COMMITTEE SUBSTITUTE

FOR

Senate Bill No. 561

(By Senators Oliverio, Unger, Anderson, Burnette, Craigo, Kessler, McCabe, Redd, Ross, Sharpe, Boley and Deem )

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[Originating in the Committee on Finance;

reported February 21, 2002.]

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A BILL to amend and reenact article one-a, chapter twelve of the code of West Virginia, one thousand nine hundred thirty-one, as amended, relating to the West Virginia small business linked deposit program; providing for linked deposit loans of not more than one percent above the prime interest rate; providing for linked deposits of not less than one percent; suggesting that guaranteed loans be used; and requiring the program to be marketed.

Be it enacted by the Legislature of West Virginia:
That article one-a, chapter twelve of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted to read as follows:
ARTICLE 1A. WEST VIRGINIA SMALL BUSINESS LINKED DEPOSIT PROGRAM.
§12-1A-1. Definitions.

(a) "Treasurer" means the West Virginia treasurer's office.
(b) "Eligible small business" means any business that: (1) Employs fifty or fewer employees and has gross annual receipts of five million dollars or less; (2) is headquartered in this state; and (3) is organized for profit; and (4) complies with the terms and conditions of this article regarding eligibility.
(c) "Eligible lending institution" means a financial institution that is eligible to make commercial loans, is a public depository of state funds and agrees to participate in the linked deposit program and comply with its terms and conditions.
(d) "Linked deposit" means a certificate of deposit placed by the treasurer with an eligible lending institution for an amount equal to the linked deposit loan not to exceed one hundred fifty thousand dollars, at three percent below the current market rates, rate as determined and calculated by the treasurer, but not less than one percent, provided the institution agrees to lend the value of the deposit, according to the deposit agreement provided for by this article, to a linked deposit loan to an eligible small businesses at three percent below the present borrowing rate applicable to each specific business at the time of the deposit of state funds in the institution business. The linked deposit may be placed with the eligible lending institution for up to four years depending upon whether the small business remains eligible for the program. On the annual date that the linked deposit was placed with the institution, the rate paid to the treasurer shall be recomputed based upon the current market rate minus the three percent reduction.
(e) "Linked deposit loan" means a loan between an eligible lending institution and an eligible small business for an amount not to exceed one hundred fifty thousand dollars at a rate of not more than one percent above the prime interest rate as published by the wall street journal on the date the eligible lending institution submits the loan package to the treasurer. In exchange for providing this reduced rate loan, the eligible lending institution receives a linked deposit. On the annual date that the linked deposit loan was issued, the rate charged to the eligible small business may be recomputed but shall not exceed prime plus one percent. The linked deposit loan may be part of a comprehensive loan package, including guaranteed loans by the United States small business administration, or other federal or state agency, providing a partial or full guarantee against loss to the eligible lending institution.
(f) "Small business development center" means the West Virginia small business development center, a division of the West Virginia development office.
§12-1A-2. Legislative findings.
The Legislature finds that many small businesses throughout the state are experiencing economic stagnation or decline, that high interest rates have caused small businesses in this state to suffer disproportionately in profitability and competition and that the high interest rates have fostered a serious increase in unemployment. The linked deposit program provided for by this article is intended to provide a statewide availability of lower cost funds for lending purposes that will materially contribute to the economic revitalization of this state. Accordingly, it is declared to be the public policy of the state through the small business linked deposit program in conjunction with various guaranteed loan programs to create an availability of lower-cost funds to inject needed capital into the small business community, sustain or improve business profitability, provide greater incentives to lending institutions to lend funds to small businesses and protect the jobs of citizens of this state. The Legislature further finds that the involvement of both the treasurer in facilitating the deposit of funds for the program and the small business development center in determining which businesses will receive the benefits meet the eligibility requirements of the linked deposit program is necessary in order for state funds to be used in the most effective manner possible in assisting small businesses throughout the state and thereby maximizing the impact of the program.
 §12-1A-3. Limitations on investment in linked deposits.
(a) The treasurer shall invest in linked deposits. The total amount so deposited at any one time shall not exceed, in the aggregate, twenty million dollars.
(b) Small business linked deposit funds shall be used to provide each applicant with no more than one hundred fifty thousand dollars for each reduced rate loan.
(c) When deciding how much to invest in linked deposits, the treasurer shall give priority to the investment, liquidity and cash flow needs of the state.
§12-1A-4. Applications for loan priority; loan package; counseling.

(a) An eligible lending institution that desires to receive a participate in the linked deposit program shall accept and review loan applications for loans from eligible small businesses that have been prepared by and with the advice of the small business development center. The lending institution shall apply all usual lending standards to determine the credit worthiness of each eligible small business and whether the loan application meets the criteria established in this article.
(b) An eligible small business shall certify on its loan application that the reduced rate linked deposit loan will be used exclusively to create new jobs or preserve existing jobs and employment opportunities. A reduced rate linked deposit loan shall not be used to refinance an existing debt. Whoever knowingly makes a false statement concerning an application shall be prohibited from entering into the linked deposit loan program and shall be subject to the criminal penalties of section eight of this article.
(c) In considering which eligible small businesses should receive reduced rate linked deposit loans, the eligible lending institution shall give priority to the economic needs of the area in which the business is located, the number of jobs to be created and preserved by the receipt of the loan, the reasonable ability of the small business to repay the loan and other factors considered appropriate by the eligible financial institution.
(d) A small business receiving a linked deposit loan shall receive supervision and counseling provided by the small business development center when applying for the loan, as a condition of remaining in good standing with the lending institution and the state and as a condition with the state and of having the loan renewed for up to four years. The services available from the small business development center include eligibility certification, business planning, quarterly financial statement review and loan proposal application assistance. Eligible small businesses shall also grant the lending institution the right to provide information on the status of the loan to the small business development center so as to assist the small business in monitoring the program.
(e) The eligible financial institution shall forward to the treasurer a linked deposit loan package, in the form and manner as prescribed by the small business development center and the treasurer. The treasurer shall forward notice of approval of the loan to the small business development center at the same time it is furnished to the eligible financial institution. The package shall include the amount of the loan requested and the number of jobs to be created or sustained by each eligible small business. The institution shall certify that each applicant is an eligible small business, and may, for each business, certify the present borrowing rate applicable to each specific eligible business.
(f) The rate charged to the eligible small business shall not exceed the prime interest rate as published by the wall street journal on the date that the eligible financial institution certifies the applicant is eligible.
§12-1A-5. Acceptance or rejection of loan package; deposit agreement for linked deposits.

(a) The small business development center in cooperation with the treasurer may accept or reject a linked deposit loan package or any portion thereof of a package based on the criteria prescribed by this article.
(b) The treasurer shall reject any linked deposit loan package if the small business requesting the loan is not in good standing with the state tax department division and the bureau of employment programs and these .These agencies shall provide the treasurer small business development center with such information as to the standing of each small business loan applicant, notwithstanding any provision of this code to the contrary which shall include these certifications with the loan application prior to submission to the institution.
(c) Upon acceptance of the linked deposit loan package or any portion thereof by the small business development center in cooperation with the treasurer, the treasurer may place certificates of deposit with the eligible lending institution at three percent below current market rates, as determined and calculated by the treasurer shall place a linked deposit with the lending institution. When necessary, the treasurer may place certificates of deposit prior to acceptance of a linked deposit loan package.
(d) The eligible lending institution shall enter into a deposit agreement with the treasurer in a form prescribed by the treasurer and in compliance with the requirements of this article. The deposit agreement shall reflect the market conditions prevailing in the lending area and the period of time in which the lending institution is to lend funds upon the placement of a linked deposit. The deposit agreement shall include provisions for the certificates of deposit to be placed for a maximum of four years with annual renewals. Interest shall be paid at the times determined by the treasurer.
§12-1A-6. Certification and monitoring of compliance; accountability and reporting.

(a) Upon the placement of a linked deposit with an eligible lending institution, the institution is required to shall lend the funds to each the approved eligible small business listed in the linked deposit loan package required in subsection (d), section four of this article and in accordance with the deposit agreement required by subsection (c), section five of this article. The loan shall be at three percent below the present borrowing rate applicable to each business. A certification of compliance with this section in the form and manner as prescribed by shall be sent to the small business development center and the treasurer shall be required of by the eligible lending institution.
(b) The small business development center and the treasurer shall take any and all steps necessary to implement, advertise and monitor compliance with the linked deposit program. and monitor compliance of eligible lending institutions . The small business development center shall monitor the compliance of eligible small businesses.
(c) By the first thirty-first day of January of each year, the small business development center shall report on the linked deposit program for the preceding calendar year to the West Virginia development office, which shall then report to the joint committee on government and finance. The reports shall set forth the name of the small business, terms, delinquency and default rates, job growth, gross income evaluation and amounts of the loans upon which the linked deposits were based.
§12-1A-7. Liability of state.
The state, the treasurer and the small business development center are not liable to any eligible lending institution in any manner for payment of the principal or interest on the loan to an eligible small business. Any delay in payment or default on the part of an eligible small business does not in any manner affect the deposit agreement between the eligible lending institution and the board state.
§12-1A-8. Penalties for violation of article.
Any person who violates knowingly makes a false statement concerning an application or violates another provision of this article is prohibited from entering into the linked deposit program and guilty of a misdemeanor and, upon . Upon conviction thereof, the person shall be fined not less than one hundred nor more than five hundred dollars or imprisoned in the county jail not less than one month nor more than one year.