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(2) by striking ‘‘(f)’’ and inserting ‘‘(f)(1)’’;
(3) by striking paragraph (A), as redesignated
by paragraph (1) of this subsection, and inserting
the following:
‘‘(A) provide for a central registration of
all trust certificates sold pursuant to this sec-
tion;’’ and
‘‘(4) by adding at the end the following:
‘‘(2) Nothing in this subsection shall prohibit
the utilization of a book-entry or other electronic
form of registration for trust certificates.’’.
SEC. 206. PREFERRED SURETY BOND GUARANTEE PRO-
GRAM.
(a) ADMISSION OF ADDITIONAL PROGRAM PAR-
TICIPANTS.—Section 411(a) (15 U.S.C. 694(a)) is
amended by adding a new paragraph (5), as follows:
‘‘(5)(A) The Administration shall promptly act
upon an application from a surety to participate in
the Preferred Surety Bond Guarantee Program, au-
thorized by paragraph (3), in accordance with cri-
teria and procedures established in regulations pur-
suant to subsection (d).
‘‘(B) The Administration is authorized to re-
duce the allotment of bond guarantee authority or
terminate the participation of a surety in the Pre-
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ferred Surety Program Guarantee Program based on
the rate of participation of such surety during the
4 most recent fiscal year quarters compared to the
median rate of participation by the other sureties in
the program.’’.
(b) EFFECTIVE DATE.—The amendments made
by subsection (a) shall apply with respect to applications
received (or pending substantive evaluation) on or after
October 1, 1995.
SEC. 207. SENSE OF THE CONGRESS.
(a) IN GENERAL.—It is the sense of the Congress
that the subsidy models prepared by the Office of Man-
agement and Budget relative to loan programs sponsored
by the United States Small Business Administration have
a tendency to—
(1) overestimate potential risk of loss; and
(2) overemphasize historical losses that may be
anomalous and do not truly reflect the success of the
programs as a whole.
(b) INDEPENDENT
STUDY.—Consequently, the
Congress mandates the independent study in section
103(h) in an attempt to improve the ability of the Office
of Management and Budget to reflect more accurately
the budgetary implications of such programs.
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SEC. 208. SMALL BUSINESS INVESTMENT COMPANY IM-
PROVEMENTS.
(a) DEFINITIONS.—
(1) 
SMALL
BUSINESS
CONCERN.—Section
103(5) (15 U.S.C. 662(5)) is amended by inserting
before the semicolon the following: ‘‘, except that,
for purposes of this Act, an investment by a venture
capital firm, investment company (including a small
business investment company) employee welfare ben-
efit plan or pension plan, or trust, foundation, or en-
dowment that is exempt from Federal income tax-
ation—
‘‘(A) shall not cause a business concern to
be deemed not independently owned and oper-
ated;
‘‘(B) shall be disregarded in determining
whether a business concern satisfies size stand-
ards established pursuant to section 3(a)(2) of
the Small Business Act; and
‘‘(C) shall be disregarded in determining
whether a small business concern is a smaller
enterprise’’.
(2) PRIVATE
CAPITAL.—Section 103(9) (15
U.S.C. 662(9)) is amended to read as follows:
‘‘(9) the term ‘private capital’—
‘‘(A) means the sum of—
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‘‘(i) the paid-in capital and paid-in
surplus of a corporate licensee, the contrib-
uted capital of the partners of a partner-
ship licensee, or the equity investment of
the members of a limited liability company
licensee; and
‘‘(ii) unfunded binding commitments,
from investors that meet criteria estab-
lished by the Administrator, to contribute
capital to the licensee: Provided, That such
unfunded commitments may be counted as
private capital for purposes of approval by
the Administrator of any request for lever-
age, but leverage shall not be funded based
on such commitments; and
‘‘(B) does not include any—
‘‘(i) funds borrowed by a licensee from
any source;
‘‘(ii) funds obtained through the issu-
ance of leverage; or
‘‘(iii) funds obtained directly or indi-
rectly from any Federal, State, or local
government, or any government agency or
instrumentality, except for—
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‘‘(I) funds invested by an em-
ployee welfare benefit plan or pension
plan; and
‘‘(II) any qualified nonprivate
funds (if the investors of the qualified
nonprivate funds do not control, di-
rectly or indirectly, the management,
board of directors, general partners,
or members of the licensee);’’.
(3) NEW
DEFINITIONS.—Section 103 (15
U.S.C. 662) is amended by striking paragraph (10)
and inserting the following:
‘‘(10) the term ‘leverage’ includes—
‘‘(A) debentures purchased or guaranteed
by the Administration;
‘‘(B) participating securities purchased or
guaranteed by the Administration; and
‘‘(C) preferred securities outstanding as of
October 1, 1995;
‘‘(11) the term ‘third party debt’ means any in-
debtedness for borrowed money, other than indebt-
edness owed to the Administration;
‘‘(12) the term ‘smaller enterprise’ means any
small business concern that, together with its affili-
ates—
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‘‘(A) has—
‘‘(i) a net financial worth of not more
than $6,000,000, as of the date on which
assistance is provided under this Act to
that business concern; and
‘‘(ii) an average net income for the 2-
year period preceding the date on which
assistance is provided under this Act to
that business concern, of not more than
$2,000,000, after Federal income taxes
(excluding any carryover losses); or
‘‘(B) satisfies the standard industrial clas-
sification size standards established by the Ad-
ministration for the industry in which the small
business concern is primarily engaged;
‘‘(13) the term ‘qualified nonprivate funds’
means any—
‘‘(A) funds directly or indirectly invested in
any applicant or licensee on or before August
16, 1982, by any Federal agency, other than
the Administration, under a provision of law ex-
plicitly mandating the inclusion of those funds
in the definition of the term ‘private capital’;
‘‘(B) funds directly or indirectly invested
in any applicant or licensee by any Federal
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agency under a provision of law enacted after
September 4, 1992, explicitly mandating the in-
clusion of those funds in the definition of the
term ‘private capital’; and
‘‘(C) funds invested in any applicant or li-
censee by one or more State or local govern-
ment entities (including any guarantee extended
by those entities) in an aggregate amount that
does not exceed 33 percent of the private cap-
ital of the applicant or licensee;
‘‘(14) the terms ‘employee welfare benefit plan’
and ‘pension plan’ have the same meanings as in
section 3 of the Employee Retirement Income Secu-
rity Act of 1974, and are intended to include—
‘‘(A) public and private pension or retire-
ment plans subject to such Act; and
‘‘(B) similar plans not covered by such Act
that have been established and that are main-
tained by the Federal Government or any State
or political subdivision, or any agency or instru-
mentality thereof, for the benefit of employees;
‘‘(15) the term ‘member’ means, with respect to
a licensee that is a limited liability company, a hold-
er of an ownership interest or a person otherwise ad-
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mitted to membership in the limited liability com-
pany; and
‘‘(16) the term ‘limited liability company’
means a business entity that is organized and oper-
ating in accordance with a State limited liability
company statute approved by the Administration.’’.
(b) ORGANIZATION OF SMALL BUSINESS INVEST-
MENT COMPANIES.—
(1) LIMITED
LIABILITY
COMPANIES.—Section
301(a) (15 U.S.C. 681(a)) is amended in the first
sentence, by striking ‘‘body or’’ and inserting ‘‘body,
a limited liability company, or’’
(2) ISSUANCE OF LICENSE.—Section 301(c) (15
U.S.C. 681(c)) is amended to read as follows:
‘‘(c) ISSUANCE OF LICENSE.—
‘‘(1) SUBMISSION OF APPLICATION.—Each ap-
plicant for a license to operate as a small business
investment company under this Act shall submit to
the Administrator an application, in a form and in-
cluding such documentation as may be prescribed by
the Administrator.
‘‘(2) PROCEDURES.—
‘‘(A) STATUS.—Not later than 90 days
after the initial receipt by the Administrator of
an application under this subsection, the Ad-
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ministrator shall provide the applicant with a
written report detailing the status of the appli-
cation and any requirements remaining for
completion of the application.
‘‘(B) APPROVAL OR DISAPPROVAL.—With-
in a reasonable time after receiving a completed
application submitted in accordance with this
subsection and in accordance with such require-
ments as the Administrator may prescribe by
regulation, the Administrator shall—
‘‘(i) approve the application and issue
a license for such operation to the appli-
cant if the requirements of this section are
satisfied; or
‘‘(ii) disapprove the application and
notify the applicant in writing of the dis-
approval.
‘‘(3) MATTERS CONSIDERED.—In reviewing and
processing any application under this subsection, the
Administrator—
‘‘(A) shall determine whether—
‘‘(i) the applicant meets the require-
ments of subsections (a) and (c) of section
302; and
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‘‘(ii) the management of the applicant
is qualified and has the knowledge, experi-
ence, and capability necessary to comply
with this Act;
‘‘(B) shall take into consideration—
‘‘(i) the need for and availability of fi-
nancing for small business concerns in the
geographic area in which the applicant is
to commence business;
‘‘(ii) the general business reputation
of the owners and management of the ap-
plicant; and
‘‘(iii) the probability of successful op-
erations of the applicant, including ade-
quate profitability and financial soundness;
and
‘‘(C) shall not take into consideration any
projected shortage or unavailability of leverage.
‘‘(4) EXCEPTION.—
‘‘(A) IN GENERAL.—Notwithstanding any
other provision of this Act, the Administrator
may, in the discretion of the Administrator and
based on a showing of special circumstances
and good cause, approve an application and
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issue a license under this subsection with re-
spect to any applicant that—
‘‘(i) has private capital of not less
than $3,000,000;
‘‘(ii) would otherwise be issued a li-
cense under this subsection, except that
the applicant does not satisfy the require-
ments of section 302(a); and
‘‘(iii) has a viable business plan rea-
sonably projecting profitable operations
and a reasonable timetable for achieving a
level of private capital that satisfies the re-
quirements of section 302(a).
‘‘(B) LEVERAGE.—An applicant licensed
pursuant to the exception provided in this para-
graph shall not be eligible to receive leverage as
a licensee until the applicant satisfies the re-
quirements of section 302(a).’’.
(3) SPECIALIZED
SMALL
BUSINESS
INVEST-
MENT COMPANIES.—
(A) REPEAL.—Section 301(d) (15 U.S.C.
681(d)) is repealed.
(B) EFFECT
ON
EXISTING
LICENSES.—
The repeal under subparagraph (A) shall not be
construed to require the Administrator to can-
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cel, revoke, withdraw, or modify any license is-
sued under section 301(d) of the Small Busi-
ness Investment Act of 1958 before the date of
enactment of this Act.
(c) CAPITAL REQUIREMENTS.—
(1) INCREASED
MINIMUM
CAPITAL
REQUIRE-
MENTS.—Section 302(a) (15 U.S.C. 682(a)) is
amended by striking ‘‘(a)’’ and all that follows
through ‘‘The Administration shall also determine
the ability of the company,’’ and inserting the fol-
lowing:
‘‘(a) AMOUNT.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the private capital of each licensee shall
be not less than—
‘‘(A) $5,000,000; or
‘‘(B) $10,000,000, with respect to each li-
censee authorized or seeking authority to issue
participating securities to be purchased or guar-
anteed by the Administration under this Act.
‘‘(2) EXCEPTION.—The Administrator may, in
the discretion of the Administrator and based on a
showing of special circumstances and good cause,
permit the private capital of a licensee authorized or
seeking authorization to issue participating securi-
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ties to be purchased or guaranteed by the Adminis-
tration to be less than $10,000,000, but not less
than $5,000,000, if the Administrator determines
that such action would not create or otherwise con-
tribute to an unreasonable risk of default or loss to
the Federal Government.
‘‘(3) ADEQUACY.—In addition to the require-
ments of paragraph (1), the Administrator shall—
‘‘(A) determine whether the private capital
of each licensee is adequate to assure a reason-
able prospect that the licensee will be operated
soundly and profitably, and managed actively
and prudently in accordance with its articles;
and
‘‘(B) determine that the licensee will be
able’’.
(2) EXEMPTION
FOR
CERTAIN
LICENSEES.—
Section 302(a) (15 U.S.C. 682(a)) is amended by
adding at the end the following new paragraph:
‘‘(4) EXEMPTION
FROM
CAPITAL
REQUIRE-
MENTS.—The Administrator may, in the discretion
of the Administrator, approve leverage for any li-
censee licensed under subsection (c) or (d) of section
301 before the date of enactment of the Small Busi-
ness Program Improvement Act of 1996 that does
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not meet the capital requirements of paragraph (1),
if—
‘‘(A) the licensee certifies in writing that
not less 50 percent of the aggregate dollar
amount of its financings after the date of enact-
ment of the Small Business Program Improve-
ment Act of 1996 will be provided to smaller
enterprises; and
‘‘(B) the Administrator determines that
such action would not create or otherwise con-
tribute to an unreasonable risk of default or
loss to the United States Government.’’.
‘‘(3) DIVERSIFICATION
OF
OWNERSHIP.—Sec-
tion 302(c) (15 U.S.C. 682(c)) is amended to read
as follows:
‘‘(c) DIVERSIFICATION OF OWNERSHIP.—The Ad-
ministrator shall ensure that the management of each li-
censee licensed after the date of enactment of the Small
Business Program Improvement Act of 1996 is suffi-
ciently diversified from and unaffiliated with the owner-
ship of the licensee in a manner that ensures independ-
ence and objectivity in the financial management and
oversight of the investments and operations of the li-
censee.’’.
(d) BORROWING.—
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‘‘(2) DEBENTURES.—Section 303(b) (15 U.S.C.
683(b)) is amended in the first sentence, by striking
‘‘(but only’’ and all that follows through ‘‘terms)’’.
‘‘(2) THIRD PARTY DEBT.—Section 303(c) (15
U.S.C. 683(c)) is amended to read as follows:
‘‘(c) THIRD PARTY DEBT.—The Administrator—
‘‘(1) shall not permit a licensee having out-
standing leverage to incur third party debt that
would create or contribute to an unreasonable risk
of default or loss to the Federal Government; and
‘‘(2) shall permit such licensees to incur third
party debt only on such terms and subject to such
conditions as may be established by the Adminis-
trator, by regulation or otherwise.’’.
(3) REQUIREMENT TO FINANCE SMALLER EN-
TERPRISES.—Section 303(d) (15 U.S.C. 683(d)) is
amended to read as follows:
‘‘(d) REQUIREMENT TO FINANCE SMALLER EN-
TERPRISES.—The Administrator shall require each li-
censee, as a condition of approval of an application for
leverage, to certify in writing that not less than 20 per-
cent of the aggregate dollar amount of the financings of
the licensee will be provided to smaller enterprises.’’.
(4) CAPITAL IMPAIRMENT REQUIREMENTS.—
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(A) IN
GENERAL.—Section 303(e) (15
U.S.C. 683(e)) is amended to read as follows:
‘‘(e) CAPITAL
IMPAIRMENT.—Before approving
any application for leverage submitted by a licensee
under this Act, the Administrator—
‘‘(1) shall determine that the private capital of
the licensee meets the requirements of section
302(a); and
‘‘(2) shall determine, taking into account the
nature of the assets of the licensee, the amount and
terms of any third party debt owed by such licensee,
and any other factors determined to be relevant by
the Administrator, that the private capital of the li-
censee has not been impaired to such an extent that
the issuance of additional leverage would create or
otherwise contribute to an unreasonable risk of de-
fault or loss to the Federal Government.’’.
(B) REGULATIONS.—
(i) UNIFORM
APPLICABILITY.—Any
regulation issued by the Administration to
implement section 303(e) of the Small
Business Investment Act of 1958 that ap-
plies to any licensee with outstanding le-
verage obtained before the effective date of
that regulation, shall apply uniformly to all
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licensees with outstanding leverage ob-
tained before that effective date.
(ii) DEFINITIONS.—For purposes of
this subparagraph, the terms ‘‘Administra-
tion’’, ‘‘leverage’’ and ‘‘licensee’’ have the
same meanings as in section 103 of the
Small Business Investment Act of 1958.
(5) EQUITY INVESTMENT REQUIREMENT.—Sec-
tion 303(g)(4) (15 U.S.C. 683(g)(4)) is amended by
striking ‘‘and maintain’’.
(6) FEES.—Section 303 (15 U.S.C. 683) is
amended—
(A) in subsection (b), in the fifth sentence,
by striking ‘‘1 per centum’’, and all that follows
before the period at the end of the sentence and
inserting the following: ‘‘1 percent, plus an ad-
ditional charge of 1 percent per annum which
shall be paid to and retained by the Administra-
tion’’;
(B) in subsection (g)(2), by striking ‘‘1 per
centum,’’ and all that follows before the period
at the end of the paragraph and inserting the
following: ‘‘1 percent, plus an additional charge
of 1 percent per annum which shall be paid to
and retained by the Administration’’; and
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(C) by adding at the end the following new
subsections:
‘‘(i) LEVERAGE FEE.—With respect to leverage
granted by the Administration to a licensee, the Adminis-
tration shall collect from the licensee a nonrefundable fee
in an amount equal to 3 percent of the face amount of
leverage granted to the licensee, payable upon the earlier
of the date of entry into any commitment for such lever-
age or the date on which the leverage is drawn by the
licensee.
‘‘(j) CALCULATION OF SUBSIDY RATE.—All fees,
interest, and profits received and retained by the Admin-
istration under this section shall be included in the cal-
culations made by the Director of the Office of Manage-
ment and Budget to offset the cost (as that term is de-
fined in section 502 of the Federal Credit Reform Act of
1990) to the Administration of purchasing and guaran-
teeing debentures and participating securities under this
Act.’’.
(e) LIABILITY OF THE UNITED STATES.—Section
308(e) (15 U.S.C. 687(e)) is amended by striking ‘‘Noth-
ing’’ and inserting ‘‘Except as expressly provided other-
wise in this Act, nothing’’.
(f) EXAMINATIONS; VALUATIONS.—
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(1) 
EXAMINATIONS.—Section 
310(b) 
(15
U.S.C. 687b(b)) is amended in the first sentence by
inserting ‘‘which may be conducted with the assist-
ance of a private sector entity that has both the
qualifications to conduct and expertise in conducting
such examinations,’’ after ‘‘Investment Division of
the Administration,’’.
(2) VALUATIONS.—Section 310(d) (15 U.S.C.
687b(d)) is amended to read as follows:
‘‘(d) VALUATIONS.—
‘‘(1) FREQUENCY OF VALUATIONS.—
‘‘(A) IN
GENERAL.—Each licensee shall
submit to the Administrator a written valuation
of the loans and investments of the licensee not
less often than semiannually or otherwise upon
the request of the Administrator, except that
any licensee with no leverage outstanding shall
submit such valuations annually, unless the Ad-
ministrator determines otherwise.
‘‘(B) MATERIAL ADVERSE CHANGES.—Not
later than 30 days after the end of a fiscal
quarter of a licensee during which a material
adverse change in the aggregate valuation of
the loans and investments or operations of the
licensee occurs, the licensee shall notify the Ad-
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ministrator in writing of the nature and extent
of that change.
‘‘(C) INDEPENDENT CERTIFICATION.—
‘‘(i) IN
GENERAL.—Not less than
once during each fiscal year, each licensee
shall submit to the Administrator the fi-
nancial statements of the licensee, audited
by an independent certified public account-
ant approved by the Administrator.
‘‘(ii) AUDIT
REQUIREMENTS.—Each
audit conducted under clause (i) shall in-
clude—
‘‘(I) a review of the procedures
and documentation used by the li-
censee in preparing the valuations re-
quired by this section; and
‘‘(II) a statement by the inde-
pendent certified public accountant
that such valuations were prepared in
conformity with the valuation criteria
applicable to the licensee established
in accordance with paragraph (2).
‘‘(2) VALUATION
CRITERIA.—Each valuation
submitted under this subsection shall be prepared by
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the licensee in accordance with valuation criteria,
which shall—
‘‘(A) be established or approved by the Ad-
ministrator; and
‘‘(B) include appropriate safeguards to en-
sure that the noncash assets of a licensee are
not overvalued.’’.
(g) TRUSTEE OR RECEIVERSHIP OVER LICENS-
EES.—
(1) FINDING.—It is the finding of the Congress
that increased recoveries on assets in liquidation
under the Small Business Investment Act of 1958
are in the best interests of the Federal Government.
(2) DEFINITIONS.—For purposes of this sub-
section—
(A) the term ‘‘Administrator’’ means the
Administrator 
of 
the 
Small 
Business
Adminstration;
(B) the term ‘‘Administration’’ means the
Small Business Administration; and
(C) the term ‘‘licensee’’ has the same
meaning as in section 103.
(3) LIQUIDATION PLAN.—
(A) IN GENERAL.—Not later than January
15, 1997, the Administrator shall submit to the
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Committees on Small Business of the Senate
and the House of Representatives a detailed
plan to expedite the orderly liquidation of all li-
censee assets in liquidation, including assets of
licensees in receivership or in trust held by or
under the control of the Administration or its
agents.
(B) 
CONTENTS.—The 
plan 
submitted
under paragraph (1) shall include a timetable
for liquidating the liquidation portfolio of small
business investment company assets owned by
the Administration, and shall contain the find-
ings and recommendations of the Administrator
on various options providing for the fair and ex-
peditious liquidation of such assets within a
reasonable period of time, giving due consider-
ation to the option of entering into one or more
contracts with private sector entities having the
capability to carry out the orderly liquidation of
similar assets.
(h) 
TECHNICAL
AND
CONFORMING
AMEND-
MENTS.—
(1) SMALL
BUSINESS
INVESTMENT
ACT
OF
1958.—The Small Business Investment Act of 1958
(15 U.S.C. 661 et seq.) is amended—
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(A) in section 303—
(i) in subsection (a), by striking ‘‘de-
benture bonds,’’ and inserting ‘‘securi-
ties,’’;
(ii) by striking subsection (f) and in-
serting the following:
‘‘(f) REDEMPTION OR REPURCHASE OF PRE-
FERRED STOCK.—Notwithstanding any other provision of
law—
‘‘(1) the Administrator may allow the issuer of
any preferred stock sold to the Administration be-
fore November 1, 1989 to redeem or repurchase
such stock, upon the payment to the Administration
of an amount less than the par value of such stock,
for a repurchase price determined by the Adminis-
trator after consideration of all relevant factors, in-
cluding—
‘‘(A) the market value of the stock;
‘‘(B) the value of benefits provided and an-
ticipated to accrue to the issuer;
‘‘(C) the amount of dividends paid, ac-
crued, and anticipated; and
‘‘(D) the estimate of the Administrator of
any anticipated redemption; and