[Congressional Record Volume 145, Number 45 (Monday, March 22, 1999)]
[Senate]
[Pages S3061-S3063]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           SMALL BUSINESS INVESTMENT IMPROVEMENT ACT OF 1999

  Mr. STEVENS. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of Calendar No. 22, which is S. 
364.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will report.
  The bill clerk read as follows:

       A bill (S. 364) to improve certain loan programs of the 
     Small Business Administration, and for other purposes.

  The Senate proceeded to consider the bill.
  Mr. BOND. Mr. President, I rise today in support of the Small 
Business Investment Improvement Act of 1999. I am pleased to report the 
bill received unanimous support of my colleagues on the Committee on 
Small Business, when we voted to report the bill on February 5, 1999. 
This is important legislation for one simple reason: it makes more 
investment capital available to small businesses that are seeking to 
grow and hire new employees.
  In 1958, Congress created the SBIC program to assist small business 
owners obtain investment capital. Forty years later, small businesses 
continue to experience difficulty in obtaining investment capital from 
banks and traditional investment sources. Although investment capital 
is readily available to large businesses from traditional Wall Street 
investment firms, small businesses seeking investments in the range of 
$100,000-$2.5 million have to look elsewhere. SBIC's are frequently the 
only sources of investment capital for growing small businesses.
  Often we are reminded that the SBIC program has helped some of our 
Nation's best known companies. It has provided a financial boost at 
critical points in the early growth period for many companies that are 
familiar to all of us. For example, Federal Express received a needed 
infusion of capital from two SBA-licensed SBIC's at a critical juncture 
in its development stage. The SBIC program also helped other well-known 
companies, when they were not so well-known, such as Intel, Outback 
Steakhouse, America Online, and Callaway Golf.
  What is not well known is the extraordinary help the SBIC program

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provides to Main Street America Small businesses. These are companies 
we know from home towns all over the United States. Main Street 
companies provide both stability and growth in our local business 
communities. A good example of a Main Street company is Steelweld 
Equipment Company, founded in 1932, which designs and manufactures 
utility truck bodies in St. Clair, MO. The truck bodies are mounted on 
chassis made by Chrysler, Ford, and General Motors. Steelweld provides 
truck bodies for Southwestern Bell Telephone Co., Texas Utilities, 
Paragon Cable, GTE, and GE Capital Fleet.
  Steelweld is a privately held, woman-owned corporation. The owner, 
Elaine Hunter, went to work for Steelweld in 1966 as a billing clerk 
right out of high school. She rose through the ranks of the company and 
was selected to serve on the board of directors. In December 1995, 
following the death of Steelweld's founder and owner, Ms. Hunter 
received financing from a Missouri-based SBIC, Capital for Business 
(CFB) Venture Fund II, to help her complete the acquisition of 
Steelweld. CFB provided $500,000 in subordinated debt. Senior bank debt 
and seller debt were also used in the acquisition.
  Since Mr. Hunter acquired Steelweld, its manufacturing process was 
redesigned to make the company run more efficiently. By 1997, 
Steelweld's profitability had doubled, with annual sales of $10 million 
and 115 employees. SBIC program success stories like Ms. Hunter's 
experience at Steelweld occur regularly throughout the United States.
  In 1991, the SBIC program was experiencing major losses, and the 
future of the program was in doubt. Consequently, in 1992 and 1996, the 
Committee on Small Business worked closely with the Small Business 
Administration to correct deficiencies in the law in order to ensure 
the future of the program. Today, the SBIC Program is expanding rapidly 
in an effort to meet the growing demands of small business owners for 
debt and equity Investment capital.
  Last year, the Senate unanimously approved a bill similar to the bill 
that is now before the Senate. Today's bill includes two technical 
changes in the SBIC program. The first change removes a requirement 
that at least 50 percent of the annual program level of the approved 
participating securities under the SBIC Program be reserved for funding 
with SBIC's having private capital of not more than $20 million. The 
requirement became obsolete following SBA's imposition of its leverage 
commitment process and congressional approval for SBA to issue 5-year 
commitments for SBIC leverage.
  The second technical change requires SBA to issue SBIC guarantees and 
trust certificates at periodic intervals of not less than 12 months. 
The current requirement is 6 months. This change will give maximum 
flexibility for SBA and the SBIC industry to negotiate the placement of 
certificates that fund leverage and obtain the lowest possible interest 
rate.
  The Small Business Investment Improvement Act of 1999 clarifies the 
rules for the determination of an eligible small business or small 
enterprise that is not required to pay Federal income tax at the 
corporate level, but that is required to pass income through to its 
shareholders or partners by using a specified formula to compute its 
after-tax income. This provision is intended to permit ``pass through'' 
enterprises to be treated the same as enterprises that pay Federal 
taxes for purposes of SBA size standard determinations.
  The bill would also make a relatively small change in the operation 
of the program. This change, however, would help smaller, small 
businesses to be more attractive to investors. SBIC's would be 
permitted to accept royalty payments contingent on future performance 
from companies in which they invest as a form of equity return for 
their investment.
  SBA already permits SBICs to receive warrants from small businesses, 
which give the investing SBIC the right to acquire a portion of the 
equity of the small business. By pledging royalties or warrants, the 
small business is able to reduce the interest that would otherwise be 
payable by the small business to the SBIC. Importantly, the royalty 
feature provides the smaller, small business with an incentive to 
attract SBIC investments when the return may otherwise be insufficient 
to attract venture capital.
  Lastly, the bill increases the program authorization levels to fund 
participating securities. In fiscal year 1999, the authorization level 
would increase from $800 million to $1.2 billion; in fiscal year 2000, 
it would increase from $900 million to $1.5 billion. The two increases 
have become necessary as the demand in the SBIC program was growing at 
a rapid rate. Higher authorization levels are necessary if the SBIC 
Program is going to meet the demand for investment capital from the 
small business community.
  Mr. President, this is a sound bill, which has the unanimous support 
of all 18 members of the Committee on Small Business. On February 2, 
1999, a similar version of this legislation passed the House of 
Representatives by a vote of 402-2. I strongly urge my colleagues in 
the Senate to vote in favor of the Small Business Investment 
Improvement Act of 1999.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the bill be 
read for the third time.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (S. 364) was read the third time.
  Mr. STEVENS. Mr. President, I ask unanimous consent that the Small 
Business Committee be discharged from further consideration of H.R. 68, 
and that the Senate proceed to its consideration. I further ask 
unanimous consent that all after the enacting clause be stricken and 
the text of S. 364 be inserted in lieu thereof; that the bill then be 
read for the third time and passed; that the motion to reconsider be 
laid upon the table; and that any statements relating to this 
legislation appear at appropriate place in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (H.R. 68), as amended, was read the third time and passed, 
as follows:
       Resolved, That the bill from the House of Representatives 
     (H.R. 68) entitled ``An Act to amend section 20 of the Small 
     Business Act and make technical corrections in title III of 
     the Small Business Investment Act.'', do pass with the 
     following amendment:
       Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Investment 
     Improvement Act of 1999''.

     SEC. 2. SBIC PROGRAM.

       (a) In General.--Section 308(i)(2) of the Small Business 
     Investment following: ``In this paragraph, the term 
     `interest' includes only the maximum mandatory sum, expressed 
     in dollars or as a percentage rate, that is payable with 
     respect to the business loan amount received by the small 
     business concern, and does not include the value, if any, of 
     contingent obligations, including warrants, royalty, or 
     conversion rights, granting the small business investment 
     company an ownership interest in the equity or increased 
     future revenue of the small business concern receiving the 
     business loan.''.
       (b) Funding Levels.--Section 20 of the Small Business Act 
     (15 U.S.C. 631 note) is amended--
       (1) in subsection (d)(1)(C)(i), by striking 
     ``$800,000,000'' and inserting ``$1,200,000,000''; and
       (2) in subsection (e)(1)(C)(i), by striking 
     ``$900,000,000'' and inserting ``$1,500,000,000''.
       (c) Definitions.--
       (1) Small business concern.--Section 103(5) of the Small 
     Business Investment Act of 1958 (15 U.S.C. 662(5)) is 
     amended--
       (A) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), and indenting appropriately;
       (B) in clause (iii), as redesignated, by adding ``and'' at 
     the end;
       (C) by striking ``purposes of this Act, an investment'' and 
     inserting the following: ``purposes of this Act--
       ``(A) an investment''; and
       (D) by adding at the end the following:
       ``(B) in determining whether a business concern satisfies 
     net income standards established pursuant to section 3(a)(2) 
     of the Small Business Act, if the business concern is not 
     required by law to pay Federal income taxes at the enterprise 
     level, but is required to pass income through to the 
     shareholders, partners, beneficiaries, or other equitable 
     owners of the business concern, the net income of the 
     business concern shall be determined by allowing a deduction 
     in an amount equal to the sum of--
       ``(i) if the business concern is not required by law to pay 
     State (and local, if any) income taxes at the enterprise 
     level, the net income (determined without regard to this 
     subparagraph), multiplied by the marginal State income tax 
     rate (or by the combined State and local income tax rates, as 
     applicable) that would have applied if the business concern 
     were a corporation; and
       ``(ii) the net income (so determined) less any deduction 
     for State (and local) income taxes calculated under clause 
     (i), multiplied by the marginal Federal income tax rate that 
     would have applied if the business concern were a 
     corporation;''.

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       (2) Smaller enterprise.--Section 103(12)(A)(ii) of the 
     Small Business Investment Act of 1958 (15 U.S.C. 
     662(12)(A)(ii)) is amended by inserting before the semicolon 
     at the end the following: ``except that, for purposes of this 
     clause, if the business concern is not required by law to pay 
     Federal income taxes at the enterprise level, but is required 
     to pass income through to the shareholders, partners, 
     beneficiaries, or other equitable owners of the business 
     concern, the net income of the business concern shall be 
     determined by allowing a deduction in an amount equal to the 
     sum of--

       ``(I) if the business concern is not required by law to pay 
     State (and local, if any) income taxes at the enterprise 
     level, the net income (determined without regard to this 
     clause), multiplied by the marginal State income tax rate (or 
     by the combined State and local income tax rates, as 
     applicable) that would have applied if the business concern 
     were a corporation; and
       ``(II) the net income (so determined) less any deduction 
     for State (and local) income taxes calculated under subclause 
     (I), multiplied by the marginal Federal income tax rate that 
     would have applied if the business concern were a 
     corporation''.

       (d) Technical Corrections.--
       (1) Repeal.--Section 303(g) of the Small Business 
     Investment Act of 1958 (15 U.S.C. 683(g)) is amended by 
     striking paragraph (13).
       (2) Issuance of guarantees and trust certificates.--Section 
     320 of the Small Business Investment Act of 1958 (15 U.S.C. 
     687m) is amended by striking ``6'' and inserting ``12''.
       (3) Elimination of table of contents.--Section 101 of the 
     Small Business Investment Act of 1958 (15 U.S.C. 661 note) is 
     amended to read as follows:

     ``SEC. 101. SHORT TITLE.

       ``This Act may be cited as the `Small Business Investment 
     Act of 1958'.''.

  Mr. STEVENS. Mr. President, I finally ask consent that S. 364 be 
placed back on the Calendar.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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