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Small Business of the House of Representatives and
Senate.
(h) PREFERRED
LENDER
STANDARD
REVIEW
PROGRAM.—Not later than 90 days after the date of en-
actment of this Act, the Administrator shall commence a
standard review program for the Preferred Lender Pro-
gram established by section 5(b)(7) of the Small Busi-
ness Act (15 U.S.C. 634(b)(7)), which shall include an-
nual or more frequent assessments of the participation of
the lender in the program, including defaults, loans, and
recoveries of loans made by that lender under the author-
ity of this section. The Administrator shall require such
standard review for each new entrant to the Preferred
Lender Program.
(i) INDEPENDENT STUDY OF LOAN PROGRAMS.—
(1) STUDY
REQUIRED.—The Administrator
shall contract with one or more private sector parties
to conduct a comprehensive assessment of the per-
formance of the loan programs authorized by section
7(a) of the Small Business Act (15 U.S.C. 636(a))
and title V of the Small Business Investment Act of
1958 (15 U.S.C. 661) addressing the matters de-
scribed in paragraph (2) and resulting in a report to
the Congress pursuant to paragraph (5).
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(2) MATTERS TO BE ASSESSED.—In addition to
such other matters as the Administrator considers
appropriate, the assessment required by paragraph
(1) shall address, with respect to each loan program
described in paragraph (1) for each of the fiscal
years described in paragraph (3)—
(A) the number and frequency of deferrals
and defaults;
(B) default rates;
(C) comparative loss rate, by—
(i) type of lender (separately address-
ing preferred lenders, certified lenders, and
general participation lenders);
(ii) term of the loan;
(iii) dollar value of the loan at dis-
bursement; and
(iv) underwriting characteristics of
each loan that has entered into default, in-
cluding term, amount and type of collat-
eral, loan-to-value and other actual and
projected ratios, line of business, credit
history, and type of loan; and
(D) the economic models used by the Of-
fice of Management and Budget to calculate the
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credit subsidy rate applicable to the loan pro-
grams.
(3) PERIOD OF ASSESSMENT.—The assessments
undertaken pursuant to paragraph (2) shall address
data for the period beginning with fiscal year 1986
of each loan program described in paragraph (1).
(4) ACCESS TO INFORMATION.—The Adminis-
trator shall provide to the contractor access to any
information collected by or available to the Adminis-
tration with regard to the loan programs being as-
sessed. The contactor shall preserve the confidential-
ity of any information for which confidentiality is
protected by law or properly asserted by the person
submitting such information.
(5) CONTRACT
FUNDING.—The Administrator
shall fund the cost of the contract from the amounts
appropriated for the salaries and expenses of the
Administration for fiscal year 1997.
(6) REPORT TO THE CONGRESS.—
(A) CONTENTS.—The contractor shall pre-
pare a report of—
(i) its analyses of the matters to be
assessed pursuant to paragraph (2); and
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(ii) its independent recommendations
for improving program performance with
respect to each loan program, regarding—
(I) improving the timely collec-
tion and subsequent management by
the Administration of data to measure
the performance of each loan program
described in paragraph (1); and
(II) reducing loss rates for and
improving the performance of each
such loan program.
(B) SUBMISSION TO THE CONGRESS.—Not
later than June 30, 1997, the Administrator
shall submit the report prepared under sub-
paragraph (A) to the Committees on Small
Business of the House of Representatives and
the Senate. The Administrator shall append his
comments, and those of the Office of Manage-
ment and Budget, if any, to the report.
SEC. 104. DISASTER LOANS.
(a) PRIVATE SECTOR LOAN SERVICING DEM-
ONSTRATION PROGRAM.—
(1) IN GENERAL.—
(A) 
DEMONSTRATION
PROGRAM
RE-
QUIRED.—Notwithstanding any other provision
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of law, the Administration shall conduct a dem-
onstration program, within the parameters de-
scribed in paragraph (2), to evaluate the com-
parative costs and benefits of having the Ad-
ministration’s portfolio of disaster loans serv-
iced under contract rather than directly by em-
ployees of the Administration. All costs of the
demonstration program shall be paid from
amounts made available for the Salaries and
Expenses Account of the Administration.
(B) INITIATION DATE.—Not later than 90
days after the date of enactment of this Act,
the Administration shall issue a request for pro-
posals for the program parameters described in
paragraph (2).
(2) 
DEMONSTRATION
PROGRAM
PARAM-
ETERS.—
(A) LOAN SAMPLE.—The sample of loans
for the demonstration program shall be ran-
domly drawn from the Administration’s port-
folio of loans made pursuant to section 7(b) of
the Small Business Act and shall include a rep-
resentative group of not less than 30 percent of
all loans for residential properties, including 30
percent of all loans made during the demonstra-
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tion program after the date of enactment of
this Act, which loans shall be selected by the
Administration on the basis of geographic dis-
tribution and such other factors as the Admin-
istration determines to be appropriate.
(B)
CONTRACT AND OPTIONS.—The Ad-
ministration shall solicit and competitively
award one or more contracts to service the
loans included in the sample of loans described
in subparagraph (A) for a term of not less than
one year, with 3 one-year contract renewal op-
tions, each of which shall be exercised by the
Administration unless the Administration termi-
nates the contractor or contractors for good
cause.
(3) TERM OF DEMONSTRATION PROGRAM.—The
demonstration program shall commence not later
than October 1, 1997.
(4) REPORTS.—
(A) INTERIM
REPORTS.—Not later than
120 days before the expiration of the initial 4-
year contract performance period, the Adminis-
trator shall submit to the Committees on Small
Business of the House of Representatives and
the Senate an interim report on the conduct of
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the demonstration program. The contractor
shall be afforded a reasonable opportunity to
attach comments to each such report.
(B) FINAL REPORT.—Not later than 120
days after the termination of the demonstration
program, the Administrator shall submit to the
Committees on Small Business of the House of
Representatives and the Senate a final report
on the performance of the demonstration pro-
gram, together with the recommendations of the
Administrator for continuation, termination, or
modification of the demonstration program.
(b) DEFINITION OF DISASTER.—
(1) IN
GENERAL.—Section 3(k) (15 U.S.C.
632(k)) is amended by inserting ‘‘commercial fishery
failures or fishery resource disasters (as determined
by the Secretary of Commerce under section 308(b)
of the Interjurisdictional Fisheries Act of 1986),’’
after ‘‘tidal waves,’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall be effective with respect to
any disaster occurring on or after March 1, 1994.
SEC. 105. MICROLOAN DEMONSTRATION PROGRAM.
Section 7(m)(7)(B) (15 U.S.C. 636(m)(4)) is
amended by adding at the end the following: ‘‘If, how-
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ever, at the beginning of the fourth quarter of a fiscal
year the Administration determines that a portion of ap-
propriated microloan funds are unlikely to be awarded
during that year, the Administration may make addi-
tional funds available to a State in excess of 125 percent
of the pro rata share of that State.’’.
SEC. 106. SMALL BUSINESS DEVELOPMENT CENTER PRO-
GRAM.
(a) ASSOCIATE
ADMINISTRATOR
FOR
SMALL
BUSINESS DEVELOPMENT CENTERS.—
(1) DUTIES.—Section 21(h) (15 U.S.C. 648(h))
is amended to read as follows:
‘‘(h) ASSOCIATE
ADMINISTRATOR
FOR
SMALL
BUSINESS DEVELOPMENT CENTERS.—
‘‘(1) APPOINTMENT AND COMPENSATION.—The
Administrator shall appoint an Associate Adminis-
trator for Small Business Development Centers who
shall report to an official who is not more than one
level below the Office of the Administrator and who
shall serve without regard to the provisions of title
5, governing appointments in the competitive service,
and without regard to chapter 51, and subchapter
III of chapter 53 of such title relating to classifica-
tion and General Schedule pay rates, but at a rate
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not less than the rate of GS–17 of the General
Schedule.
‘‘(2) DUTIES.—
‘‘(A) IN GENERAL.—The sole responsibility
of the Associate Administrator for Small Busi-
ness Development Centers shall be to admin-
ister the small business development center pro-
gram. Duties of the position shall include rec-
ommending the annual program budget, review-
ing the annual budgets submitted by each appli-
cant, establishing appropriate funding levels
therefore, selecting applicants to participate in
this program, implementing the provisions of
this section, maintaining a clearinghouse to pro-
vide for the dissemination and exchange of in-
formation between small business development
centers and conducting audits of recipients of
grants under this section.
‘‘(B) CONSULTATION REQUIREMENTS.—In
carrying out the duties described in this sub-
section, the Associate Administrator shall con-
fer with and seek the advice of the Board estab-
lished by subsection (i) and Administration offi-
cials in areas served by the small business de-
velopment centers; however, the Associate Ad-
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ministrator shall be responsible for the manage-
ment and administration of the program and
shall not be subject to the approval or concur-
rence of such Administration officials.’’.
(2) REFERENCES
TO
ASSOCIATE
ADMINIS-
TRATOR.—Section 21 (15 U.S.C. 648) is amended—
(A) in subsection (c)(7), by striking ‘‘Dep-
uty Associate Administrator of the Small Busi-
ness Development Center program’’ and insert-
ing ‘‘Associate Administrator for Small Busi-
ness Development Centers’’; and
(B) in subsection (i)(2), by striking ‘‘Dep-
uty Associate Administrator for Management
Assistance’’ and inserting ‘‘Associate Adminis-
trator for Small Business Development Cen-
ters’’.
(b) EXTENSION OR RENEWAL OF COOPERATIVE
AGREEMENTS.—Section 21(k)(3) (15 U.S.C. 648(k)(3))
is amended to read as follows:
‘‘(3) EXTENSION OR RENEWAL OF COOPERA-
TIVE AGREEMENTS.—
‘‘(A) IN
GENERAL.—In extending or re-
newing a cooperative agreement of a small busi-
ness development center, the Administration
shall consider the results of the examination
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and certification program conducted pursuant
to paragraphs (1) and (2).
‘‘(B) 
CERTIFICATION
REQUIREMENT.—
After September 30, 2000, the Administration
may not renew or extend any cooperative agree-
ment with a small business development center
unless the center has been approved under the
certification program conducted pursuant to
this subsection, except that the Associate Ad-
ministrator for Small Business Development
Centers may waive such certification require-
ment, in the discretion of the Associate Admin-
istrator, upon a showing that the center is mak-
ing a good faith effort to obtain certification.’’.
(c) TECHNICAL CORRECTION.—Section 21(l) (15
U.S.C. 648(l)) is amended to read as follows:
‘‘(l) CONTRACT AUTHORITY.—The authority to
enter into contracts shall be in effect for each fiscal year
only to the extent and in the amounts as are provided in
advance in appropriations Acts. After the administration
has entered a contract, either as a grant or a cooperative
agreement, with any applicant under this section, it shall
not suspend, terminate, or fail to renew or extend any
such contract unless the Administration provides the ap-
plicant with written notification setting forth the reasons
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therefore and affording the applicant an opportunity for
a hearing, appeal, or other administrative proceeding
under the provisions of chapter 5 of title 5, United States
Code.’’.
SEC. 107. MISCELLANEOUS AUTHORITIES TO PROVIDE
LOANS AND OTHER FINANCIAL ASSISTANCE.
(a) FUNDING LIMITATION; SEMINARS.—Section
7(d) (15 U.S.C. 636(d)) is amended—
(1) by striking ‘‘(d)(1)’’ and inserting ‘‘(d)’’;
and
(2) by striking paragraph (2).
(b) TRADE ADJUSTMENT LOANS.—Section 7(e)
(15 U.S.C. 636(e)) is amended to read as follows:
‘‘(e) [RESERVED].’’.
(c) WAIVER OF CREDIT ELSEWHERE TEST FOR
COLLEGES AND UNIVERSITIES.—Section 7(f) (15 U.S.C.
636(f)) is amended to read as follows:
‘‘(f) [RESERVED].’’.
(d) LOANS TO SMALL BUSINESS CONCERNS FOR
SOLAR ENERGY
AND ENERGY CONSERVATION MEAS-
URES.—Section 7(l) (15 U.S.C. 636(l)) is amended to
read as follows:
‘‘(l) [RESERVED].’’.
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SEC. 
108. 
SMALL 
BUSINESS 
COMPETITIVENESS 
DEM-
ONSTRATION PROGRAM.
(a) EXTENSION OF DEMONSTRATION PROGRAM.—
(1) IN GENERAL.—Section 711(c) of the Small
Business Competitiveness Demonstration Program
Act of 1988 (15 U.S.C. 644 note; 102 Stat. 3890)
is amended by striking ‘‘September 30, 1996’’ and
inserting ‘‘September 30, 1997’’.
(2) REPEAL.—Section 717(f) of the Small
Business Competitiveness Demonstration Program
Act of 1988 (15 U.S.C. 644 note) is repealed.
(b) REPORTING OF SUBCONTRACT PARTICIPATION
IN CONTRACTS FOR ARCHITECTURAL AND ENGINEERING
SERVICES.—Section 714(b)(5) of the Small Business
Competitiveness Demonstration Program Act of 1988 (15
U.S.C. 644 note; 102 Stat. 3892) is amended to read as
follows:
‘‘(5) DURATION.—The system described in sub-
section (a) shall be established not later than Octo-
ber 1, 1996 (or as soon as practicable thereafter on
the first day of a subsequent quarter of fiscal year
1997), and shall terminate on September 30,
1997.’’.
(c) REPORTS TO THE CONGRESS.—
(1) IN GENERAL.—Section 716 of the Small
Business Competitiveness Demonstration Program
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(b) CLERICAL AMENDMENT.—The table of con-
tents for the Small Business Guaranteed Credit Enhance-
ment Act of 1993 (Public Law 103–81; 15 U.S.C. 631
note) is amended by striking the item relating to section
7.
SEC. 110. STTR PROGRAM EXTENSION.
Section 9(n)(1)(C) (15 U.S.C. 638(n)(1)(C)) is
amended by striking ‘‘fiscal year 1996’’ and inserting
‘‘fiscal years 1996 and 1997’’.
SEC. 111. LEVEL OF PARTICIPATION FOR EXPORT WORK-
ING CAPITAL LOANS.
Section 7(A)(2) (15 U.S.C. 636(A)(2)) is amend-
ed by adding at the end the following:
‘‘(D) 
PARTICIPATION
UNDER
EXPORT
WORKING CAPITAL PROGRAM.—Notwithstanding
subparagraph (A), in an agreement to partici-
pate in a loan on a deferred basis under the
Export Working Capital Program established
pursuant to paragraph (14)(A), such participa-
tion by the Administration shall not exceed 90
percent.’’.
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TITLE 
II—AMENDMENTS 
TO
SMALL 
BUSINESS 
INVEST-
MENT ACT
SEC. 201. REFERENCES.
Except as otherwise expressly provided, whenever
in this title an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or
other provision, the reference shall be considered to be
made to a section or other provision of the Small Busi-
ness Investment Act of 1958 (15 U.S.C. 661 et seq.).
SEC. 202. MODIFICATIONS TO DEVELOPMENT COMPANY
DEBENTURE PROGRAM.
(a) DECREASED LOAN TO VALUE RATIOS.—Sec-
tion 502(3) (15 U.S.C. 696(3)) is amended to read as
follows:
‘‘(3) CRITERIA FOR ASSISTANCE.—
‘‘(A) IN GENERAL.—Any development com-
pany assisted under this section or section 503
of this title must meet the criteria established
by the Administration, including the extent of
participation to be required or amount of paid-
in capital to be used in each instance as is de-
termined to be reasonable by the Administra-
tion.
‘‘(B) COMMUNITY INJECTION FUNDS.—
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‘‘(i) SOURCES
OF
FUNDS.—Commu-
nity injection funds may be derived, in
whole or in part, from—
‘‘(I) State or local governments;
‘‘(II) banks or other financial in-
stitutions;
‘‘(III) foundations or other not-
for-profit institutions; or
‘‘(IV) the small business concern
(or its owners, stockholders, or affili-
ates) receiving assistance through a
body authorized by this title.
‘‘(ii) 
FUNDING
FROM
INSTITU-
TIONS.—Not less than 50 percent of the
total cost of any project financed pursuant
to clauses (i), (ii), or (iii) of subparagraph
(C) shall come from the institutions de-
scribed in subclauses (I), (II), and (III) of
clause (i).
‘‘(C) FUNDING FROM A SMALL BUSINESS
CONCERN.—The small business concern (or its
owners, stockholders, or affiliates) receiving as-
sistance through a body authorized by this title
shall provide—
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‘‘(i) at least 15 percent of the total
cost of the project financed, if the small
business concern has been in operation for
a period of 2 years or less;
‘‘(ii) at least 15 percent of the total
cost of the project financed if the project
involves the construction of a limited or
single purpose building or structure;
‘‘(iii) at least 20 percent of the total
cost of the project financed if the project
involves both of the conditions set forth in
clauses (i) and (ii); or
‘‘(iv) at least 10 percent of the total
cost of the project financed, in all other
circumstances, at the discretion of the de-
velopment company.’’.
(b) GUARANTEE FEE FOR DEVELOPMENT COM-
PANY DEBENTURES.—Section 503(b)(7)(A) (15 U.S.C.
697(b)(7)(A)) is amended by striking ‘‘equal to 0.125
percent’’ and all that follows before the semicolon and in-
serting the following: ‘‘equal to the lesser of—
‘‘(i) 0.9375 percent per year of the
outstanding balance of the loan; or
‘‘(ii) such percentage per year of the
outstanding balance of the loan as the Ad-
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ministrator may determine to be necessary
to reduce the cost (as that term is defined
in section 502 of the Federal Credit Re-
form Act of 1990) to the Administration of
purchasing and guaranteeing debentures
under this Act to an amount that, taking
into consideration any available appro-
priated funds, would permit the Adminis-
tration 
to 
purchase 
or 
guarantee
$2,000,000,000 of debentures in fiscal
year 1997’’.
(c) FEES TO OFFSET SUBSIDY COST.—Section
503(d) (15 U.S.C. 697(d)) is amended to read as follows:
‘‘(d) 
CHARGES
FOR
ADMINISTRATION
EX-
PENSES.—
‘‘(1) LEVEL OF CHARGES.—The Administration
may impose an additional charge for administrative
expenses with respect to each debenture for which
payment of principal and interest is guaranteed
under subsection (a).
‘‘(2) PARTICIPATION FEE.—The Administration
shall collect a one-time fee in an amount equal to 50
basis points on the total participation in any project
of any institution described in subclause (I), (II), or
(III) of section 502(3)(B)(i). Such fee shall be im-
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posed only when the participation of the institution
will occupy a senior credit position to that of the de-
velopment company. All proceeds of the fee shall be
used to offset the cost (as that term is defined in
section 502 of the Credit Reform Act of 1990) to
the Administration of making guarantees under sub-
section (a).
‘‘(3) DEVELOPMENT COMPANY FEE.—The Ad-
ministration shall collect annually from each devel-
opment company a fee of 0.125 percent of the out-
standing principal balance of any guaranteed deben-
ture authorized by the Administration after Septem-
ber 30, 1996. Such fee shall be derived from the
servicing fees collected by the development company
pursuant to regulation, and shall not be derived
from any additional fees imposed on small business
concerns. All proceeds of the fee shall be used to off-
set the cost (as that term is defined in section 502
of the Credit Reform Act of 1990) to the Adminis-
tration of making guarantees under subsection (a).’’.
(d) EFFECTIVE DATE.—Section 503 (15 U.S.C.
697) is amended by adding at the end the following new
subsection:
‘‘(f) EFFECTIVE DATE.—The fees authorized by
subsections (b) and (c) shall apply to financings approved
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by the Administration on or after October 1, 1996, but
shall not apply to financings approved by the Administra-
tion on or after October 1, 1997.’’.
(e) CALCULATION
OF SUBSIDY RATE.—Section
503 (15 U.S.C. 697a) is amended by adding at the end
the following new subsection:
‘‘(g) 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 under this Act.’’.
SEC. 203. REQUIRED ACTIONS UPON DEFAULT.
Section 503 (15 U.S.C. 697) is amended by add-
ing at the end the following new subsection:
‘‘(h) REQUIRED ACTIONS UPON DEFAULT.—
‘‘(1) INITIAL
ACTIONS.—Not later than the
45th day after the date on which a payment on a
loan funded through a debenture guaranteed under
this section is due and not received, the Administra-
tion shall—
‘‘(A) take all necessary steps to bring such
a loan current; or
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‘‘(B) implement a formal written deferral
agreement.
‘‘(2) PURCHASE OR ACCELERATION OF DEBEN-
TURE.—Not later than the 65th day after the date
on which a payment on a loan described in para-
graph (1) is due and not received, and absent a for-
mal written deferral agreement, the administration
shall take all necessary steps to purchase or acceler-
ate the debenture.
‘‘(3) PREPAYMENT PENALTIES.—With respect
to the portion of any project derived from funds set
forth in section 502(3), the Administration—
‘‘(A) shall negotiate the elimination of any
prepayment penalties or late fees on defaulted
loans made prior to September 30, 1996;
‘‘(B) shall not pay any prepayment penalty
or late fee on the default based purchase of
loans issued after September 30, 1996; and
‘‘(C) for any project financed after Sep-
tember 30, 1996, shall not pay any default in-
terest rate higher than the interest rate on the
note prior to the date of default.’’.
SEC. 204. LOAN LIQUIDATION PILOT PROGRAM.
(a) IN GENERAL.—The Administrator shall carry
out a loan liquidation pilot program (in this section re-
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ferred to as the ‘‘pilot program’’) in accordance with the
requirements of this section.
(b) SELECTION OF DEVELOPMENT COMPANIES.—
(1) IN GENERAL.—Not later than 90 days after
the date of the enactment of this Act, the Adminis-
trator shall establish a pilot program under which
certain development companies authorized to make
loans and issue debentures under title V of the
Small Business Investment Act of 1958 are selected
by the Administrator in accordance with this sub-
section to carry out loan liquidations.
(2) CONFLICTS
OF
INTEREST.—The develop-
ment companies selected under paragraph (1) shall
agree not to take any action that would create a po-
tential conflict of interest involving the development
company, the third party lender, or an associate of
the third party lender.
(3) QUALIFICATIONS.—In order to qualify to
participate in the pilot program under this section,
each development company shall—
(A) have not less than 6 years of experi-
ence in the program established by title V of
the Small Business Investment Act of 1958;
(B) have made, during the 6 most recent
fiscal years, an average of not less than 10
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loans per year through the program established
by such title V of the Small Business Invest-
ment Act of 1958;
(C) have not less than 2 years of experi-
ence in liquidating loans under the authority of
a Federal, State, or other lending program; and
(D) meet such other requirements as the
Administration may establish.
(c) AUTHORITY OF DEVELOPMENT COMPANIES.—
The development companies selected under subsection (b)
shall, for loans in their portfolio of loans made through
debentures guaranteed under title V of the Small Busi-
ness Investment Act of 1958 that are in default after the
date of enactment of this Act, be authorized to—
(1) perform all liquidation and foreclosure func-
tions, including the acceleration or purchase of com-
munity injection funds, subject to such company ob-
taining prior written approval from the Adminis-
trator before committing the agency to purchase any
other indebtedness secured by the property: Pro-
vided, That the Administrator shall approve or deny
a request for such purchase within a period of 10
business days; and
(2) liquidate such loans in a reasonable and
sound manner and according to commercially accept-
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ed practices pursuant to a liquidation plan approved
by the Administrator in advance of its implementa-
tion. If the Administrator does not approve or deny
a request for approval of a liquidation plan within
10 business days of the date on which the request
is made (or with respect to any routine liquidation
activity under such a plan, within 5 business days)
such request shall be deemed to be approved.
(d) AUTHORITY
OF
THE ADMINISTRATOR.—In
carrying out the pilot program, the Administrator shall—
(1) have full authority to rescind the authority
granted any development company under this section
upon a 10-day written notice stating the reasons for
the rescission; and
(2) not later than 90 days after the admission
of the development companies specified in subsection
(b), implement the pilot program.
(e) REPORT.—
(1) IN
GENERAL.—The Administrator shall
issue a report on the results of the pilot program to
the Committees on Small Business of the House of
Representatives and the Senate. The report shall in-
clude information relating to—
(A) the total dollar amount of each loan
and project liquidated;
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(B) the total dollar amount guaranteed by
the Administration;
(C) total dollar losses;
(D) total recoveries both as percentage of
the amount guaranteed and the total cost of the
project; and
(E) a comparison of the pilot program in-
formation with the same information for liq-
uidation conducted outside the pilot program
over the period of time.
(2) REPORTING PERIOD.—The report shall be
based on data from, and issued not later than 90
days after the close of, the first eight fiscal quarters
of the pilot program’s operation after the date of im-
plementation.
SEC. 205. REGISTRATION OF CERTIFICATES.
(a) CERTIFICATES SOLD PURSUANT
TO SMALL
BUSINESS ACT.—Section 5(h) of the Small Business Act
(15 U.S.C. 634(h)) is amended—
(1) by redesignating paragraphs (1) through
(4) as subparagraphs (A) through (D);
(2) by striking ‘‘(h)’’ and inserting ‘‘(h)(1)’’;
(3) by striking subparagraph (A), as redesig-
nated by paragraph (1) of this subsection, and in-
serting the following:
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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