[Congressional Record Volume 147, Number 100 (Wednesday, July 18, 2001)]
[Senate]
[Pages S7882-S7883]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BOND (for himself and Mr. Kerry):
  S. 1196. A bill to amend the Small Business Investment Act of 1958, 
and for other purposes; to the Committee on Small Business and 
Entrepreneurship.
  Mr. BOND. Mr. President, today I am introducing the Small Business 
Investment Company Amendments Act of 2001. This bill is important for 
one simple reason: once enacted it paves the way for more investment 
capital to be available for more small businesses that are seeking to 
grow and hire new employees.
  In 1958, Congress created the SBIC program to assist small business 
owners in obtaining 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 $500,000--$3 million have to look 
elsewhere. SBICs 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 
Nations 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 SBICs 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 
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, Missouri. 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 Ms. 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. And it is important to focus on the significant role that is 
played by the SBIC program in support of growing small businesses. When 
Fortune Small Business compiled its list 100 fastest growing small 
companies in 2000, 6 of the top 12 businesses on the list received SBIC 
financing during their critical growth years.
  The ``Small Business Investment Company Amendments Act of 2001''

[[Page S7883]]

would permit the annual interest fee paid by Participating Securities 
SBICs to increase from 1.0 percent to no more than 1.28 percent. In 
addition, the bill would make three technical changes to the Small 
Business Investment Act of 1958, '58 Act, that are intended to make 
improvements in the day-to-day operation of the SBIC program.
  Projected demand for the Participating Securities SBIC program for FY 
2002 is $3.5 billion, a significant increase over the FY 2001 program 
level of $2.5 billion. It is imperative that Congress approve this 
relatively small increase in the annual interest charge paid by the 
Participating Securities SBICs before the end of the fiscal year. This 
fee increase, when combined with an appropriation of $26.2 million for 
FY 2002, the same amount Congress approved for FY 2001, will support a 
program level of $3.5 million.
  The ``Small Business Investment Company Amendments Act of 2001'' 
would also make some relatively technical changes the '58 Act that are 
drafted to improve the operations of the SBIC program. Section 3 would 
remove the requirement that the SBA take out local advertisements when 
it seeks to determine if a conflict of interest exists involving an 
SBIC. This section has been recommended by the SBA, that has informed 
me that is has never received a response to a local advertisement and 
believes the requirement is unnecessary.
  The bill would amend Title 12 and Title 18 of the United States Code 
to insure that false statements made to the SBA under the SBIC program 
would have the same penalty as making false statements to an SBIC. This 
section would make it clear that a false statement to SBA or to an SBIC 
for the purpose of influencing their respective actions taken under the 
'58 Act would be a criminal violation. The courts could then assess 
civil and criminal penalties for such violations.
  Section 5 of the bill would amend Section 313 of the '58 Act to 
permit the SBA to remove or suspend key management officials of an SBIC 
when they have willfully and knowingly committed a substantial 
violation of the '58 Act, any regulation issued by the SBA under the 
Act, a cease-and desist order that has become final, or committed or 
engaged in any act, omission or practice that constitutes a substantial 
breach of a fiduciary duty of that person as a management official.
  The amendment expands the definition of persons covered by Section 
313 to be ``management officials,'' which includes officers, directors, 
general partners, managers, employees, agents of other participants in 
the management or conduct of the SBIC. At the time Section 313 of the 
'58 Act was enacted in November 1966, an SBIC was organized as a 
corporation. Since that time, SBIC has been organized as partnerships 
and Limited Liability Companies (LLCs), and this amendment would take 
into account those organizations.
  Mr. President, I ask unanimous consent that section-by-section 
summary be printed in the Record.
  There being no objection, the summary ordered to be printed in the 
Record, as follows:

 Small Business Investment Company Amendments Act of 2001--Section-by-
                            Section Summary

     Section 1. Short title
       This Act will be called the ``Small Business Investment 
     Company Amendments Act of 2001.''
     Section 2. Subsidy fees
       This section amends the Small Business Investment Act of 
     1958 to permit the SBA to collect an annual interest fee from 
     SBICs in an amount not to exceed 1.28 percent of the 
     outstanding Participating Security and Debenture balance. In 
     no case will the SBA be permitted to charge an interest fee 
     that would reduce the credit subsidy rate to less than 0 
     percent, when combined with other fees and congressional 
     appropriations. This section would take effect on October 1, 
     2001.
     Section 3. Conflicts of interest
       This change would remove the requirement that SBA run local 
     advertisements when it seeks to determine if a conflict of 
     interest is present. SBA has informed me that it has never 
     received a response to a local advertisement and believes the 
     requirement is unnecessary. SBA would continue to publish 
     these notices in the Federal Register. This section would not 
     prohibit the SBA from running local advertisements should it 
     believe it is necessary. It is supported by the SBA.
     Section 4. Penalties for false statements
       This section would amend Title 12 and Title 18 of the 
     United States Code to insure that false statements made to 
     SBA under the SBIC program would have the same penalty as 
     making false statements to an SBIC. The section would make it 
     clear that a false statement to SBA or to an SBIC for the 
     purpose of influencing their respective actions taken under 
     the Small Business Investment Act of 1958 would be a criminal 
     violation. The courts could then assess civil and criminal 
     penalties for such violations.
     Section 5. Removal or suspension of management officials
       This section would amend Section 313 the Small Business 
     Investment Act of 1958 to expand the list of persons who 
     could be removed or suspended by the SBA from the management 
     of an SBIC to include officers, directors, employees, agents, 
     or other participants of an SBIC. The persons subject to this 
     section are called ``Management Officials,'' a new term added 
     by this amendment. The amendment does not change the legal or 
     practical effect of the provisions of Section 313; however, 
     it has been drafted to make its provisions easier to follow.
       Sections 3, 4, and 5 would take effect on enactment of the 
     Act.

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