GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1995

H	1 

HOUSE BILL 1017

Short Title:  Small Business Dev. Act.	(Public)

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Sponsors: Representatives McAllister, Linney; Blue, Braswell, Cansler, Cummings, Cunningham, Earle, Easterling, Fitch, Hightower, H. Hunter, Richardson, Sherrill, Sutton, Wainwright, Warner, Womble, and Yongue.

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Referred to:  Finance.

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May 4, 1995

A BILL TO BE ENTITLED
AN ACT TO PROVIDE FOR CONTRACT FINANCING AND SURETY BONDS FOR SMALL BUSINESSES THAT CONTRACT WITH GOVERNMENTAL AGENCIES.
The General Assembly of North Carolina enacts:
Section 1.  Article 10 of Chapter 143B of the General Statutes is amended by adding a new Part to read:
"Part 16.  Small Business Development Act.
"§ 143B-472.40.  Purpose and intent.
The purpose and intent of this Part is to foster economic development and the creation of jobs by providing financial assistance to financially responsible small businesses that are unable to obtain adequate financing and bonding assistance in connection with contracts.
"§ 143B-472.41.  Definitions.
The following definitions apply in this Part:
(1)	Authority. – The North Carolina Small Business Development Financing Authority created in G.S. 143B-472.42(a).
(2)	Contract term. – The term of the contract, including the maintenance or warranty period required by the contract and the period during which the surety may be liable.
(3)	Secretary.– The Secretary of the Department of Commerce.
"§ 143B-472.42.  Authority creation; powers.
(a)	Creation. – The North Carolina Small Business Development Financing Authority is created within the Department of Commerce.
(b)	Membership. – The Authority shall consist of 11 members:
(1)	Four members appointed by the General Assembly upon recommendation of the Speaker of the House of Representatives, one of whom has experience in underwriting surety bonds.
(2)	Four members appointed by the General Assembly upon recommendation of the President Pro Tempore of the Senate, one of whom is a present or former governmental employee and has experience in administering public contracts.
(3)	Two members appointed by the Governor, one of whom is a licensed general contractor.
(4)	One member appointed by the General Assembly upon recommendation of the President of the Senate.
(c)	Terms. – Members shall serve four-year terms, with no prohibition against being reappointed, except initial appointments other than by the President of the Senate shall be for terms as follows:
(1)	The General Assembly upon recommendation of the Speaker of the House of Representatives shall initially appoint two members for a term of three years and two members for a term of four years.
(2)	The General Assembly upon recommendation of the President Pro Tempore of the Senate shall initially appoint two members for a term of three years and two members for a term of four years.
(3)	The Governor shall initially appoint one member for a term of three years and one member for a term of four years.
Initial terms shall commence on August 1, 1995.
(d)	Chair. – The chair shall be elected annually by the members of the Authority from the membership of the Authority and shall be a voting member.
(e)	Compensation. – The Authority members shall receive no salary as a result of serving on the Authority but shall be entitled to per diem and allowances in accordance with the provisions of G.S. 138-5.
(f)	Meetings. – The Secretary of the Department of Commerce shall convene the first meeting of the Authority within 60 days after August 1, 1995.  Meetings shall be held as necessary as determined by the Authority.
(g)	Quorum. – A majority of the members of the Authority constitutes a quorum for the transaction of business.  A vacancy in the membership of the Authority shall not impair the right of the quorum to exercise all rights and to perform all duties of the Authority.
(h)	Vacancies. – A vacancy on the Authority resulting from the resignation of a member or otherwise shall be filled in the same manner in which the original appointment was made, and the term shall be for the balance of the unexpired term.  Vacancies in appointments made by the General Assembly shall be filled in accordance with G.S. 120-122.
(i)	Removal. – Members may be removed in accordance with G.S. 143B-13.  A member who misses three consecutive meetings of the Authority may be removed for nonfeasance.
(j)	Powers and Duties. – The Authority has the following powers and duties:
(1)	To accept grants, loans, contributions, and services.
(2)	To employ staff, procure supplies, services, and property, and enter into contracts, leases, or other legal agreements, including the procurement of reinsurance, to carry out the purposes of the Authority.
(3)	To acquire, manage, operate, dispose of, or otherwise deal with property, take assignments of rentals and leases, and enter into contracts, leases, agreements, and arrangements that are necessary or incidental to the performance of the duties of the Authority, upon terms and conditions that it considers appropriate.
(4)	To specify the form and content of applications, guaranty agreements, or agreements necessary to fulfill the purposes of this Part.
(5)	To acquire or take assignments of documents executed, obtained, or delivered in connection with assistance provided by the Authority under this Part.
(6)	To fix, determine, charge, and collect any premiums, fees, charges, costs, and expenses in connection with any assistance provided by the Authority under this Part.
(7)	To adopt rules, in accordance with Chapter 150B of the General Statutes, to implement this Part.
(8)	To take any other action necessary to carry out the purposes of the Authority.
(9)	To report quarterly to the Joint Legislative Commission on Governmental Operations on the activities of the Authority, including the amount of rates, sureties, and bonds.
"§ 143B-472.43.  Small Business Contract Financing Fund.
(a)	Creation and Use. – The Small Business Contract Financing Fund is created as a special revenue fund.  Revenue in the Fund does not revert at the end of a fiscal year and interest and other investment income earned by the Fund accrues to the Fund.  The Fund shall be used to make direct loans and guaranty payments required by defaults and to pay the portion of the expenses of the Authority related to providing financial assistance pursuant to G.S. 143B-472.44.
(b)	Content.  –  The Small Business Contract Financing Fund consists of all of the following revenue:
(1)	Funds appropriated to the Fund by the State.
(2)	Repayments of principal of and interest on direct loans made pursuant to G.S. 143B-472.44.
(3)	Premiums, fees, and any other amounts received by the Authority with respect to financial assistance provided by the Authority.
(4)	Proceeds designated by the Authority from the sale, lease, or other disposition of property or contracts held or acquired by the Authority.
(5)	Investment income of the Fund.
(6)	Any other moneys made available to the Fund.
(c)	Emergency Funds. – If the Authority and Secretary determine that the Small Business Contract Financing Fund does not have adequate funds, the Authority may request funding from the Contingency and Emergency Fund.
"§ 143B-472.44.  Financial assistance authorized.
The Authority is authorized to provide the following financial assistance:
(1)	A guarantee of a loan made to the applicant;
(2)	A guarantee of an equity investment in the applicant; or
(3)	If the applicant is unable to obtain money from any other source, a loan to the applicant.
In providing assistance to applicants, the Authority shall consider the need to serve all geographic and political areas and subdivisions of the State.
"§ 143B-472.45.  Terms of financial assistance.
The Authority is authorized to set the terms and conditions for the guarantee of loans and, when it lends money from the Small Business Contract Financing Fund, it shall prepare loan documents that include:
(1)	The rate of interest on the loan, which shall not exceed the market rate for a conventional loan of comparable risk.
(2)	A payment schedule that provides money to the applicant in the amounts and at the times that the applicant needs the money to perform the contract.
(3)	A requirement that, before each advance of money is released to the applicant, the applicant and the Authority co-sign the request for the money.
(4)	Provisions for repayment of the loan.
(5)	Any other provision the Authority determines is necessary to secure the loan, including an assignment of or a lien on payment under the contract, if allowable.
"§ 143B-472.46.  Limitations on assistance.
(a)	Guarantee of Equity Investment. –  The Authority shall not guarantee the equity investment of a person who:
(1)	Previously held an equity investment in the applicant;
(2)	Previously participated in the management of the applicant; or
(3)	Is related to the applicant or any of its current stockholders, officers, directors, or management personnel.
(b)	Loans. – The Authority shall not lend money to an applicant or guarantee a loan unless all of the following requirements are met:
(1)	The applicant meets the requirements of G.S. 143B-472.51.
(2)	The loan to be made or the part of the loan to be guaranteed does not exceed five hundred thousand dollars ($500,000).
(3)	The loan is to be used to perform a contract, of which the majority of funding is provided by the federal government, a state government, a local government, or a utility regulated by the North Carolina Utilities Commission, or a combination of those entities.
(4)	The loan is to be used for working capital or equipment needed to perform the contract, the cost of which can be repaid from contract proceeds, if the Authority has entered into an agreement with the applicant necessary to secure the loan or guaranty.
A loan made by the Authority shall mature not later than the term of the contract, unless the Authority determines that a longer term is required to fulfill the purposes of this Part.
"§ 143B-472.47.  Small Business Surety Bond Fund.
(a)	Creation and Use. – The Small Business Surety Bond Fund is created as a special revenue fund.  Revenue in the Fund does not revert at the end of a fiscal year and interest and other investment income earned by the Fund accrues to the Fund.  The Fund shall be used for the purposes of and to pay the expenses of the Authority related to providing bonding assistance.
(b)	Content.  –  The Small Business Surety Bond Fund consists of all of the following revenue:
(1)	Funds appropriated to the Fund by the State.
(2)	Premiums, fees, and any other amounts received by the Authority with respect to bonding assistance provided by the Authority.
(3)	Proceeds designated by the Authority from the sale, lease, or other disposition of property or contracts held or acquired by the Authority.
(4)	Investment income of the Fund.
(5)	Any other moneys made available to the Fund.
"§ 143B-472.48.  Bonding assistance authorized.
(a)	Guaranty. – Subject to the restrictions of this Part, the Authority, on application, may guarantee a surety for losses incurred under a bid bond, payment bond, or performance bond on a contract, of which the majority of the funding is provided by the federal government, a state government, a local government, a utility regulated by the North Carolina Utilities Commission, or a combination of those entities, up to ninety percent (90%) of the surety's losses, or nine hundred thousand dollars ($900,000), whichever is less.
(b)	Term. – The term of a guaranty under this Part shall not exceed the contract term.  The Authority may vary the terms and conditions of the guaranty from surety to surety, based on the Authority's history of experience with the surety and other factors that the Authority considers relevant.
(c)	Bonds. – The Authority may execute and perform bid bonds, performance bonds, and payment bonds as a surety for the benefit of an applicant in connection with a contract, of which the  majority of the funding is provided by the federal government, a state government, a local government, a utility regulated by the North Carolina Utilities Commission, or a combination of those entities.  Each bond shall not exceed two hundred fifty thousand dollars ($250,000) and is subject to the approval of the Authority, based on the bond worthiness of the applicant, as determined by the Authority.  The monetary limit in this subsection does not apply if the bond is funded by grants.
(d)	Obligation of State. – The total amount of guarantees issued and bonds executed shall not exceed ninety percent (90%) of the amount of money in the Small Business Surety Bond Fund.  The Authority shall not pledge any money other than money in the Fund for payment of a loss or bond.  No action by the Authority shall constitute the creation of a debt secured by a pledge of the taxing power or the faith and credit of the State or any of its political subdivisions.  The face of each guarantee issued or bond executed shall contain a statement that the Authority is obligated to pay the guarantee or bond only from the revenue in the Fund and that neither the taxing power nor the faith and credit of the State or any of its political subdivisions is pledged in payment of the guarantee or bond.  Nothing in this subsection shall limit the ability of the Authority to obtain reinsurance.
"§ 143B-472.49.  Limitations on assistance.
(a)	Bond Requirements. –  To obtain bonding assistance under this Part, an applicant shall meet the requirements in G.S. 143B-472.51 and shall certify to the Authority and the Authority shall be satisfied that all of the following apply:
(1)	A bond is required in order to bid on a contract or to serve as a prime contractor or subcontractor.
(2)	A bond is not obtainable on reasonable terms and conditions without assistance under this Part.
(3)	The applicant will not subcontract more than seventy-five percent (75%) of the face value of the contract.
(b)	Default. – If an applicant has ever defaulted on a bond or guaranty provided by the Authority, the Authority may approve a guaranty or bond under this Part if both the following apply:
(1)	Two years have elapsed since the time of the default.
(2)	The applicant has cured any default in any program administered by the Authority.
(c)	Economic Effect. – The Authority shall determine that the contract for which a bond is sought to be guaranteed or issued has a substantial economic effect before it issues a guaranty or bond. To determine the economic effect of a contract, the Authority shall consider all of the following:
(1)	The amount of the guaranty obligation.
(2)	The terms of the bond to be guaranteed.
(3)	The number of new jobs that will be created by the contract to be bonded.
(4)	Any other factor that the Authority considers relevant.
"§ 143B-472.50.  Surety bonding line.
The Authority may, on application, establish a surety bonding line in order to issue or guarantee multiple bonds to an applicant within preapproved terms, conditions, and limitations.
"§ 143B-472.51.  Requirements.
(a)	Applicant Requirements. – To qualify for financial assistance pursuant to G.S. 143B-472.44 or G.S. 143B-472.48, an applicant must meet all of the following requirements:
(1)	The applicant must be a small business entity that has assets, income, or employees that do not exceed limits established by rules adopted by the Authority.
(2)	The applicant must be an individual, or controlled by one or more individuals, of good moral character. If the applicant is other than a sole proprietorship, to obtain financial assistance under G.S. 143B-472.44, at least seventy percent (70%) of the business shall be owned by individuals of good moral character.
(3)	The applicant must be an individual, or be controlled by one or more individuals, with a reputation for financial responsibility, as determined from creditors, employers, and other individuals with personal knowledge.  If the applicant is other than a sole proprietorship, to obtain financial assistance under G.S. 143B-472.44, at least seventy percent (70%) of the business shall be owned by individuals with a reputation for financial responsibility.
(4)	The applicant must be:
a.	A resident of the State; or
b.	Be incorporated in the State; and
	the applicant must have its principal place of business in the State.
(5)	The applicant must be unable to obtain adequate financing or bonding on reasonable terms through an authorized company.  If the applicant is applying for a guarantee of a loan, the applicant must have applied for and been denied a loan by a financial institution.
(6)	If the applicant has applied for financing assistance, the applicant, in addition to the requirements set forth in subdivisions (1) through (4) of this subsection must either:
a.	Belong to a group that historically has been deprived of access to normal economic or financial resources due to race, color, creed, sex, religion, or national origin;
b.	Have an identifiable physical handicap that severely limits the ability of the applicant to obtain financial assistance, but does not limit the ability of the applicant to perform the contract or other activity for which the applicant would be receiving financial assistance; or
c.	Have any other social or economic impediment that is beyond the personal control of the applicant, such as lack of formal education or financial capacity or geographic or regional economic distress but that does not limit the ability of the applicant to perform the contract or other activity for which the applicant would be receiving financial assistance.
"§ 143B-472.52.  Application.
(a)	Form. – To apply for assistance from the Authority under this Part, an applicant and, where applicable, a surety, shall submit to the Authority an application on the form that the Authority provides.
(b)	Contents. – The application shall include all of the following:
(1)	A detailed description of the project.
(2)	An itemization of known and estimated costs.
(3)	The total amount of investment required to perform the contract.
(4)	The funds available to the applicant for working capital.
(5)	The amount of assistance sought from the Authority.
(6)	Information that relates to the inability of the applicant to obtain adequate financing or bonding on reasonable terms through an authorized surety company.
(7)	Information that relates to the financial status of the applicant, including:
a.	A current balance sheet.
b.	A profit and loss statement.
c.	Credit references.
(8)	A schedule of all existing and pending contracts and the current status of each.
(9)	Any other relevant information that the Authority requests.
(c)	Balance Sheet. – The Authority may require an applicant to provide an audited balance sheet before the Authority makes its decision on the application.
"§ 143B-472.53.  Premiums and fees.
(a)	Amount. – The Authority shall by rule set the premiums and fees to be paid for providing assistance under this Part. The premiums and fees set by the Authority shall be payable in the amounts, at the time, and in the manner that the Authority requires.
(b)	Variation. – The premiums and fees may vary in amount among transactions and at different stages during the terms of transactions.
(c)	Rate Standards. – The rate standards in G.S. 58-40-20 apply to premiums set by the Authority under this section.  The Authority may also use the forms and rates of rating or advisory organizations licensed under G.S. 58-40-50 or G.S. 58-40-55.
(d)	Forms. – The Authority shall develop forms to be used for financing and bonding assistance.
(e)	Approval. – The premiums set and forms developed by the Authority under this section must be approved by the Commissioner of Insurance before they may be used.
"§ 143B-472.54.  False statements; penalty.
(a)	Application. – A person shall not knowingly make or cause any false statement or report to be made in any application or in any document submitted to the Authority.
(b)	Statements. – A person shall not knowingly make or cause any false statement or report to be made to the Authority for the purpose of influencing the action of the Authority on an application for assistance or affecting assistance, whether or not assistance has been previously extended.
(c)	Penalty. – A person who violates any provision of this section is guilty of a Class 2 misdemeanor."
Sec. 2.  There is appropriated from the General Fund to the Department of Commerce the sum of one million dollars ($1,000,000) for the 1995-96 fiscal year, five hundred thousand dollars ($500,000) to be credited to the Small Business Surety Bond Fund and five hundred thousand dollars ($500,000) to be credited to the Small Business Contract Financing Fund created in Section 1 of this act.
Sec. 3. (a) This act becomes effective July 1, 1995, and applies to offenses committed or causes of action arising on or after that date.
(b)	This act expires June 30, 1999.  The expiration of this act does not affect prosecutions for offenses committed before that date, and the statutes that would be applicable but for this act remain applicable to those prosecutions.  The expiration of this act does not affect any guarantees or bonds executed prior to the expiration.