN SECONDARY SCHOOLS, COMMUNITY COLLEGES AND
25 ENGINEERING DEGREE-GRANTING SCHOOLS; AGRICULTURAL
26 DEVELOPMENT; AND THE ACQUISITION, REHABILITATION OR
27 DEVELOPMENT OF FACILITIES FOR COMMUNITY SERVICES AND PUBLIC
28 RECREATION PURPOSES."
29 (7) Funds may be lent for a maximum of ten years or the
30 useful life of the property, as established by the United
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1 States Department of Treasury, whichever is greater.
2 Section 5. Responsibilities of local sponsors.
3 A local sponsor, or the organization receiving assistance
4 through the local sponsor, shall have the following
5 responsibilities and duties in establishing and operating an
6 incubator with assistance from this program:
7 (1) Secure title on the facility or a lease with the
8 intent to secure title to the facility.
9 (2) Manage the physical development of the incubator
10 facility, including the provision of common conference or
11 meeting space.
12 (3) Furnish and equip the facility to provide business
13 services to the tenants.
14 (4) Market the facility and secure eligible tenants.
15 (5) Provide financial consulting, marketing and
16 management assistance services or arrange for the provision
17 of these services for tenants of the incubator, including
18 assistance in accessing private financial markets.
19 (6) Set rental and service fees.
20 (7) Encourage the sharing of ideas between tenants and
21 otherwise aid the tenants in an innovative manner while they
22 are within the incubator.
23 (8) Establish policies and criteria for the acceptance
24 of tenants into the incubator and for the termination of
25 occupancy of tenants so as to maximize the opportunity to
26 succeed for the greatest number of tenants, consistent with
27 the other criteria specified in this act. Retail enterprises,
28 not-for-profit enterprises, wholesale enterprises and
29 personal service enterprises are not permitted AS TENANTS in <--
30 incubators funded through this act.
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1 (9) Establish a local advisory committee to assist in
2 the performance of these functions.
3 Section 6. Challenge grants for seed capital funds.
4 (a) Purpose.--The board is authorized to award challenge
5 grants for the purposes of establishing seed capital funds to
6 assist young small businesses, including businesses in
7 incubators, to create new jobs in this Commonwealth.
8 (b) Application.--Advanced technology centers or other
9 organizations approved by the board may submit applications to
10 receive challenge grants to assist in establishing seed capital
11 funds. Each application shall:
12 (1) Describe the purposes of the proposed seed capital
13 fund, including the types of businesses to receive
14 investments and the types of investments to be made,
15 consistent with subsection (c).
16 (2) Explain the need for the challenge grant in
17 attracting private investment to the proposed seed capital
18 fund.
19 (3) Present a plan for establishing the proposed seed
20 capital fund, including the amount of private investment
21 sought, the strategy for obtaining such investments and the
22 persons or organizations who may manage the fund.
23 (4) List private investment commitments obtained to
24 date.
25 (c) Use of funds.--The board may award challenge grants to
26 eligible applicants following receipt of an application
27 consistent with the criteria specified in this act. Recipients
28 of grants shall not expend any of the funds awarded unless and
29 until the board has given approval for the expenditure, based on <--
30 evidence ASSURED ITSELF that the following conditions hold: <--
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1 (1) Either:
2 (i) at least $3 of private investment has been
3 committed to the proposed seed capital fund for every $1
4 of the challenge grant awarded and at least $3,000,000 of
5 total investment, including the challenge grant, has been
6 committed to the proposed fund; or
7 (ii) at least $1 of private investment has been
8 committed to the proposed seed capital fund for every $1
9 of the challenge grant awarded; at least $1.5 million of
10 total investment, including the challenge grant, has been
11 committed to the seed capital fund; and no investment is
12 to be made from the fund in a small business project
13 without an equal or greater investment from private
14 sources other than the fund in the same small business
15 project, such that, in total, at least $3 of private
16 investment has been committed to an individual small
17 business project for every $1 of challenge grant funds
18 invested.
19 (2) Investments from the seed capital fund will be made
20 exclusively in small businesses located in this Commonwealth,
21 including, but not limited to, tenants of incubators. For the
22 purposes of this section, small businesses shall not include
23 businesses of a mercantile or services related nature, but
24 shall include international export related services,
25 international export related mercantile ventures and advanced
26 technology or computer related ventures which will increase
27 the Commonwealth's share of domestic or international
28 markets.
29 (3) Total investments in a small business using seed
30 capital funds should ordinarily be less than $250,000 during
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1 any round of financing for a small business.
2 (4) The grant recipient shall serve as a limited partner
3 or co-investor with limited liability in the proposed fund
4 and returns on investment of challenge grant funds shall be
5 reinvested in the seed capital fund.
6 In the event that recipients of funds cannot demonstrate these
7 conditions by June 30, 1986, the grants, or the portions thereof
8 for which the conditions are not satisfied, shall be rescinded
9 by the board and shall be available to the board to use for
10 loans AND LOAN GUARANTEES to incubators consistent with section <--
11 4.
12 Section 7. General powers and duties of the board.
13 The board shall:
14 (1) Adopt such rules, statements of policy, procedures,
15 forms and guidelines as may be necessary for the
16 implementation of this act.
17 (2) Make loans and loan guarantees to local sponsors for
18 incubators and award seed capital challenge grants.
19 (3) Ensure that local sponsors receiving loans or loan
20 guarantees and recipients of challenge grants meet the
21 conditions of this act.
22 (4) Receive and evaluate annual reports from local
23 sponsors. The annual reports shall include, but not be
24 limited to, a financial statement for the incubator, evidence
25 that all tenants in the facility are eligible under the terms
26 of the legislation and a list of companies in the incubator.
27 (5) Receive and evaluate annual reports from recipients
28 of seed capital challenge grants. The reports shall include,
29 but not be limited to, the policies and procedures of the
30 seed capital fund, the amount of private investment in the
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1 fund and the number, types and amounts of investment in small
2 firms by the fund.
3 Section 8. Indicators of program impact.
4 On or before March 1 of each year, the board shall provide a
5 report to both the Chief Clerk of the House of Representatives
6 and the Secretary of the Senate which shall include, but not be
7 limited to:
8 (1) The number of applications for incubators submitted
9 to the board.
10 (2) The number of applications for incubators approved
11 by the board.
12 (3) The number of incubators created through this
13 program.
14 (4) The number of tenants occupying each incubator.
15 (5) The number of jobs provided by each incubator and
16 tenants of each incubator.
17 (6) The occupancy rate of each incubator.
18 (7) The number of firms still operating in the
19 Commonwealth after leaving incubators and the number of jobs
20 they have provided. The board shall attempt to identify the
21 reasons why any companies have left the Commonwealth after
22 starting in an incubator.
23 (8) The number of seed capital funds established with
24 challenge grants, the amount of private investment in the
25 funds and the number, types and amounts of investments in
26 small firms by the funds.
27 Section 9. Appropriation.
28 (1) The sum of $5,000,000, or as much thereof as may be
29 necessary, is hereby appropriated from the Pennsylvania
30 Economic Revitalization Fund for the fiscal year July 1, 1984
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1 to June 30, 1985, for loans and guarantees to local sponsors
2 PURSUANT TO SECTION 4. <--
3 (2) The sum of $3,000,000 is appropriated from the
4 Pennsylvania Economic Revitalization Fund for the fiscal year
5 beginning July 1, 1984, for the Seed Capital Challenge Grant
6 Program. These funds shall not lapse at the end of the fiscal <--
7 year but shall be available for expenditure pursuant to
8 section 6(c) until June 30, 1986 1987. <--
9 Section 10. Time limit on approvals.
10 No assistance under section 4 shall be approved by the board
11 after June 30, 1987.
12 Section 11. Effective date.
13 This act shall take effect immediately.
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