59–006 

110TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 110–347 

SMALL BUSINESS INVESTMENT EXPANSION ACT OF 2007 

SEPTEMBER 25, 2007.—Committed to the Committee of the Whole House on the 

State of the Union and ordered to be printed 

Ms. VELA ́ ZQUEZ, from the Committee on Small Business, 

submitted the following 

R E P O R T 

[To accompany H.R. 3567] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Small Business, to whom was referred the bill 

(H.R. 3567) to amend the Small Business Investment Act of 1958 

to expand opportunities for investments in small businesses, and 

for other purposes, having considered the same, report favorably 

thereon without amendment and recommend that the bill do pass. 

CONTENTS 

Page 

I. Purpose and Summary .................................................................................. 1 

II. Background and Need for Legislation .......................................................... 3 

III. Hearings ......................................................................................................... 10 

IV. Committee Consideration .............................................................................. 10 

V. Committee Votes ............................................................................................ 11 

VI. Section-by-Section Analysis of H.R. 3567 .................................................... 11 

VII. Congressional Budget Office Cost Estimate ................................................ 20 

VIII. Committee Estimate of Costs ....................................................................... 23 

IX. Oversight Findings ........................................................................................ 23 

X. Statement of Constitutional Authority ........................................................ 24 

XI. Compliance With Public Law 104–4 ............................................................ 24 

XII. Congressional Accountability Act ................................................................. 24 

XIII. Federal Advisory Committee Statement ...................................................... 24 

XIV. Statement of No Earmarks ........................................................................... 24 

XV. Performance Goals and Objectives ............................................................... 24 

XVI. Changes in Existing Law Made by the Bill, as Reported ........................... 24 

I. PURPOSE AND SUMMARY

The Small Business Investment Expansion Act of 2007 is aimed 

at three broad goals. First, the bill will update and streamline 


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three programs in the Small Business Investment Act of 1958, the 

Small Business Investment Company (SBIC), New Markets Venture Capital (NMVC) and Surety Bond programs. Second, the bill 

will leverage a new investment strategy, angel investing, to direct 

more venture capital toward early stage and startup businesses. Finally, the bill will revise SBA rules that inhibit the free flow of 

venture capital investment to small businesses. 

To streamline the SBIC program, this legislation will simplify 

the current method of calculating maximum leverage caps in favor 

of a straightforward maximum leverage cap that will remain workable for years to come. The bill will also revise limitations on aggregate investments to establish limitations that are more consistent with industry accepted portfolio risk management practices. 

Additional provisions of the bill will increase overall investment in 

smaller enterprises and will also establish incentives to form SBIC 

funds focused on investment in minority and women owned businesses. The New Markets Venture Capital program will also be updated with provisions that emphasize expanding the program and 

provide additional incentives for investment in small manufacturing companies in low-income areas. The final approval process 

for conditionally approved NMVC companies will be streamlined by 

establishing simplified application documents and permitting conditionally approved NMVC companies to receive funding for operational assistance. The operational assistance aspect will also be 

improved by eliminating the requirement that NMVC companies 

raise matching commitments prior to final approval and by simplifying the process for operational grant assistance. Finally, appropriations for the NMVC program will be authorized in a total 

amount of $35 million ($30 million to support debentures and $5 

million for operational assistance grants), of which not less than 

one quarter must be used to support NMVC companies that invest 

primarily in small manufacturers. 

The bill will also establish a new Office of Angel Investment 

within the SBA’s Investment Division. This office will be headed by 

a Director of Angel Investment and will focus on three initiatives 

to increase equity investment in small businesses. 

First, an Angel Investment Program will be established to provide eligible angel groups that have ten or more angel investors 

with matching financing leverage. This leverage will be used to finance early stage small businesses, with priority in financing going 

to angel groups that invest in small businesses controlled by veterans, women, or socially and economically disadvantaged small 

businesses. This leverage will be repaid to the SBA with a pro rata 

share of returns from the investment. Appropriations for the purpose of providing leverage to angel groups will be authorized in a 

total amount of $50 million. 

Second, a directive will be established within the Office of Angel 

Investment to create a Federal Angel Network. This network will 

be a searchable directory of angel groups available on through the 

SBA’s internet website. Additionally, the directory could be distributed or used by other networks to increase its exposure. The directory will include the names and contact information for angel 

groups and angel investors and will provide information about the 

types of investments each group or investor has made. One million 


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dollars will be authorized to be appropriated for the establishment 

of the angel network. 

The Angel Investment Program will also include, a grant initiative to provide eligible state, federal, and nonprofit entities with resources to increase awareness and education about angel investing. 

As a condition of receiving grant assistance, however, eligible entities must provide 50 percent matching contributions, thus amplifying the benefits of grant assistance. This provision will bring 

more attention to the benefits of angel investing and attract more 

angel investors to participate in the program. A total of $4.5 million will be authorized for appropriations to carry out this initiative. 

The bill will also address deficiencies in the Surety Bond program. The maximum permissible bond amount will be increased by 

half to $3 million. The bill will also strengthen surety companies’

confidence in the Plan A program by barring the SBA from denying 

indemnity on Plan A guaranties based upon information that was 

provided as part of the guaranty application. The SBA will also be 

required to conduct a study on the program’s current funding structure and report its findings to Congress within 180 days of the 

bill’s enactment. The bill will make the Surety Bond program more 

affordable to small businesses and surety companies by providing 

the SBA with authority to contribute funds for the purpose of reducing the burden associated with surety and contractor fees on 

bond guarantees. 

Finally, the bill modifies the Small Business Act to exclude venture capital investment in SBA’s consideration of whether a firm 

is small for the purposes of the Act. The provision provides that 

when calculating the number of employees of a small business concern that has venture capital investment, the SBA will exclude 

those employees who work for companies affiliated with the venture capital company. The bill requires that the venture capital 

company comply, as appropriate, with federal registration requirements for investment companies. In addition, the bill prevents a 

venture capital that is controlled by a large business or a venture 

capital company with more than 500 employees from being recognized as a venture capital company under this provision. 

II. BACKGROUND AND NEED FOR LEGISLATION

The Small Business Investment Company (SBIC) program is the 

SBA’s primary capital investment program. It is the agency’s largest and most important in terms of number of investments made 

and program level supported. The SBA does not make direct investments in small business concerns through the SBIC program, but 

instead licenses Small Business Investment Companies (SBICs) to 

administer the program. 

SBICs are state-chartered entities organized solely for the purpose of providing a source of equity capital for small business concerns. The SBA provides funding to qualified SBICs with expertise 

in certain sectors or industries, which then use their own funds, 

plus resources borrowed with an SBA guaranty or ‘‘leverage,’’ to invest in small businesses. Although subject to SBA regulation, 

SBICs remain privately owned and managed and make their own 

decisions about which small businesses investments to make. 


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The SBA provides leverage to SBICs in two forms, ‘‘debentures’’ and ‘‘participating securities.’’ To obtain leverage, SBICs issue debentures or participating securities, which are guaranteed by the 

SBA. Separate pools of either SBA-guaranteed debentures or participating securities are formed and sold to investors through periodic securities offerings. An SBIC’s business plan and investment 

strategy are the primary factors in determining the type of leverage used by the SBIC. 

Both debentures and participating securities operate on a zerosubsidy basis, being funded by fixed commitment and drawdown 

fees as well as by annual fees based on a subsidy rate determined 

at the time of the commitment. The primary difference between debentures and participating securities, however, is the timing in repayment of leverage. Unlike debentures, which have a fixed time 

for repayment, participating securities leverage is repaid only out 

of profits of the SBIC fund, enabling the SBA to share in the profits of a participating securities SBIC. 

Debenture SBICs have defined interest obligations to the SBA. 

Thus, they tend to focus on investing in companies that are mature 

enough to make current interest payments on the investment. Because interest can accrue on participating securities obligations, 

however, the participating securities program is better suited for 

investment in seed and early stage businesses or businesses that 

either do not have established cash flow or that need to use available cash for other purposes. 

Legislation is required to address several problems in the SBIC 

program. In 2004, the participating securities program ceased 

issuing new leverage commitments. This was largely the result of 

the Administration’s decision to move the program to zero-subsidy 

in 2001, which was fundamentally unsuited to a program that 

functioned on patient equity investment in long-term assets. As a 

result, the program was essentially rendered insolvent by 2005 

when the administration requested no program funding for the participating securities portion of the SBIC program in its annual 

budget request. The Administration continued to pursue these policies in the FY 2008 budget. 

By eliminating the participating securities program, however, the 

SBA has become completely reliant on debt-based programs, which 

are more suited to providing later stage, expansion capital to cashflow-positive businesses. This has particularly hampered investment in early-stage and capital-intensive small businesses, which 

lack the resources to service heavy debt investment. In 2002 the 

SBA licensed 41 new SBIC funds, more than half of which were for 

early stage investment. By contrast, in 2006 the SBA licensed only 

10 new SBIC funds, none of which were for investment in early 

stage businesses. These statistics demonstrate the need for some 

legislative initiative to fill the gap for equitable investment in early 

stage businesses. 

Eliminating participating securities has also had a negative impact on the SBA’s ability to provide capital investment for to specific segments of the entrepreneurial community. In FY 2005 only 

3.40 percent of all financings in the SBIC program went to small 

businesses that were majority black owned. Only 1.39 percent of all 

SBIC investments went to small businesses that were Hispanic 

owned and only 2.37 percent of SBIC investments went to women 


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owned businesses. Veteran-Owned small businesses fared the 

worst, receiving only 0.52 percent of all SBIC financings. While 

these numbers are better than the 2 percent of equity capital that 

minority-owned firms receive in the private sector, it still represents a troubling performance for a program that was intended 

to focus on providing these groups with investment capital. 

Additionally, the SBIC program’s current leverage limits have 

proven difficult to apply, particularly when two SBIC funds are 

under common control. This maximum leverage amount varies depending on the amount of the SBIC’s private capital, but generally 

will not exceed 300 percent of the SBIC’s private capital up to $15 million, 200 percent of the amount of private capital between $15 

and $30 million, and 100 percent of the amount of private capital 

between $30 and $75 million. All of these figures are linked to an 

inflation index and adjust annually. If this program is to have continued success, legislation will be necessary to simplify the leverage 

cap rules and relax restrictions on the amount of leverage available 

to SBICs that are under common control. 

The New Markets Venture Capital (NMVC) program was established in December of 2000 to address the unmet equity needs of 

low-income communities. The NMVC program was administered 

under the purview of the SBA and was modeled after the SBA’s 

Small Business Investment Company (SBIC) program. A crucial 

difference between NMVC and SBIC, however, was that the NMVC 

program was established with the specific purpose of providing economic development in low-income (LI) areas. 

Like the SBIC program, the NMVC program operates as a public-private partnership between the SBA and licensed New Markets 

Venture Capital Companies (NMVCCs). The SBA provides funding 

to NMVCCs, which then use their own funds, plus leverage borrowed with an SBA guaranty, to make investments in smaller enterprises defined by SBA regulations that are located in LI geographic areas. NMVCCs remain privately owned and managed and 

make their own decisions about which small businesses investments to make. 

One crucial advantage that NMVCCs enjoy over SBICs is the addition of SBA administered operational assistance grants (OA). The 

SBA provides matching grant assistance for the resources that 

NMVCCs raise to provide marketing, management and other operational assistance to the businesses in which it invests. 

In principle, the program was intended to permit NMVC companies to use capital raised with New Markets Tax Credit allocations 

to meet the NMVC private capital match. In practice, however, this 

was not possible because the first NMTC allocations were made 

after NMVC private capital matches were due (e.g. after September 

14, 2001) and because the definitions of ‘‘low income geographic 

areas’’ for the two programs were different. This disparity between 

the two definitions prevented NMVC companies from using NMTC 

allocations as matching funds, thus requiring these companies to 

rely entirely upon privately raised funds for this purpose. Given 

the economic conditions under which they operate, however, these 

companies could not find sources of funding. For the program to 

function as originally intended, the definitions for low income geographic areas must be aligned between the NMTC and NMVC program. 


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Legislation is also required to achieve the program’s initial purpose of providing equity capital to small businesses in LI areas. In 

2001 Congress appropriated $150 million of debenture guaranty 

authority and $30 million for Operational Assistance (OA) grants. 

Beginning in 2003, however, the administration eliminated funding 

for the NMVC program. In FY 2008, and consistent with its previous budget request, the administration has not requested any 

funding for this program. As a result, the SBA has been unable to 

bring new NMVC companies into the program, limiting access to 

the program for small businesses in several areas throughout the 

country. 

To date, only six NMVC companies are participating in the program and the FY 2008 budget allocates no resources to bring more 

companies into the program. If the NMVC program is to meet its 

full potential to improve economic development in low income communities, legislation must authorize additional appropriations for 

the program and new initiatives must be established within the 

program to ensure that the SBA resumes licensing new NMVC 

companies throughout the nation. 

Legislation is also necessary to address the Administration’s failure to leverage the program’s inherent ability to provide investment capital to industries that have particular difficulty in acquiring equity capital. Historically, no particular style or type of business has attracted NMVC investment. Among existing NMVC Companies, there are multiple fund types and investment styles. These 

factors reflect a primary benefit of the NMVC program. The additional investment capital provided by the SBA facilitates smaller 

transactions that are more suitable to investments in smaller businesses and has the added benefit of making NMVC companies less 

reliant on public market sentiment compared to the investments 

made by traditional venture capital firms. This is particularly important to facilitating investment in small businesses located in LI 

areas. As a result, NMVC investments often occur in industries 

and geographic areas that have historically had difficulty attracting private venture capital. This could provide a particular benefit 

to LI communities that have experienced a loss of their small manufacturing and industrial economic base. 

Despite the success of the SBIC and NMVC programs, the need 

for early-stage startup capital for small businesses has largely gone 

unmet by the SBA’s existing investment programs, particularly 

with the elimination of funding for the SBIC Participating Securities program. Additionally, every investment program currently administered by the SBA provides small businesses with debt-based 

financing, which is more appropriate for investment in later-stage 

businesses that have the ability to service debt. As a result, legislation is needed to not only fill the gap for early stage business investment, but also provide small businesses with some sort of equity type financing. 

Angel investment is a rapidly growing investment strategy that 

focuses specifically on providing early-stage small business with equity financing. This investment strategy refers to high net worth 

individuals who invest in and support start-up companies in their 

early stages of growth. Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in 

a professionally-managed fund. 


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Angel investors are often retired business owners or executives, 

and thus often provide valuable management advice and important 

contacts to the businesses in which they invest. This commitment 

of time to mentor and coach entrepreneurs and serve on the boards 

of portfolio companies is naturally suited to investment in small 

businesses and mirrors the type of operational assistance often 

found in SBA programs. Angel investments typically range from $100,000 to over $1 million dollars. In this respect, angel investors fill the gap that small 

business start-ups often experience in meeting their needs for equity capital, which are often met with equity raised by friends and 

family (under $100,000) and funds created by conventional venture 

capital (VC) firms ($1 million and above). Angel investors will often 

invest in formal or informal groups, each investor thus contributing 

about $100,000, thereby limiting their individual risk exposure. 

Angels continue to be the largest source of seed and start-up capital, with 46% of 2006 angel investments in the seed and start-up 

stage. While angels continue to represent the largest source of seed 

and start-up capital, market conditions and the capital gap in the 

post seed investing stage are requiring angels to engage in more 

later-stage investments. New, first sequence, investments represent 

63% of 2006 angel activity, indicating that some of this post seed 

investing is in new deals. 

Angel investment has also contributed to a rise of women angel 

investors and women entrepreneurs. In 2006 women angels represented over 13 percent of the angel market. Women-owned ventures accounted for nearly 13 percent of the entrepreneurs that are 

seeking angel capital and over 21 percent of these women entrepreneurs received angel investment in 2006. Additionally, minority 

angels accounted for over three percent of the angel population and 

minority-owned firms represented nearly 7 percent of the entrepreneurs that presented their business concept to angels. 

According to SBA studies, the total unmet need for early-stage equity financing for small businesses is about $60 billion annually. 

Additionally, partly on the basis of the results of several focus 

groups that it conducted, the SBA identified that the greatest equity capital financing need of small businesses is financing in the 

amounts of $250,000 to $5 million. Because of their focus on early 

stage investing in amounts between $100 thousand to $1 million, 

angel investing has the potential to make a significant impact on 

the unmet capital needs of small businesses. These investors, however, are currently poorly organized and may be unaware of the 

benefits of co-investing with angel groups or angel networks. As a 

result, legislation is needed to increase public awareness of angel 

investing, help angel investors to organize into angel groups, and 

help these groups maintain their focus on investment in startup 

small businesses. The Committee believes that these goals can be 

achieved with an Angel Investment Program that focuses on the 

three traditional strengths of angel investing: providing small business with equity type investment, establishing networks of angel 

groups and angel investors, and increasing awareness of angel investing. 

The SBA has also been limited by the rules that it applies to 

venture capital companies that invest in small businesses. Venture 

capital refers to money provided by professionals who invest alongVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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1 13 CFR 121,103(b)(1). 

2 13 CFR 121,103(a). 

side management in young, rapidly growing companies that have 

the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies. Unlike traditional debt-based lenders that secure the amount 

they lend with collateral, venture firms’ investments are backed 

solely by the strength of the ideas they invest in. A venture capital 

firm only earns a return on its investment if its investment is highly profitable. 

Seeking high-risk investment opportunities because they yield 

the highest reward, investment firms expect to be able to sell their 

equity in the business in which they invest within five to ten years. 

Venture capitalists know that not all their investments will pay-off. 

The failure rate of investments can be high—anywhere from 20 to 

90 percent of the enterprises funded may fail to return the invested 

capital. As a result, venture capitalists must invest in dozens of 

small enterprises in the hope that a handful will prove successful. 

Under the SBA’s current rules, however, all investments made 

by a single venture capital company are considered affiliated with 

each other, irrespective of the size of the small business that receives the investment or the size of the venture capital company 

itself. When added together, the total number of employees often 

exceeds 500, making each business unable to be defined as a small 

business concern by SBA. Meeting the requirements of this definition can be the difference for small firms’ participation in a widevariety of government programs, including those involved in cutting-edge defense and health research. The result of this rule is 

that investment by all but the smallest of venture capital companies is deterred. The common ownership affiliation limitation put 

forth by the SBA represents a lack of understanding about the venture capital industry practices. The SBA’s rule is also inconsistent 

with industry practices, other SBA programs, and SBA’s own statute. For instance, this standard exists even though Small Business 

Investment Companies, which are themselves venture capital companies, are exempt from such affiliation standards.1

In addition, SBA’s size standard definition specifies that affiliation occurs when one entity controls or has the power to control 

another entity.2 13 CFR 121.103(c) states that ‘‘[a] person that 

owns, or has power to control, 50 percent more of a concern’s voting 

stock, or block of voting stock which is large compared to other outstanding blocks of voting stock, controls or has the power to control 

the concern.’’ For most instances, this provision has the effect of 

deeming venture capital companies to control or have the power to 

control the concern that they are invested in. This in turn results 

in the SBA determining that portfolio companies are affiliated with 

each other through the common affiliation of the venture capital 

company. 

Consequently, legislation is necessary to revise the SBA’s application of affiliation rules to small venture capital companies. While 

venture capital companies invest in multiple business concerns, the 

affiliation that exists among these portfolio companies is non-existent. Portfolio companies, while receiving investment from the same 

venture capital company, do not have any common organizational, 


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management, or ownership structures. Portfolio companies are separate entities and cannot and do not exercise control over each 

other. With regard to the venture capital company, portfolio companies receive investment and management assistance, often in the 

form of director appointments. However, venture capital companies 

do control portfolio companies that they invest in, rather, they rely 

on existing management to guide and build the business concerns’

profitability. Venture capital companies’ ultimate goal is to sell 

their in the business concern, typically within five to ten years of 

initial investment. 

As a result, the legislation provides that when both the venture 

capital company and the business receiving investment are small 

and have less than 500 employees, and when the venture capital 

company is neither controlled by a large company nor under foreign 

control, the SBA should not aggregate the whole of the venture 

capital company’s investments for purposes of defining affiliation. 

In order to allay unfounded fears about the intent of venture capital companies, safeguards have been included to ensure that large 

companies cannot control venture capital companies, that the venture capital company has less than 500 employees, and is located 

in the United States. 

Legislation is also necessary to strengthen the SBA’s Surety 

Bond Guaranty (SBG) program. The SBG program was established 

to assist small businesses that would otherwise be able to compete 

for construction contracts because they failed to meet the criteria 

necessary to obtain a surety bond. To resolve this problem, the 

SBG program provides the SBA with authority to guarantee bid, 

performance, and payment bonds for individual contracts of $2 million or less. In this manner, the SBA provides sureties an incentive 

to provide bonding for eligible contractors, thereby strengthening 

contractors’ ability to obtain bonding and greater access to contracting opportunities. 

The SBA Office of Surety Guarantees (OSG) administers the 

SBG Program as a public-private partnership between the federal 

government and the surety industry. The SBG program consists of 

the Prior Approval program (Plan A) and the Preferred Surety 

Bond (PSB or Plan B) program. 

Under the Plan A, an independent bonding agent reviews the 

contractor’s application package and recommends it to the surety 

company for approval. If the surety company agrees to issue a bond 

with the SBA guarantee, the package is forwarded to the appropriate SBA/SBG Area Office and evaluated by SBG personnel. The 

SBA must approve each bond guarantee individually, based on information submitted by contractor and the surety. If the SBA determines that the applicant is eligible, the SBA issues a bond guarantee to the surety company. The surety then issues the bond to 

the contractor. The SBA’s guarantee agreement is with the surety 

company, not with the small business contractor. Any surety company certified by the U.S. Treasury to issue bonds may apply for 

participation in the Prior Approval program. 

When Plan A was established, however, many traditional surety 

companies chose not to participate, often because their business 

focus was on lower risk, larger contractors, or because the administrative costs of submitting each bond for prior approval of a guarVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00009 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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anty were significant. To encourage more sureties to participate, 

the SBA promulgated the Preferred Surety Bond Program (Plan B). 

Plan B addressed the concerns of the non-SBA sureties in a number of ways. First, the program provided that if a surety was approved by the SBA for Plan B, it would be granted a dollar value 

of guaranties from the SBA that would be automatically valid, 

without prior approval of each bond. In exchange for this reduction 

of paperwork, however, the sureties would receive only a 70 percent guaranty of loss on each bond rather than the 80 or 90 percent 

guaranty associated with the Plan A program. 

From the perspective of surety companies, the burden associated 

with the Plan A program has always been justified by the fact that 

Plan A bonds were reviewed and approved by the SBA prior to the 

surety issuing the bond. Because of this, Plan A bonds carried the 

benefits of a speedier guaranty payment in the event that the contract was breached and the bond was executed. Recently, however, 

many surety companies have complained of the SBA engaging in 

additional reviews of Plan A bonds to unravel its guaranty after 

the bond was approved and issued by the surety. This presents a 

serious problem for sureties because their bond cannot be canceled 

after having been issued and once the SBA has refused indemnification, sureties bear the entire cost of default. 

At the same time that the SBA has faced increasing unpopularity 

for participation in the Plan A program, Plan B has also become 

less attractive to surety companies. The primary disincentive for 

this program has largely been attributed to limitations on the rates 

that surety companies have been permitted to charge and to the 

steadily rising cost of fees to participate in the program. With 

fewer surety companies participating in the SBG program, small 

businesses have had increasing difficulty finding sources of surety 

bonds. 

As a result, legislation is needed to resolve the disincentives that 

have steadily driven surety companies from the Plan A and Plan 

B portions of the program. The SBA’s ability to refuse indemnification based upon information that was provided as part of the guaranty application for a Plan A bond should be limited. Additionally, 

the SBA must have statutory authority to raise premium rates 

under the Plan B program and reduce the cost of participation fees 

as necessary. 

III. HEARINGS

In the 110th Congress, the Committee on Small Business held a 

hearing to examine the SBA’s investment programs and the role of 

venture capital in small business investment on June 21, 2007. The 

Committee subsequently held a hearing on legislative proposals to 

address issues raised in the June 21, 2007 hearing and expand 

small business investment on September 6, 2007. 

IV. COMMITTEE CONSIDERATION

The Committee on Small Business met in open session on September 20, 2007, and ordered H.R. 3567 reported to the House by 

a voice vote. 


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V. COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. A motion by Ms. 

Vela ́zquez to report the bill, without amendment, to the House 

with a favorable recommendation was AGREED to by voice vote. 

VI. SECTION-BY-SECTION ANALYSIS OF H.R. 3567 

TITLE I. SBIC PROGRAM

Section 1. Simplified maximum leverage limits 

Currently, the leverage caps for SBIC companies vary depending 

on the amount of the SBIC’s private capital, but effectively will not 

exceed 300 percent of the SBIC’s private capital up to $15 million, 200 percent of the amount of private capital between $15 and $30 

million, and 100 percent of the amount of private capital between 

$30 and $75 million. All of these figures are linked to an inflation 

index and adjust annually. 

It is common for SBICs with good records to secure a second or 

even third SBIC license (supported by new private capital) so that 

they can continue to operate with uninterrupted investment before 

winding up all affairs of previous funds and repaying all leverage. 

The fact that the leverage cap applies to the whole family of funds, 

however, often makes it impossible for a successful SBIC to operate 

a second or third fund due to lack of available leverage because of 

the leverage cap, not because of any increased risk to SBA based 

on poor financial performance. 

This provision is intended to simplify the leverage cap rules to 

a single formula, regardless of the amount of private capital that 

the SBIC has, with a maximum leverage cap of $150 million. Additionally, this provision will make ‘‘transition’’ leverage available for 

SBIC companies under common control so that successful SBICs 

may operate a second or third fund while still maintaining safeguards against increased risk to the SBA and a maximum leverage 

cap for SBICs under common control. 

These changes are not intended to have retroactive effect. These 

would be prospective changes only, intended only for SBIC firms licensed in the fiscal year following enactment of this provision. Additionally, these changes are not intended to serve as an entitlement for SBIC firms to receive the maximum leverage limit or to 

receive multiple licenses. The Committee fully intends for the 

SBA’s to exercise the same discretion as it currently has in deciding the amount of leverage any SBIC firm may receive. 

Section 2. Increased investments in women-owned and socially disadvantaged small businesses 

Currently, there are no special incentives to encourage SBICs to 

invest in women-owned and minority-owned small businesses. Additionally, the incentives for investments in low-income areas are 

confusing and difficult to administer. This section will establish a 

simple incentive to form funds focused on investment in minority, 

veteran, and women owned businesses by permitting such funds to 

operate with increased maximum leverage limits. This section is 

not intended to displace existing low-and-moderate income debenVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00011 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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tures or other initiatives aimed at encouraging investment in low 

income areas, but should be a compliment to these efforts at increasing investment in women, veteran, and minority owned small 

businesses. 

Section 3. Increased investments in smaller enterprises 

Currently, SBICs that use of leverage up to $90 million must 

make no less than 20 percent of its investments in a subset of 

qualified small businesses defined as ‘‘smaller enterprises.’’ SBICs 

that use more than $90 million in leverage must make 100 percent 

of its investments with leverage above $90 million in ‘‘smaller enterprises.’’ As the leverage cap continues to grow this provision creates record keeping problems and imposes additional ‘‘tracking’’ workloads on the SBA and the affected SBICs. 

This provision will simplify the requirements for investment in 

smaller enterprises and is intended to increase overall investment 

in smaller enterprises through the SBIC program. This section will 

establish a flat 25 percent ‘‘smaller enterprises’’ requirement for all SBICs, regardless of whether they have more than $90 million in 

leverage. This is intended to simplify the administration and increase the percentage of all investments that must be in smaller 

enterprises. 

Section 4. Simplified aggregate investment limitations 

The term ‘‘Aggregate Limitations’’ refers to the maximum 

amount of capital any leveraged SBIC may invest in a single small 

business or smaller enterprise. The purpose of the limitation is to 

ensure that leveraged SBICs have diversified portfolios, thus mitigating investment risk for both private investors and the government. Section 306(a) of the Small Business Investment Act of 1958 

provides that no leveraged SBIC may make an investment in a 

small business or smaller enterprise that exceeds an amount equal 

to 20% of the SBIC’s private capital. 

This aggregate limitation creates a problem because different leveraged SBICs plan for different ratios of leverage to private capital in their formation process. The projected ratios most often approved in the licensing process are between 1:1 and 2:1 even 

though the SBIA provides for as much as 3:1 in some cases. The 

application of a maximum investment amount based on a percentage of private capital versus a percentage of total capital to be 

managed produces inconsistent results unrelated to risk and prevents many SBICs from supporting small businesses, particularly 

larger and more well-established small businesses. 

This section is intended to revise the current limit on the amount 

that can be invested in any one portfolio company to standards 

that are more consistent with industry accepted portfolio risk management practices. This change would apply the portfolio management rule (‘‘no more than 10% should be invested in any one company’’) that is the accepted norm in the non-SBIC venture capital 

world and would ensure that SBIC management teams had both 

the financial and time resources required to help their portfolio 

companies achieve their growth goals. 

It is the Committee’s understanding that very few SBIC firms 

are licensed with business plans to operate with a third tier of leverage, and virtually no firms set forth plans to operate a third tier 


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in the business plan approved by the Administration at the time 

the company’s license was granted. Consequently, these changes 

are not intended to have retroactive effect. These would be prospective changes only, intended only for SBIC firms licensed in the fiscal year following enactment of this provision. 

TITLE II. NEW MARKETS VENTURE CAPITAL PROGRAM

Section 1. Expansion of new markets venture capital program 

To date, only six NMVC companies are participating in the New 

Markets program and the SBA’s FY 2008 budget allocates no resources to bring more companies into the program. 

This section is intended to establish mandatory language in the 

Small Business Investment Act of 1958 directing the SBA Administrator to actively engage in affirmative actions to expand the number of NMVC companies and increase the number of investments 

made by current and new NMVC companies. 

This section would also require the Administrator to perform a 

study on their success in expanding the NMVC program and report 

his progress in expanding the program no later than one year after 

the enactment of this provision. 

Section 2. Improved nationwide distribution 

Currently, small business investment is concentrated in only a 

handful of geographic areas, which are primarily located along the 

East and West coasts of the U.S. This section is intended to direct 

the SBA Administrator to ensure that there is a uniform distribution of NMVC companies nationwide to the maximum extent possible. In licensing new NMVC companies, this section intends the 

Administrator to avoid allocating his limited program resources to 

license new NMVC companies where existing NMVC companies already exist and can meet the demand for small business investment in low income areas. 

Section 3. Increased investment in small manufacturers 

Many low income communities throughout the nation have suffered as a result of a loss of their small manufacturing and industrial economic base. The NMVC company has an inherent ability 

to provide investment capital to these communities because the additional investment capital provided by the SBA facilitates smaller 

transactions that are more suitable to investments in low income 

communities and makes NMVC companies less reliant on public 

market sentiment compared to the investments made by traditional 

venture capital firms. Consequently, NMVC investments can flow 

to industries like small manufacturing, which has recently suffered 

particular difficulty in attracting private venture capital. 

This section will reduce the capital requirements required for 

NMVC companies primarily engaged in investment in small manufacturers, making it easier for these companies to secure final approval from the SBA. It is expected that the SBA will facilitate the 

licensing of these NMVC companies, particularly in low income 

communities that have lost a significant portion of their small 

manufacturing industry. 


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Section 4. Updating definition of low-income geographic area 

This section would amend the current definition of ‘‘low-income 

geographic area’’ by simply referring the definition directly to the 

definition of a ‘‘low-income community’’ in the Internal Revenue 

Code. 

The Committee believes that the NMVC program’s current definition of ‘‘low income geographic area’’ creates a significant barrier 

to the program’s success. As long as the definitions between the 

NMVC program and the NMTC program are different, NMVC companies will have difficulty in operating in low income communities. 

This result is inconsistent with the program’s original intent. 

This section is intended to establish parity between the definitions of the eligible NMVC investments and NMTC allocations, 

thereby bringing these two programs into alignment. This change 

will help the program operate as it was originally intended and will 

permit investment firms to use capital raised with New Markets 

Tax Credit allocations to meet the program’s requirements for 

matching private capital. Additionally, this approach ensures that 

the two definitions will remain aligned even in the event that eligibility conditions for tax credit allocations are changed at a future 

date. 

Section 5. Study on availability of equity capital 

This Section also requires the Chief Counsel for Advocacy of the 

SBA to conduct a study on the availability of equity capital in lowincome urban and rural areas and report its findings to Congress 

within 90 days of the study’s completion. 

Section 6. Expanding operational assistance to conditionally approved companies 

This section will permit New Markets Venture Capital Companies that have received conditional approval from the SBA under 

section 354 to receive early grant assistance up to $50,000 at the 

point of initial designation. In the event that a conditionally approved NMVC company fails to win final approval, however, the 

grant must be repaid to the SBA. If the company wins final approval, however, amount of early grant assistance will be deducted 

from the total amount of operational grant assistance the company 

receives. Additionally, this section provides NMVC companies with 

two full years to raise private capital and matching funds for operational assistance. Currently, these companies have up to two 

years under current law. 

These changes are intended to remedy two longstanding problems in the NMVC program. Under existing statutes, NMVC companies could not receive operational assistance grants until after 

they received final approval. This restriction severely limited the 

ability of NMVC companies to provide this assistance to their investment concerns, which is often vital to ensuring the success of 

these businesses and the security of their investment. This change 

is intended to provide very limited OA grants prior to final approval. 

These changes are also intended to remedy the problem that 

many NMVC companies experienced in reaching final approval. 

For many NMVC companies, raising the private capital and matching OA funds was the greatest barrier to winning final approval. 


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By extending the timeframe for matching funds to two full years, 

these companies should have adequate time to raise private capital 

that is integral to the NMVC program. 

Section 7. Streamlined application for new markets venture capital 

program 

This section will require the SBA to develop a set of documents 

that reduce the cost and burden for New Markets Venture Capital 

companies applying for final approval under the program. These 

documents must be created within 60 days after the enactment of 

the bill. 

This section is intended to simplify the application process for 

new NMVC companies, enabling the SBA to license more companies and expand the program. This section is also intended to operate in conjunction with the expansion and nationwide distribution 

initiatives established by this legislation. 

Section 8. Elimination of matching requirement 

This section will eliminate the minimum amount of matching 

commitments for operational assistance that an NMVC company 

must raise before receiving final approval. Currently, this minimum is set at not less than 30 percent of the total amount of private capital or binding capital commitments the NMVC company 

has raised. 

The requirement for matching OA commitments proved to be the 

greatest barrier to licensing new NMVC companies. The required 

matching commitments were simply too high for many NMVC companies to meet, particularly given the economic conditions in the 

communities in which they operate. By eliminating this requirement, this section is intended to enable many more NMVC companies to participate in the program and should streamline the process to winning final approval from the SBA. 

Section 9. Simplified formula for operational assistance grants 

This section will revise the amount of operational assistance 

grants a NMVC company may receive. The new amounts will be 

equal to either 10 percent of the private resources the company has 

raised for operational assistance, or $1 million, whichever is less. 

This section is intended to significantly simplify the formula for 

determining the amount of OA grants a NMVC company may receive, enabling companies to receive their OA allocations more 

quickly than they currently do and providing these companies with 

greater certainty as to the amount of OA resources that they will 

have. 

Section 10. Authorization of appropriations and dedication to small 

manufacturing 

This section reauthorizes appropriations in a total amount of $30 

million to fund debenture guarantees and $5 million for operational 

assistance grants for fiscal years 2008, 2009, and 2010. Additionally, this section requires that at least a quarter of these authorized funds be used for the purpose of entering into participation 

agreements and providing operational assistance to NMVC companies that invest primarily in small manufacturing business concerns. 


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This section is intended to reestablish funding for the NMVC 

companies and, in conjunction with the program expansion and licensing initiatives of this legislation would require the SBA to resume licensing new NMVC companies and providing additional leverage commitments to existing NMVC companies. The initiative 

for small manufacturing is specifically intended to increase the 

number of NMVC companies that primarily invest in small manufacturers. This section should not, however, present an additional 

barrier for NMVC companies that wish to invest in low income 

areas or that do not wish to invest in small manufacturers. 

TITLE III. ANGEL INVESTMENT PROGRAM

Establishment of Angel Investment Program 

This legislation will establish an Office of Angel Investment 

within the Investment Division of the SBA. This office will be headed by a Director of Angel Investment, who will be responsible for 

administering the Angel Finance Program and Federal Angel Network established by the bill. 

As with other SBA programs, the Angel Finance Program will 

function as a public-private partnership between the SBA and privately organized ‘‘angel groups.’’ Angel groups will consist of ten or 

more accredited investors (as that term is defined under Rule 501 

of Regulation D of the Securities and Exchange Act of 1933, 17 

C.F.R. Part 230 et seq.). Alternately, an individual may qualify as 

an angel investor on the basis of such factors as financial sophistication, income, net worth, knowledge, and experience in financial 

matters, or amount of assets under management. Angel groups 

should have demonstrated experience in making investments in 

local small business concerns and must have established protocols 

for performing due diligence in its investments prior to making investments. Additionally, these angel groups should have an established code of ethics and policies and procedures to avoid conflicts 

of interest between members of the group and the companies in 

which they invest. 

These angel groups will be licensed by the SBA specifically for 

the purpose of making investments early stage domestic small 

business concerns located in the same community as the angel 

group. In exchange for complying with the program’s licensing and 

investment requirements, angel groups will receive up to $2 million 

in leverage financing from the SBA that will be co-invested with 

the angel group’s own funds. SBA leverage should only be used to 

invest in small business concerns that have been in existence for 

less than 5 years and that have fewer than 75 employees. Additionally, angel groups should not invest SBA leverage abroad, but 

should use this leverage to invest in local small business concerns 

that are located within their own community. Finally in selecting 

angel groups to receive leverage, the SBA should, to the maximum 

extent possible, avoid licensing new angel groups where a strong 

angel network already exists and should give priority consideration 

to angel groups that invest in small businesses owned by veterans, 

minorities, and women. 

Leverage financing that angel groups receive must be invested in 

a local small business concern with an equal or greater amount of 

private investment capital raised by the angel group. SBA leverage 


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should function as a true sidecar investment, and should mirror 

the private matching investment vehicle. Leverage will be repaid 

from the pro rata share of any returns on the private matching investment, whether positive or negative, but relative to the amount 

of leverage that the angel group receives on their investments. Repayment is not premised upon a timeframe, but is instead dependent upon the distribution of any return, whether positive or negative. Additionally, SBA leverage should maintain any preemptive 

rights in the event that additional ownership interests in the investment enterprise are issued. 

As leverage is repaid, amounts collected by the SBA will be deposited in an Angel Investment Fund at the U.S. Treasury. The 

Angel Investment Fund will serve as a revolving source of leverage 

financing for the Angel Finance Program to operate without regard 

to fiscal year limitations. 

The legislation will also create Federal Angel Network within the 

Office of Angel Investment that will collect and maintain information on local and regional angel investors and angel groups. This 

information will include a list of names and addresses of angel 

groups and angel investors, information about the types of investments each angel investor or angel group has made, and information on other public and private resources on angel investors and 

angel groups. This information will be maintained in a regularly 

updated searchable database available through the SBA’s database. 

Additionally, information contained within the database will be 

readily available for use and distribution by other angel networks 

and groups, thereby augmenting the exposure of the Federal Angel 

Network. Angel investors and angel groups will have the option of 

excluding their information from the network. 

Finally, the Administrator will also carry out a grant program to 

make grants to entities that develop new or existing angel groups 

or to increase awareness and education about angel investing. 

Grant recipients could include units of state or local governments, 

nonprofit organizations, or Small Business Development Centers or 

Women Business Centers established under the Small Business 

Act. To receive grant assistance, however, eligible entities must 

raise matching funds equal to half of the grant amount, thus 

strengthening their commitment and amplifying the grant assistance itself. As with SBA leverage, the grants administered under 

this section are intended to go to entities located in areas where 

a strong network of angel groups currently does not exist, but 

where there are sufficient numbers of potential angel investors. 

TITLE IV. SURETY BOND PROGRAM

Section 1. Study and report 

This section requires that within 180 days of enactment, the Administrator must conduct a study of the program’s current funding 

structure and report its results to Congress. This study should include: 

(1) An assessment of whether the program’s current funding 

framework and program fees are retarding the program’s 

growth; 


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(2) An assessment of whether surety companies and small 

business concerns could benefit from an alternative funding 

structure; 

(3) An assessment of whether permissible premium rates 

fore surety companies participating in the program should be 

placed on parity with the rates authorized by appropriate state 

insurance regulators and how such a change would affect the 

program under the current funding framework. 

This section is intended to examine the Surety Bond programs 

current funding structure as a revolving fund program. The findings in this study would serve as the basis for additional legislative 

action that could reform the funding structure for the program. 

Section 2. Preferred surety bond program 

This provision will establish explicit statutory authority for a 

preferred surety bond program that would essentially mirror the 

preferred lender program under section 7(a) of the Small Business 

Act. Under the PSB program, the Administrator shall carry out a 

program under which a written agreement between the surety and 

the Administration delegates to the surety complete authority to 

issue, monitor, and service bonds subject to guaranty from the Administration without obtaining the prior specific approval of the 

Administration. The Administration may recertify PSB sureties for 

an additional term not to exceed two years. Prior to recertification, 

the Administration shall review a surety’s bonds, policies, and procedures for compliance with relevant rules and regulations. Bonds 

made under this program shall carry a 70% guaranty. 

This section should not make any substantive changes to the existing preferred surety bond program, but is intended to establish 

more discrete statutory authority for the program that will simplify 

the process for future revisions or changes to the program. 

Section 3. Denial of liability 

For bonds made or executed with the Administration’s prior approval, the Administration shall not deny liability to a surety based 

upon information that was provided as part of the guaranty application. 

This section is intended to prevent the problem of the SBA denying indemnification for guarantees issued with prior approval from 

the SBA if the SBA’s basis for denying indemnification could have 

been resolved with a proper review of information contained in the 

guaranty application. 

Section 4. Increasing the bond threshold 

This section will increase the maximum permissible bond amount 

from $2 million to $3 million. This is intended to permit bond companies to issue larger bonds with SBA guarantees, which should 

encourage greater participation in the program by both small businesses and bond companies. 

Section 5. Fees 

This section will permit the Administrator to make contributions 

for the purpose of reducing fees, if and when an appropriation is 

made available for that purpose. The Committee intends for this 

provision to make the surety bond program more affordable to 


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small businesses and surety companies that participate in the program by providing the SBA with authority to contribute funds for 

the purpose of reducing the burden associated with bonding fees. 

The Committee does not believe that the stability that the program 

currently enjoys will be disturbed by this change. The administration will continue to asses and collect the fees necessary to operate 

the program without and will continue to calculate the budget estimates and assumptions for the fiscal year just as it currently does 

to operate the program. The Committee foresees no circumstance 

in which the program would cease operation or be short of necessary program level to operate at full capacity. 

This section simply provides the administration with the authority to contribute funds to reduce the fee burden associated bond 

guarantees if and when an appropriation is made available for that 

purpose. In years when no appropriation is made available, the 

Committee expects the program to function with the stability that 

currently exists. In years when a subsidy is made available, small 

businesses and surety companies will enjoy the benefits of reduced 

fee burdens. 

TITLE V. VENTURE CAPITAL INVESTMENT

Section 1. Determining whether business concern is independently 

owned and operated 

This section specifies that the SBA shall not consider venture 

capital investment in determining whether or not a company is defined as a small business. The provision provides that when calculating the number of employees of a small business concern that 

has venture capital investment, the SBA will exclude those employees who work for companies affiliated with the venture capital company. The bill requires that the venture capital company comply, 

as appropriate, with federal registration requirements for investment companies. In addition, the bill prevents a venture capital 

that is controlled by a large business or a venture capital company 

with more than 500 employees from being recognized as a venture 

capital company under this provision. The legislation also prevents 

concerns not located in the United States that control small business concerns to be able to take advantage of this definition. 

This section is intended to remove the current disincentive that 

exists for small businesses to seek and accept venture capital financing. Under the SBA’s current rules, all investments made by 

a single venture capital company are considered affiliated with 

each other, irrespective of the size of the small business that receives the investment or the size of the venture capital company 

itself. When added together, the total number of employees often 

exceeds 500, making each business unable to qualify as a small 

business concern under the SBA’s size standards. Because several 

federal programs are tied to this qualification, small businesses 

that receive venture capital financing are frequently disqualified 

from participating in a wide-variety of government programs that 

provide substantial benefits to small benefits. 

The Committee does not intend for this section to provide a 

mechanism for large businesses to benefit from small business opportunities, as both the venture capital company and the small 


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business must themselves qualify as small businesses in their own 

capacity and cannot be controlled by a large business. 

TITLE VI. REGULATIONS

This section requires the SBA to promulgate revisions implementing necessary regulatory changes within 90 days. 

VII. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

SEPTEMBER 25, 2007. 

Hon. NYDIA M. VELA ́ ZQUEZ, Chairwoman, Committee on Small Business, 

House of Representatives, Washington, DC. 

DEAR MADAM CHAIRWOMAN: The Congressional Budget Office 

has prepared the enclosed cost estimate for H.R. 3567, the Small 

Business Investment Expansion Act of 2007. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

PETER R. ORSZAG. 

Enclosure. 

H.R. 3567—Small Business Expansion Act of 2007 

Summary: H.R. 3567 would reauthorize the Small Business Administration’s (SBA’s) New Markets Venture Capital Program 

(NMVC), amend its surety guarantee program, and change certain 

investment limits imposed on SBA’s small business investment program. The bill also would establish the Angel Investment Program 

to provide venture capital to certain groups working with small 

businesses in their communities. Finally, the SBA would be required to produce a number of reports for the Congress about the 

effectiveness of the program changes authorized by the bill. 

Based on information from SBA, CBO estimates that implementing H.R. 3567 would cost $8 million in 2008 and $102 million 

over the 2008–2012 period, assuming appropriation of the necessary and specified amounts. Enacting H.R. 3567 would not affect 

direct spending or revenues. 

H.R. 3567 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA). 

Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 3567 is shown in the following table. The costs 

of this legislation fall within budget function 370 (commerce and 

housing credit). 

By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 

CHANGES IN SPENDING SUBJECT TO APPROPRIATION 

New Markets Venture Capital Program: 

Loan Guarantees: 

Estimated Authorization Level .............................................................. 2 2 2 0 0 

Estimated Outlays ................................................................................. 1 2 2 1 0 

Grants: 

Authorization Level ................................................................................ 2 2 1 0 0 

Estimated Outlays ................................................................................. 0 1 2 1 1 


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By fiscal year, in millions of dollars—

2008 2009 2010 2011 2012 

Angel Investment Program: 

Equity Investments: 

Authorization Level ................................................................................ 10 20 20 0 0 

Estimated Outlays ................................................................................. 2 26 20 2 0 

Grants: 

Authorization Level ................................................................................ 2 2 2 0 0 

Estimated Outlays ................................................................................. 0 1 1 1 1 

Administrative Cost: 

Authorization Level ................................................................................ 1 0 0 0 0 

Estimated Outlays ................................................................................. 1 0 0 0 0 

Surety Bond Fees: 

Estimated Authorization Level ....................................................................... 8 8 8 8 8 

Estimated Outlays .......................................................................................... 4 8 8 8 8 

Total Changes: 

Estimated Authorization Level ..................................................... 25 34 33 8 8 

Estimated Outlays ........................................................................ 8 38 33 13 10 

Basis of estimate: For this estimate, CBO assumes that the bill 

will be enacted near the start of fiscal year 2008, that the necessary amounts will be appropriated for each fiscal year, and that 

spending for programs authorized by the bill will follow historical 

spending patterns for similar SBA programs. 

The budgetary accounting for SBA’s direct loan and loan guarantee programs is governed by the Federal Credit Reform Act 

(FCRA) of 1990, which requires an appropriation of subsidy and administrative costs associated with loan guarantees and loan operations. The subsidy cost is the estimated long-term cost to the government of a loan or loan guarantee, calculated on a net-presentvalue basis, excluding administrative costs. Administrative costs, 

recorded on a cash basis, include activities related to making, servicing, and liquidating loans as well as overseeing the performance 

of lenders. 

The effect of the changes that H.R. 3567 would make to SBA’s 

small business investment programs is measured in terms of projected subsidy costs. The bill does not specify an authorization level 

for either the subsidy or administrative costs, if any, that could be 

incurred as a result of implementing the amendments in the bill. 

CBO has estimated those amounts based on information from SBA 

regarding the historical demand for credit assistance and costs of 

the agency’s small business investment programs. CBO assumes 

that administrative activities related to those loans would need to 

continue beyond the 2008–2010 authorization period addressed in 

this bill. 

New Markets Venture Capital Program (NMVC) 

The bill would reauthorize the NMVC for three years, through 

2010, by authorizing the appropriation of funds sufficient to offer 

$30 million in loan guarantees and $5 million in technical assistance grants over the three-year period. The bill would direct SBA 

to approve at least one company from each of SBA’s geographic regions to participate in the program, if practicable. H.R. 3567 also 

would authorize SBA to award technical assistance grants to companies that have received conditional, but not yet final, approval to 

participate in the program. 

Based on information from SBA, CBO expects that the subsidy 

rate for the NMVC program would be about 17 percent. CBO estiVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00021 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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mates that reauthorizing the NMVC program would cost $1 million 

in 2008 and $11 million over the 2008–2012 period, assuming appropriation of the necessary and specified amounts. Of the five-year 

total, $6 million would be for costs associated with extending loan 

guarantees; the remaining $5 million would be for costs associated 

with awarding technical assistance grants. 

Angel Investment Program 

The bill would authorize a new program to provide equity investments in ‘‘angel groups’’ to provide capital to small businesses located in their communities. As a condition of participation in the 

program, such groups would be required to repay SBA for any investments that earn a profit. Any amount to be repaid would be 

prorated based on the share of capital provided by SBA. Repayments would be held by SBA for the purpose of providing new financing to angel groups, subject to provisions in annual appropriation acts. Based on information from SBA, CBO expects that equity 

investments in angel groups would take several years to generate 

profits; therefore, a negligible amount of repayments would be collected from such groups over the 2008–2012 period. Moreover, no 

direct spending savings from such profit-sharing receipts could be 

credited to this legislation because subsequent appropriation acts 

would determine the amount and timing of any federal funds made 

available for the Angel Investment Program. 

The bill would establish the Office of Angel Investments within 

SBA to oversee the Angel Investment Program, to develop a database of information related to angel groups and angel investors, 

and to award grants to eligible entities to develop new angel 

groups. The bill would authorize the appropriation of $13 million in 2008 and $57 million over the 2008–2012 period to carry out the investment, grant, and administrative activities of the program. Based on 

information from SBA, CBO estimates that implementing the 

Angel Investment Program would cost $3 million in 2008 and $55 

million over the 2008–2012 period, assuming appropriation of the 

specified amounts. 

Surety bond program 

The bill would authorize SBA to delegate its authority to issue, 

monitor, and service surety bonds to entities approved by SBA for 

such activities. The bill also would eliminate fees that are currently 

charged to contractors and sureties under the program and authorize the appropriation of sufficient funds to offset the loss of income 

from fees. 

Under current law, SBA’s surety bond program provides guarantees to eligible contractors that SBA will reimburse the surety (an 

entity issuing an assurance that a contractor will perform according to the terms of a signed contract) for a portion of the loss 

should the contractor breach the terms of the contract. To cover the 

costs of those guarantees, fees are paid to SBA by both the contractor receiving the guarantee, and the surety that issues the 

bond for the contractor’s performance. In 2006, SBA provided guarantees under the surety bond program for about 5,000 bonded contracts and collected about $7 million in fees. (Those collections are 

recorded as an offset to discretionary appropriations.) Based on inVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00022 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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formation from SBA, CBO expects that eliminating the fees paid by 

participants would lead to a small increase in participation in the 

program. 

Guarantees provided under the surety bond program are recorded as cash expenditures rather than net-present-value costs 

under FCRA. This is because under the surety bond program, SBA 

is not guaranteeing repayment under a contract for a loan; rather, 

it is guaranteeing actual performance under a contract for services, 

which does not qualify as a loan or loan guarantee under FCRA. 

CBO estimates that implementing this provision of H.R. 3567 

would cost $4 million in 2008 and $36 million over the 2008–2012 

period, assuming appropriation of the necessary amounts. 

Other provisions 

H.R. 3567 would amend provisions of current law that limit the 

amount of capital SBA can provide to participating small business 

investment companies (SBICs). Among other things, the bill would 

change the method for calculating the maximum amount of capital 

that can be provided to SBICs and raise those limits for SBICs that 

agree to invest specific amounts in companies owned by individuals 

from socially or economically disadvantaged or low-income areas, 

veterans, or members of the National Guard or Reserves. Based on 

information from SBA, CBO estimates that those changes to the 

operations of the small business investment program would have 

an insignificant effect on the federal budget. 

The bill also would require SBA to produce four reports for the 

Congress that assess either the current practices of programs authorized by the bill or the effectiveness of new programs. CBO estimates that the cost of producing those reports would be less than 

$500,000 per year over the 2008–2012 period. 

Intergovernmental and private-sector impact: H.R. 3567 contains 

no intergovernmental or private-sector mandates as defined in 

UMRA. The bill would benefit state and local governments by authorizing grants to develop an investment program for small business. 

Estimate prepared by: Federal Costs: Susan Willie; Impact on 

State, Local, and Tribal Governments: Elizabeth Cove; Impact on 

the Private Sector: Jacob Kuipers. 

Estimate approved by: Peter H. Fontaine, Assistant Director for 

Budget Analysis. 

VIII. COMMITTEE ESTIMATE OF COSTS

Clause 3(d)(2) of rule XIII of the Rules of the House of Representatives requires an estimate and a comparison by the Committee of the costs that would be incurred in carrying out H.R. 

3567. However, clause 3(d)(3)(B) of that rule provides that this requirement does not apply when the Committee has included in its 

report a timely submitted cost estimate of the bill prepared by the 

Director of the Congressional Budget Office under section 402 of 

the Congressional Budget Act. 

IX. OVERSIGHT FINDINGS

In accordance with clause (2)(b)(1) of rule X of the Rules of the 

House of Representatives, the oversight findings and recommendaVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00023 Fmt 6659 Sfmt 6602 E:\HR\OC\HR347.XXX HR347

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tions of the Committee on Small Business with respect to the subject matter contained in H.R. 3567 are incorporated into the descriptive portions of this report. 

X. STATEMENT OF CONSTITUTIONAL AUTHORITY

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds the authority for this legislation in Article I, Section 8, clause 18, of the Constitution of the 

United States. 

XI. COMPLIANCE WITH PUBLIC LAW 104–4 

H.R. 3567 contains no unfunded mandates. 

XII. CONGRESSIONAL ACCOUNTABILITY ACT

H.R. 3567 does not relate to the terms and conditions of employment or access to public services or accommodations with the 

meaning of section 102(b)(3) of P.L. 104–1. 

XIII. FEDERAL ADVISORY COMMITTEE STATEMENT

This legislation does not establish or authorize the establishment 

of any new advisory committees. 

XIV. STATEMENT OF NO EARMARKS

Pursuant to clause 9 of rule XXI, H.R. 3567 does not contain any 

congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e), or 9(f) of rule XXI. 

XV. PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

H.R. 3567 includes a number of provisions designed to update 

and improve the Small Business Administration’s SBIC, NMVC, 

and Surety Bond programs, establish a new Angel Investment Program under the purview of the Small Business Administration, and 

revise existing SBA rules that inhibit venture capital investment in 

small businesses. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

SMALL BUSINESS INVESTMENT ACT OF 1958 

* * * * * * * 

TITLE III—INVESTMENT DIVISION PROGRAMS 

PART A—SMALL BUSINESS INVESTMENT COMPANIES

* * * * * * * 


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BORROWING POWER

SEC. 303. (a) * * * 

(b) To encourage the formation and growth of small business investment companies the Administration is authorized when authorized in appropriation Acts, to purchase, or to guarantee the timely 

payment of all principal and interest as scheduled on, debentures 

or participating securities issued by such companies. Such purchases or guarantees may be made by the Administration on such 

terms and conditions as it deems appropriate, pursuant to regulations issued by the Administration. The full faith and credit of the 

United States is pledged to the payment of all amounts which may 

be required to be paid under any guarantee under this subsection. 

Debentures purchased or guaranteed by the Administration under 

this subsection shall be subordinate to any other debenture bonds, 

promissory notes, or other debts and obligations of such companies, 

unless the Administration in its exercise of reasonable investment 

prudence and in considering the financial soundness of such company determines otherwise. Such debentures may be issued for a 

term of not to exceed fifteen years and shall bear interest at a rate 

not less than a rate determined by the Secretary of the Treasury 

taking into consideration the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities on 

such debentures, adjusted to the nearest one-eighth of 1 per centum, plus, for debentures obligated after September 30, 2001, an 

additional charge, in an amount established annually by the Administration, as necessary to reduce to zero the cost (as defined in 

section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 

661a)) to the Administration of purchasing and guaranteeing debentures under this Act, which amount may not exceed 1.38 percent per year, and which shall be paid to and retained by the Administration. The debentures or participating securities shall also 

contain such other terms as the Administration may fix, and shall 

be subject to the following restrictions and limitations: 

(1) * * * 

ø(2) MAXIMUM LEVERAGE.—

ø(A) IN GENERAL.—After March 31, 1993, the maximum 

amount of outstanding leverage made available to a company licensed under section 301(c) of this Act shall be determined by the amount of such company’s private capital—

ø(i) if the company has private capital of not more 

than $15,000,000, the total amount of leverage shall 

not exceed 300 percent of private capital; 

ø(ii) if the company has private capital of more than 

$15,000,000 but not more than $30,000,000, the total 

amount of leverage shall not exceed $45,000,000 plus 

200 percent of the amount of private capital over 

$15,000,000; and 

ø(iii) if the company has private capital of more 

than $30,000,000, the total amount of leverage shall 

not exceed $75,000,000 plus 100 percent of the amount 

of private capital over $30,000,000 but not to exceed 

an additional $15,000,000. 


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ø(B) ADJUSTMENTS.— ø(i) IN GENERAL.—The dollar amounts in clauses (i), 

(ii), and (iii) of subparagraph (A) shall be adjusted annually to reflect increases in the Consumer Price 

Index established by the Bureau of Labor Statistics of 

the Department of Labor. 

ø(ii) INITIAL ADJUSTMENTS.—The initial adjustments 

made under this subparagraph after the date of the 

enactment of the Small Business Reauthorization Act 

of 1937 shall reflect only increases from March 31, 

1993. 

ø(C) INVESTMENTS IN LOW-INCOME GEOGRAPHIC AREAS.— In calculating the outstanding leverage of a company for 

the purposes of subparagraph (A), the Administrator shall 

not include the amount of the cost basis of any equity investment made by the company in a smaller enterprise located in a low-income geographic area (as defined in section 351), to the extent that the total of such amounts does 

not exceed 50 percent of the company’s private capital.¿ 

(2) MAXIMUM LEVERAGE.— (A) IN GENERAL.—The maximum amount of outstanding 

leverage made available to any one company licensed under 

section 301(c) of this Act may not exceed the lesser of— (i) 300 percent of such company’s private capital; or (ii) $150,000,000. 

(B) MULTIPLE LICENSES UNDER COMMON CONTROL.—The 

maximum amount of outstanding leverage made available 

to two or more companies licensed under section 301(c) of 

this Act that are commonly controlled (as determined by the 

Administrator) and not under capital impairment may not 

exceed $225,000,000. 

(C) INCREASED INVESTMENTS IN WOMEN-OWNED AND SO- CIALLY DISADVANTAGED SMALL BUSINESSES.—The limits 

provided in subparagraphs (A)(ii) and (B) shall be 

$175,000,000 and $250,000,000, respectively, for any company that certifies in writing that not less than 50 percent 

of the company’s aggregate dollar amount of investments 

will be made in small businesses that prior to the investment are—(i) majority owned by one or more— (I) socially or economically disadvantaged individuals (as defined by Administrator); 

(II) veterans of the Armed Forces; or 

(III) current or former members of the National 

Guard or Reserve; or 

(ii) located in a low-income geographic area (as defined in section 351). 

* * * * * * * 

ø(4) MAXIMUM AGGREGATE AMOUNT OF LEVERAGE.— ø(A) IN GENERAL.—Except as provided in subparagraph 

(B), the aggregate amount of outstanding leverage issued 

to any company or companies that are commonly controlled (as determined by the Administrator) may not exceed $90,000,000, as adjusted annually for increases in the 

Consumer Price Index. 


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ø(B) EXCEPTIONS.—The Administrator may, on a caseby-case basis— ø(i) approve an amount of leverage that exceeds the 

amount described in subparagraph (A) for companies 

under common control; and 

ø(ii) impose such additional terms and conditions as 

the Administrator determines to be appropriate to 

minimize the risk of loss to the Administration in the 

event of default. 

ø(C) APPLICABILITY OF OTHER PROVISIONS.—Any leverage 

that is issued to a company or companies commonly controlled in an amount that exceeds $90,000,000, whether as 

a result of an increase in the Consumer Price Index or a 

decision of the Administrator, is subject to subsection (d). 

ø(D) INVESTMENTS IN LOW-INCOME GEOGRAPHIC AREAS.— In calculating the aggregate outstanding leverage of a 

company for the purposes of subparagraph (A), the Administrator shall not include the amount of the cost basis of 

any equity investment made by the company in a smaller 

enterprise located in a low-income geographic area (as defined in section 351), to the extent that the total of such 

amounts does not exceed 50 percent of the company’s private capital.¿ 

* * * * * * * 

ø(d) REQUIRED CERTIFICATIONS.— ø(1) IN GENERAL.—The Administrator shall require each licensee, as a condition of approval of an application for leverage, to certify in writing— ø(A) for licensees with leverage less than or equal to $90,000,000, that not less than 20 percent of the licensee’s 

aggregate dollar amount of financings will be provided to 

smaller enterprises; and 

ø(B) for licensees with leverage in excess of $90,000,000, 

that, in addition to satisfying the requirements of subparagraph (A), 100 percent of the licensee’s aggregate dollar 

amount of financings made in whole or in part with leverage in excess of $90,000,000 will be provided to smaller enterprises (as defined in section 103(12)). 

ø(2) MULTIPLE LICENSEES.—Multiple licensees under common control (as determined by the Administrator) shall be considered to be a single licensee for purposes of determining both 

the applicability of and compliance with the investment percentage requirements of this subsection.¿ 

(d) INCREASED INVESTMENTS IN SMALLER ENTERPRISES.—The Administrator shall require each licensee, as a condition of an application for leverage, to certify in writing that not less than 25 percent 

of the licensee’s aggregate dollar amount of financings will be provided to smaller enterprises (as defined in section 103(12)). 

* * * * * * * 

AGGREGATE LIMITATIONS

SEC. 306. ø(a) If any small business investment company has obtained financing from the Administration and such financing remains outstanding, the aggregate amount of obligations and securiVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00027 Fmt 6659 Sfmt 6601 E:\HR\OC\HR347.XXX HR347

hmoore on PRODPC68 with HMRPT
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ties acquired and for which commitments may be issued by such 

company under the provisions of this title for any single enterprise 

shall not exceed 20 per centum of the private capital of such company, without the approval of the Administration.¿ 

(a) If any small business investment company has obtained financing from the Administration and such financing remains outstanding, the aggregate amount of securities acquired and for which 

commitments may be issued by such company under the provisions 

of this title for any single enterprise shall not, without the approval 

of the Administration, exceed 10 percent of the sum of—

(1) the private capital of such company; and 

(2) the total amount of leverage projected by the company in 

the company’s business plan that was approved by the Administration at the time of the grant of the company’s license. 

* * * * * * * 

PART B—NEW MARKETS VENTURE CAPITAL PROGRAM

SEC. 351. DEFINITIONS. 

In this part, the following definitions apply: 

(1) * * * 

ø(2) LOW-INCOME INDIVIDUAL.—The term ‘‘low-income individual’’ means an individual whose income (adjusted for family 

size) does not exceed—

ø(A) for metropolitan areas, 80 percent of the area median income; and 

ø(B) for nonmetropolitan areas, the greater of—

ø(i) 80 percent of the area median income; or 

ø(ii) 80 percent of the statewide nonmetropolitan 

area median income. 

ø(3) LOW-INCOME GEOGRAPHIC AREA.—the term ‘‘low-income 

geographic area’’ means—

ø(A) any population census tract (or in the case of an 

area that is not tracted for population census tracts, the 

equivalent county division, as defined by the Bureau of the 

Census of the Department of Commerce for purposes of defining poverty areas), if—

ø(i) the poverty rate for that census tract is not less 

than 20 percent; 

ø(ii) in the case of a tract—

ø(I) that is located within a metropolitan area, 

50 percent or more of the households in that census tract have an income equal to less than 60 

percent of the area median gross income; or 

ø(II) that is not located within a metropolitan 

area, the median household income for such tract 

does not exceed 80 percent of the statewide median household income; or 

ø(iii) as determined by the Administrator based on 

objective criteria, a substantial population of low-income individuals reside, an inadequate access to investment capital exists, or other indications of economic distress exist in that census tract; or 

ø(B) any area located within—


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ø(i) a HUBZone (as defined in section 3(p) of the 

Small Business Act and the implementing regulations 

issued under that section); 

ø(ii) an urban empowerment zone or urban enterprise community (as designated by the Secretary of 

Housing and Urban Development); or 

ø(iii) a rural empowerment zone or rural enterprise 

community (as designated by the Secretary of Agriculture).¿ 

(2) LOW-INCOME GEOGRAPHIC AREA.—The term ‘‘low-income 

geographic area’’ has the same meaning given the term ‘‘low-income community’’ in section 45D(e) of the Internal Revenue 

Code of 1986 (26 U.S.C. 45D(e)). 

ø(4)¿ (3) NEW MARKETS VENTURE CAPITAL COMPANY.—The 

term ‘‘New Markets Venture Capital company’’ means a company that—

(A) * * * 

* * * * * * * 

ø(5)¿ (4) OPERATIONAL ASSISTANCE.—The term ‘‘operational 

assistance’’ means management, marketing, and other technical assistance that assists a small business concern with 

business development. 

ø(6)¿ (5) PARTICIPATION AGREEMENT.—The term ‘‘participation agreement’’ means an agreement, between the Administrator and a company granted final approval under section 

354(e), that—

(A) * * * 

* * * * * * * 

ø(7)¿ (6) SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY.—The term ‘‘specialized small business investment company’’ means any small business investment company that—

(A) * * * 

* * * * * * * 

ø(8)¿ (7) STATE.—The term ‘‘State’’ means such of the several 

States, the District of Columbia, the Commonwealth of Puerto 

Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any other 

commonwealth, territory, or possession of the United States. 

* * * * * * * 

SEC. 353. ESTABLISHMENT. 

In accordance with this part, the Administrator shall establish a 

New Markets Venture Capital Program, under which the Administrator ømay¿ shall—

(1) * * * 

* * * * * * * 

SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES. 

(a) * * * 

* * * * * * * 

(d) REQUIREMENTS TO BE MET FOR FINAL APPROVAL.—The Administrator shall grant each conditionally approved company øa peVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00029 Fmt 6659 Sfmt 6601 E:\HR\OC\HR347.XXX HR347

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riod of time, not to exceed 2 years,¿ 2 years to satisfy the following 

requirements: 

(1) CAPITAL REQUIREMENT.—øEach¿ 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), each conditionally approved company shall raise not less than $5,000,000 of private capital or binding capital 

commitments from one or more investors (other than agencies or departments of the Federal Government) who met 

criteria established by the Administrator. 

(B) SMALL MANUFACTURER INVESTMENT CAPITAL RE- QUIREMENTS.—Each conditionally approved company engaged primarily in development of and investment in small 

manufacturers shall raise not less than $3,000,000 of private capital or binding capital commitments from one or 

more investors (other than agencies or departments of the 

Federal Government) who meet criteria established by the 

Administrator. 

(2) NONADMINISTRATION RESOURCES FOR OPERATIONAL ASSISTANCE.—

(A) IN GENERAL.—In order to provide operational assistance to smaller enterprises expected to be financed by the 

company, each conditionally approved company—

(i) shall have binding commitments (for contribution 

in cash or in kind)—

(I) from any sources other than the Small Business Administration that meet criteria established 

by the Administrator; and 

(II) payable or available over a multiyear period 

acceptable to the Administrator (not to exceed 10 

years); øand¿ 

ø(III) in an amount not less than 30 percent of 

the total amount of capital and commitments 

raised under paragraph (1);¿ 

* * * * * * * 

(f) GEOGRAPHIC EXPANSION.—From among companies submitting 

applications under subsection (b), the Administrator shall consider 

the selection criteria and nationwide distribution under subsection 

(c) and shall, to the maximum extent practicable, approve at least 

one company from each geographic region of the Small Business Administration. 

* * * * * * * 

SEC. 358. OPERATIONAL ASSISTANCE GRANTS. 

(a) IN GENERAL.—

(1) * * * 

* * * * * * * 

(4) GRANT AMOUNT.—

(A) NEW MARKETS VENTURE CAPITAL COMPANIES.—The 

amount of a grant made under this subsection to a New 

Markets Venture Capital company øshall be equal to the 

resources (in cash or in kind) raised by the company under 

section 354(d)(2).¿ shall be equal to the lesser of— (i) 10 percent of the resources (in cash or in kind) 

raised by the company under section 354(d)(2); or 


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(ii) $1,000,000. 

* * * * * * * 

(6) GRANTS TO CONDITIONALLY APPROVED COMPANIES.—

(A) IN GENERAL.—Subject to subparagraphs (A) and (B), 

upon the request of a company conditionally-approved 

under section 354(c), the Administrator shall make a grant 

to the company under this subsection. 

(B) REPAYMENT BY COMPANIES NOT APPROVED.—If a company receives a grant under paragraph (6) and does not 

enter into a participation agreement for final approval, the 

company shall repay the amount of the grant to the Administrator. 

(C) DEDUCTION FROM GRANT TO APPROVED COMPANY.—If 

a company receives a grant under paragraph (6) and receives final approval under section 354(e), the Administrator shall deduct the amount of the grant under that 

paragraph from the total grant amount that the company 

receives for operational assistance. 

(D) AMOUNT OF GRANT.—No company may receive a 

grant of more than $50,000 under this paragraph. 

* * * * * * * 

SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS. 

(a) IN GENERAL.—There are authorized to be appropriated for 

øfiscal years 2001 through 2006¿ fiscal years 2008 through 2010, 

to remain available until expended, the following sums: 

(1) Such subsidy budget authority as may be necessary to 

guarantee ø$150,000,000¿ $30,000,000 of debentures under 

this part, of which not less than one-quarter shall be used to 

guarantee debentures of companies engaged primarily in development of and investment in small manufacturers. 

(2) ø$30,000,000¿ $5,000,000 to make grants under this part, 

of which not less than one-quarter shall be used to make grants 

to companies engaged primarily in development of and investment in small manufacturers. 

PART C—ANGEL INVESTMENT PROGRAM 

SEC. 380. OFFICE OF ANGEL INVESTMENT. 

(a) ESTABLISHMENT.—There is established, in the Investment Division of the Small Business Administration, the Office of Angel Investment. 

(b) DIRECTOR.—The head of the Office of Angel Investment is the 

Director of Angel Investment. 

(c) DUTIES.—Subject to the direction of the Secretary, the Director 

shall perform the following functions: 

(1) Provide support for the development of angel investment 

opportunities for small business concerns. 

(2) Administer the Angel Investment Program under section 

382 of this Act. 

(3) Administer the Federal Angel Network under section 383 

of this Act. 

(4) Administer the grant program for the development of 

angel groups under section 384 of this Act. 


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(5) Perform such other duties consistent with this section as 

the Administrator shall prescribe. 

SEC. 381. DEFINITIONS. 

In this part: 

(1) The term ‘‘angel group’’ means 10 or more angel investors 

organized for the purpose of making investments in local or regional small business concerns that—

(A) consists primarily of angel investors; 

(B) requires angel investors to be accredited investors; 

and 

(C) actively involves the angel investors in evaluating 

and making decisions about making investments. 

(2) The term ‘‘angel investor’’ means an individual who—

(A) qualifies as an accredited investor (as that term is defined under Rule 501 of Regulation D of the Securities and 

Exchange Commission (17 C.F.R. 230.501)); 

(B) provides capital to or makes investments in a small 

business concern. 

(3) The term ‘‘small business concern owned and controlled by 

veterans’’ has the meaning given that term under section 3(q)(3) 

of the Small Business Act (15 U.S.C. 632(q)(3)). 

(4) The term ‘‘small business concern owned and controlled by 

women’’ has the meaning given that term under section 

8(d)(3)(D) of such Act (15 U.S.C. 637(d)(3)(D)). 

(5) The term ‘‘socially and economically disadvantaged small 

business concern’’ has the meaning given that term under section 8(a)(4)(A) of such Act (15 U.S.C. 637(a)(4)(A)). 

SEC. 382. ANGEL INVESTMENT PROGRAM. 

(a) IN GENERAL.—The Director of Angel Investment shall establish and carry out a program, to be known as the Angel Investment 

Program, to provide financing to approved angel groups for the purpose of providing venture capital investment in small businesses in 

their communities. 

(b) ELIGIBILITY.—To be eligible to receive financing under this section, an angel group shall—

(1) have demonstrated experience making investments in local 

or regional small business concerns; 

(2) have established protocols and a due diligence process for 

determining its investment strategy; 

(3) have an established code of ethics; and 

(4) submit an application to the Director of Angel Investment 

at such time and containing such information and assurances 

as the Director may require. 

(c) USE OF FUNDS.—An angel group that receives financing under 

this section shall use the amounts received to make investments in 

small business concerns—

(1) that have been in existence for less than 5 years as of the 

date on which the investment is made; 

(2) that have fewer than 75 employees as of the date on which 

the investment is made; 

(3) more than 50 percent of the employees of which perform 

substantially all of their services in the United States as of the 

date on which the investment is made; and 


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(4) within the geographic area determined by the Director 

under subsection (e). 

(d) LIMITATION ON AMOUNT.—No angel group receiving financing 

under this section shall receive more than $2,000,000. 

(e) LIMITATION ON GEOGRAPHIC AREA.—For each angel group receiving financing under this section, the Director shall determine 

the geographic area in which a small business concern must be located to receive an investment from that angel group. 

(f) PRIORITY IN PROVIDING FINANCING.—In providing financing 

under this section, the Director shall give priority to angel groups 

that invest in small business concerns owned and controlled by veterans, small business concerns owned and controlled by women, 

and socially and economically disadvantaged small business concerns. 

(g) NATIONWIDE DISTRIBUTION OF FINANCING.—In providing financing under this section, the Director shall, to the extent practicable, provide financing to angel groups that are located in a variety of geographic areas. 

(h) MATCHING REQUIREMENT.—As a condition of receiving financing under this section, the Director shall require that for each small 

business concern in which the angel group receiving such financing 

invests, the angel group shall invest an amount that is equal to or 

greater than the amount of financing received under this section 

from a source other than the Federal Government that is equal to 

the amount of the financing provided under this section that the 

angel group invests in that small business concern. 

(i) REPAYMENT OF FINANCING.—As a condition of receiving financing under this section, the Director shall require an angel group to 

repay the Director for any investment on which the angel group 

makes a profit an amount equal to the percentage of the returns 

that is equal to the percentage of the total amount invested by the 

angel group that consisted of financing received under this section. 

(j) ANGEL INVESTMENT FUND.—

(1) ESTABLISHMENT.—There is in the Treasury a fund to be 

known as the Angel Investment Fund. 

(2) DEPOSIT OF CERTAIN AMOUNTS.—Amounts collected under 

subsection (i) shall be deposited in the fund. 

(3) USE OF DEPOSITS.—Deposits in the fund shall be available 

for the purpose of providing financing under this section in the 

amounts specified in annual appropriation laws without regard 

to fiscal year limitations. 

(k) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to 

be appropriated to carry out this section—

(1) $10,000,000 for fiscal year 2008; 

(2) $20,000,000 for fiscal year 2009; and 

(3) $20,000,000 for fiscal year 2010. 

SEC. 383. FEDERAL ANGEL NETWORK. 

(a) IN GENERAL.—Subject to the succeeding provisions of this subsection, the Director of the Office of Angel Investment shall establish 

and maintain a searchable database, to be known as the Federal 

Angel Network, to assist small business concerns in identifying 

angel investors. 

(b) NETWORK CONTENTS.—The Federal Angel Network shall include—


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(1) a list of the names and addresses of angel groups and 

angel investors; 

(2) information about the types of investments each angel 

group or angel investor has made; and 

(3) information about other public and private resources and 

registries that provide information about angel groups or angel 

investors. 

(c) COLLECTION OF INFORMATION.— (1) IN GENERAL.—The Director shall collect the information to 

be contained in the Federal Angel Network and shall ensure 

that such information is updated regularly. 

(2) REQUEST FOR EXCLUSION OF INFORMATION.—The Director 

shall not include such information concerning an angel investor 

if that investor contacts the Director to request that such information be excluded from the Network. 

(d) AVAILABILITY.—The Director shall make the Federal Angel 

Network available on the Internet website of the Administration and 

shall do so in a manner that permits others to download, distribute, 

and use the information contained in the Federal Angel Network. 

(e) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to 

be appropriated to carry out this section $1,000,000, to remain 

available until expended. 

SEC. 384. GRANT PROGRAM FOR DEVELOPMENT OF ANGEL GROUPS. 

(a) IN GENERAL.—The Director of the Office of Angel Investment 

shall establish and carry out a grant program to make grants to eligible entities for the development of new or existing angel groups 

and to increase awareness and education about angel investing. 

(b) ELIGIBLE ENTITIES.—In this section, the term ‘‘eligible entity’’ means—

(1) a State or unit of local government; 

(2) a nonprofit organization; 

(3) a state mutual benefit corporation; 

(4) a Small Business Development Center established pursuant to section 21 of the Small Business Act (15 U.S.C. 648); or 

(5) a women’s business center established pursuant to section 

29 of the Small Business Act (15 U.S.C. 656). 

(c) MATCHING REQUIREMENT.—The Administrator shall require, 

as a condition of any grant made under this section, that the eligible entity receiving the grant provide from resources (in cash or in 

kind), other than those provided by the Administrator or any other 

Federal source, a matching contribution equal to 50 percent of the 

amount of the grant. 

(d) APPLICATION.—To receive a grant under this section, an eligible entity shall submit an application that contains—

(1) a proposal describing how the grant would be used; and 

(2) any other information or assurances as the Director may 

require. 

(e) REPORT.—Not later than 3 years after the date on which an 

eligible entity receives a grant under this section, such eligible entity 

shall submit a report to the Administrator describing the use of 

grant funds and evaluating the success of the angel group developed 

using the grant funds. 

(f) AUTHORIZATION OF APPROPRIATIONS.—There is authorized to 

be appropriated to carry out this section $1,500,000, for each of fiscal years 2008 through 2010. 


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TITLE IV—GUARANTEES 

* * * * * * * 

PART B—SURETY BOND GUARANTEES

* * * * * * * 

AUTHORITY OF THE ADMINISTRATION

SEC. 411. (a)(1) The Administration may, upon such terms and 

conditions as it may prescribe, guarantee and enter into commitments to guarantee any surety against loss resulting from a breach 

of the terms of a bid bond, payment bond, performance bond, or 

bonds ancillary thereto, by a principal on any total work order or 

contract amount at the time of bond execution that does not exceed 

ø$2,000,000¿ $3,000,000. 

* * * * * * * 

ø(3) The Administration may authorize any surety, without further administration approval, to issue, monitor, and service such 

bonds subject to the Administration’s guarantee. 

ø(4) No such guarantee may be issued, unless— ø(A) the person who would be principal under the bond is a 

small business concern; 

ø(B) the bond is required in order for such person to bid on 

a contract, or to serve as a prime contractor or subcontractor 

thereon; 

ø(C) such person is not able to obtain such bond on reasonable terms and conditions without a guarantee under this section; and 

ø(D) there is a reasonable expectation that such principal 

will perform the covenants and conditions of the contract with 

respect to which such bond is required, and the terms and conditions of such bond are reasonable in the light of the risks involved and the extent of the surety’s participation. 

ø(5)(A) The Administration shall promptly act upon an application from a surety to participate in the Preferred Surety Bond 

Guarantee Program, authorized by paragraph (3), in accordance 

with criteria and procedures established in regulations pursuant to 

subsection (d). 

ø(B) The Administration is authorized to reduce the allotment of 

bond guarantee authority or terminate the participation of a surety 

in the Preferred Surety Program Guarantee Program based on the 

rate of participation of such surety during the 4 most recent fiscal 

year quarters compared to the median rate of participation by the 

other sureties in the program.¿ 

(b) Subject to the provisions of this section, in connection with 

the issuance by the Administration of a guarantee to a surety as 

provided by subsection (a), the Administration may agree to indemnify such surety against a loss sustained by such surety in avoiding 

or attempting to avoid a breach of the terms of a bond guaranteed 

by the Administration pursuant to subsection (a): Provided, however 

(1) * * * 

(2) a surety must obtain approval from the Administration 

prior to making any payments pursuant to this subsection unVerDate Aug 31 2005 03:43 Sep 26, 2007 Jkt 059006 PO 00000 Frm 00035 Fmt 6659 Sfmt 6601 E:\HR\OC\HR347.XXX HR347

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less the surety is participating under øthe authority of subsection (a)(3)¿ the authority of section 413; and 

* * * * * * * 

(c) Any guarantee or agreement to indemnify under this section 

shall obligate the Administration to pay to the surety a sum—

ø(1) not to exceed 70 per centum of the loss incurred and 

paid by a surety authorized to issue bonds subject to the Administration’s guarantee under subsection (a)(3);¿ 

ø(2)¿ (1) not to exceed 90 per centum of the loss incurred and 

paid in the case of a surety requiring the Administration’s specific approval for the issuance of such bond, but in no event 

may the Administration make any duplicate payment pursuant 

to subsection (b) or any other subsection; 

ø(3)¿ (2) equal to 90 per centum of the loss incurred and paid 

in the case of a surety requiring the administration’s specific 

approval for the issuance of a bond, if—

(A) * * * 

* * * * * * * 

ø(4)¿ (3) determined pursuant to subsection (b), if applicable. 

* * * * * * * 

(g)(1) * * * 

* * * * * * * 

(3) Each surety participating under øthe authority of paragraph 

(3) of subsection (a)¿ the authority of section 413 shall be audited 

at least once every three years by examiners selected and approved 

by the Administration. 

* * * * * * * 

(k) For bonds made or executed with the prior approval of the Administration, the Administration shall not deny liability to a surety 

based upon information that was provided as part of the guaranty 

application. 

(l) To the extent that amounts are made available to the Administrator for the purpose of fee contributions, the Administrator shall 

use such funds to offset fees established and assessed under this section. Each fee contribution shall be effective for one fiscal quarter 

and shall be adjusted as necessary to ensure that amounts made 

available are fully used. 

SEC. 413. PREFERRED SURETY BOND PROGRAM. 

(a) PROGRAM REQUIRED.—The Administrator shall carry out a 

program, to be known as the Preferred Surety Bond Program, under 

which the Administration, by a written agreement between the surety and the Administration, delegates to the surety complete authority to issue, monitor, and service bonds subject to guaranty from the 

Administration without obtaining the specific approval of the Administration. Bonds made under the program shall carry a 70 percent guaranty. 

(b) TERM.—The term of a delegation of authority under such an 

agreement shall not exceed 2 years. 

(c) RENEWAL.—Such an agreement may be renewed one or more 

times, each such renewal providing one additional term. Before each 

renewal, the Administrator shall review the surety’s bonds, policies, 

and procedures for compliance with relevant rules and regulations. 


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37 

(d) APPLICATION.—The Administrator shall promptly act upon an 

application from a surety to participate in the program, in accordance with criteria and procedures established in regulations pursuant to section 411(d). 

(e) REDUCTION OR TERMINATION OF PARTICIPATION.—The Administrator is authorized to reduce the allotment of bond guarantee authority or terminate the participation of a surety in the program 

based on the rate of participation of such surety during the 4 most 

recent fiscal year quarters compared to the median rate of participation by the other sureties in the program. 

* * * * * * * 

SMALL BUSINESS ACT 

* * * * * * * 

SEC. 3. (a)(1) * * * 

* * * * * * * 

(5) NON-AFFILIATION OF VENTURE CAPITAL FROM CONSIDERATION

OF SMALL BUSINESS CONCERN.—For purposes of determining 

whether a small business concern is independently owned and operated under paragraph (1) or meets the small business size standards instituted under paragraph (2), the Administrator shall not 

consider a concern that has received financing from a venture capital operating company to be affiliated with either the venture capital operating company or any other business which the venture capital operating company has financed. 

(6) DEFINITION OF ‘‘INDEPENDENTLY OWNED AND OPERATED’’.—

For purposes of this section, a business concern shall be deemed to 

be ‘‘independently owned and operated’’ if it is owned in majority 

part by one or more natural persons or venture capital operating 

companies meeting the definition in paragraph (7). 

(7) DEFINITION OF ‘‘VENTURE CAPITAL OPERATING COMPANY’’.—

For purposes of this section, the term ‘‘venture capital operating 

company’’ means a business concern—

(A) that—

(i) is a Venture Capital Operating Company, as that term 

is defined in regulations promulgated by the Secretary of 

Labor; or 

(ii) is an entity that—

(I) is registered under the Investment Company Act 

of 1940 (15 U.S.C. 80a–51 et seq.); 

(II) is an investment company, as defined in section 

3(c)(14) of such Act (15 U.S.C. 80a–3(c)(14)), which is 

not registered under such Act because it is beneficially 

owned by less than 100 persons; or 

(III) is a nonprofit organization affiliated with, or 

serving as a patent and licensing organization for, a 

university or other institution of higher education and 

that invests primarily in small business concerns; and 

(B) that is not controlled by any business concern that is not 

a small business concern within the meaning of section 3; and 

(C) that has fewer than 500 employees; and 


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38 

(D) that is itself a business concern incorporated and domiciled in the United States, or is controlled by a business concern 

that is incorporated and domiciled in the United States. 

* * * * * * * 

Æ 


hmoore on PRODPC68 with HMRPT