Title: Scale-Up Manufacturing Investment Company Act of 2020
Policy area: Commerce

Summary:
Scale-Up Manufacturing Investment Company Act of 2020
This bill establishes a scale-up manufacturing investment company (SUMIC) program within the Small Business Administration (SBA) to provide leverage for participating investment funds (PIFs) to support debt and equity investments in qualifying manufacturing projects of specified small and emerging manufacturers.
The SBA may provide up to $1 of leverage for every $1 of private capital raised by a PIF, not to exceed a certain amount, and the SBA must charge a leverage fee of between 3% and 5.5% of the face amount of the leverage issued. Each PIF may borrow money and issue debentures and preferred securities. Of the SBA leverage provided to a PIF (1) at least 70% must be issued as debentures, and (2) up to 30% may be issued as preferred securities.
Certain banks may invest in any one or more PIFs, or in any entity established to invest solely in PIFs. However, the total amount of such investments may not exceed 5% of the bank's capital and surplus.
Each PIF shall be subject to examination by the SBA and shall submit a semiannual, written valuation of its loans and investments.
The SBA shall issue policy directives to increase investments by PIFs in small businesses owned and controlled by socially and economically disadvantaged individuals and by women, veterans, or individuals with disabilities.
The SBA may establish a SUMIC Credit Council to advise on carrying out the program.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 3483 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  2d Session
                                S. 3483

  To amend the Small Business Investment Act of 1958 to establish the 
     Scale-Up Manufacturing Investment Company (``SUMIC'') Program.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 12, 2020

 Mr. Booker (for himself and Mrs. Gillibrand) introduced the following 
   bill; which was read twice and referred to the Committee on Small 
                     Business and Entrepreneurship

_______________________________________________________________________

                                 A BILL


 
  To amend the Small Business Investment Act of 1958 to establish the 
     Scale-Up Manufacturing Investment Company (``SUMIC'') Program.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Scale-Up Manufacturing Investment 
Company Act of 2020''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) the strength of the United States manufacturing sector 
        is critical to the economy and the global competitiveness of 
        the United States;
            (2) United States manufacturers support 17,600,000 jobs in 
        the United States and account for 12 percent of the gross 
        domestic product of the United States;
            (3) access to capital is essential to growth and innovation 
        in the manufacturing sector;
            (4) small, emerging manufacturers face unique challenges 
        scaling commercial production in the United States, driving 
        many young manufacturers to other countries;
            (5) structural barriers exist in the United States that 
        prevent key investments in first-commercial manufacturing 
        facilities;
            (6) a healthy manufacturing sector is essential to 
        innovation economy of the United States, providing three-
        quarters of all private sector research and development, 
        employing nearly two-thirds of all research and development 
        workers, and producing the majority of all patents issued;
            (7) technology-intensive manufacturing small businesses, 
        some of which may be start-ups, with the potential to anchor 
        the next generation of manufacturing production where they 
        locate, face special challenges in accessing the capital to 
        move from idea to prototype and into commercial production;
            (8) already more capital intensive than software or 
        services start-ups, manufacturing start-ups and small 
        businesses face a ``second and wider valley of death'' when it 
        comes to raising the capital to scale up for commercial 
        production because of their capital intensity and novel 
        technology;
            (9) a number of countries, including China, South Korea, 
        Germany, and Japan, provide publicly funded incentives to 
        attract these firms, recognizing that despite the risks, the 
        long-term benefits of establishing leadership in emerging 
        technology areas are large;
            (10) a study of manufacturing technology-intensive start-
        ups licensed by the Massachusetts Institute of Technology found 
        that almost all that scaled up into commercial production did 
        so overseas largely because of this far more attractive capital 
        and investment environment for manufacturing start-ups, which 
        is a huge loss for the future of manufacturing in the United 
        States;
            (11) if the United States loses the first generation of 
        production for a new technology or manufacturing process, 
        history suggests that it is an uphill battle once lost to 
        reclaim that capability here given the unique learning and 
        know-how acquired during the building of that first factory; 
        and
            (12) to ensure that manufacturing technologies invented in 
        the United States are ultimately made in the United States will 
        require addressing the unique capital access challenges faced 
        by these technology-intensive manufacturing start-ups.

SEC. 3. SCALE-UP MANUFACTURING INVESTMENT PROGRAM.

    (a) In General.--Title III of the Small Business Investment Act of 
1958 (15 U.S.C. 681 et seq.) is amended by adding at the end the 
following:

      ``PART D--SCALE-UP MANUFACTURING INVESTMENT COMPANY PROGRAM

``SEC. 399A. DEFINITIONS.

    ``In this part--
            ``(1) the term `Associate Administrator' means the 
        Associate Administrator described in section 201;
            ``(2) the term `Council' means the Scale-Up Manufacturing 
        Investment Company Credit Council that may be established under 
        section 399K;
            ``(3) the term `participating investment fund' means a 
        privately managed investment fund licensed under section 399C 
        to operate under the program;
            ``(4) the term `private capital' has the meaning given the 
        term in section 103(9);
            ``(5) the term `program' means the scale-up manufacturing 
        investment company program established under section 399B;
            ``(6) the term `qualifying manufacturing project' means an 
        investment in a small and emerging manufacturer for the 
        purposes of building first commercial production facilities, 
        novel manufacturing capabilities, or the introduction into 
        production of emerging manufacturing technologies;
            ``(7) the term `small and emerging manufacturer' means any 
        advanced manufacturer that does not exceed the size standard 
        established by the Administrator for the applicable North 
        American Industry Classification System code under section 3 of 
        the Small Business Act (15 U.S.C. 632); and
            ``(8) the term `small business concern owned and controlled 
        by socially and economically disadvantaged individuals' has the 
        meaning given the term in section 8(d)(3)(C) of the Small 
        Business Act (15 U.S.C. 637(d)(3)(C)).

``SEC. 399B. ESTABLISHMENT.

    ``(a) In General.--The Administrator shall establish and carry out 
a scale-up manufacturing investment company program under which the 
Administrator shall provide leverage to participating investment funds 
to support debt and equity investments in qualifying manufacturing 
projects of small and emerging manufacturers in the United States.
    ``(b) Administration of Program.--The program shall be administered 
by the Administrator acting through the Associate Administrator.

``SEC. 399C. SELECTION OF PARTICIPATING INVESTMENT FUNDS.

    ``(a) Application for License.--
            ``(1) Submission of application.--An investment fund 
        desiring to receive a license to operate under the program 
        shall submit an application to the Administrator at such time 
        and in such manner as the Administrator may require.
            ``(2) Requirement.--An application submitted under 
        paragraph (1) shall demonstrate that the investment fund--
                    ``(A) has the requisite minimum private capital 
                raised from investors; and
                    ``(B) committed to operate under the program as of 
                the date of submission of the application.
            ``(3) Status.--Not later than 90 days after the date on 
        which the Administrator receives an application submitted under 
        paragraph (1), the Administrator shall provide the applicant 
        with a written report detailing the status of the application 
        and any requirements remaining for completion of the 
        application.
    ``(b) Selection.--
            ``(1) In general.--Not later than 180 days after the date 
        on which the Administrator receives an application under 
        subsection (a), the Administrator shall approve or deny the 
        application for a license to operate under the program and 
        notify the applicant of the determination.
            ``(2) Criteria.--The Administrator shall establish 
        selection criteria to evaluate applications to operate under 
        the program, which shall include, at a minimum--
                    ``(A) the proven investment experience of the 
                investment fund manager;
                    ``(B) the proven, balanced, and positive-investment 
                track record of a previous investment fund or the 
                principals and fund performance analysis measured 
                against benchmarks and peer funds;
                    ``(C) the experience of the investment fund with 
                investments relating to small manufacturers and 
                emerging technologies related to advanced 
                manufacturing;
                    ``(D) an evaluation of the use of leverage by the 
                investment fund managers in past deals;
                    ``(E) evidence indicating a cohesive and effective 
                team and team dynamic;
                    ``(F) principals with strong reputations;
                    ``(G) a record of positive realizations and exits 
                from previous investments in the investment track 
                record;
                    ``(H) clearly articulated focus, investment thesis, 
                investment themes, and investment instruments to be 
                used to capitalize companies; and
                    ``(I) fund structure and economics that reflect 
                standard practices and industry norms, such as--
                            ``(i) preferred returns to limited 
                        partners;
                            ``(ii) general partner carried interest 
                        allocations, fees and vesting schedules;
                            ``(iii) adequate fund infrastructure and 
                        supporting back office services; and
                            ``(iv) evidence of fund raising traction 
                        and capability.
    ``(c) Fees.--
            ``(1) In general.--The Administration shall prescribe fees 
        to be paid by each applicant for a license to operate as a 
        participating investment fund under the program.
            ``(2) Use of amounts.--Fees collected under this 
        subsection--
                    ``(A) shall be deposited in the account for 
                salaries and expenses of the Administration; and
                    ``(B) are authorized to be appropriated solely to 
                cover the costs of licensing examinations.

``SEC. 399D. PROVISION OF LEVERAGE TO PARTICIPATING INVESTMENT FUNDS.

    ``(a) In General.--Not later than 60 days after the date on which 
the Administrator approves and issues a license under section 399C to 
operate as a participating investment fund under the program, the 
Administrator may provide not more than $1 of leverage for every $1 of 
private capital raised by the participating investment fund.
    ``(b) Maximum Leverage.--The maximum amount of outstanding leverage 
made available in any given fiscal year--
            ``(1) to any participating investment fund may not exceed 
        $500,000,000; and
            ``(2) to all participating investment funds in aggregate 
        may not exceed $1,000,000,000.
    ``(c) Private Capital Requirement.--
            ``(1) In general.--The private capital of a participating 
        investment fund shall be not less than $250,000,000.
            ``(2) Financial institution investments.--Any national 
        bank, or any member bank of the Federal Reserve System or 
        nonmember insured bank to the extent permitted under applicable 
        State law, may invest in any one or more participating 
        investment funds, or in any entity established to invest solely 
        in participating investment funds, 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.
    ``(d) Leverage Fee.--The Administrator shall charge and collect a 
leverage fee of not more than 5.5 percent and not less than 3 percent 
of the face amount of the leverage issued.

``SEC. 399E. BORROWING POWER.

    ``(a) In General.--Each participating investment fund shall have 
the authority to borrow money and issue debentures and preferred 
securities, subject to such limitations and regulations as the 
Administration may prescribe.
    ``(b) Limitation.--Of the leverage provided by the Administrator to 
a participating investment fund under section 399D--
            ``(1) not less than 70 percent shall be issued as 
        debentures under subsection (a); and
            ``(2) not more than 30 percent may be issued as preferred 
        securities under subsection (a).
    ``(c) Federal Financing Bank.--The Federal Financing Bank may 
acquire a debenture issued by a participating investment fund company 
under subsection (a).
    ``(d) Purchase and Guarantee by SBA.--
            ``(1) In general.--The Administration may purchase or 
        guarantee the timely payment of all principal and interest as 
        scheduled on debentures or preferred securities issued by 
        participating investment funds under subsection (a), subject to 
        such limitations and regulations as the Administration may 
        prescribe.
            ``(2) Full faith and credit.--The full faith and credit of 
        the United States is pledged to the payment of all amounts 
        which may be required to be paid under any guarantee under this 
        subsection.
    ``(e) Third-Party Debt.--The Administrator--
            ``(1) shall not permit a participating investment fund 
        having outstanding 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 participating investment funds to 
        incur third-party debt only on such terms and subject to such 
        conditions as may be established by the Administrator, by 
        regulation or otherwise.
    ``(f) Calculation of Subsidy Rate.--All fees, interest, and profits 
received and retained by the Administration under this section and 
section 399D shall be included in the calculations made by the Director 
of the Office of Management and Budget to offset the cost (as that term 
is defined in section 502 of the Federal Credit Reform Act of 1990 (2 
U.S.C. 661a)) to the Administration of purchasing and guaranteeing 
debentures and preferred securities under this Act.

``SEC. 399F. INVESTMENTS IN SMALL BUSINESS CONCERNS.

    ``(a) In General.--A participating investment fund shall use 
leverage received under section 399D to make debt and equity 
investments in small and emerging manufacturers to carry out qualifying 
manufacturing projects.
    ``(b) Limitation.--Not more than 50 percent of the amount provided 
by a participating investment fund to a small and emerging manufacturer 
under subsection (a) for a qualifying manufacturing project shall 
consist of leverage provided to the participating investment fund under 
the program.
    ``(c) Portfolio Management.--A single investment made by a 
participating investment fund under subsection (a) may not exceed 10 
percent of the total capital of the participating investment fund, 
which includes private capital and any leverage projected to be 
provided to the participating investment fund, if applicable.
    ``(d) Increased Outreach.--The Administration shall issue policy 
directives to provide for enhanced outreach efforts to increase 
investments by participating investment funds in--
            ``(1) a small business concern owned and controlled by 
        socially and economically disadvantaged individuals; and
            ``(2) small business concerns owned and controlled by--
                    ``(A) women;
                    ``(B) veterans; or
                    ``(C) individuals with disabilities.

``SEC. 399G. EXAMINATIONS AND VALUATIONS.

    ``(a) Examinations.--
            ``(1) In general.--Each participating investment fund shall 
        be subject to examinations made at the direction of the 
        Investment Division of the Administration in accordance with 
        this subsection.
            ``(2) Assistance of private sector entities.--Examinations 
        under this subsection may be conducted with the assistance of a 
        private sector entity that has the qualifications and the 
        expertise necessary to conduct such examinations.
            ``(3) Costs.--
                    ``(A) Assessment.--
                            ``(i) In general.--The Administrator may 
                        assess the cost of examinations under this 
                        subsection, including compensation of the 
                        examiners, against the participating investment 
                        fund examined.
                            ``(ii) Payment.--Any participating 
                        investment fund against which the Administrator 
                        assesses costs under subparagraph (A) shall pay 
                        such costs.
                    ``(B) Deposit of funds.--Funds collected under this 
                subsection--
                            ``(i) shall be deposited in the account for 
                        salaries and expenses of the Administration; 
                        and
                            ``(ii) are authorized to be appropriated 
                        solely to cover the costs of examinations and 
                        other program oversight activities.
    ``(b) Valuations.--
            ``(1) Frequency of valuations.--
                    ``(A) In general.--Each participating investment 
                fund shall submit to the Administrator a written 
                valuation of the loans and investments of the 
                participating investment fund not less often than 
                semiannually or otherwise upon the request of the 
                Administrator, except that any participating investment 
                fund with no leverage outstanding shall submit such 
                valuations annually, unless the Administrator 
                determines otherwise.
                    ``(B) Material adverse changes.--Not later than 30 
                days after the end of a fiscal quarter of a 
                participating investment fund during which a material 
                adverse change in the aggregate valuation of the loans 
                and investments or operations of the participating 
                investment fund occurs, the participating investment 
                fund shall notify the Administrator 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 participating 
                        investment fund shall submit to the 
                        Administrator the financial statements of the 
                        participating investment fund, audited by an 
                        independent certified public accountant 
                        approved by the Administrator.
                            ``(ii) Audit requirements.--Each audit 
                        conducted under clause (i) shall include--
                                    ``(I) a review of the procedures 
                                and documentation used by the 
                                participating investment fund in 
                                preparing the valuations required by 
                                this subsection; and
                                    ``(II) a statement by the 
                                independent certified public accountant 
                                that such valuations were prepared in 
                                conformity with the valuation criteria 
                                applicable to the participating 
                                investment fund established in 
                                accordance with paragraph (2).
            ``(2) Valuation criteria.--Each valuation submitted under 
        this subsection shall be prepared by the participating 
        investment fund in accordance with valuation criteria, which 
        shall--
                    ``(A) be established or approved by the 
                Administrator; and
                    ``(B) include appropriate safeguards to ensure that 
                the noncash assets of a participating investment fund 
                are not overvalued.

``SEC. 399H. MISCELLANEOUS.

    ``The Administrator may take such action as set forth in sections 
309, 311, 312, 314, 315, and 316 and an owner (including a member, 
partner, or shareholder), officer, director, employee, agent, or other 
participant in the management or conduct of the affairs of a 
participating investment fund shall be subject to the requirements of 
such sections.

``SEC. 399I. VIOLATIONS; REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

    ``(a) Violations.--If any participating investment fund violates or 
fails to comply with any of the provisions of this part or of 
regulations prescribed hereunder, all of its rights, privileges, and 
franchises derived therefrom may thereby be forfeited. Before any such 
participating investment fund shall be declared dissolved, or its 
rights, privileges, and franchises forfeited, any noncompliance with or 
violation of this Act shall be determined and adjudged by a court of 
the United States of competent jurisdiction in a suit brought for that 
purpose in the district, territory, or other place subject to the 
jurisdiction of the United States, in which the principal office of 
such participating investment fund is located. Any such suit shall be 
brought by the United States at the instance of the Administration or 
the Attorney General.
    ``(b) Suspension of Management Officials.--Using the procedures for 
removing or suspending a director or an officer of a licensee set forth 
in section 313, the Administrator may remove or suspend any management 
official of a participating investment fund.

``SEC. 399J. REPORTS.

    ``Each participating investment fund shall, on a semi-annual basis, 
provide to the Administrator such information as the Administrator may 
require, including--
            ``(1) information related to the measurement criteria that 
        the participating investment fund proposed in the application 
        for the program;
            ``(2) information on the use of leverage by the 
        participating investment fund; and
            ``(3) in each case in which the participating investment 
        fund makes an investment in a small business concern that is 
        not a small business concern owned and controlled by socially 
        and economically disadvantaged individuals, a report on the 
        number and percentage of employees of the small business 
        concern who are socially and economically disadvantaged 
        individuals.

``SEC. 399K. SCALE-UP MANUFACTURING INVESTMENT COMPANY CREDIT COUNCIL.

    ``(a) Establishment.--The Administrator may establish a Scale-Up 
Manufacturing Investment Company Credit Council, which, if established, 
shall consist of 5 members from the private sector with aggregate and 
collective experience in technology development, manufacturing 
financing, and capital investment.
    ``(b) Duties.--The Council, if established, shall advise the 
Administrator on carrying out the program, which shall include--
            ``(1) providing advice from time to time on advanced scale-
        up manufacturing industries; and
            ``(2) establishing and conducting an annual briefing 
        beginning not later than 18 months after the date of enactment 
        of this section.

``SEC. 399L. REGULATIONS.

    ``The Administrator may issue such regulations as the Administrator 
determines necessary to carry out the provisions of this part in 
accordance with its purposes.''.
    (b) Bank Holding Company Act of 1956.--Section 13(d)(1)(E) of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1851(d)(1)(E)) is amended 
by inserting ``investments in one or more participating investment 
funds, as defined in section 399A of the Small Business Investment Act 
of 1958,'' before ``or investments''.
    (c) Ineligibility for Bankruptcy.--Section 109(b)(2) of title 11, 
United States Code, is amended by inserting ``a participating 
investment fund as defined in section 399A of the Small Business 
Investment Act of 1958,'' before ``credit union''.
    (d) Eligibility for CRA Credit.--Section 804 of the Community 
Reinvestment Act of 1977 (12 U.S.C. 2903) is amended by adding at the 
end the following:
    ``(e) Investments in Participating Investment Funds.--In assessing 
and taking into account, under subsection (a), the record of a 
financial institution, the appropriate Federal financial supervisory 
agency shall consider, as a factor, investments made in one or more 
participating investment funds under part D of title III of the Small 
Business Investment Act of 1958.''.
                                 <all>