HOUSE FILE 668

BY  JACOBY

A BILL FOR

An Act providing for a linked investment loans for emerging businesses program administered by the department of economic development.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

   Section 1.  NEW SECTION.  15E.81  Short title.
   This division shall be known as and may be cited as the “Linked Investment Loans for Emerging Businesses Act”.
   Sec. 2.  NEW SECTION.  15E.82  Definitions.
   For purposes of this division, unless the context otherwise requires:
   1.  “Department” means the department of economic development.
   2.  “Eligible borrower” means a business meeting the requirements of section 15E.83.
   3.  “Eligible lending institution” means a financial institution empowered to make commercial loans and eligible to be a depository of state funds pursuant to chapter 12C.
   4.  “Emerging business” means a business in existence less than five years.
   5.  “Fund” means the grow Iowa values fund created in section 15G.111.
   6.  “Linked investment” means an agreement between the department and an eligible lending institution in which the department obtains a certificate of deposit from the lending institution and in which the eligible lending institution agrees to loan to an eligible borrower an amount at least equal to the amount of the principal specified in the certificate of deposit.
   7.  “Primary sector business” means a business participating in interstate or intrastate commerce and engaged in manufacturing, processing, or assembling products, conducting research and development, or providing services in interstate or intrastate commerce. “Primary sector business” does not include retail, health, or professional services businesses.
   8.  “Program” means the linked investment loans for emerging businesses program established in section 15E.84.
   9.  “Qualifying wage threshold” means the same as defined in section 15G.101.
   Sec. 3.  NEW SECTION.  15E.83  Eligible borrowers.
   1.  A business meeting the requirements of this section is eligible to apply for the linked investment loans for emerging businesses program established in section 15E.84.
   2.  To be eligible, a business must meet all of the following requirements:
   a.  The business is an Iowa-based primary sector business.
   b.  The business is an emerging business seeking to expand, an emerging business seeking to purchase another Iowa-based business, or any existing business that has suffered significant physical damage as a result of a natural disaster.
   c.  The business can demonstrate that the proceeds of a linked investment loan will result in the creation or retention of five or more jobs at one hundred eighty percent of the qualifying wage threshold, ten or more jobs at one hundred sixty percent of the qualifying wage threshold, or twenty or more jobs at one hundred thirty percent of the qualifying wage threshold.
   Sec. 4.  NEW SECTION.  15E.84  Linked investment loans for emerging businesses program.
   1.  Program established.
   a.  The department shall establish and administer a linked investment loans for emerging businesses program for purposes of investing moneys in financial institutions in order to facilitate the flow of private capital to eligible borrowers.
   b.  In investing moneys under the program, the department shall invest in certificates of deposit at eligible lending institutions. The department may invest as much as twenty-five percent of the balance of moneys in the fund.
   c.  The department may obtain or renew a certificate of deposit from an eligible lending institution for an amount of time determined by the department, but the total amount of time a certificate may be held by an eligible lending institution shall not exceed five years.
   d.  Interest earned under the program shall be considered earnings of the fund and notwithstanding section 12C.7 shall be credited to the fund.
   e.  A loan provided to an eligible borrower through a linked investment pursuant to this division does not receive financial assistance for purposes of section 15G.112 and is not subject to the job and wage requirements specified in that section.
   2.  Application and certification.
   a.  An eligible lending institution wishing to participate in the program shall accept and review applications for loans from eligible borrowers.
   b.  The eligible lending institution shall certify that the applicant is an eligible borrower under the program, determine whether to make a loan to the applicant, and, if so, the amount of the loan.
   3.  Loan packages.
   a.  An eligible lending institution wishing to accept a linked investment from the department shall send to the department a loan package.
   b.  The loan package shall include but not be limited to the amount of the loan requested by the applicant, the amount of the investment requested by the eligible lending institution from the department, a plan detailing the purposes for which the applicant intends to expend the loan proceeds, an estimate of the economic impact to the state of the applicant’s plan for the proceeds, and a certification by the eligible lending institution that the applicant is an eligible borrower pursuant to section 15E.83.
   4.  Linked investment terms.
   a.  The department shall accept and review loan packages sent by eligible lending institutions. The department, subject to the requirements of this division, may make a linked investment according to the terms requested in the loan package or may negotiate other terms.
   b.  In reviewing a loan package as a potential linked investment, the department shall consider the type or terms of the loan involved, the nature of the applicant’s business, the availability of state funds, and the compliance history of both the eligible borrower and the eligible lending institution.
   c.  Upon reaching acceptable terms for the linked investment, the department shall deposit with the eligible lending institution moneys from the fund, and the eligible lending institution shall issue to the department one or more certificates of deposit.
   d.  The interest rate of a certificate of deposit may be negotiated by the department and the eligible lending institution but shall be at a rate below the current market rate. However, the department shall not negotiate an annualized interest rate on the certificate of deposit that is less than one-half of one percent.
   e.  The eligible lending institution shall remit the interest earned on the certificate of deposit and any principal not renewed on the date the certificate of deposit matures.
   f.  Certificates of deposit issued pursuant to this division shall not be subject to a penalty for early withdrawal.
   5.  Loan terms.
  An eligible lending institution accepting a linked investment shall make a loan to the applicant for an amount at least equal to the value of the moneys deposited by the department. The loan shall be at an interest rate not more than four percent above the interest rate of the certificate of deposit.
   Sec. 5.  NEW SECTION.  15E.85  Liability.
   1.  Neither the state nor the department shall be liable to an eligible lending institution in any manner for payment of the principal or interest on the loan from an eligible lending institution to an eligible borrower.
   2.  In making linked investments with eligible lending institutions for loans to eligible borrowers, the department shall not pledge the credit or taxing power of the state nor in any manner give or loan the state’s credit in aid of the eligible borrower.
   3.  In making linked investments with eligible lending institutions for loans to eligible borrowers, the department shall not pay, assume, or become responsible for the debts or liabilities of the eligible borrower.
   4.  A delay in payments by an eligible borrower to an eligible lending institution or a default on the part of an eligible borrower shall not in any manner affect the linked investment agreement between the eligible lending institution and the department.
   Sec. 6.  NEW SECTION.  15E.86  Rules.
   The department shall adopt rules pursuant to chapter 17A to administer this division. The rules shall provide for the administration of the program and for monitoring the compliance of eligible lending institutions and eligible borrowers with the requirements of this division.
EXPLANATION
   This bill creates a linked investment loans for emerging businesses program.
   The program is similar in structure to the linked investments for tomorrow Act in Code sections 12.31 through 12.43. Under the program created in the bill, an eligible business applies to an eligible lending institution for a loan, and the lending institution seeks a linked investment from the department of economic development. Moneys invested by the department come from the grow Iowa values fund.
   An eligible lending institution is a financial institution empowered to make commercial loans and eligible to be a depository of state funds pursuant to Code chapter 12C. An eligible borrower is a business that is:  (1) an Iowa-based primary sector business; (2) an emerging business seeking to expand, an emerging business seeking to purchase another Iowa-based business, or any existing business that has suffered significant physical damage as a result of a natural disaster; and (3) a business that can demonstrate that the proceeds of a linked investment loan will result in the creation or retention of five or more jobs at 180 percent of the qualifying wage threshold, 10 or more jobs at 160 percent of the qualifying wage threshold, or 20 or more jobs at 130 percent of the qualifying wage threshold.
   If a lending institution wishes to receive a linked investment, the lending institution must send a loan package to the department for review. The department may negotiate the terms of the linked investment and accept a certificate of deposit from the lending institution. The lending institution must agree to loan an amount at least equal to the value of the certificate of deposit to the eligible borrower. The annualized interest rate on the certificate of deposit is negotiable but cannot be less than one-half of 1 percent. The loan to the eligible borrower cannot be at a rate of interest more than 4 percent above the rate of the department’s certificate of deposit.
   The linked investments do not constitute the payment of a business debt by the state nor do they pledge the credit or taxing power of the state.
   The department is directed to adopt rules for the administration of the program.