I 

111TH CONGRESS 

1ST SESSION H. R. 3740 

To amend the Small Business Investment Act of 1958 with respect to small 

business investment companies, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 7, 2009 

Mr. LUETKEMEYER introduced the following bill; which was referred to the 

Committee on Small Business 

A BILL 

To amend the Small Business Investment Act of 1958 with 

respect to small business investment companies, 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. 

4 This Act may be cited as the ‘‘Small Business Invest5 ment Company Modernization Act of 2009’’. 

6 SEC. 2. QUALIFIED NONPRIVATE FUNDS. 

7 Section 103(13)(C) of the Small Business Investment 

8 Act of 1958 (15 U.S.C. 662(13)(C)) is amended by strik9 ing ‘‘33 percent’’ and inserting ‘‘45 percent’’. 


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1 SEC. 3. LICENSES FOR EXPERIENCED APPLICANTS. 

2 Section 301 of the Small Business Investment Act 

3 of 1958 (15 U.S.C. 681) is amended by inserting after 

4 subsection (c) the following new subsection: 

5 ‘‘(d) LICENSES FOR EXPERIENCED APPLICANTS.— 

6 ‘‘(1) IN GENERAL.—Notwithstanding any other 

7 provision of this section, not later than 60 days after 

8 the initial receipt by the Administrator of any re9 quest (which shall be deemed to be the application) 

10 for a license to operate as a small business invest11 ment company under this Act, the Administrator 

12 shall approve the request and issue such license if 

13 each of the following requirements is satisfied— 

14 ‘‘(A) At least 50 percent of the principal 

15 managers of the applicant consist of at least 

16 two-thirds of the principal managers of a small 

17 business investment company that has been li18 censed under this Act. 

19 ‘‘(B) The licensed small business invest20 ment company specified under subparagraph 

21 (A) has operated under such license for at least 

22 3 years prior to the receipt specified in para23 graph (1). 

24 ‘‘(C) The licensed small business invest25 ment company specified under subparagraph 

26 (a)— 


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1 ‘‘(i) either has invested at least 70 

2 percent of its private capital and drawn at 

3 least 50 percent of its projected leverage at 

4 time of its initial licensure or has invested 

5 and expensed or reserved for investment 

6 and expenses or some combination of both 

7 at least 70 percent of its private capital in 

8 the one-year period prior to the date on 

9 which the application referred to in para10 graph (1) was received by the Adminis11 trator; 

12 ‘‘(ii) has maintained 6 consecutive 

13 quarters of profitable net investment in14 come; and 

15 ‘‘(iii) has made at least 3 exits from 

16 investments in small businesses that have 

17 realized profits from those respective in18 vestments. 

19 ‘‘(D) The applicant submits to the Admin20 istrator, in writing, an application consisting of 

21 all of the following: 

22 ‘‘(i) A certification, in the form pre23 scribed by the Administrator, that such ap24 plicant satisfies the requirements of this 

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1 tained in the application is true and com2 plete. 

3 ‘‘(ii) A copy of the organization docu4 ments of the applicant. 

5 ‘‘(iii) A copy of the operating plan of 

6 the applicant demonstrating that at least 

7 50 percent of the amount of the planned 

8 investments of the applicant will be in the 

9 same or substantially similar investment 

10 stage and use the same or substantially 

11 similar type of investment instruments as 

12 the investments of the licensed small busi13 ness investment company specified under 

14 subparagraph (A). 

15 ‘‘(iv) A certification, in a form pre16 scribed by the Administrator, that the ap17 plicant satisfies the requirements of sub18 sections (a) and (c) of section 302 of this 

19 Act. 

20 ‘‘(E) The applicant is in good standing as 

21 set forth in paragraph (2). 

22 ‘‘(F) The applicant pays all fees prescribed 

23 by the Administrator under subsection (e). 

24 ‘‘(2) GOOD STANDING.—For purposes of this 

25 subsection, an applicant is in good standing if— 


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1 ‘‘(A) the licensed debentured or non-lever2 aged small business investment company speci3 fied under paragraph (1)(A) is actively oper4 ating under this Act on the date of the initial 

5 receipt of the application by the Administrator 

6 to which this subsection applies; 

7 ‘‘(B) no principal manager of the applicant 

8 has been found liable in a civil action for fraud 

9 if the Administrator makes a reasonable deter10 mination based on evidence in the agency 

11 record that such liability has a material adverse 

12 effect on the ability of the applicant to perform 

13 obligations required by a licensee issued pursu14 ant to this Act; and 

15 ‘‘(C) no principal manager is under inves16 tigation by a governmental agency or authority 

17 for, is under indictment for, or has been con18 victed of a felony for a violation of Federal or 

19 State securities laws, fraud, or another criminal 

20 violation if such investigation, indictment, or 

21 conviction has a material adverse effect on the 

22 ability of the applicant to perform obligations 

23 under a license issued under this Act. 

24 ‘‘(3) LIMITATION.— 


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1 ‘‘(A) IN GENERAL.—The Administrator 

2 may remove an application from the approval 

3 process under this subsection if the Adminis4 trator determines based on evidence in the 

5 agency record that the approval of the license 

6 would present an unacceptable risk to the gov7 ernment of United States. 

8 ‘‘(B) IN WRITING.—Such determination 

9 shall be made in writing and provided to the 

10 applicant no later than 10 calendar days after 

11 such determination is made. Failure to provide 

12 the applicant shall be deemed to be a perma13 nent waiver of the Administrator’s authority to 

14 remove an application pursuant to this sub15 section. 

16 ‘‘(C) NON-DELEGABILITY.—The Adminis17 trator may rely on agency personnel to collect 

18 data or other material relevant to establishing 

19 a record, but the decision to remove the appli20 cation may not be delegated by the Adminis21 trator to any subordinate personnel in the agen22 cy. 

23 ‘‘(4) NOTICE AND OPPORTUNITY TO CURE NON24 CONFORMANCE.— 


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1 ‘‘(A) NOTICE OF NON-CONFORMANCE.— 

2 Except for a determination made pursuant to 

3 paragraph (3), the Administrator shall provide 

4 an applicant described in paragraph (1) within 

5 30 days after receipt of the application a writ6 ten notice and description of any nonconform7 ance with any requirement of this subsection 

8 based on evidence in the agency record. 

9 ‘‘(B) OPPORTUNITY TO CURE.—The appli10 cant shall have 30 days following the receipt of 

11 nonconformance or the receipt of removal as set 

12 forth in paragraph (3) to cure such non13 conformance. 

14 ‘‘(C) FAILURE TO PROVIDE NOTICE.—Fail15 ure to provide the notice within the limit set 

16 forth in subparagraph (A) shall be deemed to 

17 be acceptance by the Administrator of the ap18 plicant’s conformance with the requirements of 

19 this subsection. 

20 ‘‘(5) BACKGROUND REVIEWS.—The Adminis21 trator shall ensure that a timely background check 

22 of the principal managers of each applicant is com23 pleted with respect to paragraphs (2)(B) and (2)(C). 

24 ‘‘(6) FEES.—The Administrator may charge an 

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1 ground reviews mandated by paragraph (5). Such 

2 fees shall be limited to the cost of the review up to 

3 a limit of $10,000. 

4 ‘‘(7) EFFECT OF NON-QUALIFICATION.—The 

5 failure of an applicant to qualify for expedited licen6 sure under this subsection shall have no effect on an 

7 existing license or the ability for the applicant or 

8 any of its individual managers to apply for or receive 

9 a license to operate a small business investment 

10 company under the procedures established elsewhere 

11 in this Act. 

12 ‘‘(8) REGULATIONS.—The Administrator shall 

13 develop forms and promulgate regulations to imple14 ment this subsection after providing an opportunity 

15 for notice and comment. Regulations promulgated 

16 pursuant to this paragraph shall be published in the 

17 Code of Federal Regulations.’’. 

18 SEC. 4. MAXIMUM LEVERAGE. 

19 (a) MAXIMUM LEVERAGE.—Section 303(b)(2) of the 

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

21 683(b)(2)) is amended by striking so much of paragraph 

22 (2) as precedes subparagraph (C) and inserting the fol23 lowing: 

24 ‘‘(2) MAXIMUM LEVERAGE.— 


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1 ‘‘(A) IN GENERAL.—(i) The maximum 

2 amount of outstanding leverage made available 

3 to any one company licensed under section 

4 301(c) of this Act may not exceed the lesser 

5 of— 

6 ‘‘(I) 300 percent of such com7 pany’s private capital; or 

8 ‘‘(II) $150,000,000. 

9 ‘‘(ii) In applying clause (i)(I) in the case of 

10 a debenture licensee who is in good standing 

11 without the imposition of additional regulatory 

12 standards whose financings are comprised of at 

13 least 50 percent of loans and debt securities, 

14 such licensee may be leveraged as follows: 

15 ‘‘(I) the first one-third of private cap16 ital to 300 percent; 

17 ‘‘(II) the second one-third of private 

18 capital to 200 percent; and 

19 ‘‘(III) the last third of private capital 

20 to 100 percent. 

21 ‘‘(iii) Notwithstanding clause (i), in the 

22 case of any company operating as a business 

23 development company (as such term is defined 

24 under section (2)(a)(48) of the Investment 

25 Company Act of 1940) or a majority-owned 


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1 subsidiary of such a company that is in good 

2 standing without the imposition of additional 

3 regulatory requirements, the maximum amount 

4 of outstanding leverage made available to such 

5 company shall be $250,000,000. 

6 ‘‘(B) MULTIPLE LICENSEES UNDER COM7 MON CONTROL.—The maximum amount of out8 standing leverage made available to two or more 

9 companies licensed under section 301(c) of this 

10 Act that are commonly controlled (as deter11 mined by the Administrator) and not under 

12 capital impairment may not exceed 

13 $350,000,000.’’. 

14 (b) REGULATIONS.—Section 303(b)(2) of the Small 

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

16 is amended by adding a new subparagraph (E) at the end 

17 to read as follows: 

18 ‘‘(E) REGULATIONS.—The Administrator 

19 shall promulgate regulations, after notice and 

20 opportunity for comment, establishing quantifi21 able objective criteria under which a licensee’s 

22 private capital in its entirety may be leveraged 

23 up to 300 percent. Such regulations shall be 

24 published in the Code of Federal Regulations.’’. 


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1 (c) INVESTMENTS IN LOW-INCOME GEOGRAPHIC

2 AREAS.—Section 303(b)(2)(C) of the Small Business In3 vestment Act of 1958 (15 U.S.C. 683(b)(2)(C)) is amend4 ed by striking ‘‘$250,000,000’’ in clause (ii)(II) and in5 serting ‘‘$400,000,000’’. 

6 SEC. 5. LONG-TERM LOANS TO SMALL BUSINESS CON7 CERNS. 

8 (a) MAXIMUM RATE OF INTEREST.—Section 305(c) 

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

10 685(c)) is amended by adding the following at the end 

11 thereof: 

12 ‘‘In addition to the foregoing, with respect to a loan 

13 made, or debt with equity features acquired, under this 

14 section, a company may not charge an interest rate that 

15 exceeds the yield of 10-year Treasury note plus 16 per16 centage points per annum on the date of initiating the 

17 loan or debt security except that a company may charge 

18 up to an additional 7 percent more than the interest rate 

19 set forth in the loan or debt security in the event of a 

20 default. For purposes of this subsection a default means 

21 the occurrence of any of the following: 

22 ‘‘(1) Failure to pay an amount when due. 

23 ‘‘(2) Failure to provide information required 

24 under the applicable financing documents. 


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1 ‘‘(3) Failure to observe any material term, cov2 enant, or other agreement contained in the applica3 ble financing documents. 

4 ‘‘(4) A representation, warranty, certification, 

5 or statement of fact made by or on behalf of a bor6 rower in any applicable financing document or in 

7 any document delivered in connection therewith, that 

8 was materially incorrect or misleading when made. 

9 ‘‘(5) Any material event of default specified in 

10 the applicable financing documents.’’. 

11 SEC. 6. SMALL BUSINESS CONCERNS OWNED AND CON12 TROLLED BY VETERANS. 

13 Section 303(b)(2)(C) of the Small Business Invest14 ment Act of 1958 (15 U.S.C. 683(b)(2)(C)) is amended 

15 as follows: 

16 (1) In the heading, by inserting after ‘‘AREAS’’ 

17 the following: ‘‘AND VETERANS’’. 

18 (2) In clause (i), by inserting after ‘‘351)’’ the 

19 following: ‘‘or in a small business concern owned and 

20 controlled veterans (as such term is defined in sec21 tion 3(q)(3) of the Small Business Act)’’. 

22 (3) In clause (iii), by inserting after ‘‘351)’’ the 

23 following: ‘‘or in small business concerns owned and 

24 controlled by veterans (as such is defined in section 

25 3(q)(3) of the Small Business Act)’’. 


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1 SEC. 7. ADDITIONAL AUTHORITY. 

2 Section 305 of the Small Business Investment Act 

3 of 1958 (15 U.S.C. 685) is amended by adding at the end 

4 of the following: 

5 ‘‘(g) A company may require a small business concern 

6 to accept reasonable and customary minimum prepayment 

7 amounts and notices of prepayment.’’. 

8 SEC. 8. INVESTMENT IN CERTAIN PASSIVE ENTITIES. 

9 Part A of title III of the Small Business Investment 

10 Act of 1958 (15 U.S.C. 661 and following) is amended 

11 by adding at the end the following: 

12 ‘‘SEC. 321. INVESTMENT IN CERTAIN PASSIVE ENTITIES. 

13 ‘‘A licensee may provide financing to a passive busi14 ness as defined at section 107.720(b)(1), Title 13 Code 

15 of Federal Regulations as in effect on January 1, 2009, 

16 which is a corporation or limited liability company wholly17 owned by the licensee and the sole purpose of which is 

18 to provide financing by the licensee to such concerns would 

19 cause investors in the licensee to incur with respect to reg20 ulated investment companies, income not qualifying under 

21 section 851(b)(2)(A) of the Internal Revenue Code of 

22 1986, as amended. Nothing in this section shall affect the 

23 validity of regulations permitting financings of passive 

24 businesses previously duly promulgated by the Adminis25 trator.’’. 


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1 SEC. 9. INVESTMENT IN SMALLER ENTERPRISES. 

2 Section 303(d) of the Small Business Investment Act 

3 of 1958 (15 U.S.C. 683(d)) is amended by adding at the 

4 end of the following new paragraph: 

5 ‘‘(3) EXCEPTION.—Notwithstanding paragraphs 

6 (1) and (2), a licensee shall not be required to 

7 achieve any percentage of such financings (at cost) 

8 which is higher than 25 percent which may result 

9 from the application of prior statutory or regulatory 

10 requirements to all or any portion of the licensee’s 

11 portfolio.’’. 

12 SEC. 10. CAPITAL IMPAIRMENT. 

13 Section 303(e) of the Small Business Investment Act 

14 of 1958 (15 U.S.C. 683(e)) is amended by adding at the 

15 end the following: 

16 ‘‘A licensee with Earmarked Assets (as that term is de17 fined by the Administrator) will not be in capital impair18 ment during the first 72 months after its licensee, if its 

19 impairment does not exceed 85 percent’’. 

20 SEC. 11. TANGIBLE NET WORTH. 

21 Section 103 of the Small Business Investment Act 

22 of 1958 (15 U.S.C. 662) is amended by striking ‘‘and’’ 

23 at the end of paragraph (18), by striking the period at 

24 the end of paragraph (19) and inserting a semicolon, and 

25 by adding the new paragraph after paragraph (19): 


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1 ‘‘(20) for purposes of the terms ‘small-business 

2 concern’ in paragraph (5) and ‘smaller enterprise’ in 

3 paragraph (12) of this section, tangible net worth 

4 shall, to the extent used, mean the total new worth 

5 of the small business, in accordance with General 

6 Accepted Accounting Principles, minus all intangi7 bles in accordance with General Accepted Account8 ing Principles.’’. 

9 SEC. 12. DEVELOPMENT OF AGENCY RECORD. 

10 Part A of title III of the Small Business Investment 

11 Act of 1958 is amended by adding the following new sec12 tion at the end thereof: 

13 ‘‘SEC. 322. AGENCY RECORD FOR LICENSING OF SMALL 

14 BUSINESS INVESTMENT COMPANIES. 

15 ‘‘(a) RECORD.—The Associate Administrator for In16 vestment shall establish an agency record of evidence re17 ferring or relating to each application for a license to a 

18 small business investment company. 

19 ‘‘(b) WRITTEN NOTIFICATION.—The Administrator 

20 shall provide a written explanation of any denial of a li21 cense application base upon evidence in the agency record. 

22 Absent an order by a Federal or State court of general 

23 jurisdiction, access to applications and the agency record 

24 shall be limited to the applicant and to the Administrator 

25 and subordinate personnel of the Administrator.’’. 


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1 SEC. 13. PROGRAM LEVELS. 

2 Section 20 of the Small Business Act is amended by 

3 inserting the following new subsection after subsection (e): 

4 ‘‘(f) TITLE III OF THE SMALL BUSINESS INVEST5 MENT COMPANY ACT OF 1958.— 

6 ‘‘(1) PROGRAM LEVELS 2010.—For fiscal year 

7 2010, in carrying out the program authorized by 

8 Title III of the Small Business Investment Act of 

9 1958, the Administrator is authorized to make— 

10 ‘‘(A) $5,000,000,000 in purchases of par11 ticipating securities; and 

12 ‘‘(B) $5,000,000,000 in guarantees of de13 bentures. 

14 ‘‘(2) PROGRAM LEVELS 2011.—For fiscal year 

15 2011, in carrying out the program authorized by 

16 Title III of the Small Business Investment Act of 

17 1958, the Administrator is authorized to make— 

18 ‘‘(A) $5,000,000,000 in purchases of par19 ticipating securities; and 

20 ‘‘(B) $5,5000,000,000 in guarantees of de21 bentures.’’. 

Æ 


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