PRINTER'S NO. 2967
No. 2359 Session of 1993
INTRODUCED BY SAURMAN, PLATTS, ARMSTRONG, RUBLEY, NICKOL, STEIL,
LEE, LEH AND SCHEETZ, DECEMBER 14, 1993
REFERRED TO COMMITTEE ON BUSINESS AND ECONOMIC DEVELOPMENT,
DECEMBER 14, 1993
AN ACT
1 Providing a loan program for small business in this
2 Commonwealth; establishing a fund; providing for powers and
3 duties of the Department of Commerce; and abolishing the
4 legislative initiative program.
5 TABLE OF CONTENTS
6 Chapter 1. Small Business Loan Fund
7 Section 101. Short title.
8 Section 102. Definitions.
9 Section 103. Small Business Loan Fund.
10 Section 104. Small business loan program established.
11 Section 105. Eligibility.
12 Section 106. Direct loans; terms and restrictions.
13 Section 107. Reporting and inspection.
14 Section 108. Rules and regulations.
15 Section 109. Preferences and priorities.
16 Section 110. Disapproval.
17 Section 111. Default.
18 Section 112. Funding of program.
1 Chapter 2. Abolition of Legislative Initiative Program
2 Section 201. Short title.
3 Section 202. Definitions.
4 Section 203. Unlawful practice.
5 Chapter 3. Effective date.
6 Section 301. Effective date.
7 The General Assembly of the Commonwealth of Pennsylvania
8 hereby enacts as follows:
9 CHAPTER 1
10 SMALL BUSINESS LOAN FUND
11 Section 101. Short title.
12 This chapter shall be known and may be cited as the Small
13 Business Loan Act.
14 Section 102. Definitions.
15 The following words and phrases when used in this chapter
16 shall have the meanings given to them in this section unless the
17 context clearly indicates otherwise:
18 "Department." The Department of Commerce of the
19 Commonwealth.
20 "Financial institutions." These include, but are not limited
21 to, banks and other lending institutions whose regular course of
22 business entails the making of commercial and industrial loans.
23 "Fund." The Small Business Loan Fund established in section
24 106.
25 "Legislative Initiative Program." The program whereby funds
26 are informally earmarked in the Commonwealth's budget for
27 grants, commonly referred to as WAM grants, for community
28 projects to be awarded at the discretion of the leadership of
29 the General Assembly.
30 "Loan." A direct loan made by the Department of Commerce
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1 under section 106.
2 "Small business." The business concerns that are defined in
3 section 2(3) of the Small Business Act (Public Law 85-536, 15
4 U.S.C. § 631 et seq.), and classified by the Small Business
5 Administration under 13 CFR §§ 121.3-121.10 and which have fewer
6 than 200 employees.
7 Section 103. Small Business Loan Fund.
8 There is hereby established a separate account in the State
9 Treasury to be known as the Small Business Loan Fund. All funds
10 to implement this chapter and all money received as repayment of
11 loans and interest payments pursuant to this chapter shall be
12 deposited into the fund.
13 Section 104. Small business loan program established.
14 There is hereby established a small business loan program
15 which shall be administered by the department in accordance with
16 the spirit and intent of this chapter.
17 Section 105. Eligibility.
18 Consideration for loans under this chapter shall be extended
19 to all applicants who meet the following requirements:
20 (1) The applicant must be financially and legally
21 responsible, based upon criminal history, credit history and
22 business history.
23 (2) The applicant, and any affiliate shall have paid in
24 full all taxes due and owing the Federal and State
25 Government, and any other level of government or shall
26 present evidence noting a satisfactory arrangement which has
27 been agreed to by all parties to make the payment.
28 (3) The applicant may be a sole proprietorship,
29 partnership or corporation. Where the enterprise is a
30 proprietorship, the applicant must be otherwise eligible, and
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1 must manage and control the enterprise. Where the applicant
2 is a proprietorship, the applicant must be a resident of this
3 Commonwealth or must certify that residency will be
4 established on or before closing of the loan or loan
5 guarantee. Where the enterprise is a partnership, at least
6 51% of the partners must be residents of this Commonwealth or
7 must certify that residency will be established on or before
8 closing of the loan or loan guarantee. Where the enterprise
9 is a corporation, its officers and at least 51% of the owners
10 of the voting stock must be residents of this Commonwealth or
11 must certify that residency will be established on or before
12 closing of the loan or loan guarantee.
13 (4) The applicant shall commit to full-time management
14 and control of the enterprise on a daily basis and shall
15 commit to work full-time in the enterprise. If the applicant
16 is otherwise employed, the applicant shall terminate such
17 employment prior to or at the time of closing.
18 (5) The applicant, if he or she is a natural person,
19 shall be 18 years of age or older.
20 (6) The applicant, if he or she has previously received
21 loans from the fund, shall be current with respect to all
22 amounts due under the loans.
23 (7) The applicant shall show, through experience,
24 training or education, or a combination thereof, that he or
25 she is capable of performing his or her responsibilities in
26 connection with the ownership, management or control of the
27 small business.
28 (8) The applicant and the small business shall not be
29 involved as a debtor in any bankruptcy proceeding.
30 (9) The applicant is a small business authorized to do
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1 business in this Commonwealth.
2 (10) The applicant has applied for but has not been able
3 to obtain the desired loan from at least one financial
4 institution and furnishes proof of the refusal, and the
5 reasons for the refusal.
6 (11) The applicant furnishes information to show that he
7 has or will have the ability to repay the loan out of income
8 from the business. A preview of the business's first 36
9 months of operation must accompany the application.
10 (12) Not more than 75% of the loan may be financed under
11 this chapter. A financial institution must provide the
12 remaining 25% of the loan.
13 (13) If the applicant is an existing firm, the applicant
14 must furnish financial statements which shall show the
15 applicable date of the information given, and shall be signed
16 and certified by the proprietor, partner or corporation and a
17 certified public accountant. The department shall require
18 that the statements be audited and shall ask for financial
19 statements for the past three years.
20 (14) If the applicant is a new small business concern, a
21 signed detailed proposal of the applicant's planned business
22 activities and how the loan funds will be spent. The proposal
23 shall include projected budgets and projected financial
24 statements for the first 36 months of business operations. An
25 audit of the business by a certified public accountant must
26 be made available every 12 months.
27 (15) The purpose of the loan must be in conformity with
28 the provisions of this chapter.
29 (16) The applicant must agree that if the business is
30 expanded, through subsidiaries or otherwise, the expansion
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1 will be done within this Commonwealth if requested by the
2 department.
3 Section 106. Direct loans; terms and restrictions.
4 (a) Direct loans.--The department may make direct loans to
5 eligible small businesses for the financing of plant
6 construction, conversion, expansion, the acquisition of land for
7 expansion, the acquisition of equipment, machinery, inventory
8 supplies, or materials, or for the supplying of working capital.
9 At no time shall the loan be used for payment of existing debts
10 of the applicant or the applicant's business.
11 (b) Loans may be in conjunction with other loans.--The
12 direct loans may be made in conjunction with loans made by other
13 financial institutions, including the Small Business
14 Administration.
15 (c) Security interest to be provided.--The department shall,
16 to the extent possible, obtain and perfect a security interest,
17 in accordance with the provisions of 13 Pa.C.S. Div. 9 (relating
18 to secured transactions; sales of accounts, contract rights and
19 chattel paper), in the assets of the small business and, when
20 reasonable, in the personal assets of the applicant, subject to
21 the following conditions:
22 (1) The security interest shall be made secondary to all
23 other necessary commercial loans obtained from financial
24 institutions prior to or after the approval of the loan when
25 the subordination is required in order to obtain the loans.
26 (2) The security interest shall not interfere with the
27 efficient and effective operation of the business.
28 (3) The applicant should have assets of at least 25% of
29 the loan and 75% of the loan should be secured by tangibles
30 like land, building or equipment. The security interest may
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1 be equity in a home or other real estate, chattel mortgages,
2 personal guarantees or assignment of current receivables.
3 (d) Restrictions and limitations.--The loans shall be
4 subject to the following restrictions and limitations:
5 (1) The applicant must meet all the requirements of
6 section 105.
7 (2) The amount of the loan or loans to any one applicant
8 at any one time shall not exceed a total of $150,000 or 75%
9 of the total investment needed.
10 (3) The loan term shall not exceed the greater of the
11 useful life of the asset being financed or ten years for
12 those funds used to purchase capital assets.
13 (4) The loan term shall not exceed five years if used
14 for working capital.
15 (5) Each loan shall bear a simple interest rate for the
16 full term of the loan. The interest rate shall be no more
17 than the average interest rates charged by the financial
18 institution to commercial borrowers for the same type of
19 loan. The rate shall not exceed 15%.
20 (6) The commencement date for the repayment of the first
21 installment on the principal of each loan may be deferred by
22 the department for up to two years. Interest must be paid at
23 once.
24 (7) The applicant must show a demonstrated need for the
25 service, product or business in the area or region, which
26 need may be determined by the small business center within
27 the region.
28 (e) Prohibited use of loan funds.--Loan funds shall not be
29 used for any of the following purposes:
30 (1) To pay off a creditor or creditors of the applicant
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1 who are inadequately secured and are in a position to sustain
2 a loss.
3 (2) To provide funds, directly or indirectly, for
4 payment, distribution, or as a loan to owners, partners or
5 shareholders of the applicant's business, except as ordinary
6 compensation for services rendered.
7 (3) To refund a debt owed to a small business investment
8 company.
9 (4) To replenish funds heretofore used for any of the
10 purposes stated in paragraphs (1) thru (3).
11 (5) To effect a change in the ownership of the business,
12 unless the ownership change will promote the sound
13 development or preserve the existence of the business.
14 (6) To provide or free funds for the speculation in any
15 kind of property, real or personal, tangible or intangible.
16 (7) Where the applicant is a charitable institution or
17 other nonprofit enterprise.
18 (8) Where the loan is to provide funds to an applicant
19 primarily engaged in the business of lending money.
20 (9) Where the purpose is to provide funds for financing
21 investments not related or essential to the otherwise
22 eligible small business.
23 (10) Where the purpose of the loan is to finance the
24 acquisition, construction, improvement, or operation of real
25 property which is, or is to be, held primarily for sale or
26 investment.
27 (11) Where the effect of the granting of the loan would
28 be to encourage a monopoly or would be inconsistent with the
29 purposes and intent of this chapter.
30 (12) To establish, acquire or operate a bar, tavern or
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1 any other enterprise that has as its primary function the
2 dispensing of alcoholic beverages on a retail basis.
3 (13) To recover expenses incurred in preparing
4 applications, financial statements and related documents
5 required by the department.
6 (f) Disapproval of application.--An applicant whose
7 application has been disapproved by the department may not, for
8 a period of one year following the date of disapproval, submit
9 another application, unless the department invites the applicant
10 to submit another application.
11 Section 107. Reporting and inspection.
12 (a) Books and records to be supplied.--Each loan applicant
13 or recipient shall provide, when requested, for inspection at
14 the plant, books and records of the small business which has
15 applied for or has been granted a loan.
16 (b) Information to be updated.--Each loan or guarantee
17 applicant shall update the information given the department if
18 the application should be changed or present conditions cause
19 the information given to be inaccurate or misleading.
20 (c) Annual financial report to be filed.--Each loan
21 recipient must provide the department with annual financial
22 reports until such time as the loan is paid off.
23 Section 108. Rules and regulations.
24 In the performance of, and with respect to the purposes of
25 this act, the department may prescribe reasonable rules and
26 regulations to carry out the purposes of this chapter.
27 Section 109. Preferences and priorities.
28 In determining the preferences and priorities among eligible
29 applicants the department shall consider, among other things:
30 (1) The financial condition of the applicants.
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1 (2) The possible number of jobs to be created.
2 (3) The general economic condition of the area where the
3 small business is or will be located.
4 (4) The amount of assets available to secure the loan.
5 (5) The extent to which the loan will carry out the
6 purposes and intent of this chapter.
7 Section 110. Disapproval.
8 The department may disapprove a loan application for any of,
9 but not limited to, the following reasons:
10 (1) The purpose of the loan is to accomplish an
11 expansion or start a business which is unwarranted in light
12 of the applicant's past experience and management ability.
13 (2) The effect of making the loan would be to subsidize
14 inefficient management.
15 (3) The applicant cannot meet certain basic practical
16 credit requirements established by the department.
17 (4) The applicant's character is questionable as
18 determined and set forth in writing with the specific
19 reasons, by the department.
20 (5) The applicant fails to meet other basic criteria
21 deemed necessary by the department in justifying or granting
22 a loan.
23 Section 111. Default.
24 The department shall make every effort to assist loan
25 recipients. A committee that consists of five individuals
26 appointed by the department shall be responsible for monitoring
27 applicants who are delinquent 60 days or more. When the
28 committee finds that the borrower is experiencing financial
29 difficulties that cannot be reversed, the department shall move
30 quickly to protect the interests of the department and minimize
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1 the losses to it.
2 Section 112. Funding of program.
3 An amount equal to the sums expended for the Legislative
4 Initiative Program during fiscal year 1992-1993 is hereby
5 appropriated to the Department of Commerce to be used for the
6 establishment, development and operation of the small business
7 loan program.
8 CHAPTER 2
9 ABOLITION OF LEGISLATIVE INITIATIVE PROGRAM
10 Section 201. Short title.
11 This chapter shall be known and may be cited as the
12 Legislative Initiative Program Abolition Act.
13 Section 202. Definitions.
14 The following words and phrases when used in this chapter
15 shall have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Legislative Initiative Program." The program whereby funds
18 are informally earmarked in the Commonwealth's budget for
19 grants, commonly referred to as WAM grants, for community
20 projects to be awarded at the discretion of the leadership of
21 the General Assembly.
22 "Legislative initiatives." Grants awarded under the
23 Legislative Initiative Program.
24 Section 203. Unlawful practice.
25 The Legislative Initiative Program is hereby abolished and
26 declared unlawful. The executive branch or any agency thereof
27 shall not allow the legislative branch to exercise discretion
28 over funds for legislative initiatives. No disbursements shall
29 be made for legislative initiatives.
30 CHAPTER 3
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1 EFFECTIVE DATE
2 Section 301. Effective date.
3 This act shall take effect in 60 days.
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