PRINTER'S NO. 331
No. 301 Session of 1985
INTRODUCED BY HALUSKA, CAPPABIANCA, F. E. TAYLOR, DORR, DUFFY,
D. R. WRIGHT, LIVENGOOD, FEE, POTT, MORRIS, DeWEESE,
J. L. WRIGHT, GRUPPO, NAHILL, LLOYD, BELFANTI, PRATT,
KOSINSKI, MERRY, FARGO, MARKOSEK, JACKSON, STUBAN, PETRARCA,
HERMAN, TIGUE, ANGSTADT, DeLUCA, JAROLIN, PERZEL, KUKOVICH,
DALEY, McCALL, BOYES, STAIRS, COY, VAN HORNE, CAWLEY,
AFFLERBACH, GEIST, RUDY, BELARDI, SEVENTY, CIVERA, LASHINGER,
BOOK, JOHNSON, TRELLO, WOGAN, MICOZZIE, PUNT, COLAFELLA,
TELEK, COHEN, D. W. SNYDER, LUCYK, PISTELLA, FISCHER, CARN
AND CORDISCO, FEBRUARY 13, 1985
REFERRED TO COMMITTEE ON BUSINESS AND COMMERCE,
FEBRUARY 13, 1985
AN ACT
1 Providing a loan program for small business in this
2 Commonwealth.
3 TABLE OF CONTENTS
4 Section 1. Short title.
5 Section 2. Definitions.
6 Section 3. Small business loan fund.
7 Section 4. Small business loan program established.
8 Section 5. Eligibility.
9 Section 6. Types of assistance available; loan guarantee,
10 direct loan.
11 Section 7. Loan guarantees; terms and restrictions.
12 Section 8. Direct loans; terms and restrictions.
13 Section 9. Reporting and inspection.
1 Section 10. Rules and regulations.
2 Section 11. Preferences and priorities.
3 Section 12. Disapproval.
4 Section 13. Default.
5
6 Section 14. Appropriation.
7 Section 15. Effective date.
8 The General Assembly of the Commonwealth of Pennsylvania
9 hereby enacts as follows:
10 Section 1. Short title.
11 This act shall be known and may be cited as the Small
12 Business Loan Act.
13 Section 2. Definitions.
14 The following words and phrases when used in this act shall
15 have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Department." The Department of Commerce of the
18 Commonwealth.
19 "Financial institutions." These include, but are not limited
20 to, banks and other lending institutions whose regular course of
21 business entails the making of commercial and industrial loans.
22 "Loan." A direct loan made by the department pursuant to
23 section 8.
24 "Loan guarantee." When loans are made by financial
25 institutions to eligible small business, the repayment of which
26 the Commonwealth guarantees pursuant to the provisions of this
27 act.
28 "Secretary." The Secretary of Commerce of the Commonwealth.
29 "Small business." The business concerns that are defined in
30 section 2[3] of the Small Business Act (Public Law 85-536, 15
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1 U.S.C. § 632), and classified by the Small Business
2 Administration, 13 CFR §§ 121.3-121.10.
3 Section 3. Small business loan fund.
4 There is hereby established a separate account in the State
5 Treasury to be known as the small business loan fund. All money
6 received as repayment of loans and interest payments pursuant to
7 this act shall be deposited into the fund.
8 Section 4. Small business loan program established.
9 There is hereby established a small business loan program
10 which shall be administered by the secretary in accordance with
11 the spirit and intent of this act.
12 Section 5. Eligibility.
13 Consideration for loans under this act shall be extended to
14 all applicants who meet the following requirements:
15 (1) The applicant is a small business authorized to do
16 business in this Commonwealth.
17 (2) The applicant has applied for but has not been able
18 to obtain the desired loan from at least three financial
19 institutions and furnishes proof of the refusals, and the
20 reasons thereof.
21 (3) The applicant furnishes information to show that he
22 has or will have the ability to repay the loan out of income
23 from the business.
24 (4) If a going concern, the applicant must furnish
25 financial statements which shall show the applicable date of
26 the information given, and shall be signed and certified by
27 the proprietor, partner, corporation or a public accountant.
28 The secretary may require that the statements be audited and
29 may ask for financial statements for the past three years.
30 (5) If the applicant is a new small business concern, a
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1 signed detailed proposal of the applicants planned business
2 activities and how the loan funds will be spent. The proposal
3 shall include projected budgets and projected financial
4 statements for the first 24 months of business operations.
5 (6) The purpose of the loan must be in conformity with
6 the provisions of this act.
7 (7) The department need not consider an application for
8 a loan guarantee if the amount required is obtainable:
9 (i) on reasonable terms through the public offering
10 or private placing of securities of the applicant;
11 (ii) through the disposal at fair price of assets
12 not required by the applicant in the conduct of its
13 existing business or not reasonable necessary to its
14 potential healthy growth;
15 (iii) without undue hardship through utilization of
16 the personal credit or resources of the owner, partners,
17 management or principal shareholders of the applicant; or
18 (iv) where there is reason to believe that credit is
19 otherwise available on reasonable terms from sources
20 other than financial institutions.
21 (8) The applicant must agree that if they expand the
22 business, through subsidiaries or otherwise, the expansion
23 will be done within this Commonwealth.
24 Section 6. Types of assistance available; loan guarantee,
25 direct loan.
26 The small business loan program shall include:
27 (1) Loan guarantees made to financial institutions for
28 the benefit of small business persons who have received loans
29 from the financial institutions in accordance with the
30 provisions of this act.
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1 (2) Direct loans, which shall be made by the department
2 pursuant to the provisions of section 8 from the small
3 business loan fund when another commercial loan is not
4 available and a loan guarantee under this act is also not
5 available.
6 Section 7. Loan guarantees; terms and restrictions.
7 (a) Guarantees.--The department may guarantee loans made by
8 private lending institutions to eligible small businesses
9 provided that each loan guaranteed shall be approved by the
10 secretary under such terms and conditions consistent with the
11 intent and purpose of this act.
12 (b) Loans in default.--Funds for the payment of loans in
13 default shall come from the small business loan fund.
14 (c) Provisions for guaranteed loans.--Each loan that is
15 guaranteed pursuant to the provisions of this act shall:
16 (1) Be for a term not to exceed 20 years if used for the
17 purchase of capital assets.
18 (2) Be for a term not to exceed ten years if used for
19 working capital.
20 (3) Bear regular interest rates which shall be two
21 percentage points lower than the interest rate charged its
22 commercial borrowers by the financial institution making the
23 loan to the applicant.
24 (d) Guarantee fee may be charged.--The department may charge
25 the borrower a reasonable guarantee fee which shall be computed
26 as a percentage of the loan principal outstanding at the
27 beginning of each year. The guarantee fee shall not be more than
28 2% of the loan principal a year. The fee shall be deposited in
29 the small business loan fund.
30 (e) Security interest to be promised.--The department shall,
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1 to the extent possible, obtain and perfect a security interest,
2 in accordance with the provisions of 13 Pa.C.S. Div. 9 (relating
3 to secured transactions; sales of accounts, contract rights and
4 chattel paper) in the assets of the small business and, when
5 reasonable, in the personal assets of the applicant, provided
6 that:
7 (1) The security interest shall be made secondary to all
8 other necessary commercial loans obtained from financial
9 institutions prior to or after the approval of the loan
10 guarantee when the subordination is required in order to
11 obtain such loans.
12 (2) The security interest shall not interfere with the
13 efficient and effective operation of the business.
14 (3) The security interest shall not be in the home of
15 the applicant if he or his family lives in the home.
16 Section 8. Direct loans; terms and restrictions.
17 (a) Direct loans.--The department may make direct loans to
18 eligible small businesses pursuant to section 6, for the
19 financing of plant construction, conversion, expansion, the
20 acquisition of land for expansion, the acquisition of equipment,
21 machinery, inventory supplies, or materials, or for the
22 supplying of working capital.
23 (b) Loans may be in conjunction with other loans.--The
24 direct loans may be made in conjunction with loans made by other
25 financial institutions, including the Federal small business
26 administration and loans guaranteed under the provisions of
27 section 7.
28 (c) Repayments to be deposited in fund.--All funds received
29 for the repayment of the principal and interest on loans made
30 pursuant to the provisions of this section shall be deposited
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1 into the small business loan fund.
2 (d) Security interest to be provided.--The department shall,
3 to the extent possible, obtain and perfect a security interest,
4 in accordance with the provisions of 13 Pa.C.S. Div. 9 (relating
5 to secured transactions; sales of accounts, contract rights and
6 chattel paper), in the assets of the small business and, when
7 reasonable, in the personal assets of the applicant, provided
8 that:
9 (1) The security interest shall be made secondary to all
10 other necessary commercial loans obtained from financial
11 institutions prior to or after the approval of the loan when
12 the subordination is required in order to obtain such loans.
13 (2) The security interest shall not interfere with the
14 efficient and effective operation of the business.
15 (3) The security interest shall not be in the home of
16 the applicant, if he or his family lives in the house.
17 (e) Restrictions and limitations.--The loans shall be
18 subject to the following restrictions and limitations:
19 (1) The applicant must meet all the requirements of
20 section 5.
21 (2) The amount of the loan or loans to any one applicant
22 at any one time shall not exceed a total of $100,000 or 90%
23 of the total investment needed.
24 (3) The loan term shall not exceed 20 years for those
25 funds used to purchase capital assets.
26 (4) The loan term shall not exceed ten years if used for
27 working capital.
28 (5) Each loan shall bear a simple interest rate for the
29 full term of the loan at an amount equal to two percentage
30 points below the prime rate as set by the Federal Reserve
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1 Bank, however, the rate shall not exceed 15%.
2 (6) The commencement date for the repayment of the first
3 installment on the principal of each loan may be deferred by
4 the secretary for up to two years.
5 (f) Prohibited use of loan funds.--Loan funds shall not be
6 used for any of the following purposes:
7 (1) To pay off a creditor or creditors of the applicant
8 who are inadequately secured and are in a position to sustain
9 a loss.
10 (2) To provide funds, directly or indirectly, for
11 payment, distribution, or as a loan to owners, partners or
12 shareholders of the applicant's business, except as ordinary
13 compensation for services rendered.
14 (3) To refund a debt owed to a small business investment
15 company.
16 (4) To replenish funds heretofore used for any of the
17 purposes stated in paragraphs (1) thru (3).
18 (5) To effect a change in the ownership of the business,
19 unless the ownership change will promote the sound
20 development or preserve the existence of the business.
21 (6) Where the loan will provide or free funds for the
22 speculation in any kind of property, real or personal,
23 tangible or intangible.
24 (7) Where the applicant is a charitable institution or
25 other nonprofit enterprise.
26 (8) Where the loan is to provide funds to an applicant
27 primarily engaged in the business of lending money.
28 (9) Where the purpose is to provide funds for financing
29 investments not related or essential to the otherwise
30 eligible small business.
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1 (10) Where the purpose of the loan is to finance the
2 acquisition, construction, improvement, or operation of real
3 property which is, or is to be, held primarily for sale or
4 investment.
5 (11) Where the effect of the granting of the loan would
6 be to encourage a monopoly or would be inconsistent with the
7 purposes and intent of this act.
8 Section 9. Reporting and inspection.
9 (a) Books and records to be supplied.--Each loan or
10 guarantee applicant or recipient shall provide, when requested,
11 for inspection at the plant, books and records of the small
12 business which has applied for or has been granted a loan.
13 (b) Information to be updated.--Each loan or guarantee
14 applicant shall update the information given the department if
15 the application should be changed or present conditions cause
16 the information given to be inaccurate or misleading.
17 (c) Annual financial report to be filed.--Each loan or
18 guarantee recipient must provide the department with annual
19 financial reports until such time as the loan is paid off.
20 Section 10. Rules and regulations.
21 In the performance of, and with respect to the purposes of
22 this act, the secretary may prescribe reasonable rules and
23 regulations to carry out the purposes of this act.
24 Section 11. Preferences and priorities.
25 In determining the preferences and priorities among eligible
26 applicants the secretary shall consider, among other things:
27 (1) The financial condition of the applicants.
28 (2) The possible number of jobs to be created.
29 (3) The general economic condition of the area where the
30 small business is or will be located.
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1 (4) The amount of assets available to secure the loan.
2 (5) The extent to which the loan will carry out the
3 purposes and intent of this act.
4 Section 12. Disapproval.
5 The secretary may disapprove the loan or loan guarantee
6 application for any of, but not limited to, the following
7 reasons:
8 (1) The purpose of the loan is to accomplish an
9 expansion or start a business which is unwarranted in light
10 of the applicant's past experience and management ability.
11 (2) The effect of making the loan would be to subsidize
12 inefficient management.
13 (3) The applicant cannot meet certain basic practical
14 credit requirements established by the secretary.
15 (4) The applicant's character is questionable as
16 determined and set forth in writing with the specific
17 reasons, by the department.
18 (5) The applicant fails to meet other basic criteria
19 deemed necessary by the department in justifying or granting
20 a loan or guarantee.
21 Section 13. Default.
22 The department shall make every effort to assist loan or
23 guarantee recipients who are experiencing financial difficulty;
24 but, when nothing more can be done, the secretary shall move
25 quickly to protect the interests of the department and minimize
26 the losses to it.
27 Section 14. Appropriation.
28 There is hereby appropriated the sum of $2,000,000, or as
29 much thereof as may be necessary, to the Department of Commerce
30 to be used for the establishment, development and operation of
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1 the small business loan program.
2 Section 15. Effective date.
3 This act shall take effect in 60 days.
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