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H.R. 3567 (110th): Small Business Investment Expansion Act of 2007


The text of the bill below is as of Sep 27, 2007 (Passed the House).


IB

110th CONGRESS

1st Session

H. R. 3567

IN THE HOUSE OF REPRESENTATIVES

AN ACT

To amend the Small Business Investment Act of 1958 to expand opportunities for investments in small businesses, and for other purposes.

1.

Short title; table of contents

(a)

Short title

This Act may be cited as the Small Business Investment Expansion Act of 2007.

(b)

Table of contents

The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Title I—Small Business Investment Company Program

Sec. 101. Simplified maximum leverage limits.

Sec. 102. Increased investments in women-owned and socially disadvantaged small businesses.

Sec. 103. Increased investments in smaller enterprises.

Sec. 104. Increased investments in small businesses creating new technologies, manufactured goods, or materials or providing services to reduce carbon emissions in the United States, reduce the use of non-renewable resources, minimize environmental impact, and relate people with the natural environment.

Sec. 105. Simplified aggregate investment limitations.

Title II—New Markets Venture Capital Program

Sec. 201. Expansion of New Markets Venture Capital Program.

Sec. 202. Improved nationwide distribution.

Sec. 203. Increased investment in small manufacturers.

Sec. 204. Updating definition of low-income geographic area.

Sec. 205. Study on availability of equity capital.

Sec. 206. Expanding operational assistance to conditionally approved companies.

Sec. 207. Streamlined application for New Markets Venture Capital Program.

Sec. 208. Elimination of matching requirement.

Sec. 209. Simplified formula for operational assistance grants.

Sec. 210. Authorization of appropriations and dedication to small manufacturing.

Title III—Angel Investment Program

Sec. 301. Establishment of Angel Investment Program.

Title IV—Surety Bond Program

Sec. 401. Study and report.

Sec. 402. Preferred Surety Bond Program.

Sec. 403. Denial of liability.

Sec. 404. Increasing the bond threshold.

Sec. 405. Fees.

Title V—Venture Capital Investment Standards

Sec. 501. Determining whether business concern is independently owned and operated.

Title VI—Regulations

Sec. 601. Regulations.

I

Small Business Investment Company Program

101.

Simplified maximum leverage limits

Section 303(b) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)) is amended—

(1)

by amending paragraph (2) to read as follows:

(2)

Maximum leverage

(A)

In general

The maximum amount of outstanding leverage made available to any one company licensed under section 301(c) of this Act may not exceed the lesser of—

(i)

300 percent of such company’s private capital; or

(ii)

$150,000,000.

(B)

Multiple licenses under common control

The maximum amount of outstanding leverage made available to two or more companies licensed under section 301(c) of this Act that are commonly controlled (as determined by the Administrator) and not under capital impairment may not exceed $225,000,000.

; and

(2)

by striking paragraph (4).

102.

Increased investments in women-owned and socially disadvantaged small businesses

Section 303(b)(2) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)(2)), as amended by section 101, is further amended by adding at the end the following:

(C)

Increased investments in women-owned and socially disadvantaged small businesses

The limits provided in subparagraphs (A)(ii) and (B) shall be $175,000,000 and $250,000,000, respectively, for any company that certifies in writing that not less than 50 percent of the company’s aggregate dollar amount of investments will be made in small businesses that prior to the investment are—

(i)

majority owned by one or more—

(I)

socially or economically disadvantaged individuals (as defined by Administrator);

(II)

veterans of the Armed Forces; or

(III)

current or former members of the National Guard or Reserve; or

(ii)

located in a low-income geographic area (as defined in section 351).

.

103.

Increased investments in smaller enterprises

Section 303 of the Small Business Investment Act of 1958 (15 U.S.C. 683) is amended by striking subsection (d) and inserting the following:

(d)

Increased investments in smaller enterprises

The Administrator shall require each licensee, as a condition of an application for leverage, to certify in writing that not less than 25 percent of the licensee’s aggregate dollar amount of financings will be provide to smaller enterprises (as defined in section 103(12)).

.

104.

Increased investments in small businesses creating new technologies, manufactured goods, or materials or providing services to reduce carbon emissions in the United States, reduce the use of non-renewable resources, minimize environmental impact, and relate people with the natural environment

Section 303 of the Small Business Investment Act of 1958 (15 U.S.C. 683), as amended by this Act, is further amended by adding at the end the following:

(k)

Increased investments in small businesses

The Administrator shall give consideration to investments in small businesses that are creating new technologies, manufactured goods, or materials, or providing services to reduce carbon emissions in the United States, reduce the use of non-renewable resources, minimize environmental impact, and relate people with the natural environment.

.

105.

Simplified aggregate investment limitations

Section 306(a) of the Small Business Investment Act of 1958 (15 U.S.C. 686(a)) is amended to read as follows:

(a)

If any small business investment company has obtained financing from the Administration and such financing remains outstanding, the aggregate amount of securities acquired and for which commitments may be issued by such company under the provisions of this title for any single enterprise shall not, without the approval of the Administration, exceed 10 percent of the sum of—

(1)

the private capital of such company; and

(2)

the total amount of leverage projected by the company in the company’s business plan that was approved by the Administration at the time of the grant of the company’s license.

.

II

New Markets Venture Capital Program

201.

Expansion of New Markets Venture Capital Program

(a)

Administration participation required

Section 353 of the Small Business Investment Act of 1958 (15 U.S.C. 689b) is amended by striking under which the Administrator may and inserting under which the Administrator shall.

(b)

Report to Congress

Not later than 1 year after the date of the enactment of this Act, the Administrator of the Small Business Administration shall submit to Congress a report evaluating the success of the expansion of the New Markets Venture Capital Program under this section.

202.

Improved nationwide distribution

Section 354 of the Small Business Investment Act of 1958 (15 U.S.C. 689c) is amended by adding at the end the following:

(f)

Geographic expansion

From among companies submitting applications under subsection (b), the Administrator shall consider the selection criteria and nationwide distribution under subsection (c) and shall, to the maximum extent practicable, approve at least one company from each geographic region of the Small Business Administration.

.

203.

Increased investment in small manufacturers

Section 354(d)(1) of the Small Business Investment Act of 1958 (15 U.S.C. 689c(d)(1)) is amended—

(1)

by striking Each and inserting the following:

(A)

In general

Except as provided in subparagraph (B), each

; and

(2)

by adding at the end the following:

(B)

Small manufacturer investment capital requirements

Each conditionally approved company engaged primarily in development of and investment in small manufacturers shall raise not less than $3,000,000 of private capital or binding capital commitments from one or more investors (other than agencies or departments of the Federal Government) who meet criteria established by the Administrator.

.

204.

Updating definition of low-income geographic area

Section 351 of the Small Business Investment Act of 1958 (15 U.S.C. 689) is amended—

(1)

by striking paragraphs (2) and (3);

(2)

by inserting after paragraph (1) the following:

(2)

Low-income geographic area

The term low-income geographic area has the same meaning given the term low-income community in section 45D(e) of the Internal Revenue Code of 1986 (26 U.S.C. 45D(e)).

; and

(3)

by redesignating paragraphs (4) through (8) as (3) through (7), respectively.

205.

Study on availability of equity capital

(a)

Study required

Before the expiration of the 180-day period that begins on the date of the enactment of this Act, the Chief Counsel for Advocacy of the Small Business Administration shall conduct a study on the availability of equity capital in low-income urban and rural areas.

(b)

Report

Not later than 90 days after the completion of the study under subsection (a) the Administrator of the Small Business Administration shall submit to Congress a report containing the findings of the study required under subsection (a) and any recommendations of the Administrator based on such study.

206.

Expanding operational assistance to conditionally approved companies

(a)

Operational assistance grants to conditionally approved companies

Section 358(a) of the Small Business Investment Act of 1958 (15 U.S.C. 689(a)) is amended by adding at the end the following new paragraph:

(6)

Grants to conditionally approved companies

(A)

In general

Subject to subparagraphs (A) and (B), upon the request of a company conditionally-approved under section 354(c), the Administrator shall make a grant to the company under this subsection.

(B)

Repayment by companies not approved

If a company receives a grant under paragraph (6) and does not enter into a participation agreement for final approval, the company shall repay the amount of the grant to the Administrator.

(C)

Deduction from grant to approved company

If a company receives a grant under paragraph (6) and receives final approval under section 354(e), the Administrator shall deduct the amount of the grant under that paragraph from the total grant amount that the company receives for operational assistance.

(D)

Amount of grant

No company may receive a grant of more than $50,000 under this paragraph.

.

(b)

Limitation on time for final approval

Section 354(d) of the Small Business Investment Act of 1958 (15 U.S.C. 689c(d)) is amended in the matter preceding paragraph (1) by striking a period of time, not to exceed 2 years, and inserting 2 years.

(c)

Expanded definition of operational assistance

Section 351(5) of the Small Business Investment Act of 1958 (15 U.S.C. 689(5)) is amended by inserting before the period at the end the following: , including assistance on how to implement energy efficiency and sustainable practices that reduce the use of non-renewable resources or minimize environmental impact and reduce overall costs and increase health of employees.

207.

Streamlined application for New Markets Venture Capital Program

Not later than 60 days after the date of the enactment of this section, the Administrator of the Small Business Administration shall prescribe standard documents for final New Markets Venture Capital Company approval application under section 354(e) of the Small Business Investment Act of 1958 (15 U.S.C. 689c(e)). The Administrator shall assure that the standard documents shall be designed to substantially reduce the cost burden of the application process on the companies involved.

208.

Elimination of matching requirement

Section 354(d)(2)(A)(i) of the Small Business Investment Act of 1958 (15 U.S.C. 689c(d)(2)(A)(i)) is amended—

(1)

in subclause (I) by adding and at the end;

(2)

in subclause (II) by striking and at the end; and

(3)

by striking subclause (III).

209.

Simplified formula for operational assistance grants

Section 358(a)(4)(A) of the Small Business Investment Act of 1958 (15 U.S.C. 689g(a)(4)(A)) is amended—

(1)

by striking shall be equal to and all that follows through the period at the end and by inserting shall be equal to the lesser of—; and

(2)

by adding at the end the following:

(i)

10 percent of the resources (in cash or in kind) raised by the company under section 354(d)(2); or

(ii)

$1,000,000.

.

210.

Authorization of appropriations and dedication to small manufacturing

Section 368(a) of the Small Business Investment Act of 1958 (15 U.S.C. 689q(a)) is amended—

(1)

by striking fiscal years 2001 through 2006 and inserting fiscal years 2008 through 2010;

(2)

in paragraph (1)—

(A)

by striking $150,000,000 and inserting $30,000,000; and

(B)

by inserting before the period at the end the following: , of which not less than one-quarter shall be used to guarantee debentures of companies engaged primarily in development of and investment in small manufacturers; and

(3)

in paragraph (2)—

(A)

by striking $30,000,000 and inserting $5,000,000; and

(B)

by inserting before the period at the end the following: , of which not less than one-quarter shall be used to make grants to companies engaged primarily in development of and investment in small manufacturers.

III

Angel Investment Program

301.

Establishment of Angel Investment Program

(a)

Establishment

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 new part:

C

Angel Investment Program

380.

Office of Angel Investment

(a)

Establishment

There is established, in the Investment Division of the Small Business Administration, the Office of Angel Investment.

(b)

Director

The head of the Office of Angel Investment is the Director of Angel Investment.

(c)

Duties

Subject to the direction of the Secretary, the Director shall perform the following functions:

(1)

Provide support for the development of angel investment opportunities for small business concerns.

(2)

Administer the Angel Investment Program under section 382 of this Act.

(3)

Administer the Federal Angel Network under section 383 of this Act.

(4)

Administer the grant program for the development of angel groups under section 384 of this Act.

(5)

Perform such other duties consistent with this section as the Administrator shall prescribe.

381.

Definitions

In this part:

(1)

The term angel group means 10 or more angel investors organized for the purpose of making investments in local or regional small business concerns that—

(A)

consists primarily of angel investors;

(B)

requires angel investors to be accredited investors; and

(C)

actively involves the angel investors in evaluating and making decisions about making investments.

(2)

The term angel investor means an individual who—

(A)

qualifies as an accredited investor (as that term is defined under Rule 501 of Regulation D of the Securities and Exchange Commission (17 CFR 230.501));

(B)

provides capital to or makes investments in a small business concern.

(3)

The term small business concern owned and controlled by veterans has the meaning given that term under section 3(q)(3) of the Small Business Act (15 U.S.C. 632(q)(3)).

(4)

The term small business concern owned and controlled by women has the meaning given that term under section 8(d)(3)(D) of such Act (15 U.S.C. 637(d)(3)(D)).

(5)

The term socially and economically disadvantaged small business concern has the meaning given that term under section 8(a)(4)(A) of such Act (15 U.S.C. 637(a)(4)(A)).

382.

Angel Investment Program

(a)

In general

The Director of Angel Investment shall establish and carry out a program, to be known as the Angel Investment Program, to provide financing to approved angel groups for the purpose of providing venture capital investment in small businesses in their communities.

(b)

Eligibility

To be eligible to receive financing under this section, an angel group shall—

(1)

have demonstrated experience making investments in local or regional small business concerns;

(2)

have established protocols and a due diligence process for determining its investment strategy;

(3)

have an established code of ethics; and

(4)

submit an application to the Director of Angel Investment at such time and containing such information and assurances as the Director may require.

(c)

Use of funds

An angel group that receives financing under this section shall use the amounts received to make investments in small business concerns—

(1)

that have been in existence for less than 5 years as of the date on which the investment is made;

(2)

that have fewer than 75 employees as of the date on which the investment is made;

(3)

more than 50 percent of the employees of which perform substantially all of their services in the United States as of the date on which the investment is made; and

(4)

within the geographic area determined by the Director under subsection (e).

(d)

Limitation on amount

No angel group receiving financing under this section shall receive more than $2,000,000.

(e)

Limitation on geographic area

For each angel group receiving financing under this section, the Director shall determine the geographic area in which a small business concern must be located to receive an investment from that angel group.

(f)

Priority in providing financing

In providing financing under this section, the Director shall give priority to angel groups that invest in small business concerns owned and controlled by veterans, small business concerns owned and controlled by women, and socially and economically disadvantaged small business concerns.

(g)

Nationwide distribution of financing

In providing financing under this section, the Director shall, to the extent practicable, provide financing to angel groups that are located in a variety of geographic areas.

(h)

Matching requirement

As a condition of receiving financing under this section, the Director shall require that for each small business concern in which the angel group receiving such financing invests, the angel group shall invest an amount that is equal to or greater than the amount of financing received under this section from a source other than the Federal Government that is equal to the amount of the financing provided under this section that the angel group invests in that small business concern.

(i)

Repayment of financing

As a condition of receiving financing under this section, the Director shall require an angel group to repay the Director for any investment on which the angel group makes a profit an amount equal to the percentage of the returns that is equal to the percentage of the total amount invested by the angel group that consisted of financing received under this section.

(j)

Angel Investment Fund

(1)

Establishment

There is in the Treasury a fund to be known as the Angel Investment Fund.

(2)

Deposit of certain amounts

Amounts collected under subsection (i) shall be deposited in the fund.

(3)

Use of deposits

Deposits in the fund shall be available for the purpose of providing financing under this section in the amounts specified in annual appropriation laws without regard to fiscal year limitations.

(k)

Authorization of appropriations

There is authorized to be appropriated to carry out this section—

(1)

$10,000,000 for fiscal year 2008;

(2)

$20,000,000 for fiscal year 2009; and

(3)

$20,000,000 for fiscal year 2010.

383.

Federal Angel Network

(a)

In general

Subject to the succeeding provisions of this subsection, the Director of the Office of Angel Investment shall establish and maintain a searchable database, to be known as the Federal Angel Network, to assist small business concerns in identifying angel investors.

(b)

Network contents

The Federal Angel Network shall include—

(1)

a list of the names and addresses of angel groups and angel investors;

(2)

information about the types of investments each angel group or angel investor has made; and

(3)

information about other public and private resources and registries that provide information about angel groups or angel investors.

(c)

Collection of information

(1)

In general

The Director shall collect the information to be contained in the Federal Angel Network and shall ensure that such information is updated regularly.

(2)

Request for exclusion of information

The Director shall not include such information concerning an angel investor if that investor contacts the Director to request that such information be excluded from the Network.

(d)

Availability

The Director shall make the Federal Angel Network available on the Internet website of the Administration and shall do so in a manner that permits others to download, distribute, and use the information contained in the Federal Angel Network.

(e)

Authorization of appropriations

There is authorized to be appropriated to carry out this section $1,000,000, to remain available until expended.

384.

Grant program for development of angel groups

(a)

In general

The Director of the Office of Angel Investment shall establish and carry out a grant program to make grants to eligible entities for the development of new or existing angel groups and to increase awareness and education about angel investing.

(b)

Eligible entities

In this section, the term eligible entity means—

(1)

a State or unit of local government;

(2)

a nonprofit organization;

(3)

a state mutual benefit corporation;

(4)

a Small Business Development Center established pursuant to section 21 of the Small Business Act (15 U.S.C. 648); or

(5)

a women’s business center established pursuant to section 29 of the Small Business Act (15 U.S.C. 656).

(c)

Matching requirement

The Administrator shall require, as a condition of any grant made under this section, that the eligible entity receiving the grant provide from resources (in cash or in kind), other than those provided by the Administrator or any other Federal source, a matching contribution equal to 50 percent of the amount of the grant.

(d)

Application

To receive a grant under this section, an eligible entity shall submit an application that contains—

(1)

a proposal describing how the grant would be used; and

(2)

any other information or assurances as the Director may require.

(e)

Report

Not later than 3 years after the date on which an eligible entity receives a grant under this section, such eligible entity shall submit a report to the Administrator describing the use of grant funds and evaluating the success of the angel group developed using the grant funds.

(f)

Authorization of appropriations

There is authorized to be appropriated to carry out this section $1,500,000, for each of fiscal years 2008 through 2010.

.

IV

Surety Bond Program

401.

Study and report

(a)

Study

The Administrator of the Small Business Administration shall conduct a study of the current funding structure of the surety bond program carried out under part B (15 U.S.C. 694a et seq.) of title IV of the Small Business Investment Act of 1958. The study shall include—

(1)

an assessment of whether the program’s current funding framework and program fees are inhibiting the program’s growth;

(2)

an assessment of whether surety companies and small business concerns could benefit from an alternative funding structure; and

(3)

an assessment of whether permissible premium rates for surety companies participating in the program should be placed on parity with the rates authorized by appropriate State insurance regulators and how such a change would affect the program under the current funding framework.

(b)

Report

Not later than 180 days after the date of the enactment of this Act, the Administrator shall submit to Congress a report on the results of the study.

402.

Preferred Surety Bond Program

(a)

Program required

Part B (15 U.S.C. 694a et seq.) of title IV of the Small Business Investment Act of 1958 is amended by adding at the end the following:

413.

Preferred Surety Bond Program

(a)

Program required

The Administrator shall carry out a program, to be known as the Preferred Surety Bond Program, under which the Administration, by a written agreement between the surety and the Administration, delegates to the surety complete authority to issue, monitor, and service bonds subject to guaranty from the Administration without obtaining the specific approval of the Administration. Bonds made under the program shall carry a 70 percent guaranty.

(b)

Term

The term of a delegation of authority under such an agreement shall not exceed 2 years.

(c)

Renewal

Such an agreement may be renewed one or more times, each such renewal providing one additional term. Before each renewal, the Administrator shall review the surety’s bonds, policies, and procedures for compliance with relevant rules and regulations.

(d)

Application

The Administrator shall promptly act upon an application from a surety to participate in the program, in accordance with criteria and procedures established in regulations pursuant to section 411(d).

(e)

Reduction or termination of participation

The Administrator is authorized to reduce the allotment of bond guarantee authority or terminate the participation of a surety in the 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)

Conforming amendments

Section 411 of the Small Business Investment Act of 1958 (15 U.S.C. 694b) is amended—

(1)

in subsection (a), by striking paragraphs (3), (4), and (5);

(2)

in subsection (b)(2), by striking the authority of subsection (a)(3) and inserting the authority of section 413;

(3)

in subsection (c)—

(A)

by striking paragraph (1); and

(B)

by redesignating paragraphs (2) through (4) as (1) through (3), respectively; and

(4)

in subsection (g)(3), by striking the authority of paragraph (3) of subsection (a) and inserting the authority of section 413.

403.

Denial of liability

Section 411 of the Small Business Investment Act of 1958 (15 U.S.C. 694b) is amended by adding at the end the following:

(k)

For bonds made or executed with the prior approval of the Administration, the Administration shall not deny liability to a surety based upon information that was provided as part of the guaranty application.

.

404.

Increasing the bond threshold

Section 411(a) of the Small Business Investment Act of 1958 (15 U.S.C. 694b(a)) is amended by striking $2,000,000 and inserting $3,000,000.

405.

Fees

Section 411 of the Small Business Investment Act of 1958 (15 U.S.C. 694b) is amended by adding at the end the following:

(l)

To the extent that amounts are made available to the Administrator for the purpose of fee contributions, the Administrator shall use such funds to offset fees established and assessed under this section. Each fee contribution shall be effective for one fiscal quarter and shall be adjusted as necessary to ensure that amounts made available are fully used.

.

V

Venture Capital Investment Standards

501.

Determining whether business concern is independently owned and operated

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) is amended by adding at the end the following:

(5)

Non-affiliation of venture capital from consideration of small business concern

For purposes of determining whether a small business concern is independently owned and operated under paragraph (1) or meets the small business size standards instituted under paragraph (2), the Administrator shall not consider a business concern to be affiliated with a venture capital operating company (or with any other business that the venture capital operating company has financed) if—

(A)

the venture capital operating company does not own 50 percent or more of the business concern; and

(B)

employees of the venture capital operating company do not constitute a majority of the board of directors of the business concern.

(6)

Definition of independently owned and operated

For purposes of this section, a business concern shall be deemed to be independently owned and operated if—

(A)

it is owned in majority part by one or more natural persons or venture capital operating companies;

(B)

there is no single venture capital operating company that owns 50 percent or more of the business concern; and

(C)

there is no single venture capital operating company the employees of which constitute a majority of the board of directors of the business concern.

(7)

Definition of venture capital operating company

For purposes of this section, the term venture capital operating company means a business concern—

(A)

that—

(i)

is a Venture Capital Operating Company, as that term is defined in regulations promulgated by the Secretary of Labor; or

(ii)

is an entity that—

(I)

is registered under the Investment Company Act of 1940 (15 U.S.C. 80a–51 et seq.);

(II)

is an investment company, as defined in section 3(c)(14) of such Act (15 U.S.C. 80a–3(c)(14)), which is not registered under such Act because it is beneficially owned by less than 100 persons; or

(III)

is a nonprofit organization affiliated with, or serving as a patent and licensing organization for, a university or other institution of higher education and that invests primarily in small business concerns; and

(B)

that is not controlled by any business concern that is not a small business concern within the meaning of section 3; and

(C)

that has fewer than 500 employees; and

(D)

that is itself a concern incorporated and domiciled in the United States, or is controlled by a concern that is incorporated and domiciled in the United States.

.

VI

Regulations

601.

Regulations

Not later than 90 days after the date of the enactment of this Act, the Administrator shall issue revisions to all existing regulations as necessary to ensure their conformity with the amendments made by this Act.

Passed the House of Representatives September 27, 2007.

Lorraine C. Miller,

Clerk.