433 
but if on disposition there is no realized gain, the obligation 
to pay accrued and unpaid prioritized payments shall be ex-
tinguished. 
(ii) LIMITATION.—Between the date on which a partici-
pating security is redeemed and the date on which the li-
censee has paid all accrued prioritized payments in full and 
has sold or otherwise disposed of all investments subject to 
profit distributions, the licensee shall not make any in-kind 
distributions of such investments unless the licensee pays to 
the Administrator such sums, up to the amount of the unreal-
ized appreciation on such investments, as are necessary to 
pay in full the accrued prioritized payments. 
(5) PRIORITIZED
PAYMENTS.—Prioritized payments on a partici-
pating security shall be preferred and cumulative and payable out of 
the retained earnings available for distribution (as defined by the Ad-
ministrator) of the issuing licensee at— 
(A) a rate determined by the Secretary of the Treasury taking 
into consideration the current average market yield on outstanding 
marketable obligations of the United States with remaining peri-
ods to maturity comparable to the average maturities on such se-
curities, adjusted to the nearest 0.125 percent; plus 
(B) in the case of a participating security obligated after Sep-
tember 30, 2001, an additional charge, in an amount established 
annually by the Administrator, as necessary to reduce to zero the 
cost (as defined in section 502 of the Federal Credit Reform Act 
of 1990 (2 U.S.C. 661a)) to the Administrator of purchasing and 
guaranteeing participating securities under this chapter, which 
amount may not exceed 1.46 percent per year, and which shall be 
paid to and retained by the Administrator. 
(6) SENIORITY OF PARTICIPATING SECURITIES ON LIQUIDATION OF 
LICENSEE.—In the event of liquidation of a licensee, a participating se-
curity issued by the licensee shall be senior in priority for all purposes 
to any other equity interest in the licensee without regard to whether 
the participating security was issued before, on, or after the date on 
which the other equity interest was issued. 
(7) INVESTMENT IN EQUITY CAPITAL.—A licensee that issues a par-
ticipating security shall commit to invest or shall invest an amount 
equal to the outstanding face value of the participating security solely 
in equity capital. 
(8) LIMITATION ON AMOUNT OF DEBT.—The only debt (other than 
leverage obtained under this chapter) that a licensee that issues a par-
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434 
ticipating security may have outstanding shall be temporary debt in an 
amount that is equal to not more than 50 percent of the amount of 
private capital of the licensee. 
(9) USE OF PROCEEDS TO PAY PRINCIPAL ON DEBENTURES.—The 
Administrator may permit the proceeds of a participating security 
issued by a licensee to be used to pay the principal amount due on an 
outstanding debenture guaranteed by the Administrator if— 
(A) the licensee has outstanding equity capital invested in an 
amount equal to the amount of the debenture being refinanced; 
and 
(B) the Administrator receives profit participation on such 
terms and conditions as the Administrator may determine, but not 
to exceed the percentages specified in paragraph (11). 
(10) DISTRIBUTIONS; RETURN OF CAPITAL.— 
(A) DISTRIBUTIONS TO PARTNERS, SHAREHOLDERS, AND MEM-
BERS.— 
(i) ANNUAL
DISTRIBUTIONS.—Notwithstanding subpara-
graph (B), if a licensee is operating as a limited partnership 
or as a subchapter S corporation or an equivalent pass- 
through entity for tax purposes and if there are no accumu-
lated and unpaid prioritized payments, the licensee may make 
annual distributions to the partners, shareholders, or mem-
bers in amounts not greater than each partner’s, share-
holder’s, or member’s maximum tax liability. 
(ii) INTERIM DISTRIBUTIONS.—In addition to an annual 
distribution, a licensee may make a distribution under this 
subparagraph at any time during any calendar quarter based 
on an estimate of the maximum tax liability. 
(iii) EXCESS
DISTRIBUTION.—If a licensee makes 1 or 
more interim distributions for a calendar year, and the aggre-
gate amount of those distributions exceeds the maximum 
amount that the licensee could have distributed based on a 
single annual computation, any subsequent distribution by the 
licensee under this subparagraph shall be reduced by an 
amount equal to the excess amount distributed. 
(B) DISTRIBUTIONS
TO
INVESTORS.—After making any dis-
tributions as provided in subparagraph (A), a licensee with partici-
pating securities outstanding may distribute the balance of income 
to its investors (including the Administrator, in the percentages 
specified in paragraph (11)) if there are no accumulated and un-
paid prioritized payments and if all amounts due the Adminis-
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435 
trator under paragraph (11) have been paid in full, subject to the 
following conditions: 
(i) As of the date of the proposed distribution, if the 
amount of leverage outstanding is more than 200 percent of 
the amount of private capital, any amounts distributed shall 
be made to private investors and to the Administrator in the 
ratio of leverage to private capital. 
(ii) As of the date of the proposed distribution, if the 
amount of leverage outstanding is more than 100 percent but 
not more than 200 percent of the amount of private capital, 
50 percent of any amounts distributed shall be made to the 
Administrator and 50 percent shall be made to the private in-
vestors. 
(iii) If the amount of leverage outstanding is 100 percent, 
or less, of the amount of private capital, the ratio shall be 
that for distribution of profits as provided in paragraph (11). 
(iv) Any amount received by the Administrator under 
clause (i) or (ii) shall be applied 1st as profit participation 
as provided in paragraph (11), and any remainder shall be 
applied as a prepayment of the principal amount of the par-
ticipating securities or debentures. 
(C) RETURN OF CAPITAL TO INVESTORS.— 
(i) IN GENERAL.—After making any distributions under 
subparagraph (A), a licensee with participating securities out-
standing may return capital to its investors (including the 
Administrator) if there are no accumulated and unpaid 
prioritized payments and if all amounts due the Adminis-
trator under paragraph (11) have been paid in full. 
(ii) RATIO.—Except as provided in clause (iii), any dis-
tribution under this subparagraph shall be made to private 
investors and to the Administrator in the ratio of private cap-
ital to leverage as of the date of the proposed distribution. 
(iii) NO REQUIRED DISTRIBUTION TO ADMINISTRATOR.—If 
a licensee’s amount of leverage outstanding is less than 50 
percent of the amount of private capital or $10,000,000, 
whichever is less, no distribution shall be required to be made 
to the Administrator unless the Administrator determines, on 
a case by case basis, to require a distribution to the Adminis-
trator to reduce the amount of outstanding leverage to an 
amount less than $10,000,000. 
(11) ADMINISTRATOR’S PROFIT PARTICIPATION.— 
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436 
(A) IN GENERAL.—A licensee that issues participating securities 
shall agree to allocate to the Administrator a share of its profits 
determined by the relationship of its private capital to the amount 
of participating securities guaranteed by the Administrator in ac-
cordance with the following: 
(i) If the total amount of participating securities is 100 
percent of private capital or less, the licensee shall allocate to 
the Administrator a percentage share computed as— 
(I) the amount of participating securities; divided by 
(II) the amount of private capital; multiplied by 
(III) 9 percent. 
(ii) If the total amount of participating securities is more 
than 100 percent but not greater than 200 percent of private 
capital, the licensee shall allocate to the Administrator a per-
centage share computed as— 
(I) 9 percent; plus 
(II) 3 percent of— 
(aa) the amount of participating securities minus 
the amount of private capital; divided by 
(bb) the amount of private capital. 
(B) MANAGEMENT
EXPENSES.—For purposes of computing 
profit participation under this paragraph, except as otherwise de-
termined by the Administrator, the management expenses of a li-
censee that issues participating securities shall not be greater than 
2.5 percent per year of the combined capital of the company, plus 
$125,000 if the licensee’s combined capital is less than 
$20,000,000. 
(C) MAXIMUM PERCENTAGE.— 
(i) IN GENERAL.—Notwithstanding any other provision of 
this paragraph, unless required by operation of clause (ii), the 
total percentage required by this paragraph shall not exceed 
12 percent. 
(ii) ADJUSTMENT.—If, on the date on which a partici-
pating security is marketed, the interest rate on Treasury 
bonds with a maturity of 10 years is a rate other than 8 per-
cent, the Administrator shall adjust the rate specified in sub-
paragraph (A), either higher or lower, by the same percentage 
by which the Treasury bond rate is higher or lower than 8 
percent. 
(D) EFFECT OF PARAGRAPH.—This paragraph does not create 
any ownership interest of the Administrator in a licensee. 
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437 
(12) IN-KIND DISTRIBUTIONS.— 
(A) IN GENERAL.—A licensee may make an in-kind distribution 
of securities only if the securities are publicly traded and market-
able. 
(B) ADMINISTRATOR’S SHARE.— 
(i) IN GENERAL.—A licensee shall deposit the Administra-
tor’s share of an in-kind distribution of securities for disposi-
tion with a trustee designated by the Administrator, or, at 
the option of the Administrator and with the agreement of 
the licensee, the Administrator may direct the licensee to re-
tain the Administrator’s share. 
(ii) TRUSTEE.—A trustee designated by the Administrator 
under clause (i) shall be a person that is knowledgeable about 
and proficient in the marketing of thinly traded securities. 
(iii) SALE.—If the licensee retains the Administrator’s 
share, the licensee shall sell the Administrator’s share and 
promptly remit the proceeds to the Administrator. 
(13) ADDITIONAL RESTRICTIONS AND LIMITATIONS.—Participating 
securities guaranteed under this subsection shall be subject to such re-
strictions and limitations, in addition to restrictions and limitations 
specified in this subsection, as the Administrator may determine. 
(h) COMPUTATION OF AMOUNTS DUE UNDER PARTICIPATING SECURI-
TIES.—The computation of amounts due the Administrator under partici-
pating securities shall be subject to the following terms and conditions: 
(1) The formula in subsection (g)(11) shall be computed annually, 
and the Administrator shall receive distributions of the Administrator’s 
profit participation at the same time as other investors in a licensee. 
(2) The formula shall not be modified due to an increase in the pri-
vate capital unless the increase is provided for in a proposed business 
plan submitted to and approved by the Administrator. 
(3) After a distribution is made, the Administrator’s share of the 
distribution shall not be recomputed or reduced. 
(4) If a licensee prepays or repays a participating security, the Ad-
ministrator shall receive the requisite participation on the distribution 
of profits due to any investments held by the licensee on the date of 
the prepayment or repayment. 
(5) A licensee that was licensed on or before March 31, 1993, may 
exclude from profit participation all investments held on that date. If 
such a licensee does so, the Administrator shall determine the amount 
of the future expenses attributable to the prior investment. If the li-
censee issues participating securities to refinance debentures as author-
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438 
ized in subsection (g)(9), the licensee may not exclude profits on exist-
ing investments under this paragraph. 
(i) LEVERAGE FEE.—With respect to leverage granted by the Adminis-
trator to a licensee, the Administrator shall collect from the licensee a non-
refundable fee in an amount equal to 3 percent of the face amount of the 
leverage in the following manner: 
(1) 1 percent on the date on which the Administrator enters into a 
commitment for leverage with the licensee. 
(2) The balance of 2 percent (or 3 percent if no commitment has 
been entered into by the Administrator) on the date on which the lever-
age is drawn by the licensee. 
(j) CALCULATION OF SUBSIDY RATE.—All fees, interest, and profits re-
ceived and retained by the Administrator under this section shall be in-
cluded in the calculations made by the Director of the Office of Manage-
ment and Budget to offset the cost (as defined in section 502 of the Federal 
Credit Reform Act of 1990 (2 U.S.C. 661a)) to the Administrator of pur-
chasing and guaranteeing debentures and participating securities under this 
chapter. 
(k) PERIODIC ISSUANCE
OF GUARANTEES.—The Administrator shall 
issue guarantees under this section— 
(1) at periodic intervals of not less than every 12 months; and 
(2) at such shorter intervals as the Administrator considers appro-
priate, taking into consideration the amount and number of guarantees. 
(l) ENERGY SAVING DEBENTURES.—In addition to any other authority 
under this subtitle, a small business investment company licensed in fiscal 
year 2009 or any fiscal year thereafter may issue energy saving debentures. 
§ 303105. Equity capital for small business concerns 
(a) FUNCTION OF LICENSEES.—It shall be a function of a licensee to pro-
vide a source of equity capital for small business concerns in such manner 
and under such terms as the licensee may determine in accordance with the 
regulations of the Administrator. 
(b) CONDITIONS.—Before a licensee provides any capital to a small busi-
ness concern under this section— 
(1) the licensee may require the small business concern to refinance 
any or all of its outstanding indebtedness so that the licensee is the 
only holder of any evidence of indebtedness of the small business con-
cern; and 
(2) except as provided in regulations issued by the Administrator, 
the small business concern shall agree that the small business concern 
will not thereafter incur any indebtedness without first securing the ap-
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439 
proval of the licensee and giving the licensee the 1st opportunity to fi-
nance the indebtedness. 
(c) DIRECT OR COOPERATIVE PROVISION OF CAPITAL.—Equity capital 
provided to an incorporated small business concern under this section may 
be provided directly or in cooperation with other investors, incorporated or 
unincorporated, through agreements to participate on an immediate basis. 
§ 303106. Long-term loans to small business concerns 
(a) AUTHORIZATION.—A licensee may make a loan, in the manner and 
subject to the conditions described in this section, to a small business con-
cern to provide the small business concern with funds needed for sound fi-
nancing, growth, modernization, and expansion. 
(b) DIRECT LOANS; LOANS ON PARTICIPATION BASIS.—A loan made 
under this section may be made directly or in cooperation with 1 or more 
other lenders through an agreement to participate on an immediate or de-
ferred basis. 
(c) MAXIMUM RATE OF INTEREST.— 
(1) IN GENERAL.—The maximum rate of interest for a licensee’s 
share of a loan made under this section shall be determined by the Ad-
ministrator. 
(2) BASIS OF MAXIMUM RATE.—The Administrator shall permit a li-
censee that has issued debentures under this chapter to charge a max-
imum rate of interest based on— 
(A) the coupon rate of interest on the outstanding debentures, 
determined on an annual basis; plus 
(B) such other expenses of the licensee as may be approved by 
the Administrator. 
(d) MATURITY.—A loan made under this section shall have a maturity 
not exceeding 20 years. 
(e) SOUNDNESS OF LOAN; SECURITY.—A loan made under this section 
shall be of such sound value, or so secured, as reasonably to ensure repay-
ment. 
(f) EXTENSION OR RENEWAL.—A licensee that has made a loan to a 
small business concern under this section may extend the maturity of or 
renew the loan for additional periods, not exceeding 10 years, if the licensee 
finds that the extension or renewal will aid in the orderly liquidation of the 
loan. 
§ 303107. Limitation on amount of financing 
If a licensee has obtained financing from the Administrator and the fi-
nancing remains outstanding, the aggregate amount of obligations and secu-
rities acquired and for which commitments may be issued by the licensee 
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440 
under this chapter for any single small business concern shall not, without 
the approval of the Administrator, exceed 10 percent of the sum of— 
(1) the private capital of the licensee; and 
(2) the total amount of leverage projected by the licensee in the li-
censee’s business plan that was approved by the Administrator at the 
time of the grant of the licensee’s license. 
§ 303108. Cooperation with banks and other investors or 
lenders 
(a) IN GENERAL.—Under any circumstances in which it is practicable, 
the operations of a licensee (including the generation of business) may be 
undertaken in cooperation with banks or other investors or lenders, and any 
servicing or initial investigation required for loans or acquisitions of securi-
ties by the licensee under this chapter may be handled through such banks 
or other investors or lenders on a fee basis. 
(b) FEES.—A licensee may receive fees for services rendered to banks and 
other investors and lenders. 
§ 303109. Advisory services; Federal Reserve Banks as de-
positories or fiscal agents; investment of funds 
(a) ADVISORY SERVICES.—A licensee, under any circumstances in which 
it is practicable, may— 
(1) use the advisory services of the Federal Reserve System and of 
the Department of Commerce that are available for and useful to in-
dustrial and commercial businesses; and 
(2) provide consulting and advisory services on a fee basis and have 
on its staff persons competent to provide such services. 
(b) FEDERAL RESERVE BANK AS DEPOSITORY OR FISCAL AGENT.—A 
Federal Reserve bank may act as a depository or fiscal agent for a licensee. 
(c) INVESTMENT OF FUNDS.—A licensee that was licensed before October 
1, 2004, and has outstanding financings may invest funds not needed for 
its operations— 
(1) in direct obligations of, or obligations guaranteed as to principal 
and interest by, the United States; 
(2) in certificates of deposit or other accounts of federally insured 
banks or other federally insured depository institutions, if the certifi-
cates or other accounts mature or are otherwise fully available not 
more than 1 year after the date of the investment; or 
(3) in mutual funds, securities, or other instruments that consist of, 
or represent pooled assets of, investments described in paragraph (1) 
or (2). 
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§ 303110. Nonliability of the United States 
Except as expressly provided otherwise in this subtitle, nothing in this 
subtitle or in any other provision of law shall be deemed to impose any li-
ability on the United States with respect to any obligation entered into, or 
stocks issued, or commitments made, by a licensee. 
§ 303111. Certifications of eligibility 
(a) CERTIFICATION BY SMALL BUSINESS CONCERN.—Before receiving fi-
nancial assistance from a licensee, a small business concern shall certify in 
writing that the small business concern meets the applicable eligibility re-
quirements of this chapter. 
(b) CERTIFICATION BY LICENSEE.—Before providing financial assistance 
to a small business concern under this chapter, a licensee shall certify in 
writing that— 
(1) the licensee has reviewed the application for assistance of the 
small business concern; and 
(2) all documentation and other information supports the eligibility 
of the applicant. 
(c) RETENTION
OF CERTIFICATIONS.—A certificate made under sub-
section (a) or (b) shall be retained by a licensee for the duration of the fi-
nancial assistance covered by the certificate. 
§ 303112. Interest rates 
(a) DEFINITION OF INTEREST.—In this section: 
(1) IN GENERAL.—The term ‘‘interest’’ means the maximum manda-
tory sum, expressed in dollars or as a percentage rate, that is payable 
with respect to a business loan amount received by a small business 
concern. 
(2) EXCLUSION.—The term ‘‘interest’’ does not include the value, if 
any, of a contingent obligation (including a warrant, royalty, or conver-
sion right) granting a licensee an ownership interest in the equity or 
increased future revenue of a small business concern receiving the busi-
ness loan. 
(b) INTEREST RATE.—A licensee may charge interest on a loan at a rate 
that does not exceed the maximum rate prescribed by regulation by the Ad-
ministrator for loans made by any licensee (determined without regard to 
any State rate incorporated by the regulation). 
(c) PREEMPTION OF STATE LAW.—A State law (including a constitu-
tional provision) shall be preempted for purposes of subsection (a) with re-
spect to a loan if the loan is made— 
(1) before the date on which the State adopts a law, or certifies that 
the voters of the State have voted in favor of any provision, constitu-
tional or otherwise, that states explicitly and by its terms that the 
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