424 
(A) NO UNREASONABLE RISK OF DEFAULT OR LOSS.— 
(i) IN GENERAL.—The Administrator may, on a showing of 
special circumstances and good cause, permit the private cap-
ital of a company described in paragraph (1)(B) to be less 
than $10,000,000, but not less than $5,000,000, if the Ad-
ministrator determines that doing so would not create or oth-
erwise contribute to an unreasonable risk of default or loss 
to the Federal Government. 
(ii) COMPANIES LICENSED BEFORE SEPTEMBER 30, 1996.— 
The Administrator may approve leverage for a licensee li-
censed under subsection (c) or (d) of section 301 of the Small 
Business Investment Act of 1958 (15 U.S.C. 681(c), (d)) be-
fore September 30, 1996, that does not meet the require-
ments of paragraph (1) if— 
(I) the licensee certifies in writing that not less than 
50 percent of the aggregate dollar amount of its 
financings will be provided to smaller enterprises; and 
(II) the Administrator determines that doing so would 
not create or otherwise contribute to an unreasonable 
risk of default or loss to the Federal Government. 
(B) VIABLE BUSINESS PLAN AND REASONABLE TIMETABLE.— 
(i) IN GENERAL.—Notwithstanding any other provision of 
this chapter, the Administrator may, on a showing of special 
circumstances and good cause, issue a license with respect to 
a company that would otherwise be issued a license, except 
that the company does not satisfy the requirements of para-
graph (1), if the company— 
(I) has private capital of not less than $3,000,000; 
and 
(II) has a viable business plan reasonably projecting 
profitable operations and a reasonable timetable for 
achieving a level of private capital that satisfies the re-
quirements of paragraph (1). 
(ii) LEVERAGE.—A company that is licensed pursuant to 
the exception provided in clause (i) shall not be eligible to re-
ceive leverage as a licensee until the company satisfies the re-
quirements of paragraph (1). 
(3) ADEQUACY.—In addition to the requirements of paragraph (1), 
the Administrator shall— 
(A) determine whether the private capital of the company is 
adequate to ensure a reasonable prospect that the company will be 
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operated soundly and profitably and managed actively and pru-
dently in accordance with its articles; 
(B) determine that the company, both prior to licensing and 
prior to approving any request for financing, will be able to make 
periodic payments on any debt of the company that is interest- 
bearing; and 
(C) take into consideration— 
(i) the income that the company anticipates on its con-
templated investments; 
(ii) the experience of the company’s owners and managers; 
(iii) the history of the company as an entity, if any; and 
(iv) the company’s financial resources. 
(h) DIVERSIFICATION OF OWNERSHIP.—The Administrator shall ensure 
that the management of a licensee licensed after September 30, 1996, is 
sufficiently diversified from and unaffiliated with the ownership of the li-
censee in a manner that ensures independence and objectivity in the finan-
cial management and oversight of the investments and operations of the li-
censee. 
§ 303102. Licensing procedure 
(a) SUBMISSION OF APPLICATION.—An applicant for a license to operate 
as a small business investment company under this chapter shall submit to 
the Administrator an application, in such form and including such docu-
mentation as the Administrator may prescribe. 
(b) STATUS.—Not later than 90 days after receipt by the Administrator 
of an application under this section, the Administrator shall provide the ap-
plicant with a written report detailing the status of the application and any 
requirements remaining for completion of the application. 
(c) APPROVAL OR DISAPPROVAL.—Within a reasonable time after receiv-
ing a completed application submitted in accordance with this section (in-
cluding such requirements as the Administrator may prescribe by regula-
tion), the Administrator shall— 
(1) approve the application and issue a license to the applicant if the 
requirements of this section are satisfied; or 
(2) disapprove the application and notify the applicant in writing of 
the disapproval. 
(d) MATTERS TO BE CONSIDERED.—In reviewing and processing an ap-
plication under this section, the Administrator— 
(1) shall determine whether— 
(A) the applicant meets the requirements of subsections (g) and 
(h) of section 303101 of this title; and 
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426 
(B) the management of the applicant is qualified and has the 
knowledge, experience, and capability necessary to comply with 
this chapter; 
(2) shall take into consideration— 
(A) the need for and availability of financing for small business 
concerns in the geographic area in which the applicant is to com-
mence business; 
(B) the general business reputation of the owners and manage-
ment of the applicant; and 
(C) the probability of successful operations of the applicant, in-
cluding adequate profitability and financial soundness; and 
(3) shall not take into consideration any projected shortage or un-
availability of leverage. 
(e) FEES.— 
(1) IN GENERAL.—The Administrator may prescribe fees to be paid 
by an applicant for a license. 
(2) USE OF AMOUNTS.—Fees collected under this subsection— 
(A) shall be deposited in the account for salaries and expenses 
of SBA; and 
(B) are authorized to be appropriated solely to cover the costs 
of licensing examinations. 
§ 303103. Financial institution investments 
(a) CERTAIN BANKS.—Notwithstanding section 23A of the Federal Re-
serve Act (12 U.S.C. 371c), a national bank, or a member bank of the Fed-
eral Reserve System or nonmember insured bank to the extent permitted 
under applicable State law, may invest in 1 or more licensees, or in an enti-
ty established to invest solely in licensees, except that in no event shall the 
total amount of such investments of any such bank exceed 5 percent of the 
capital and surplus of the bank. 
(b) FEDERAL SAVINGS ASSOCIATIONS.—Notwithstanding any other provi-
sion of law, a Federal savings association may invest in 1 or more licensees, 
or in an entity established to invest solely in licensees, except that in no 
event shall the total amount of such investments by a Federal savings asso-
ciation exceed 5 percent of the capital and surplus of the Federal savings 
association. 
§ 303104. Borrowing power 
(a) AUTHORITY TO ISSUE OBLIGATIONS.—A licensee shall have authority 
to borrow money and to issue its securities, promissory notes, or other obli-
gations under such general conditions and subject to such limitations and 
regulations as the Administrator may prescribe. 
(b) DEBENTURES AND PARTICIPATING SECURITIES.— 
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(1) AUTHORITY TO PURCHASE OR GUARANTEE.—To encourage the 
formation and growth of small business investment companies, the Ad-
ministrator may, when authorized in an appropriation Act, purchase, 
or guarantee the timely payment of all principal and interest as sched-
uled on, debentures or participating securities issued by a licensee. 
(2) TERMS AND CONDITIONS.—A purchase or guarantee under para-
graph (1) may be made on such terms and conditions as the Adminis-
trator considers appropriate, under regulations prescribed by the Ad-
ministrator. 
(3) FULL FAITH AND CREDIT OF THE UNITED STATES.—The full 
faith and credit of the United States is pledged to the payment of all 
amounts that may be required to be paid under any guarantee under 
this subsection. 
(4) DEBENTURES.— 
(A) SUBORDINATION.—A debenture purchased or guaranteed by 
the Administrator under this subsection shall be subordinate to 
any other debenture bond, promissory note, or other debt or obli-
gation of a licensee, unless the Administrator, in the exercise of 
reasonable investment prudence and in consideration of the finan-
cial soundness of the licensee, determines otherwise. 
(B) TERM; INTEREST.—A debenture purchased or guaranteed 
by the Administrator under this subsection— 
(i) may be issued for a term of not to exceed 15 years; and 
(ii) shall bear interest at a rate not less than— 
(I) 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 periods to maturity com-
parable to the average maturities on such debentures, 
adjusted to the nearest 0.125 percent; plus 
(II) in the case of a debenture obligated after Sep-
tember 30, 2001, an additional charge in an amount es-
tablished 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 de-
bentures under this chapter, which amount— 
(aa) may not exceed 1.38 percent per year; and 
(bb) which shall be paid to and retained by the 
Administrator. 
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(5) OTHER TERMS AND CONDITIONS.—A debenture or participating 
security purchased or guaranteed under this subsection shall also con-
tain such other terms as the Administrator may determine. 
(6) TOTAL AMOUNT.—The total amount of debentures and partici-
pating securities of a licensee that may be guaranteed by the Adminis-
trator and outstanding shall not exceed 300 percent of the private cap-
ital of the licensee. 
(7) MAXIMUM LEVERAGE.— 
(A) IN GENERAL.—The maximum amount of outstanding lever-
age made available to any 1 licensee shall not exceed the lesser 
of— 
(i) 300 percent of the licensee’s private capital; or 
(ii) $150,000,000. 
(B) MULTIPLE
LICENSES
UNDER
COMMON
CONTROL.—The 
maximum amount of outstanding leverage made available to 2 or 
more licensees that are commonly controlled (as determined by the 
Administrator) and not under capital impairment shall not exceed 
$350,000,000. 
(C) INVESTMENTS IN LOW-INCOME GEOGRAPHIC AREAS.— 
(i) CALCULATION OF OUTSTANDING LEVERAGE.—In calcu-
lating the outstanding leverage of a licensee for the purposes 
of subparagraph (A), the Administrator shall not include the 
amount of the cost basis of any equity investment made by 
the licensee in a smaller enterprise located in a low-income 
geographic area, to the extent that the total of such amounts 
does not exceed 50 percent of the licensee’s private capital. 
(ii) MAXIMUM LEVERAGE.— 
(I) IN
GENERAL.—The maximum amount of out-
standing leverage made available to— 
(aa) any 1 licensee described in subclause (II) 
shall not exceed the lesser of— 
(AA) 300 percent of private capital of the li-
censee; or 
(BB) $175,000,000; and 
(bb) 2 or more licensees described in subclause 
(II) that are under common control (as determined 
by 
the 
Administrator) 
shall 
not 
exceed 
$250,000,000. 
(II) LICENSEES.—A licensee referred to in subclause 
(I) is a company that— 
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(aa) applies for and receives a license under sec-
tion 303102 of this title after September 30, 2009; 
and 
(bb) certifies in writing that not less than 50 per-
cent of the dollar amount of investments of the 
company shall be made in companies that are lo-
cated in a low-income geographic area. 
(D) INVESTMENTS IN ENERGY SAVING SMALL BUSINESSES.— 
(i) IN GENERAL.—Subject to clause (ii), in calculating the 
outstanding leverage of a company for purposes of subpara-
graph (A), the Administrator shall exclude the amount of the 
cost basis of any energy saving qualified investment in a 
smaller enterprise made in fiscal year 2009 or any fiscal year 
thereafter by a company licensed in the applicable fiscal year. 
(ii) LIMITATIONS.— 
(I) AMOUNT OF EXCLUSION.—The amount excluded 
under clause (i) for a company shall not exceed 33 per-
cent of the private capital of the company. 
(II) MAXIMUM INVESTMENT.—A company shall not 
make an energy saving qualified investment in any 1 en-
tity in an amount equal to more than 20 percent of the 
private capital of the company. 
(III) OTHER TERMS.—The exclusion of amounts under 
clause (i) shall be subject to such terms as the Adminis-
trator may impose to ensure that there is no cost (as de-
fined in section 502 of the Federal Credit Reform Act 
of 1990 (2 U.S.C. 661a)) with respect to purchasing or 
guaranteeing any debenture involved. 
(8) AUTHORITY TO HAVE OUTSTANDING BOTH GUARANTEED DEBEN-
TURES AND GUARANTEED PARTICIPATING SECURITIES.—Subject to the 
dollar and percentage limits stated in paragraphs (6) and (7), a li-
censee may issue and have outstanding both guaranteed debentures 
and guaranteed participating securities so long as the total amount of 
participating securities outstanding does not exceed 200 percent of the 
amount of the licensee’s private capital. 
(c) 3d PARTY DEBT.—The Administrator— 
(1) shall not permit a licensee having outstanding leverage to incur 
3d party debt that would create or contribute to an unreasonable risk 
of default or loss to the Federal Government; and 
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(2) shall permit a licensee having outstanding leverage to incur 3d 
party debt only on such terms and subject to such conditions as the 
Administrator may establish by regulation or otherwise. 
(d) INVESTMENTS IN SMALLER ENTERPRISES.—The Administrator shall 
require a licensee, as a condition of approval of an application for leverage, 
to certify in writing that not less than 25 percent of the licensee’s aggregate 
dollar amount of financings shall be provided to smaller enterprises. 
(e) CAPITAL IMPAIRMENT.— 
(1) IN GENERAL.—Before approving an application for leverage sub-
mitted by a licensee, the Administrator— 
(A) shall determine that the private capital of the licensee meets 
the requirements of section 303101(g) of this title; and 
(B) shall determine that the private capital of the licensee has 
not been impaired to such an extent that the issuance of addi-
tional leverage would create or otherwise contribute to an unrea-
sonable risk of default or loss to the Federal Government, taking 
into account— 
(i) the nature of the assets of the licensee; 
(ii) the amount and terms of any 3d party debt owed by 
the licensee; and 
(iii) any other factors that the Administrator determines to 
be relevant. 
(2) UNIFORM APPLICABILITY.—Any regulation issued by the Admin-
istrator to implement this subsection that applies to any licensee with 
outstanding leverage obtained before the effective date of the regulation 
shall apply uniformly to all licensees with outstanding leverage obtained 
before that effective date. 
(f) REDEMPTION OR REPURCHASE OF PREFERRED STOCK.—Notwith-
standing any other provision of law— 
(1) the Administrator may allow the issuer of any preferred stock 
sold to the Administrator before November 1, 1989, to redeem or re-
purchase the stock, on payment to the Administrator of an amount less 
than the par value of the stock, for a repurchase price determined by 
the Administrator after consideration of all relevant factors, includ-
ing— 
(A) the market value of the stock; 
(B) the value of benefits provided and anticipated to accrue to 
the issuer; 
(C) the amount of dividends paid, accrued, and anticipated; and 
(D) the estimate of the Administrator of any anticipated re-
demption; and 
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(2) any amounts received by the Administrator from the repurchase 
of preferred stock shall be available solely to provide debenture leverage 
to licensees having 50 percent or more in aggregate dollar amount of 
their financings invested in smaller enterprises. 
(g) GUARANTEE OF PAYMENT OF, AND AUTHORITY TO PURCHASE, PAR-
TICIPATING SECURITIES.— 
(1) DEFINITIONS.—In this subsection: 
(A) COMBINED CAPITAL.—The term ‘‘combined capital’’ means 
the aggregate amount of private capital and outstanding leverage. 
(B) EQUITY CAPITAL.— 
(i) IN GENERAL.—The term ‘‘equity capital’’ means com-
mon or preferred stock or a similar instrument. 
(ii) INCLUSIONS.—The term ‘‘equity capital’’ includes sub-
ordinated debt that has equity features, is not amortized, and 
provides for interest payments from appropriate sources, as 
determined by the Administrator. 
(C) MANAGEMENT EXPENSE.— 
(i) IN GENERAL.—The term ‘‘management expense’’ in-
cludes— 
(I) salaries; 
(II) office expenses; and 
(III) the costs of travel, business development, office 
and equipment rental, bookkeeping, and the develop-
ment, investigation and monitoring of investments. 
(ii) EXCLUSIONS.—The term ‘‘management expense’’ does 
not include— 
(I) the cost of services provided by specialized outside 
consultants, outside lawyers, and outside auditors that 
perform services not generally expected of a venture cap-
ital company; or 
(II) the cost of services provided by any affiliate of a 
licensee that are not part of the normal process of mak-
ing and monitoring venture capital investments. 
(D) MAXIMUM TAX LIABILITY.—The term ‘‘maximum tax liabil-
ity’’ means the amount of income allocated to each partner, share-
holder, or member of a licensee (including an allocation to the Ad-
ministrator as if the Administrator were a taxpayer) for Federal 
income tax purposes in the income tax return filed or to be filed 
by the licensee with respect to the fiscal year of the licensee imme-
diately preceding a distribution described in clause (i) or (ii) of 
paragraph (10)(A), multiplied by the highest combined marginal 
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Federal and State income tax rates for corporations or individuals, 
whichever is higher, on each type of income included in the return. 
(E) PRIORITIZED PAYMENT.—The term ‘‘prioritized payment’’ 
includes— 
(i) a dividend on stock; 
(ii) 
interest 
on 
a 
debenture 
described 
in 
section 
301101(14)(B) of this title; and 
(iii) a priority return on a preferred limited partnership in-
terest that is paid only to the extent of earnings. 
(F) STATE INCOME TAX.—The term ‘‘State income tax’’, in ref-
erence to the State income tax liability of a licensee, means the 
income tax of the State in which a licensee’s principal place of 
business is located. 
(2) AUTHORITY.— 
(A) IN GENERAL.—To encourage licensees to provide equity 
capital to small business concerns, the Administrator may guar-
antee the payment of the redemption price and prioritized pay-
ments on participating securities issued by licensees. 
(B) PURCHASE BY TRUST OR POOL.—A trust or a pool acting 
on behalf of the Administrator may purchase participating securi-
ties guaranteed under subparagraph (A). 
(3) TERMS AND CONDITIONS.—A guarantee or purchase under para-
graph (2) shall be made on such terms and conditions as the Adminis-
trator shall establish by regulation. 
(4) REDEMPTION OF PARTICIPATING SECURITIES.— 
(A) IN GENERAL.—A participating security shall be redeemed 
not later than 15 years after its date of issuance for an amount 
equal to 100 percent of the original issue price plus the amount 
of any accrued prioritized payment. 
(B) CONTINUED OBLIGATION.— 
(i) IN GENERAL.—If, at the time at which a participating 
security is redeemed, whether as scheduled or in advance, the 
issuing licensee— 
(I) has not paid all accrued prioritized payments in 
full as provided in paragraph (5); and 
(II) has not sold or otherwise disposed of all invest-
ments subject to profit distributions under paragraph 
(11); 
the licensee’s obligation to pay accrued and unpaid prioritized 
payments shall continue, and payment shall be made from the 
realized gain, if any, on the disposition of such investments, 
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