2308 - Loans in distressed communities.
§ 2308. Loans in distressed communities. (a) Application.--A small business located in a distressed community may submit an application and any applicable application fee to a community development institution requesting a loan for certain costs of a capital development project. The application shall be on the form required by the department and shall include or demonstrate all of the following: (1) The name and address of the applicant. (2) A statement that the small business is engaged in business-to-public service or in the mercantile, commercial or point-of-sale retail business sectors. (3) A statement of the amount of loan assistance sought. (4) A statement of the capital development project, including a detailed statement of the cost of the project. (5) A financial commitment from a responsible source for the cost of the capital development project in excess of the amount requested. (6) Any other information required by the department. (b) Community development institution review.-- (1) Upon receipt of a completed application, a community development institution shall investigate and determine all of the following: (i) If the applicant is a small business which is engaged in business-to-public service or in the mercantile, commercial or point-of-sale retail business sectors in accordance with conditions or criteria established by the department. (ii) If the project is a capital development project. (iii) If the applicant has demonstrated a direct impact on the community in which the capital development project is or will be located, on residents of that community or on the local and/or regional economy. The department shall establish criteria that will assist in making this demonstration. (iv) Number of employment opportunities to be created or preserved by the proposed capital development project. (v) If the applicant complied with all other criteria established by the department. (2) Upon being satisfied that all requirements have been met, the community development institution shall recommend the applicant to the department and forward the application with all supporting documentation to the department for its review and approval. (c) Department review.-- (1) Upon receipt of a recommendation and a completed application, the department shall investigate and determine all of the following: (i) The ability of the applicant to meet and satisfy the debt service as it becomes due and payable. In reviewing repayment obligations, loans shall not be approved on the basis of direct financial return on investment and shall not be held to the loan loss standards of private commercial lenders. Loans shall be reviewed for the purpose of establishing a strong economic base and promoting entrepreneurial activity within the distressed community. (ii) The existence and sufficiency of collateral for the loan. (iii) Relevant criminal and credit history and ratings of the applicant as determined from outside credit reporting services and other sources. (2) If the department is satisfied that all requirements have been met, the department may approve the loan request in an amount not to exceed $200,000 or 50% of the total capital development project costs, whichever is less. For the purpose of this paragraph, capital development project costs, except the costs related to working capital, incurred during the 12- month period prior to the date of submission of the application to the department shall be considered part of the total capital development project costs. (3) The department shall notify the community development institution and applicant of its decision. (d) Approvals.--For applications which are approved, the department shall draw an advance equal to the principal amount of the loan from the fund and, prior to providing loan funds to the applicant, the department shall require the applicant to execute a note and to enter into a loan agreement. In addition to the requirements of subsection (e), the loan agreement shall include a provision requiring the recipient to use the loan proceeds to pay the costs of the capital development project. The department may impose other terms and conditions on the recipient if the department determines they are in the best interests of this Commonwealth, including a provision requiring collateral for any penalty imposed under subsection (g). (e) Loan terms.--A loan agreement entered into in accordance with subsection (d) shall do all of the following: (1) State any collateral securing the loan. The department may use its best judgment to identify and secure collateral. (2) State the repayment period which may be flexible. (3) State the interest rate which may not be less than 2% nor more than 5% for the term of the loan. (4) State that the recipient agrees to maintain, at a minimum, the number of jobs in existence as of the date of loan application. (f) Loan administration.--A loan made under this section shall be administered in accordance with departmental policies and procedures. (g) Penalty.-- (1) Except as provided in paragraph (2), the department shall impose a penalty upon a recipient if the recipient fails to preserve the number of employment opportunities specified in its approved application. (2) The department may waive the penalty required by paragraph (1) if the department determines that the failure was due to circumstances outside the control of the recipient. (3) The amount of any penalty imposed under paragraph (1) shall be equal to an increase in the interest rate to 2% greater than the current prime interest rate for the remainder of the loan. (h) Defaults.--The department may take title by foreclosure to a capital development project which it financed where acquisition is necessary to protect a loan made under this section. The department shall pay all costs arising out of the foreclosure and acquisition from money held in the fund. The department may, in order to minimize financial losses and sustain employment, lease the capital development project. The department may withdraw money from the fund to purchase first mortgages and to make payments on first mortgages on any capital development project which it financed if purchase or payment is necessary to protect a loan made under this section. The department may sell, transfer, convey and assign the first mortgages and shall deposit in the fund money derived from the sale of any first mortgages. Cross References. Section 2308 is referred to in section 2302 of this title.