PRINTER'S NO. 2116
No. 1437 Session of 1984
INTRODUCED BY JUBELIRER, ZEMPRELLI, FISHER, 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, LOEPER, LYNCH, MELLOW, ANDREZESKI, BODACK, CORMAN, HANKINS, HELFRICK, HESS AND HAGER, JUNE 15, 1984
REFERRED TO APPROPRIATIONS, JUNE 15, 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 13 context clearly indicates otherwise: 14 "Board." The board of the Ben Franklin Partnership Fund as 15 established by the act of December 6, 1982 (P.L.774, No.223), 16 entitled "An act amending the act of April 9, 1929 (P.L.177, 17 No.175), entitled 'An act providing for and reorganizing the
1 conduct of the executive and administrative work of the 2 Commonwealth by the Executive Department thereof and the 3 administrative departments, boards, commissions, and officers 4 thereof, including the boards of trustees of State Normal 5 Schools, or Teachers Colleges; abolishing, creating, 6 reorganizing or authorizing the reorganization of certain 7 administrative departments, boards, and commissions; defining 8 the powers and duties of the Governor and other executive and 9 administrative officers, and of the several administrative 10 departments, boards, commissions, and officers; fixing the 11 salaries of the Governor, Lieutenant Governor, and certain other 12 executive and administrative officers; providing for the 13 appointment of certain administrative officers, and of all 14 deputies and other assistants and employes in certain 15 departments, boards, and commissions; and prescribing the manner 16 in which the number and compensation of the deputies and all 17 other assistants and employes of certain departments, boards and 18 commissions shall be determined,' changing the name of the 19 Pennsylvania Science and Engineering Foundation and further 20 providing for membership on and duties of the board." 21 "Incubator." A facility in which small units of space may be 22 leased by a tenant and in which management maintains or provides 23 access to business development services for use by tenants. 24 "Local sponsor" or "sponsor." An organization which enters 25 into a written agreement with the board to establish, operate 26 and administer a small business incubator facility or to provide 27 funding to an organization which operates such a facility, 28 including municipalities, local development districts of the 29 Appalachian Regional Commission, industrial and commercial 30 development authorities established pursuant to the act of 19840S1437B2116 - 2 -
1 August 23, 1967 (P.L.251, No.102), known as the Industrial and 2 Commercial Development Authority Law, redevelopment authorities 3 established pursuant to the act of May 24, 1945 (P.L.991, 4 No.385), known as the Urban Redevelopment Law, municipal 5 authorities organized pursuant to the act of May 2, 1945 6 (P.L.382, No.164), known as the Municipality Authorities Act of 7 1945, or any private nonprofit or for-profit organization 8 approved by the board. 9 "Seed capital fund." A special investment vehicle which 10 provides equity and other capital to small businesses during the 11 earliest stages of business growth, including businesses in 12 incubators. 13 "Tenant." A sole proprietorship, business partnership or 14 corporation operating a business for profit and leasing or 15 otherwise occupying space in an incubator. 16 Section 3. Creation of program. 17 There is hereby established under the direction of the board 18 a Statewide loan and loan guarantee program for the 19 establishment, operation and administration of small business 20 incubators, to be known as the Small Business Incubator Program. 21 Section 4. Incubator loans and loan guarantees. 22 (a) Application.--A local sponsor may submit an application 23 to the board to obtain a loan or loan guarantee to establish an 24 incubator. Each application shall: 25 (1) Demonstrate that a facility exists that can be 26 transformed into an incubator at a specified cost. 27 (2) Demonstrate the ability to provide or access 28 business development services for tenants of the incubator. 29 These services shall include, but not be limited to, 30 financial consulting assistance, management and marketing 19840S1437B2116 - 3 -
1 assistance and physical services. 2 (3) Demonstrate a potential for sustained use of the 3 incubator facility by eligible tenants, through a market 4 study or other means. 5 (4) Demonstrate the ability to manage and operate the 6 incubator facility in accordance with section 5. 7 (5) Include other information as the board may require 8 through guidelines. 9 (b) Review of application.--The board shall review and 10 accept applications based on the following criteria: 11 (1) Ability of the local sponsor to carry out the 12 provisions of section 5. 13 (2) Economic impact of the incubator on the community. 14 (3) Conformance with areawide and local economic 15 development plans if such exist. 16 (4) Location of the incubator, in order to encourage 17 geographic distribution of incubators across the State. 18 (5) Such other criteria as may be established by the 19 board through guidelines. 20 (c) Loan conditions.-- 21 (1) Loans awarded or guaranteed shall be used only for 22 the acquisition and leasing of land and existing buildings, 23 the rehabilitation of buildings or other facilities and the 24 purchase of equipment and furnishings, which are necessary 25 for the creation and operation of the incubator. 26 (2) Loans and loan guarantees may not exceed 50% of 27 total eligible project costs, or $650,000, whichever is less. 28 (3) Funds loaned shall be secured by lien positions on 29 collateral at the highest level of priority which can 30 accommodate the borrower's ability to raise sufficient debt 19840S1437B2116 - 4 -
1 and equity capital. When the obligation of a local sponsor is 2 guaranteed, the financial institution holding the obligation 3 shall be required to adequately secure the obligation. 4 (4) Loans and loan guarantees for an incubator in which 5 the facility is currently leased shall only be made if the 6 applicant intends to buy the facility. These loans shall be 7 secured by a leasehold mortgage. 8 (5) Payment of interest and principal on loans may be 9 deferred at the discretion of the board. 10 (6) Interest on all loans shall be no less than the 11 interest paid on the bonds used to fund this act. 12 (7) Funds may be lent for a maximum of ten years or the 13 useful life of the property, as established by the United 14 States Department of Treasury, whichever is greater. 15 Section 5. Responsibilities of local sponsors. 16 A local sponsor, or the organization receiving assistance 17 through the local sponsor, shall have the following 18 responsibilities and duties in establishing and operating an 19 incubator with assistance from this program: 20 (1) Secure title on the facility or a lease with the 21 intent to secure title to the facility. 22 (2) Manage the physical development of the incubator 23 facility, including the provision of common conference or 24 meeting space. 25 (3) Furnish and equip the facility to provide business 26 services to the tenants. 27 (4) Market the facility and secure eligible tenants. 28 (5) Provide financial consulting, marketing and 29 management assistance services or arrange for the provision 30 of these services for tenants of the incubator, including 19840S1437B2116 - 5 -
1 assistance in accessing private financial markets. 2 (6) Set rental and service fees. 3 (7) Encourage the sharing of ideas between tenants and 4 otherwise aid the tenants in an innovative manner while they 5 are within the incubator. 6 (8) Establish policies and criteria for the acceptance 7 of tenants into the incubator and for the termination of 8 occupancy of tenants so as to maximize the opportunity to 9 succeed for the greatest number of tenants, consistent with 10 the other criteria specified in this act. Retail enterprises, 11 not-for-profit enterprises, wholesale enterprises and 12 personal service enterprises are not permitted in incubators 13 funded through this act. 14 (9) Establish a local advisory committee to assist in 15 the performance of these functions. 16 Section 6. Challenge grants for seed capital funds. 17 (a) Purpose.--The board is authorized to award challenge 18 grants for the purposes of establishing seed capital funds to 19 assist young small businesses, including businesses in 20 incubators, to create new jobs in this Commonwealth. 21 (b) Application.--Advanced technology centers or other 22 organizations approved by the board may submit applications to 23 receive challenge grants to assist in establishing seed capital 24 funds. Each application shall: 25 (1) Describe the purposes of the proposed seed capital 26 fund, including the types of businesses to receive 27 investments and the types of investments to be made, 28 consistent with subsection (c). 29 (2) Explain the need for the challenge grant in 30 attracting private investment to the proposed seed capital 19840S1437B2116 - 6 -
1 fund. 2 (3) Present a plan for establishing the proposed seed 3 capital fund, including the amount of private investment 4 sought, the strategy for obtaining such investments and the 5 persons or organizations who may manage the fund. 6 (4) List private investment commitments obtained to 7 date. 8 (c) Use of funds.--The board may award challenge grants to 9 eligible applicants following receipt of an application 10 consistent with the criteria specified in this act. Recipients 11 of grants shall not expend any of the funds awarded unless and 12 until the board has given approval for the expenditure, based on 13 evidence that the following conditions hold: 14 (1) Either: 15 (i) at least $3 of private investment has been 16 committed to the proposed seed capital fund for every $1 17 of the challenge grant awarded and at least $3,000,000 of 18 total investment, including the challenge grant, has been 19 committed to the proposed fund; or 20 (ii) at least $1 of private investment has been 21 committed to the proposed seed capital fund for every $1 22 of the challenge grant awarded; at least $1.5 million of 23 total investment, including the challenge grant, has been 24 committed to the seed capital fund; and no investment is 25 to be made from the fund in a small business project 26 without an equal or greater investment from private 27 sources other than the fund in the same small business 28 project, such that, in total, at least $3 of private 29 investment has been committed to an individual small 30 business project for every $1 of challenge grant funds 19840S1437B2116 - 7 -
1 invested. 2 (2) Investments from the seed capital fund will be made 3 exclusively in small businesses located in this Commonwealth, 4 including, but not limited to, tenants of incubators. For the 5 purposes of this section, small businesses shall not include 6 businesses of a mercantile or services related nature, but 7 shall include international export related services, 8 international export related mercantile ventures and advanced 9 technology or computer related ventures which will increase 10 the Commonwealth's share of domestic or international 11 markets. 12 (3) Total investments in a small business using seed 13 capital funds should ordinarily be less than $250,000 during 14 any round of financing for a small business. 15 (4) The grant recipient shall serve as a limited partner 16 or co-investor with limited liability in the proposed fund 17 and returns on investment of challenge grant funds shall be 18 reinvested in the seed capital fund. 19 In the event that recipients of funds cannot demonstrate these 20 conditions by June 30, 1986, the grants, or the portions thereof 21 for which the conditions are not satisfied, shall be rescinded 22 by the board and shall be available to the board to use for 23 loans to incubators consistent with section 4. 24 Section 7. General powers and duties of the board. 25 The board shall: 26 (1) Adopt such rules, statements of policy, procedures, 27 forms and guidelines as may be necessary for the 28 implementation of this act. 29 (2) Make loans and loan guarantees to local sponsors for 30 incubators and award seed capital challenge grants. 19840S1437B2116 - 8 -
1 (3) Ensure that local sponsors receiving loans or loan 2 guarantees and recipients of challenge grants meet the 3 conditions of this act. 4 (4) Receive and evaluate annual reports from local 5 sponsors. The annual reports shall include, but not be 6 limited to, a financial statement for the incubator, evidence 7 that all tenants in the facility are eligible under the terms 8 of the legislation and a list of companies in the incubator. 9 (5) Receive and evaluate annual reports from recipients 10 of seed capital challenge grants. The reports shall include, 11 but not be limited to, the policies and procedures of the 12 seed capital fund, the amount of private investment in the 13 fund and the number, types and amounts of investment in small 14 firms by the fund. 15 Section 8. Indicators of program impact. 16 On or before March 1 of each year, the board shall provide a 17 report to both the Chief Clerk of the House of Representatives 18 and the Secretary of the Senate which shall include, but not be 19 limited to: 20 (1) The number of applications for incubators submitted 21 to the board. 22 (2) The number of applications for incubators approved 23 by the board. 24 (3) The number of incubators created through this 25 program. 26 (4) The number of tenants occupying each incubator. 27 (5) The number of jobs provided by each incubator and 28 tenants of each incubator. 29 (6) The occupancy rate of each incubator. 30 (7) The number of firms still operating in the 19840S1437B2116 - 9 -
1 Commonwealth after leaving incubators and the number of jobs 2 they have provided. The board shall attempt to identify the 3 reasons why any companies have left the Commonwealth after 4 starting in an incubator. 5 (8) The number of seed capital funds established with 6 challenge grants, the amount of private investment in the 7 funds and the number, types and amounts of investments in 8 small firms by the funds. 9 Section 9. Appropriation. 10 (1) The sum of $5,000,000, or as much thereof as may be 11 necessary, is hereby appropriated from the Pennsylvania 12 Economic Revitalization Fund for the fiscal year July 1, 1984 13 to June 30, 1985, for loans and guarantees to local sponsors. 14 (2) The sum of $3,000,000 is appropriated from the 15 Pennsylvania Economic Revitalization Fund for the fiscal year 16 beginning July 1, 1984, for the Seed Capital Challenge Grant 17 Program. These funds shall not lapse at the end of the fiscal 18 year but shall be available for expenditure pursuant to 19 section 6(c) until June 30, 1986. 20 Section 10. Time limit on approvals. 21 No assistance under section 4 shall be approved by the board 22 after June 30, 1987. 23 Section 11. Effective date. 24 This act shall take effect immediately. F12L12CHF/19840S1437B2116 - 10 -