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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3740 Introduced in House (IH)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Investment Company 
Modernization Act of 2009''.

SEC. 2. QUALIFIED NONPRIVATE FUNDS.

    Section 103(13)(C) of the Small Business Investment Act of 1958 (15 
U.S.C. 662(13)(C)) is amended by striking ``33 percent'' and inserting 
``45 percent''.

SEC. 3. LICENSES FOR EXPERIENCED APPLICANTS.

    Section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 
681) is amended by inserting after subsection (c) the following new 
subsection:
    ``(d) Licenses for Experienced Applicants.--
            ``(1) In general.--Notwithstanding any other provision of 
        this section, not later than 60 days after the initial receipt 
        by the Administrator of any request (which shall be deemed to 
        be the application) for a license to operate as a small 
        business investment company under this Act, the Administrator 
        shall approve the request and issue such license if each of the 
        following requirements is satisfied--
                    ``(A) At least 50 percent of the principal managers 
                of the applicant consist of at least two-thirds of the 
                principal managers of a small business investment 
                company that has been licensed under this Act.
                    ``(B) The licensed small business investment 
                company specified under subparagraph (A) has operated 
                under such license for at least 3 years prior to the 
                receipt specified in paragraph (1).
                    ``(C) The licensed small business investment 
                company specified under subparagraph (a)--
                            ``(i) either has invested at least 70 
                        percent of its private capital and drawn at 
                        least 50 percent of its projected leverage at 
                        time of its initial licensure or has invested 
                        and expensed or reserved for investment and 
                        expenses or some combination of both at least 
                        70 percent of its private capital in the one-
                        year period prior to the date on which the 
                        application referred to in paragraph (1) was 
                        received by the Administrator;
                            ``(ii) has maintained 6 consecutive 
                        quarters of profitable net investment income; 
                        and
                            ``(iii) has made at least 3 exits from 
                        investments in small businesses that have 
                        realized profits from those respective 
                        investments.
                    ``(D) The applicant submits to the Administrator, 
                in writing, an application consisting of all of the 
                following:
                            ``(i) A certification, in the form 
                        prescribed by the Administrator, that such 
                        applicant satisfies the requirements of this 
                        subsection and that all information contained 
                        in the application is true and complete.
                            ``(ii) A copy of the organization documents 
                        of the applicant.
                            ``(iii) A copy of the operating plan of the 
                        applicant demonstrating that at least 50 
                        percent of the amount of the planned 
                        investments of the applicant will be in the 
                        same or substantially similar investment stage 
                        and use the same or substantially similar type 
                        of investment instruments as the investments of 
                        the licensed small business investment company 
                        specified under subparagraph (A).
                            ``(iv) A certification, in a form 
                        prescribed by the Administrator, that the 
                        applicant satisfies the requirements of 
                        subsections (a) and (c) of section 302 of this 
                        Act.
                    ``(E) The applicant is in good standing as set 
                forth in paragraph (2).
                    ``(F) The applicant pays all fees prescribed by the 
                Administrator under subsection (e).
            ``(2) Good standing.--For purposes of this subsection, an 
        applicant is in good standing if--
                    ``(A) the licensed debentured or non-leveraged 
                small business investment company specified under 
                paragraph (1)(A) is actively operating under this Act 
                on the date of the initial receipt of the application 
                by the Administrator to which this subsection applies;
                    ``(B) no principal manager of the applicant has 
                been found liable in a civil action for fraud if the 
                Administrator makes a reasonable determination based on 
                evidence in the agency record that such liability has a 
                material adverse effect on the ability of the applicant 
                to perform obligations required by a licensee issued 
                pursuant to this Act; and
                    ``(C) no principal manager is under investigation 
                by a governmental agency or authority for, is under 
                indictment for, or has been convicted of a felony for a 
                violation of Federal or State securities laws, fraud, 
                or another criminal violation if such investigation, 
                indictment, or conviction has a material adverse effect 
                on the ability of the applicant to perform obligations 
                under a license issued under this Act.
            ``(3) Limitation.--
                    ``(A) In general.--The Administrator may remove an 
                application from the approval process under this 
                subsection if the Administrator determines based on 
                evidence in the agency record that the approval of the 
                license would present an unacceptable risk to the 
                government of United States.
                    ``(B) In writing.--Such determination shall be made 
                in writing and provided to the applicant no later than 
                10 calendar days after such determination is made. 
                Failure to provide the applicant shall be deemed to be 
                a permanent waiver of the Administrator's authority to 
                remove an application pursuant to this subsection.
                    ``(C) Non-delegability.--The Administrator may rely 
                on agency personnel to collect data or other material 
                relevant to establishing a record, but the decision to 
                remove the application may not be delegated by the 
                Administrator to any subordinate personnel in the 
                agency.
            ``(4) Notice and opportunity to cure non-conformance.--
                    ``(A) Notice of non-conformance.--Except for a 
                determination made pursuant to paragraph (3), the 
                Administrator shall provide an applicant described in 
                paragraph (1) within 30 days after receipt of the 
                application a written notice and description of any 
                nonconformance with any requirement of this subsection 
                based on evidence in the agency record.
                    ``(B) Opportunity to cure.--The applicant shall 
                have 30 days following the receipt of nonconformance or 
                the receipt of removal as set forth in paragraph (3) to 
                cure such nonconformance.
                    ``(C) Failure to provide notice.--Failure to 
                provide the notice within the limit set forth in 
                subparagraph (A) shall be deemed to be acceptance by 
                the Administrator of the applicant's conformance with 
                the requirements of this subsection.
            ``(5) Background reviews.--The Administrator shall ensure 
        that a timely background check of the principal managers of 
        each applicant is completed with respect to paragraphs (2)(B) 
        and (2)(C).
            ``(6) Fees.--The Administrator may charge an applicant 
        additional fees for carrying out the background reviews 
        mandated by paragraph (5). Such fees shall be limited to the 
        cost of the review up to a limit of $10,000.
            ``(7) Effect of non-qualification.--The failure of an 
        applicant to qualify for expedited licensure under this 
        subsection shall have no effect on an existing license or the 
        ability for the applicant or any of its individual managers to 
        apply for or receive a license to operate a small business 
        investment company under the procedures established elsewhere 
        in this Act.
            ``(8) Regulations.--The Administrator shall develop forms 
        and promulgate regulations to implement this subsection after 
        providing an opportunity for notice and comment. Regulations 
        promulgated pursuant to this paragraph shall be published in 
        the Code of Federal Regulations.''.

SEC. 4. MAXIMUM LEVERAGE.

    (a) Maximum Leverage.--Section 303(b)(2) of the Small Business 
Investment Act of 1958 (15 U.S.C. 683(b)(2)) is amended by striking so 
much of paragraph (2) as precedes subparagraph (C) and inserting the 
following:
            ``(2) Maximum leverage.--
                    ``(A) In general.--(i) 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.
                    ``(ii) In applying clause (i)(I) in the case of a 
                debenture licensee who is in good standing without the 
                imposition of additional regulatory standards whose 
                financings are comprised of at least 50 percent of 
                loans and debt securities, such licensee may be 
                leveraged as follows:
                            ``(I) the first one-third of private 
                        capital to 300 percent;
                            ``(II) the second one-third of private 
                        capital to 200 percent; and
                            ``(III) the last third of private capital 
                        to 100 percent.
                    ``(iii) Notwithstanding clause (i), in the case of 
                any company operating as a business development company 
                (as such term is defined under section (2)(a)(48) of 
                the Investment Company Act of 1940) or a majority-owned 
                subsidiary of such a company that is in good standing 
                without the imposition of additional regulatory 
                requirements, the maximum amount of outstanding 
                leverage made available to such company shall be 
                $250,000,000.
                    ``(B) Multiple licensees 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 $350,000,000.''.
    (b) Regulations.--Section 303(b)(2) of the Small Business 
Investment Act of 1958 (15 U.S.C. 683(b)(2)) is amended by adding a new 
subparagraph (E) at the end to read as follows:
                    ``(E) Regulations.--The Administrator shall 
                promulgate regulations, after notice and opportunity 
                for comment, establishing quantifiable objective 
                criteria under which a licensee's private capital in 
                its entirety may be leveraged up to 300 percent. Such 
                regulations shall be published in the Code of Federal 
                Regulations.''.
    (c) Investments in Low-Income Geographic Areas.--Section 
303(b)(2)(C) of the Small Business Investment Act of 1958 (15 U.S.C. 
683(b)(2)(C)) is amended by striking ``$250,000,000'' in clause 
(ii)(II) and inserting ``$400,000,000''.

SEC. 5. LONG-TERM LOANS TO SMALL BUSINESS CONCERNS.

    (a) Maximum Rate of Interest.--Section 305(c) of the Small Business 
Investment Act of 1958 (15 U.S.C. 685(c)) is amended by adding the 
following at the end thereof:
    ``In addition to the foregoing, with respect to a loan made, or 
debt with equity features acquired, under this section, a company may 
not charge an interest rate that exceeds the yield of 10-year Treasury 
note plus 16 percentage points per annum on the date of initiating the 
loan or debt security except that a company may charge up to an 
additional 7 percent more than the interest rate set forth in the loan 
or debt security in the event of a default. For purposes of this 
subsection a default means the occurrence of any of the following:
            ``(1) Failure to pay an amount when due.
            ``(2) Failure to provide information required under the 
        applicable financing documents.
            ``(3) Failure to observe any material term, covenant, or 
        other agreement contained in the applicable financing 
        documents.
            ``(4) A representation, warranty, certification, or 
        statement of fact made by or on behalf of a borrower in any 
        applicable financing document or in any document delivered in 
        connection therewith, that was materially incorrect or 
        misleading when made.
            ``(5) Any material event of default specified in the 
        applicable financing documents.''.

SEC. 6. SMALL BUSINESS CONCERNS OWNED AND CONTROLLED BY VETERANS.

    Section 303(b)(2)(C) of the Small Business Investment Act of 1958 
(15 U.S.C. 683(b)(2)(C)) is amended as follows:
            (1) In the heading, by inserting after ``areas'' the 
        following: ``and veterans''.
            (2) In clause (i), by inserting after ``351)'' the 
        following: ``or in a small business concern owned and 
        controlled veterans (as such term is defined in section 3(q)(3) 
        of the Small Business Act)''.
            (3) In clause (iii), by inserting after ``351)'' the 
        following: ``or in small business concerns owned and controlled 
        by veterans (as such is defined in section 3(q)(3) of the Small 
        Business Act)''.

SEC. 7. ADDITIONAL AUTHORITY.

    Section 305 of the Small Business Investment Act of 1958 (15 U.S.C. 
685) is amended by adding at the end of the following:
    ``(g) A company may require a small business concern to accept 
reasonable and customary minimum prepayment amounts and notices of 
prepayment.''.

SEC. 8. INVESTMENT IN CERTAIN PASSIVE ENTITIES.

    Part A of title III of the Small Business Investment Act of 1958 
(15 U.S.C. 661 and following) is amended by adding at the end the 
following:

``SEC. 321. INVESTMENT IN CERTAIN PASSIVE ENTITIES.

    ``A licensee may provide financing to a passive business as defined 
at section 107.720(b)(1), Title 13 Code of Federal Regulations as in 
effect on January 1, 2009, which is a corporation or limited liability 
company wholly-owned by the licensee and the sole purpose of which is 
to provide financing by the licensee to such concerns would cause 
investors in the licensee to incur with respect to regulated investment 
companies, income not qualifying under section 851(b)(2)(A) of the 
Internal Revenue Code of 1986, as amended. Nothing in this section 
shall affect the validity of regulations permitting financings of 
passive businesses previously duly promulgated by the Administrator.''.

SEC. 9. INVESTMENT IN SMALLER ENTERPRISES.

    Section 303(d) of the Small Business Investment Act of 1958 (15 
U.S.C. 683(d)) is amended by adding at the end of the following new 
paragraph:
            ``(3) Exception.--Notwithstanding paragraphs (1) and (2), a 
        licensee shall not be required to achieve any percentage of 
        such financings (at cost) which is higher than 25 percent which 
        may result from the application of prior statutory or 
        regulatory requirements to all or any portion of the licensee's 
        portfolio.''.

SEC. 10. CAPITAL IMPAIRMENT.

    Section 303(e) of the Small Business Investment Act of 1958 (15 
U.S.C. 683(e)) is amended by adding at the end the following:
``A licensee with Earmarked Assets (as that term is defined by the 
Administrator) will not be in capital impairment during the first 72 
months after its licensee, if its impairment does not exceed 85 
percent''.

SEC. 11. TANGIBLE NET WORTH.

    Section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 
662) is amended by striking ``and'' at the end of paragraph (18), by 
striking the period at the end of paragraph (19) and inserting a 
semicolon, and by adding the new paragraph after paragraph (19):
            ``(20) for purposes of the terms `small-business concern' 
        in paragraph (5) and `smaller enterprise' in paragraph (12) of 
        this section, tangible net worth shall, to the extent used, 
        mean the total new worth of the small business, in accordance 
        with General Accepted Accounting Principles, minus all 
        intangibles in accordance with General Accepted Accounting 
        Principles.''.

SEC. 12. DEVELOPMENT OF AGENCY RECORD.

    Part A of title III of the Small Business Investment Act of 1958 is 
amended by adding the following new section at the end thereof:

``SEC. 322. AGENCY RECORD FOR LICENSING OF SMALL BUSINESS INVESTMENT 
              COMPANIES.

    ``(a) Record.--The Associate Administrator for Investment shall 
establish an agency record of evidence referring or relating to each 
application for a license to a small business investment company.
    ``(b) Written Notification.--The Administrator shall provide a 
written explanation of any denial of a license application base upon 
evidence in the agency record. Absent an order by a Federal or State 
court of general jurisdiction, access to applications and the agency 
record shall be limited to the applicant and to the Administrator and 
subordinate personnel of the Administrator.''.

SEC. 13. PROGRAM LEVELS.

    Section 20 of the Small Business Act is amended by inserting the 
following new subsection after subsection (e):
    ``(f) Title III of the Small Business Investment Company Act of 
1958.--
            ``(1) Program levels 2010.--For fiscal year 2010, in 
        carrying out the program authorized by Title III of the Small 
        Business Investment Act of 1958, the Administrator is 
        authorized to make--
                    ``(A) $5,000,000,000 in purchases of participating 
                securities; and
                    ``(B) $5,000,000,000 in guarantees of debentures.
            ``(2) Program levels 2011.--For fiscal year 2011, in 
        carrying out the program authorized by Title III of the Small 
        Business Investment Act of 1958, the Administrator is 
        authorized to make--
                    ``(A) $5,000,000,000 in purchases of participating 
                securities; and
                    ``(B) $5,5000,000,000 in guarantees of 
                debentures.''.
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