Calendar No. 455

104TH CONGRESS

2D SESSION S. 1784

A BILL

To amend the Small Business Investment Act of

1958, and for other purposes.

JUNE 25, 1996

Reported with an amendment
II

Calendar No. 455

104TH CONGRESS

2D SESSION S. 1784

To amend the Small Business Investment Act of 1958, and for other

purposes.

IN THE SENATE OF THE UNITED STATES

MAY 20, 1996

Mr. BOND introduced the following bill; which was read twice and referred to

the Committee on Small Business

JUNE 25, 1996

Reported by Mr. BOND, with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

A BILL

To amend the Small Business Investment Act of 1958, and

for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; INCORPORATED DEFINITIONS.

4 This Act may be cited as the ‘‘Small Business Invest5 ment Company Improvement Act of 1996’’.
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1 SEC. 2. DEFINITIONS.

2 (a) SMALL BUSINESS CONCERN.—Section 103(5) of

3 the Small Business Investment Act of 1958 (15 U.S.C.

4 662(5)) is amended by inserting before the semicolon the

5 following: ‘‘, except that, for purposes of this Act, an in6 vestment by a venture capital firm, investment company

7 (including a small business investment company) employee

8 welfare benefit plan or pension plan, or trust, foundation,

9 or endowment that is exempt from Federal income tax10 ation—

11 ‘‘(A) shall not cause a business concern to be

12 deemed not independently owned and operated;

13 ‘‘(B) shall be disregarded in determining wheth14 er a business concern satisfies size standards estab15 lished pursuant to section 3(a)(2) of the Small Busi16 ness Act; and

17 ‘‘(C) shall be disregarded in determining wheth18 er a small business concern is a smaller enterprise’’.

19 (b) PRIVATE CAPITAL.—Section 103(9) of the Small

20 Business Investment Act of 1958 (15 U.S.C. 662(9)) is

21 amended to read as follows:

22 ‘‘(9) the term ‘private capital’—

23 ‘‘(A) means the sum of—

24 ‘‘(i) the paid-in capital and paid-in

25 surplus of a corporate licensee, the contrib26 uted capital of the partners of a partner-
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1 ship licensee, or the equity investment of

2 the members of a limited liability company

3 licensee; and

4 ‘‘(ii) unfunded binding commitments,

5 from investors that meet criteria estab6 lished by the Administrator, to contribute

7 capital to the licensee; provided that such

8 unfunded commitments may be counted as

9 private capital for purposes of approval by

10 the Administrator of any request for lever11 age, but leverage shall not be funded based

12 on such commitments; and

13 ‘‘(B) does not include any—

14 ‘‘(i) funds borrowed by a licensee from

15 any source;

16 ‘‘(ii) funds obtained through the issu17 ance of leverage; or

18 ‘‘(iii) funds obtained directly or indi19 rectly from any Federal, State, or local

20 government, or any government agency or

21 instrumentality, except for—

22 ‘‘(I) funds invested by an em23 ployee welfare benefit plan or pension

24 plan; and
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1 ‘‘(II) any qualified nonprivate

2 funds (if the investors of the qualified

3 nonprivate funds do not control, di4 rectly or indirectly, the management,

5 board of directors, general partners,

6 or members of the licensee);’’.

7 (c) NEW DEFINITIONS.—Section 103 of the Small

8 Business Investment Act of 1958 (15 U.S.C. 662) is

9 amended by striking paragraph (10) and inserting the fol10 lowing:

11 ‘‘(10) the term ‘leverage’ includes—

12 ‘‘(A) debentures purchased or guaranteed

13 by the Administration;

14 ‘‘(B) participating securities purchased or

15 guaranteed by the Administration; and

16 ‘‘(C) preferred securities outstanding as of

17 October 1, 1995;

18 ‘‘(11) the term ‘third party debt’ means any in19 debtedness for borrowed money, other than indebt20 edness owed to the Administration;

21 ‘‘(12) the term ‘smaller enterprise’ means any

22 small business concern that, together with its affili23 ates—

24 ‘‘(A) has—
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1 ‘‘(i) a net financial worth of not more

2 than $6,000,000, as of the date on which

3 assistance is provided under this Act to

4 that business concern; and

5 ‘‘(ii) an average net income for the 2-

6 year period preceding the date on which

7 assistance is provided under this Act to

8 that business concern, of not more than

9 $2,000,000, after Federal income taxes

10 (excluding any carryover losses); or

11 ‘‘(B) satisfies the standard industrial clas12 sification size standards established by the Ad13 ministration for the industry in which the small

14 business concern is primarily engaged;

15 ‘‘(13) the term ‘qualified nonprivate funds’

16 means any—

17 ‘‘(A) funds directly or indirectly invested in

18 any applicant or licensee on or before August

19 16, 1982, by any Federal agency, other than

20 the Administration, under a provision of law ex21 plicitly mandating the inclusion of those funds

22 in the definition of the term ‘private capital’;

23 ‘‘(B) funds directly or indirectly invested

24 in any applicant or licensee by any Federal

25 agency under a provision of law enacted after
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1 September 4, 1992, explicitly mandating the in2 clusion of those funds in the definition of the

3 term ‘private capital’; and

4 ‘‘(C) funds invested in any applicant or li5 censee by one or more State or local govern6 ment entities (including any guarantee extended

7 by those entities) in an aggregate amount that

8 does not exceed—

9 ‘‘(i) 33 percent of the private capital

10 of the applicant or licensee if such funds

11 were invested before June 30, 1996; or

12 ‘‘(ii) 20 percent of the private capital

13 of the applicant or licensee if such funds

14 were invested on or after June 30, 1996;

15 ‘‘(14) the terms ‘employee welfare benefit plan’

16 and ‘pension plan’ have the same meanings as in

17 section 3 of the Employee Retirement Income Secu18 rity Act of 1974, and are intended to include—

19 ‘‘(A) public and private pension or retire20 ment plans subject to such Act; and

21 ‘‘(B) similar plans not covered by such Act

22 that have been established and that are main23 tained by the Federal Government or any State

24 or political subdivision, or any agency or instru25 mentality thereof, for the benefit of employees;
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1 ‘‘(15) the term ‘member’ means, with respect to

2 a licensee that is a limited liability company, a hold3 er of an ownership interest or a person otherwise ad4 mitted to membership in the limited liability com5 pany; and

6 ‘‘(16) the term ‘limited liability company’

7 means a business entity that is organized and oper8 ating in accordance with a State limited liability

9 company statute approved by the Administration.’’.

10 SEC. 3. ORGANIZATION OF SMALL BUSINESS INVESTMENT

11 COMPANIES.

12 (a) LIMITED LIABILITY COMPANIES.—Section

13 301(a) of the Small Business Investment Act of 1958 (15

14 U.S.C. 681(a)) is amended in the first sentence, by strik15 ing ‘‘body or’’ and inserting ‘‘body, a limited liability com16 pany, or’’.

17 (b) ISSUANCE OF LICENSE.—Section 301(c) of the

18 Small Business Investment Act of 1958 (15 U.S.C.

19 681(c)) is amended to read as follows:

20 ‘‘(c) ISSUANCE OF LICENSE.—

21 ‘‘(1) SUBMISSION OF APPLICATION.—Each ap22 plicant for a license to operate as a small business

23 investment company under this Act shall submit to

24 the Administrator an application, in a form and in-
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1 cluding such documentation as may be prescribed by

2 the Administrator.

3 ‘‘(2) PROCEDURES.—

4 ‘‘(A) STATUS.—Not later than 90 days

5 after the initial receipt by the Administrator of

6 an application under this subsection, the Ad7 ministrator shall provide the applicant with a

8 written report detailing the status of the appli9 cation and any requirements remaining for

10 completion of the application.

11 ‘‘(B) APPROVAL OR DISAPPROVAL.—With12 in a reasonable time after receiving a completed

13 application submitted in accordance with this

14 subsection and in accordance with such require15 ments as the Administrator may prescribe by

16 regulation, the Administrator shall—

17 ‘‘(i) approve the application and issue

18 a license for such operation to the appli19 cant if the requirements of this section are

20 satisfied; or

21 ‘‘(ii) disapprove the application and

22 notify the applicant in writing of the dis23 approval.
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1 ‘‘(3) MATTERS CONSIDERED.—In reviewing and

2 processing any application under this subsection, the

3 Administrator—

4 ‘‘(A) shall determine whether—

5 ‘‘(i) the applicant meets the require6 ments of subsections (a) and (c) of section

7 302; and

8 ‘‘(ii) the management of the applicant

9 is qualified and has the knowledge, experi10 ence, and capability necessary to comply

11 with this Act;

12 ‘‘(B) shall take into consideration—

13 ‘‘(i) the need for and availability of fi14 nancing for small business concerns in the

15 geographic area in which the applicant is

16 to commence business;

17 ‘‘(ii) the general business reputation

18 of the owners and management of the ap19 plicant; and

20 ‘‘(iii) the probability of successful op21 erations of the applicant, including ade22 quate profitability and financial soundness;

23 and

24 ‘‘(C) shall not take into consideration any

25 projected shortage or unavailability of leverage.
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1 ‘‘(4) EXCEPTION.—

2 ‘‘(A) IN GENERAL.—Notwithstanding any

3 other provision of this Act, the Administrator

4 may, in the discretion of the Administrator and

5 based on a showing of special circumstances

6 and good cause, approve an application and

7 issue a license under this subsection with re8 spect to any applicant that—

9 ‘‘(i) has private capital of not less

10 than $3,000,000;

11 ‘‘(ii) would otherwise be issued a li12 cense under this subsection, except that

13 the applicant does not satisfy the require14 ments of section 302(a); and

15 ‘‘(iii) has a viable business plan rea16 sonably projecting profitable operations

17 and a reasonable timetable for achieving a

18 level of private capital that satisfies the re19 quirements of section 302(a).

20 ‘‘(B) LEVERAGE.—An applicant licensed

21 pursuant to the exception provided in this para22 graph shall not be eligible to receive leverage as

23 a licensee until the applicant satisfies the re24 quirements of section 302(a).’’.
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1 (c) SPECIALIZED SMALL BUSINESS INVESTMENT

2 COMPANIES.—Section 301(d) of the Small Business In3 vestment Act of 1958 (15 U.S.C. 681(d)) is repealed.

4 SEC. 4. CAPITAL REQUIREMENTS.

5 (a) INCREASED MINIMUM CAPITAL REQUIRE6 MENTS.—Section 302(a) of the Small Business Invest7 ment Act of 1958 (15 U.S.C. 682(a)) is amended by strik8 ing ‘‘(a)’’ and all that follows through ‘‘The Administra9 tion shall also determine the ability of the company,’’ and

10 inserting the following:

11 ‘‘(a) AMOUNT.—

12 ‘‘(1) IN GENERAL.—Except as provided in para13 graph (2), the private capital of each licensee shall

14 be not less than—

15 ‘‘(A) $5,000,000; or

16 ‘‘(B) $10,000,000, with respect to each li17 censee authorized or seeking authority to issue

18 participating securities to be purchased or guar19 anteed by the Administration under this Act.

20 ‘‘(2) EXCEPTION.—The Administrator may, in

21 the discretion of the Administrator and based on a

22 showing of special circumstances and good cause,

23 permit the private capital of a licensee authorized or

24 seeking authorization to issue participating securi25 ties to be purchased or guaranteed by the Adminis-
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1 tration to be less than $10,000,000, but not less

2 than $5,000,000, if the Administrator determines

3 that such action would not create or otherwise con4 tribute to an unreasonable risk of default or loss to

5 the Federal Government.

6 ‘‘(3) ADEQUACY.—In addition to the require7 ments of paragraph (1), the Administrator shall—

8 ‘‘(A) determine whether the private capital

9 of each licensee is adequate to assure a reason10 able prospect that the licensee will be operated

11 soundly and profitably, and managed actively

12 and prudently in accordance with its articles;

13 and

14 ‘‘(B) determine that the licensee will be

15 able’’.

16 (b) EXEMPTION FOR CERTAIN LICENSEES.—Section

17 302(a) of the Small Business Investment Act of 1958 (15

18 U.S.C. 682(a)) is amended by adding at the end the fol19 lowing new paragraph:

20 ‘‘(4) EXEMPTION FROM CAPITAL REQUIRE21 MENTS.—

22 ‘‘(A) AUTHORITY TO EXEMPT.—The Ad23 ministrator may, in the discretion of the Ad24 ministrator, exempt from the capital require25 ments in paragraph (1) any licensee licensed
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1 under subsection (c) or (d) of section 301 be2 fore the date of enactment of the Small Busi3 ness Investment Company Improvement Act of

4 1996, if—

5 ‘‘(i) the private capital of the licensee

6 is not less than $2,500,000;

7 ‘‘(ii) the licensee certifies in writing

8 that not less than 50 percent of the aggre9 gate dollar amount of its financings after

10 the date of enactment of the Small Busi11 ness Investment Company Improvement

12 Act of 1996 will be provided to smaller en13 terprises; and

14 ‘‘(iii) the Administrator determines

15 that the licensee—

16 ‘‘(I) has a record of profitable

17 operations; and

18 ‘‘(II) has not committed any seri19 ous or continuing violation of any ap20 plicable provision of Federal or State

21 law or regulation.

22 ‘‘(B) REDUCTION OF PRIVATE CAPITAL RE23 QUIREMENT.—If the Administrator determines

24 that such action would not create or otherwise

25 contribute to an unreasonable risk of default or
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1 loss to the United States Government, the Ad2 ministrator, in the discretion of the Adminis3 trator and based on a showing of special cir4 cumstances and good cause, may reduce the

5 private capital requirement under subparagraph

6 (A)(i) with respect to any licensee.’’.

7 (c) DIVERSIFICATION OF OWNERSHIP.—Section

8 302(c) of the Small Business Investment Act of 1958 (15

9 U.S.C. 682(c)) is amended to read as follows:

10 ‘‘(c) DIVERSIFICATION OF OWNERSHIP.—The Ad11 ministrator shall ensure that the management of each li12 censee licensed after the date of enactment of the Small

13 Business Investment Company Improvement Act of 1996

14 is sufficiently diversified from and unaffiliated with the

15 ownership of the licensee in a manner that ensures inde16 pendence and objectivity in the financial management and

17 oversight of the investments and operations of the li18 censee.’’.

19 SEC. 5. BORROWING.

20 (a) DEBENTURES.—Section 303(b) of the Small

21 Business Investment Act of 1958 (15 U.S.C. 683(b)) is

22 amended in the first sentence, by striking ‘‘(but only’’ and

23 all that follows through ‘‘terms)’’.
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1 (b) THIRD PARTY DEBT.—Section 303(c) of the

2 Small Business Investment Act of 1958 (15 U.S.C.

3 683(c)) is amended to read as follows:

4 ‘‘(c) THIRD PARTY DEBT.—The Administrator—

5 ‘‘(1) shall not permit a licensee having out6 standing leverage to incur third party debt that

7 would create or contribute to an unreasonable risk

8 of default or loss to the Federal Government; and

9 ‘‘(2) shall permit such licensees to incur third

10 party debt only on such terms and subject to such

11 conditions as may be established by the Adminis12 trator, by regulation or otherwise.’’.

13 (c) REQUIREMENT TO FINANCE SMALLER ENTER14 PRISES.—Section 303(d) of the Small Business Invest15 ment Act of 1958 (15 U.S.C. 683(d)) is amended to read

16 as follows:

17 ‘‘(d) REQUIREMENT TO FINANCE SMALLER ENTER18 PRISES.—The Administrator shall require each licensee,

19 as a condition of approval of an application for leverage,

20 to certify in writing that not less than 20 percent of the

21 aggregate dollar amount of the financings of the licensee

22 will be provided to smaller enterprises.’’.

23 (d) CAPITAL IMPAIRMENT REQUIREMENTS.—Section

24 303(e) of the Small Business Investment Act of 1958 (15

25 U.S.C. 683(e)) is amended to read as follows:
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1 ‘‘(e) CAPITAL IMPAIRMENT.—Before approving any

2 application for leverage submitted by a licensee under this

3 Act, the Administrator—

4 ‘‘(1) shall determine that the private capital of

5 the licensee meets the requirements of section

6 302(a); and

7 ‘‘(2) shall determine, taking into account the

8 nature of the assets of the licensee, the amount and

9 terms of any third party debt owed by such licensee,

10 and any other factors determined to be relevant by

11 the Administrator, that the private capital of the li12 censee has not been impaired to such an extent that

13 the issuance of additional leverage would create or

14 otherwise contribute to an unreasonable risk of de15 fault or loss to the Federal Government.’’.

16 (e) EQUITY INVESTMENT REQUIREMENT.—Section

17 303(g)(4) of the Small Business Investment Act of 1958

18 (15 U.S.C. 683(g)(4)) is amended by striking ‘‘and main19 tain’’.

20 (f) FEES.—Section 303 of the Small Business Invest21 ment Act of 1958 (15 U.S.C. 683) is amended—

22 (1) in subsection (b), in the fifth sentence, by

23 striking ‘‘1 per centum,’’ and all that follows before

24 the period at the end of the sentence and inserting

25 the following: ‘‘1 percent, plus an additional charge
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1 of .50 percent per annum which shall be paid to and

2 retained by the Administration’’;

3 (2) in subsection (g)(2), by striking ‘‘1 per cen4 tum,’’ and all that follows before the period at the

5 end of the paragraph and inserting the following: ‘‘1

6 percent, plus an additional charge of .50 percent per

7 annum which shall be paid to and retained by the

8 Administration’’; and

9 (3) by adding at the end the following new sub10 sections:

11 ‘‘(i) LEVERAGE FEE.—With respect to leverage

12 granted by the Administration to a licensee, the Adminis13 tration shall collect from the licensee a nonrefundable fee

14 in an amount equal to 3 percent of the face amount of

15 leverage granted to the licensee, payable upon the earlier

16 of the date of entry into any commitment for such leverage

17 or the date on which the leverage is drawn by the licensee.

18 ‘‘(j) CALCULATION OF SUBSIDY RATE.—All fees, in19 terest, and profits received and retained by the Adminis20 tration under this section shall be included in the calcula21 tions made by the Director of the Office of Management

22 and Budget to offset the cost (as that term is defined in

23 section 502 of the Federal Credit Reform Act of 1990)

24 to the Administration of purchasing and guaranteeing de25 bentures and participating securities under this Act.’’.
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1 SEC. 6. LIABILITY OF THE UNITED STATES.

2 Section 308(e) of the Small Business Investment Act

3 of 1958 (15 U.S.C. 687(e)) is amended by striking ‘‘Noth4 ing’’ and inserting ‘‘Except as expressly provided other5 wise in this Act, nothing’’.

6 SEC. 7. EXAMINATIONS; VALUATIONS.

7 (a) EXAMINATIONS.—Section 310(b) of the Small

8 Business Investment Act of 1958 (15 U.S.C. 687b(b)) is

9 amended in the first sentence by inserting ‘‘which may be

10 conducted with the assistance of a private sector entity

11 that has both the qualifications to conduct and expertise

12 in conducting such examinations,’’ after ‘‘Investment Divi13 sion of the Administration,’’.

14 (b) VALUATIONS.—Section 310(d) of the Small Busi15 ness Investment Act of 1958 (15 U.S.C. 687b(d)) is

16 amended to read as follows:

17 ‘‘(d) VALUATIONS.—

18 ‘‘(1) FREQUENCY OF VALUATIONS.—

19 ‘‘(A) IN GENERAL.—Each licensee shall

20 submit to the Administrator a written valuation

21 of the loans and investments of the licensee not

22 less often than semiannually or otherwise upon

23 the request of the Administrator, except that

24 any licensee with no leverage outstanding shall

25 submit such valuations annually, unless the Ad26 ministrator determines otherwise.
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1 ‘‘(B) MATERIAL ADVERSE CHANGES.—Not

2 later than 30 days after the end of a fiscal

3 quarter of a licensee during which a material

4 adverse change in the aggregate valuation of

5 the loans and investments or operations of the

6 licensee occurs, the licensee shall notify the Ad7 ministrator in writing of the nature and extent

8 of that change.

9 ‘‘(C) INDEPENDENT CERTIFICATION.—

10 ‘‘(i) IN GENERAL.—Not less than once

11 during each fiscal year, each licensee shall

12 submit to the Administrator the financial

13 statements of the licensee, audited by an

14 independent certified public accountant ap15 proved by the Administrator.

16 ‘‘(ii) AUDIT REQUIREMENTS.—Each

17 audit conducted under clause (i) shall in18 clude—

19 ‘‘(I) a review of the procedures

20 and documentation used by the li21 censee in preparing the valuations re22 quired by this section; and

23 ‘‘(II) a statement by the inde24 pendent certified public accountant

25 that such valuations were prepared in
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1 conformity with the valuation criteria

2 applicable to the licensee established

3 in accordance with paragraph (2).

4 ‘‘(2) VALUATION CRITERIA.—Each valuation

5 submitted under this subsection shall be prepared by

6 the licensee in accordance with valuation criteria,

7 which shall—

8 ‘‘(A) be established or approved by the Ad9 ministrator; and

10 ‘‘(B) include appropriate safeguards to en11 sure that the noncash assets of a licensee are

12 not overvalued.’’.

13 SEC. 8. TRUSTEE OR RECEIVERSHIP OVER LICENSEES.

14 (a) IN GENERAL.—Section 311 of the Small Business

15 Investment Act of 1958 (15 U.S.C. 687c) is amended by

16 adding at the end the following new subsection:

17 ‘‘(d) APPOINTMENT OF PRINCIPAL RECEIVERS AND

18 AGENTS.—

19 ‘‘(1) IN GENERAL.—Upon appointment as a re20 ceiver, as described in subsection (c), the Adminis21 trator may appoint principal receivers and receiver’s

22 agents.

23 ‘‘(2) COMPENSATION.—A receiver’s agent ap24 pointed under paragraph (1) may be paid—
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1 ‘‘(A) at any time from salaries and expense

2 amounts appropriated for the Administration,

3 and the Administration may be reimbursed for

4 such amounts from amounts recovered from the

5 liquidation of any assets of the licensee at the

6 conclusion of the receivership; or

7 ‘‘(B) from amounts recovered from the liq8 uidation of any assets of the licensee, but only

9 at the conclusion of the receivership.’’.

10 (b) CONTRACTS WITH PRIVATE SECTOR ENTI11 TIES.—

12 (1) IN GENERAL.—Not later than June 30,

13 1997, the Small Business Administration shall enter

14 into one or more contracts or arrangements with pri15 vate sector entities to provide for the orderly liquida16 tion of all licensee assets in liquidation, including as17 sets of licensees in receivership or in trust with re18 spect to which the court has appointed the Adminis19 tration as receiver or trustee under section 311 of

20 the Small Business Investment Act of 1958.

21 (2) DEFINITION.—For purposes of this sub22 section, the term ‘‘licensee’’ has the same meaning

23 as in section 103 of the Small Business Investment

24 Act of 1958.
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1 SEC. 9. BOOK ENTRY REGISTRATION.

2 Subsection 321(f) of the Small Business Investment

3 Act of 1958 (15 U.S.C. 687l) is amended by adding at

4 the end the following new paragraph:

5 ‘‘(5) Nothing in this subsection shall prohibit the uti6 lization of a book entry or other electronic form of reg7 istration for trust certificates.’’.

8 SEC. 10. TECHNICAL AND CONFORMING AMENDMENTS.

9 The Small Business Investment Act of 1958 (15

10 U.S.C. 661 et seq.) is amended—

11 (1) in section 303—

12 (A) in subsection (a), by striking ‘‘deben13 ture bonds,’’ and inserting ‘‘securities,’’;

14 (B) by striking subsection (f) and inserting

15 the following:

16 ‘‘(f) REDEMPTION OR REPURCHASE OF PREFERRED

17 STOCK.—Notwithstanding any other provision of law—

18 ‘‘(1) the Administrator may allow the issuer of

19 any preferred stock sold to the Administration be20 fore November 1, 1989 to redeem or repurchase

21 such stock, upon the payment to the Administration

22 of an amount less than the par value of such stock,

23 for a repurchase price determined by the Adminis24 trator after consideration of all relevant factors, in25 cluding—

26 ‘‘(A) the market value of the stock;
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1 ‘‘(B) the value of benefits provided and an2 ticipated to accrue to the issuer;

3 ‘‘(C) the amount of dividends paid, ac4 crued, and anticipated; and

5 ‘‘(D) the Administrator’s estimate of any

6 anticipated redemption; and

7 ‘‘(2) any moneys received by the Administration

8 from the repurchase of preferred stock shall be

9 available solely to provide debenture leverage to li10 censees having 50 percent or more in aggregate dol11 lar amount of their financings invested in smaller

12 enterprises.’’; and

13 (C) in subsection (g)(8)—

14 (i) by striking ‘‘partners or sharehold15 ers’’ and inserting ‘‘partners, shareholders,

16 or members’’;

17 (ii) by striking ‘‘partner’s or share18 holder’s’’ and inserting ‘‘partner’s, share19 holder’s, or member’s’’; and

20 (iii) by striking ‘‘partner or share21 holder’’ and inserting ‘‘partner, share22 holder, or member’’;

23 (2) in section 308(h), by striking ‘‘subsection

24 (c) or (d) of section 301’’ each place that term ap25 pears and inserting ‘‘section 301’’;
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1 (3) in section 310(c)(4), by striking ‘‘not less

2 than four years in the case of section 301(d) licens3 ees and in all other cases,’’;

4 (4) in section 312—

5 (A) by striking ‘‘shareholders or partners’’

6 and inserting ‘‘shareholders, partners, or mem7 bers’’; and

8 (B) by striking ‘‘shareholder, or partner’’

9 each place that term appears and inserting

10 ‘‘shareholder, partner, or member’’;

11 (5) by striking sections 317 and 318, and re12 designating sections 319 through 322 as sections

13 317 through 320, respectively;

14 (6) in section 319, as redesignated—

15 (A) in subsection (a), by striking ‘‘, includ16 ing companies operating under the authority of

17 section 301(d),’’; and

18 (B) in subsection (f)(2), by inserting ‘‘or

19 investments in obligations of the United States’’

20 after ‘‘accounts’’;

21 (7) in section 320, as redesignated, by striking

22 ‘‘section 321’’ and inserting ‘‘section 319’’; and

23 (8) in section 509—

24 (A) in subsection (a)(1), by striking the

25 second sentence; and
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1 (B) in subsection (e)(1)(B), by striking

2 ‘‘subsection (c) or (d) of section 301’’ and in3 serting ‘‘section 301’’.

4 SEC. 11. AUTHORIZATION OF APPROPRIATIONS.

5 Section 20(p)(3) of the Small Business Act (15

6 U.S.C. 631 note) is amended by striking subparagraph

7 (B) and inserting the following:

8 ‘‘(B) $300,000,000 in guarantees of de9 bentures; and’’.

10 SEC. 12. EFFECTIVE DATE.

11 This Act and the amendments made by this Act shall

12 become effective on the date of enactment of this Act.

13 SECTION 1. SHORT TITLE.

14 This Act may be cited as the ‘‘Small Business Invest15 ment Company Improvement Act of 1996’’.

16 SEC. 2. DEFINITIONS.

17 (a) SMALL BUSINESS CONCERN.—Section 103(5) of

18 the Small Business Investment Act of 1958 (15 U.S.C.

19 662(5)) is amended by inserting before the semicolon the

20 following: ‘‘, except that, for purposes of this Act, an invest21 ment by a venture capital firm, investment company (in22 cluding a small business investment company) employee

23 welfare benefit plan or pension plan, or trust, foundation,

24 or endowment that is exempt from Federal income tax25 ation—
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1 ‘‘(A) shall not cause a business concern to be

2 deemed not independently owned and operated;

3 ‘‘(B) shall be disregarded in determining whether

4 a business concern satisfies size standards established

5 pursuant to section 3(a)(2) of the Small Business Act;

6 and

7 ‘‘(C) shall be disregarded in determining whether

8 a small business concern is a smaller enterprise’’.

9 (b) PRIVATE CAPITAL.—Section 103(9) of the Small

10 Business Investment Act of 1958 (15 U.S.C. 662(9)) is

11 amended to read as follows:

12 ‘‘(9) the term ‘private capital’—

13 ‘‘(A) means the sum of—

14 ‘‘(i) the paid-in capital and paid-in

15 surplus of a corporate licensee, the contrib16 uted capital of the partners of a partnership

17 licensee, or the equity investment of the

18 members of a limited liability company li19 censee; and

20 ‘‘(ii) unfunded binding commitments,

21 from investors that meet criteria established

22 by the Administrator, to contribute capital

23 to the licensee: Provided, That such un24 funded commitments may be counted as

25 private capital for purposes of approval by
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1 the Administrator of any request for lever2 age, but leverage shall not be funded based

3 on such commitments; and

4 ‘‘(B) does not include any—

5 ‘‘(i) funds borrowed by a licensee from

6 any source;

7 ‘‘(ii) funds obtained through the issu8 ance of leverage; or

9 ‘‘(iii) funds obtained directly or indi10 rectly from any Federal, State, or local gov11 ernment, or any government agency or in12 strumentality, except for—

13 ‘‘(I) funds invested by an em14 ployee welfare benefit plan or pension

15 plan; and

16 ‘‘(II) any qualified nonprivate

17 funds (if the investors of the qualified

18 nonprivate funds do not control, di19 rectly or indirectly, the management,

20 board of directors, general partners, or

21 members of the licensee);’’.

22 (c) NEW DEFINITIONS.—Section 103 of the Small

23 Business Investment Act of 1958 (15 U.S.C. 662) is amend24 ed by striking paragraph (10) and inserting the following:

25 ‘‘(10) the term ‘leverage’ includes—
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1 ‘‘(A) debentures purchased or guaranteed by

2 the Administration;

3 ‘‘(B) participating securities purchased or

4 guaranteed by the Administration; and

5 ‘‘(C) preferred securities outstanding as of

6 October 1, 1995;

7 ‘‘(11) the term ‘third party debt’ means any in8 debtedness for borrowed money, other than indebted9 ness owed to the Administration;

10 ‘‘(12) the term ‘smaller enterprise’ means any

11 small business concern that, together with its affili12 ates—

13 ‘‘(A) has—

14 ‘‘(i) a net financial worth of not more

15 than $6,000,000, as of the date on which as16 sistance is provided under this Act to that

17 business concern; and

18 ‘‘(ii) an average net income for the 2-

19 year period preceding the date on which as20 sistance is provided under this Act to that

21 business concern, of not more than

22 $2,000,000, after Federal income taxes (ex23 cluding any carryover losses); or

24 ‘‘(B) satisfies the standard industrial classi25 fication size standards established by the Admin-
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1 istration for the industry in which the small

2 business concern is primarily engaged;

3 ‘‘(13) the term ‘qualified nonprivate funds’

4 means any—

5 ‘‘(A) funds directly or indirectly invested in

6 any applicant or licensee on or before August 16,

7 1982, by any Federal agency, other than the Ad8 ministration, under a provision of law explicitly

9 mandating the inclusion of those funds in the

10 definition of the term ‘private capital’;

11 ‘‘(B) funds directly or indirectly invested in

12 any applicant or licensee by any Federal agency

13 under a provision of law enacted after September

14 4, 1992, explicitly mandating the inclusion of

15 those funds in the definition of the term ‘private

16 capital’; and

17 ‘‘(C) funds invested in any applicant or li18 censee by one or more State or local government

19 entities (including any guarantee extended by

20 those entities) in an aggregate amount that does

21 not exceed—

22 ‘‘(i) 33 percent of the private capital of

23 the applicant or licensee, if such funds were

24 committed for investment before the date of
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1 enactment of the Small Business Investment

2 Company Improvement Act of 1996; or

3 ‘‘(ii) 20 percent of the private capital

4 of the applicant or licensee, if such funds

5 were committed for investment on or after

6 the date of enactment of the Small Business

7 Investment Company Improvement Act of

8 1996;

9 ‘‘(14) the terms ‘employee welfare benefit plan’

10 and ‘pension plan’ have the same meanings as in sec11 tion 3 of the Employee Retirement Income Security

12 Act of 1974, and are intended to include—

13 ‘‘(A) public and private pension or retire14 ment plans subject to such Act; and

15 ‘‘(B) similar plans not covered by such Act

16 that have been established and that are main17 tained by the Federal Government or any State

18 or political subdivision, or any agency or instru19 mentality thereof, for the benefit of employees;

20 ‘‘(15) the term ‘member’ means, with respect to

21 a licensee that is a limited liability company, a hold22 er of an ownership interest or a person otherwise ad23 mitted to membership in the limited liability com24 pany; and
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1 ‘‘(16) the term ‘limited liability company’ means

2 a business entity that is organized and operating in

3 accordance with a State limited liability company

4 statute approved by the Administration.’’.

5 SEC. 3. ORGANIZATION OF SMALL BUSINESS INVESTMENT

6 COMPANIES.

7 (a) LIMITED LIABILITY COMPANIES.—Section 301(a)

8 of the Small Business Investment Act of 1958 (15 U.S.C.

9 681(a)) is amended in the first sentence, by striking ‘‘body

10 or’’ and inserting ‘‘body, a limited liability company, or’’.

11 (b) ISSUANCE OF LICENSE.—Section 301(c) of the

12 Small Business Investment Act of 1958 (15 U.S.C. 681(c))

13 is amended to read as follows:

14 ‘‘(c) ISSUANCE OF LICENSE.—

15 ‘‘(1) SUBMISSION OF APPLICATION.—Each appli16 cant for a license to operate as a small business in17 vestment company under this Act shall submit to the

18 Administrator an application, in a form and includ19 ing such documentation as may be prescribed by the

20 Administrator.

21 ‘‘(2) PROCEDURES.—

22 ‘‘(A) STATUS.—Not later than 90 days after

23 the initial receipt by the Administrator of an

24 application under this subsection, the Adminis25 trator shall provide the applicant with a written
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1 report detailing the status of the application and

2 any requirements remaining for completion of

3 the application.

4 ‘‘(B) APPROVAL OR DISAPPROVAL.—Within

5 a reasonable time after receiving a completed ap6 plication submitted in accordance with this sub7 section and in accordance with such require8 ments as the Administrator may prescribe by

9 regulation, the Administrator shall—

10 ‘‘(i) approve the application and issue

11 a license for such operation to the applicant

12 if the requirements of this section are satis13 fied; or

14 ‘‘(ii) disapprove the application and

15 notify the applicant in writing of the dis16 approval.

17 ‘‘(3) MATTERS CONSIDERED.—In reviewing and

18 processing any application under this subsection, the

19 Administrator—

20 ‘‘(A) shall determine whether—

21 ‘‘(i) the applicant meets the require22 ments of subsections (a) and (c) of section

23 302; and

24 ‘‘(ii) the management of the applicant

25 is qualified and has the knowledge, experi-
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1 ence, and capability necessary to comply

2 with this Act;

3 ‘‘(B) shall take into consideration—

4 ‘‘(i) the need for and availability of fi5 nancing for small business concerns in the

6 geographic area in which the applicant is to

7 commence business;

8 ‘‘(ii) the general business reputation of

9 the owners and management of the appli10 cant; and

11 ‘‘(iii) the probability of successful oper12 ations of the applicant, including adequate

13 profitability and financial soundness; and

14 ‘‘(C) shall not take into consideration any

15 projected shortage or unavailability of leverage.

16 ‘‘(4) EXCEPTION.—

17 ‘‘(A) IN GENERAL.—Notwithstanding any

18 other provision of this Act, the Administrator

19 may, in the discretion of the Administrator and

20 based on a showing of special circumstances and

21 good cause, approve an application and issue a

22 license under this subsection with respect to any

23 applicant that—

24 ‘‘(i) has private capital of not less than

25 $3,000,000;
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1 ‘‘(ii) would otherwise be issued a li2 cense under this subsection, except that the

3 applicant does not satisfy the requirements

4 of section 302(a); and

5 ‘‘(iii) has a viable business plan rea6 sonably projecting profitable operations and

7 a reasonable timetable for achieving a level

8 of private capital that satisfies the require9 ments of section 302(a).

10 ‘‘(B) LEVERAGE.—An applicant licensed

11 pursuant to the exception provided in this para12 graph shall not be eligible to receive leverage as

13 a licensee until the applicant satisfies the re14 quirements of section 302(a).’’.

15 (c) SPECIALIZED SMALL BUSINESS INVESTMENT COM16 PANIES.—Section 301(d) of the Small Business Investment

17 Act of 1958 (15 U.S.C. 681(d)) is repealed.

18 SEC. 4. CAPITAL REQUIREMENTS.

19 (a) INCREASED MINIMUM CAPITAL REQUIREMENTS.—

20 Section 302(a) of the Small Business Investment Act of

21 1958 (15 U.S.C. 682(a)) is amended by striking ‘‘(a)’’ and

22 all that follows through ‘‘The Administration shall also de23 termine the ability of the company,’’ and inserting the fol24 lowing:

25 ‘‘(a) AMOUNT.—
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1 ‘‘(1) IN GENERAL.—Except as provided in para2 graph (2), the private capital of each licensee shall be

3 not less than—

4 ‘‘(A) $5,000,000; or

5 ‘‘(B) $10,000,000, with respect to each li6 censee authorized or seeking authority to issue

7 participating securities to be purchased or guar8 anteed by the Administration under this Act.

9 ‘‘(2) EXCEPTION.—The Administrator may, in

10 the discretion of the Administrator and based on a

11 showing of special circumstances and good cause, per12 mit the private capital of a licensee authorized or

13 seeking authorization to issue participating securities

14 to be purchased or guaranteed by the Administration

15 to be less than $10,000,000, but not less than

16 $5,000,000, if the Administrator determines that such

17 action would not create or otherwise contribute to an

18 unreasonable risk of default or loss to the Federal

19 Government.

20 ‘‘(3) ADEQUACY.—In addition to the require21 ments of paragraph (1), the Administrator shall—

22 ‘‘(A) determine whether the private capital

23 of each licensee is adequate to assure a reason24 able prospect that the licensee will be operated

25 soundly and profitably, and managed actively
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1 and prudently in accordance with its articles;

2 and

3 ‘‘(B) determine that the licensee will be

4 able’’.

5 (b) EXEMPTION FOR CERTAIN LICENSEES.—Section

6 302(a) of the Small Business Investment Act of 1958 (15

7 U.S.C. 682(a)) is amended by adding at the end the follow8 ing new paragraph:

9 ‘‘(4) EXEMPTION FROM CAPITAL REQUIRE10 MENTS.—The Administrator may, in the discretion of

11 the Administrator, exempt from the capital require12 ments in paragraph (1) any licensee licensed under

13 subsection (c) or (d) of section 301 before the date of

14 enactment of the Small Business Investment Com15 pany Improvement Act of 1996, if—

16 ‘‘(A) the licensee certifies in writing that

17 not less than 50 percent of the aggregate dollar

18 amount of its financings after the date of enact19 ment of the Small Business Investment Company

20 Improvement Act of 1996 will be provided to

21 smaller enterprises; and

22 ‘‘(B) the Administrator determines that—

23 ‘‘(i) the licensee has a record of profit24 able operations;
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1 ‘‘(ii) the licensee has not committed

2 any serious or continuing violation of any

3 applicable provision of Federal or State law

4 or regulation; and

5 ‘‘(iii) such action would not create or

6 otherwise contribute to an unreasonable risk

7 of default or loss to the United States Gov8 ernment.’’.

9 (c) DIVERSIFICATION OF OWNERSHIP.—Section 302(c)

10 of the Small Business Investment Act of 1958 (15 U.S.C.

11 682(c)) is amended to read as follows:

12 ‘‘(c) DIVERSIFICATION OF OWNERSHIP.—The Admin13 istrator shall ensure that the management of each licensee

14 licensed after the date of enactment of the Small Business

15 Investment Company Improvement Act of 1996 is suffi16 ciently diversified from and unaffiliated with the ownership

17 of the licensee in a manner that ensures independence and

18 objectivity in the financial management and oversight of

19 the investments and operations of the licensee.’’.

20 SEC. 5. BORROWING.

21 (a) DEBENTURES.—Section 303(b) of the Small Busi22 ness Investment Act of 1958 (15 U.S.C. 683(b)) is amended

23 in the first sentence, by striking ‘‘(but only’’ and all that

24 follows through ‘‘terms)’’.
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1 (b) THIRD PARTY DEBT.—Section 303(c) of the Small

2 Business Investment Act of 1958 (15 U.S.C. 683(c)) is

3 amended to read as follows:

4 ‘‘(c) THIRD PARTY DEBT.—The Administrator—

5 ‘‘(1) shall not permit a licensee having outstand6 ing leverage to incur third party debt that would cre7 ate or contribute to an unreasonable risk of default or

8 loss to the Federal Government; and

9 ‘‘(2) shall permit such licensees to incur third

10 party debt only on such terms and subject to such

11 conditions as may be established by the Adminis12 trator, by regulation or otherwise.’’.

13 (c) REQUIREMENT TO FINANCE SMALLER ENTER14 PRISES.—Section 303(d) of the Small Business Investment

15 Act of 1958 (15 U.S.C. 683(d)) is amended to read as fol16 lows:

17 ‘‘(d) REQUIREMENT TO FINANCE SMALLER ENTER18 PRISES.—The Administrator shall require each licensee, as

19 a condition of approval of an application for leverage, to

20 certify in writing that not less than 20 percent of the aggre21 gate dollar amount of the financings of the licensee will be

22 provided to smaller enterprises.’’.

23 (d) CAPITAL IMPAIRMENT REQUIREMENTS.—Section

24 303(e) of the Small Business Investment Act of 1958 (15

25 U.S.C. 683(e)) is amended to read as follows:
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1 ‘‘(e) CAPITAL IMPAIRMENT.—Before approving any

2 application for leverage submitted by a licensee under this

3 Act, the Administrator—

4 ‘‘(1) shall determine that the private capital of

5 the licensee meets the requirements of section 302(a);

6 and

7 ‘‘(2) shall determine, taking into account the na8 ture of the assets of the licensee, the amount and

9 terms of any third party debt owed by such licensee,

10 and any other factors determined to be relevant by the

11 Administrator, that the private capital of the licensee

12 has not been impaired to such an extent that the issu13 ance of additional leverage would create or otherwise

14 contribute to an unreasonable risk of default or loss

15 to the Federal Government.’’.

16 (e) EQUITY INVESTMENT REQUIREMENT.—Section

17 303(g)(4) of the Small Business Investment Act of 1958 (15

18 U.S.C. 683(g)(4)) is amended by striking ‘‘and maintain’’.

19 (f) FEES.—Section 303 of the Small Business Invest20 ment Act of 1958 (15 U.S.C. 683) is amended—

21 (1) in subsection (b), in the fifth sentence, by

22 striking ‘‘1 per centum’’, and all that follows before

23 the period at the end of the sentence and inserting the

24 following: ‘‘1 percent, plus an additional charge of .50
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1 percent per annum which shall be paid to and re2 tained by the Administration’’;

3 (2) in subsection (g)(2), by striking ‘‘1 per cen4 tum,’’ and all that follows before the period at the end

5 of the paragraph and inserting the following: ‘‘1 per6 cent, plus an additional charge of .50 percent per

7 annum which shall be paid to and retained by the

8 Administration’’; and

9 (3) by adding at the end the following new sub10 sections:

11 ‘‘(i) LEVERAGE FEE.—With respect to leverage grant12 ed by the Administration to a licensee, the Administration

13 shall collect from the licensee a nonrefundable fee in an

14 amount equal to 3 percent of the face amount of leverage

15 granted to the licensee, payable upon the earlier of the date

16 of entry into any commitment for such leverage or the date

17 on which the leverage is drawn by the licensee.

18 ‘‘(j) CALCULATION OF SUBSIDY RATE.—All fees, inter19 est, and profits received and retained by the Administration

20 under this section shall be included in the calculations made

21 by the Director of the Office of Management and Budget

22 to offset the cost (as that term is defined in section 502

23 of the Federal Credit Reform Act of 1990) to the Adminis24 tration of purchasing and guaranteeing debentures and

25 participating securities under this Act.’’.
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1 SEC. 6. LIABILITY OF THE UNITED STATES.

2 Section 308(e) of the Small Business Investment Act

3 of 1958 (15 U.S.C. 687(e)) is amended by striking ‘‘Noth4 ing’’ and inserting ‘‘Except as expressly provided otherwise

5 in this Act, nothing’’.

6 SEC. 7. EXAMINATIONS; VALUATIONS.

7 (a) EXAMINATIONS.—Section 310(b) of the Small

8 Business Investment Act of 1958 (15 U.S.C. 687b(b)) is

9 amended in the first sentence by inserting ‘‘which may be

10 conducted with the assistance of a private sector entity that

11 has both the qualifications to conduct and expertise in con12 ducting such examinations,’’ after ‘‘Investment Division of

13 the Administration,’’.

14 (b) VALUATIONS.—Section 310(d) of the Small Busi15 ness Investment Act of 1958 (15 U.S.C. 687b(d)) is amended

16 to read as follows:

17 ‘‘(d) VALUATIONS.—

18 ‘‘(1) FREQUENCY OF VALUATIONS.—

19 ‘‘(A) IN GENERAL.—Each licensee shall sub20 mit to the Administrator a written valuation of

21 the loans and investments of the licensee not less

22 often than semiannually or otherwise upon the

23 request of the Administrator, except that any li24 censee with no leverage outstanding shall submit

25 such valuations annually, unless the Adminis26 trator determines otherwise.
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1 ‘‘(B) MATERIAL ADVERSE CHANGES.—Not

2 later than 30 days after the end of a fiscal quar3 ter of a licensee during which a material adverse

4 change in the aggregate valuation of the loans

5 and investments or operations of the licensee oc6 curs, the licensee shall notify the Administrator

7 in writing of the nature and extent of that

8 change.

9 ‘‘(C) INDEPENDENT CERTIFICATION.—

10 ‘‘(i) IN GENERAL.—Not less than once

11 during each fiscal year, each licensee shall

12 submit to the Administrator the financial

13 statements of the licensee, audited by an

14 independent certified public accountant ap15 proved by the Administrator.

16 ‘‘(ii) AUDIT REQUIREMENTS.—Each

17 audit conducted under clause (i) shall in18 clude—

19 ‘‘(I) a review of the procedures

20 and documentation used by the licensee

21 in preparing the valuations required

22 by this section; and

23 ‘‘(II) a statement by the inde24 pendent certified public accountant

25 that such valuations were prepared in
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1 conformity with the valuation criteria

2 applicable to the licensee established in

3 accordance with paragraph (2).

4 ‘‘(2) VALUATION CRITERIA.—Each valuation

5 submitted under this subsection shall be prepared by

6 the licensee in accordance with valuation criteria,

7 which shall—

8 ‘‘(A) be established or approved by the Ad9 ministrator; and

10 ‘‘(B) include appropriate safeguards to en11 sure that the noncash assets of a licensee are not

12 overvalued.’’.

13 SEC. 8. TRUSTEE OR RECEIVERSHIP OVER LICENSEES.

14 (a) FINDING.—It is the finding of the Congress that

15 increased recoveries on assets in liquidation under the

16 Small Business Investment Act of 1958 are in the best inter17 ests of the Federal Government.

18 (b) DEFINITIONS.—For purposes of this section—

19 (1) the term ‘‘Administrator’’ means the Admin20 istrator of the Small Business Administration;

21 (2) the term ‘‘Administration’’ means the Small

22 Business Administration; and

23 (3) the term ‘‘licensee’’ has the same meaning as

24 in section 103 of the Small Business Investment Act

25 of 1958.
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1 (c) LIQUIDATION PLAN.—

2 (1) IN GENERAL.—Not later than October 15,

3 1996, the Administrator shall submit to the Commit4 tees on Small Business of the Senate and the House

5 of Representatives a detailed plan to expedite the or6 derly liquidation of all licensee assets in liquidation,

7 including assets of licensees in receivership or in trust

8 held by or under the control of the Administration or

9 its agents.

10 (2) CONTENTS.—The plan submitted under

11 paragraph (1) shall include a timetable for liquidat12 ing the liquidation portfolio of small business invest13 ment company assets owned by the Administration,

14 and shall contain the Administrator’s findings and

15 recommendations on various options providing for the

16 fair and expeditious liquidation of such assets within

17 a reasonable period of time, giving due consideration

18 to the option of entering into one or more contracts

19 with private sector entities having the capability to

20 carry out the orderly liquidation of similar assets.

21 SEC. 9. BOOK ENTRY REGISTRATION.

22 Subsection 321(f) of the Small Business Investment

23 Act of 1958 (15 U.S.C. 687l) is amended by adding at the

24 end the following new paragraph:
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1 ‘‘(5) Nothing in this subsection shall prohibit the utili2 zation of a book entry or other electronic form of registra3 tion for trust certificates.’’.

4 SEC. 10. TECHNICAL AND CONFORMING AMENDMENTS.

5 (a) SMALL BUSINESS INVESTMENT ACT OF 1958.—The

6 Small Business Investment Act of 1958 (15 U.S.C. 661 et

7 seq.) is amended—

8 (1) in section 303—

9 (A) in subsection (a), by striking ‘‘debenture

10 bonds,’’ and inserting ‘‘securities,’’;

11 (B) by striking subsection (f) and inserting

12 the following:

13 ‘‘(f) REDEMPTION OR REPURCHASE OF PREFERRED

14 STOCK.—Notwithstanding any other provision of law—

15 ‘‘(1) the Administrator may allow the issuer of

16 any preferred stock sold to the Administration before

17 November 1, 1989 to redeem or repurchase such stock,

18 upon the payment to the Administration of an

19 amount less than the par value of such stock, for a

20 repurchase price determined by the Administrator

21 after consideration of all relevant factors, including—

22 ‘‘(A) the market value of the stock;

23 ‘‘(B) the value of benefits provided and an24 ticipated to accrue to the issuer;
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1 ‘‘(C) the amount of dividends paid, accrued,

2 and anticipated; and

3 ‘‘(D) the Administrator’s estimate of any

4 anticipated redemption; and

5 ‘‘(2) any moneys received by the Administration

6 from the repurchase of preferred stock shall be avail7 able solely to provide debenture leverage to licensees

8 having 50 percent or more in aggregate dollar

9 amount of their financings invested in smaller enter10 prises.’’; and

11 (C) in subsection (g)(8)—

12 (i) by striking ‘‘partners or sharehold13 ers’’ and inserting ‘‘partners, shareholders,

14 or members’’;

15 (ii) by striking ‘‘partner’s or share16 holder’s’’ and inserting ‘‘partner’s, share17 holder’s, or member’s’’; and

18 (iii) by striking ‘‘partner or share19 holder’’ and inserting ‘‘partner, shareholder,

20 or member’’;

21 (2) in section 308(h), by striking ‘‘subsection (c)

22 or (d) of section 301’’ each place that term appears

23 and inserting ‘‘section 301’’;
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1 (3) in section 310(c)(4), by striking ‘‘not less

2 than four years in the case of section 301(d) licensees

3 and in all other cases,’’;

4 (4) in section 312—

5 (A) by striking ‘‘shareholders or partners’’

6 and inserting ‘‘shareholders, partners, or mem7 bers’’; and

8 (B) by striking ‘‘shareholder, or partner’’

9 each place that term appears and inserting

10 ‘‘shareholder, partner, or member’’;

11 (5) by striking sections 317 and 318, and redes12 ignating sections 319 through 322 as sections 317

13 through 320, respectively;

14 (6) in section 319, as redesignated—

15 (A) in subsection (a), by striking ‘‘, includ16 ing companies operating under the authority of

17 section 301(d),’’; and

18 (B) in subsection (f)(2), by inserting ‘‘or in19 vestments in obligations of the United States’’

20 after ‘‘accounts’’;

21 (7) in section 320, as redesignated, by striking

22 ‘‘section 321’’ and inserting ‘‘section 319’’; and

23 (8) in section 509—

24 (A) in subsection (a)(1), by striking the sec25 ond sentence; and
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1 (B) in subsection (e)(1)(B), by striking

2 ‘‘subsection (c) or (d) of section 301’’ and insert3 ing ‘‘section 301’’.

4 (b) AMENDMENT IN OTHER LAW.—Section 11(h) of the

5 Federal Home Loan Bank Act (12 U.S.C. 1431(h)) is

6 amended by striking ‘‘301(d)’’ and inserting ‘‘301’’.

7 SEC. 11. AMENDMENTS TO THE SMALL BUSINESS ACT.

8 (a) POWERS OF THE ADMINISTRATOR.—Section

9 5(b)(7) of the Small Business Act (15 U.S.C. 634(b)(7)) is

10 amended by striking the colon and all that follows before

11 the semicolon at the end of the paragraph and inserting

12 the following: ‘‘: Provided, That with respect to deferred

13 participation loans, the Administrator may, in the discre14 tion of and pursuant to regulations promulgated by the Ad15 ministrator, authorize participating lending institutions to

16 take actions relating to loan servicing on behalf of the Ad17 ministrator, including determining eligibility and credit18 worthiness and loan monitoring, collection, and liquida19 tion’’.

20 (b) AUTHORIZATION OF APPROPRIATIONS.—Section

21 20(p)(3) of the Small Business Act (15 U.S.C. 631 note)

22 is amended by striking subparagraph (B) and inserting the

23 following:

24 ‘‘(B) $300,000,000 in guarantees of deben25 tures; and’’.
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1 SEC. 12. EFFECTIVE DATE.

2 This Act and the amendments made by this Act shall

3 become effective on the date of enactment of this Act.