PRINTER'S NO. 2116

THE GENERAL ASSEMBLY OF PENNSYLVANIA


SENATE BILL

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 -