[Congressional Record Volume 147, Number 169 (Friday, December 7, 2001)]
[Senate]
[Pages S12740-S12744]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        SMALL BUSINESS INVESTMENT COMPANY AMENDMENTS ACT OF 2001

  Mr. REID. Mr. President, I ask that the Chair lay before the Senate a 
message from the House on S. 1196.
  The Presiding Officer laid before the Senate a message from the House 
as follows:

       Resolved, That the bill from the Senate (S. 1196) entitled 
     ``An Act to amend the Small Business Investment Act of 1958, 
     and for other purposes,'' 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 
     Company Amendments Act of 2001''.

     SEC. 2. SUBSIDY FEES.

       (a) In General.--Section 303 of the Small Business 
     Investment Act of 1958 (15 U.S.C. 683) is amended--
       (1) in subsection (b)--
       (A) by striking ``of not more than 1 percent per year'';
       (B) by inserting ``which amount may not exceed 1.38 percent 
     per year, and'' before ``which shall be paid''; and
       (C) by striking ``September 30, 2000'' and inserting 
     ``September 30, 2001''; and
       (2) in subsection (g)(2)--
       (A) by striking ``of not more than 1 percent per year'';
       (B) by inserting ``which amount may not exceed 1.38 percent 
     per year, and'' before ``which shall be paid''; and
       (C) by striking ``September 30, 2000'' and inserting 
     ``September 30, 2001''.
       (b) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 2001.

[[Page S12741]]

     SEC. 3. CONFLICTS OF INTEREST.

       Section 312 of the Small Business Investment Act of 1958 
     (15 U.S.C. 687d) is amended by striking ``(including 
     disclosure in the locality most directly affected by the 
     transaction)''.

     SEC. 4. PENALTIES FOR FALSE STATEMENTS.

       (a) Criminal Penalties.--Section 1014 of title 18, United 
     States Code, is amended by inserting ``, as defined in 
     section 103 of the Small Business Investment Act of 1958 (15 
     U.S.C. 662), or the Small Business Administration in 
     connection with any provision of that Act'' after ``small 
     business investment company''.
       (b) Civil Penalties.--Section 951 of the Financial 
     Institutions Reform, Recovery, and Enforcement Act of 1989 
     (12 U.S.C. 1833a) is amended--
       (1) by redesignating subsections (d) through (g) as 
     subsections (e) through (h), respectively; and
       (2) in subsection (c)--
       (A) in paragraph (1), by striking ``or'' at the end;
       (B) in paragraph (2)--
       (i) by striking ``1341;'' and inserting ``1341''; and
       (ii) by striking ``institution.'' and inserting 
     ``institution; or'';
       (C) by inserting immediately after paragraph (2) the 
     following:
       ``(3) section 16(a) of the Small Business Act (15 U.S.C. 
     645(a)).''; and
       (D) by striking ``This section shall'' and inserting the 
     following:
       ``(d) Effective Date.--This section shall''.

     SEC. 5. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

       Section 313 of the Small Business Investment Act of 1958 
     (15 U.S.C. 687e) is amended to read as follows:

     ``SEC. 313. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

       ``(a) Definition of `Management Official'.--In this 
     section, the term `management official' means an officer, 
     director, general partner, manager, employee, agent, or other 
     participant in the management or conduct of the affairs of a 
     licensee.
       ``(b) Removal of Management Officials.--
       ``(1) Notice of removal.--The Administrator may serve upon 
     any management official a written notice of its intention to 
     remove that management official whenever, in the opinion of 
     the Administrator--
       ``(A) such management official--
       ``(i) has willfully and knowingly committed any substantial 
     violation of--

       ``(I) this Act;
       ``(II) any regulation issued under this Act; or
       ``(III) a cease-and-desist order which has become final; or

       ``(ii) has willfully and knowingly committed or engaged in 
     any act, omission, or practice which constitutes a 
     substantial breach of a fiduciary duty of that person as a 
     management official; and
       ``(B) the violation or breach of fiduciary duty is one 
     involving personal dishonesty on the part of such management 
     official.
       ``(2) Contents of notice.--A notice of intention to remove 
     a management official, as provided in paragraph (1), shall 
     contain a statement of the facts constituting grounds 
     therefor, and shall fix a time and place at which a hearing 
     will be held thereon.
       ``(3) Hearings.--
       ``(A) Timing.--A hearing described in paragraph (2) shall 
     be fixed for a date not earlier than 30 days nor later than 
     60 days after the date of service of notice of the hearing, 
     unless an earlier or a later date is set by the Administrator 
     at the request of--
       ``(i) the management official, and for good cause shown; or
       ``(ii) the Attorney General of the United States.
       ``(B) Consent.--Unless the management official shall appear 
     at a hearing described in this paragraph in person or by a 
     duly authorized representative, that management official 
     shall be deemed to have consented to the issuance of an order 
     of removal under paragraph (1).
       ``(4) Issuance of order of removal.--
       ``(A) In general.--In the event of consent under paragraph 
     (3)(B), or if upon the record made at a hearing described in 
     this subsection, the Administrator finds that any of the 
     grounds specified in the notice of removal has been 
     established, the Administrator may issue such orders of 
     removal from office as the Administrator deems appropriate.
       ``(B) Effectiveness.--An order under subparagraph (A) 
     shall--
       ``(i) become effective at the expiration of 30 days after 
     the date of service upon the subject licensee and the 
     management official concerned (except in the case of an order 
     issued upon consent as described in paragraph (3)(B), which 
     shall become effective at the time specified in such order); 
     and
       ``(ii) remain effective and enforceable, except to such 
     extent as it is stayed, modified, terminated, or set aside by 
     action of the Administrator or a reviewing court in 
     accordance with this section.
       ``(c) Authority to Suspend or Prohibit Participation.--
       ``(1) In general.--The Administrator may, if the 
     Administrator deems it necessary for the protection of the 
     licensee or the interests of the Administration, suspend from 
     office or prohibit from further participation in any manner 
     in the management or conduct of the affairs of the licensee, 
     or both, any management official referred to in subsection 
     (b)(1), by written notice to such effect served upon the 
     management official.
       ``(2) Effectiveness.--A suspension or prohibition under 
     paragraph (1)--
       ``(A) shall become effective upon service of notice under 
     paragraph (1); and
       ``(B) unless stayed by a court in proceedings authorized by 
     paragraph (3), shall remain in effect--
       ``(i) pending the completion of the administrative 
     proceedings pursuant to a notice of intention to remove 
     served under subsection (b); and
       ``(ii) until such time as the Administrator shall dismiss 
     the charges specified in the notice, or, if an order of 
     removal or prohibition is issued against the management 
     official, until the effective date of any such order.
       ``(3) Judicial review.--Not later than 10 days after any 
     management official has been suspended from office or 
     prohibited from participation in the management or conduct of 
     the affairs of a licensee, or both, under paragraph (1), that 
     management official may apply to the United States district 
     court for the judicial district in which the home office of 
     the licensee is located, or the United States District Court 
     for the District of Columbia, for a stay of the suspension or 
     prohibition pending the completion of the administrative 
     proceedings pursuant to a notice of intent to remove served 
     upon the management official under subsection (b), and such 
     court shall have jurisdiction to stay such action.
       ``(d) Authority To Suspend on Criminal Charges.--
       ``(1) In general.--Whenever a management official is 
     charged in any information, indictment, or complaint 
     authorized by a United States attorney, with the commission 
     of or participation in a felony involving dishonesty or 
     breach of trust, the Administrator may, by written notice 
     served upon that management official, suspend that management 
     official from office or prohibit that management official 
     from further participation in any manner in the management or 
     conduct of the affairs of the licensee, or both.
       ``(2) Effectiveness.--A suspension or prohibition under 
     paragraph (1) shall remain in effect until the subject 
     information, indictment, or complaint is finally disposed of, 
     or until terminated by the Administrator.
       ``(3) Authority upon conviction.--If a judgment of 
     conviction with respect to an offense described in paragraph 
     (1) is entered against a management official, then at such 
     time as the judgment is not subject to further appellate 
     review, the Administrator may issue and serve upon the 
     management official an order removing that management 
     official, which removal shall become effective upon service 
     of a copy of the order upon the licensee.
       ``(4) Authority upon dismissal or other disposition.--A 
     finding of not guilty or other disposition of charges 
     described in paragraph (1) shall not preclude the 
     Administrator from thereafter instituting proceedings to 
     suspend or remove the management official from office, or to 
     prohibit the management official from participation in the 
     management or conduct of the affairs of the licensee, or 
     both, pursuant to subsection (b) or (c).
       ``(e) Notification to Licensees.--Copies of each notice 
     required to be served on a management official under this 
     section shall also be served upon the interested licensee.
       ``(f) Procedural Provisions; Judicial Review.--
       ``(1) Hearing venue.--Any hearing provided for in this 
     section shall be--
       ``(A) held in the Federal judicial district or in the 
     territory in which the principal office of the licensee is 
     located, unless the party afforded the hearing consents to 
     another place; and
       ``(B) conducted in accordance with the provisions of 
     chapter 5 of title 5, United States Code.
       ``(2) Issuance of orders.--After a hearing provided for in 
     this section, and not later than 90 days after the 
     Administrator has notified the parties that the case has been 
     submitted for final decision, the Administrator shall render 
     a decision in the matter (which shall include findings of 
     fact upon which its decision is predicated), and shall issue 
     and cause to be served upon each party to the proceeding an 
     order or orders consistent with the provisions of this 
     section.
       ``(3) Authority to modify orders.--The Administrator may 
     modify, terminate, or set aside any order issued under this 
     section--
       ``(A) at any time, upon such notice, and in such manner as 
     the Administrator deems proper, unless a petition for review 
     is timely filed in a court of appeals of the United States, 
     as provided in paragraph (4)(B), and thereafter until the 
     record in the proceeding has been filed in accordance with 
     paragraph (4)(C); and
       ``(B) upon such filing of the record, with permission of 
     the court.
       ``(4) Judicial review.--
       ``(A) In general.--Judicial review of an order issued under 
     this section shall be exclusively as provided in this 
     subsection.
       ``(B) Petition for review.--Any party to a hearing provided 
     for in this section may obtain a review of any order issued 
     pursuant to paragraph (2) (other than an order issued with 
     the consent of the management official concerned, or an order 
     issued under subsection (d)), by filing in the court of 
     appeals of the United States for the circuit in which the 
     principal office of the licensee is located, or in the United 
     States Court of Appeals for the District of Columbia Circuit, 
     not later than 30 days after the date of service of such 
     order, a written petition praying that the order of the 
     Administrator be modified, terminated, or set aside.
       ``(C) Notification to administration.--A copy of a petition 
     filed under subparagraph (B) shall be forthwith transmitted 
     by the clerk of the court to the Administrator, and thereupon 
     the Administrator shall file in the court the record in the 
     proceeding, as provided in section 2112 of title 28, United 
     States Code.
       ``(D) Court jurisdiction.--Upon the filing of a petition 
     under subparagraph (A)--
       ``(i) the court shall have jurisdiction, which, upon the 
     filing of the record under subparagraph (C), shall be 
     exclusive, to affirm, modify, terminate, or set aside, in 
     whole or in part, the

[[Page S12742]]

     order of the Administrator, except as provided in the last 
     sentence of paragraph (3)(B);
       ``(ii) review of such proceedings shall be had as provided 
     in chapter 7 of title 5, United States Code; and
       ``(iii) the judgment and decree of the court shall be 
     final, except that the judgment and decree shall be subject 
     to review by the Supreme Court of the United States upon 
     certiorari, as provided in section 1254 of title 28, United 
     States Code.
       ``(E) Judicial review not a stay.--The commencement of 
     proceedings for judicial review under this paragraph shall 
     not, unless specifically ordered by the court, operate as a 
     stay of any order issued by the Administrator under this 
     section.''.

     SEC. 6. REDUCTION OF FEES.

       (a) Two-Year Reduction of Section 7(a) Fees.--
       (1) Guarantee fees.--Section 7(a)(18) of the Small Business 
     Act (15 U.S.C. 636(a)(18)) is amended by adding at the end 
     the following:
       ``(C) Two-year reduction in fees.--With respect to loans 
     approved during the 2-year period beginning on October 1, 
     2002, the guarantee fee under subparagraph (A) shall be as 
     follows:
       ``(i) A guarantee fee equal to 2 percent of the deferred 
     participation share of a total loan amount that is not more 
     than $250,000.
       ``(ii) A guarantee fee equal to 3 percent of the deferred 
     participation share of a total loan amount that is more than 
     $250,000.''.
       (2) Annual fees.--Section 7(a)(23)(A) of the Small Business 
     Act (15 U.S.C. 636(a)(23)(A)) is amended by adding at the end 
     the following: ``With respect to loans approved during the 2-
     year period beginning on October 1, 2002, the annual fee 
     assessed and collected under the preceding sentence shall be 
     in an amount equal to 0.25 percent of the outstanding balance 
     of the deferred participation share of the loan.''.
       (b) Reduction of Section 504 Fees.--Section 503 of the 
     Small Business Investment Act of 1958 (15 U.S.C. 697) is 
     amended--
       (1) in subsection (b)(7)(A)--
       (A) by redesignating clauses (i) and (ii) as subclauses (I) 
     and (II), respectively, and moving the margins 2 ems to the 
     right;
       (B) by striking ``not exceed the lesser'' and inserting 
     ``not exceed--
       ``(i) the lesser''; and
       (C) by adding at the end the following:
       ``(ii) 50 percent of the amount established under clause 
     (i) in the case of a loan made during the 2-year period 
     beginning on October 1, 2002, for the life of the loan; 
     and''; and
       (2) by adding at the end the following:
       ``(i) Two-Year Waiver of Fees.--The Administration may not 
     assess or collect any up front guarantee fee with respect to 
     loans made under this title during the 2-year period 
     beginning on October 1, 2002.''.
       (c) Budgetary Treatment of Loans and Financings.--
     Assistance made available under any loan made or approved by 
     the Small Business Administration under section 7(a) of the 
     Small Business Act (15 U.S.C. 636(a)) or financings made 
     under title III or V of the Small Business Investment Act of 
     1958 (15 U.S.C. 697a), during the 2-year period beginning on 
     October 1, 2002, shall be treated as separate programs of the 
     Small Business Administration for purposes of the Federal 
     Credit Reform Act of 1990 only.
       (d) Use of Funds.--The amendments made by this section 
     shall be effective only to the extent that funds are made 
     available under appropriations Acts, which funds shall be 
     utilized by the Administrator to offset the cost (as such 
     term is defined in section 502 of the Federal Credit Reform 
     Act of 1990) of such amendments.
       (e) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 2002.

  Mr. REID. Mr. President, I ask unanimous consent that the Senate 
concur in the House amendment with a further amendment which is at the 
desk; that the amendment be agreed to and the motion to reconsider be 
laid on the table, with no intervening action.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment (No. 2460) was agreed to, as follows:

       Strike section 6 and all that follows through the end of 
     the matter proposed to be inserted by the House of 
     Representatives, and insert the following:

     SEC. 6. REDUCTION OF FEES.

       (a) Two-Year Reduction of Section 7(a) Fees.--
       (1) Guarantee fees.--Section 7(a)(18) of the Small Business 
     Act (15 U.S.C. 636(a)(18)) is amended by adding at the end 
     the following:
       ``(C) Two-year reduction in fees.--With respect to loans 
     approved during the 2-year period beginning on October 1, 
     2002, the guarantee fee under subparagraph (A) shall be as 
     follows:
       ``(i) A guarantee fee equal to 1 percent of the deferred 
     participation share of a total loan amount that is not more 
     than $150,000.
       ``(ii) A guarantee fee equal to 2.5 percent of the deferred 
     participation share of a total loan amount that is more than 
     $150,000, but not more than $700,000.
       ``(iii) A guarantee fee equal to 3.5 percent of the 
     deferred participation share of a total loan amount that is 
     more than $700,000.''.
       (2) Annual fees.--Section 7(a)(23)(A) of the Small Business 
     Act (15 U.S.C. 636(a)(23)(A)) is amended by adding at the end 
     the following: ``With respect to loans approved during the 2-
     year period beginning on October 1, 2002, the annual fee 
     assessed and collected under the preceding sentence shall be 
     in an amount equal to 0.25 percent of the outstanding balance 
     of the deferred participation share of the loan.''.
       (b) Reduction of Section 504 Fees.--Section 503 of the 
     Small Business Investment Act of 1958 (15 U.S.C. 697) is 
     amended--
       (1) in subsection (b)(7)(A)--
       (A) by redesignating clauses (i) and (ii) as subclauses (I) 
     and (II), respectively, and moving the margins 2 ems to the 
     right;
       (B) by striking ``not exceed the lesser'' and inserting 
     ``not exceed--
       ``(i) the lesser''; and
       (C) by adding at the end the following:
       ``(ii) 50 percent of the amount established under clause 
     (i) in the case of a loan made during the 2-year period 
     beginning on October 1, 2002, for the life of the loan; 
     and''; and
       (2) by adding at the end the following:
       ``(i) Two-Year Waiver of Fees.--The Administration may not 
     assess or collect any up front guarantee fee with respect to 
     loans made under this title during the 2-year period 
     beginning on October 1, 2002.''.
       (c) Budgetary Treatment of Loans and Financings.--
     Assistance made available under any loan made or approved by 
     the Small Business Administration under section 7(a) of the 
     Small Business Act (15 U.S.C. 636(a)) or financings made 
     under title V of the Small Business Investment Act of 1958 
     (15 U.S.C. 695 et seq.), during the 2-year period beginning 
     on October 1, 2002, shall be treated as separate programs of 
     the Small Business Administration for purposes of the Federal 
     Credit Reform Act of 1990 only.
       (d) Use of Funds.--The amendments made by this section to 
     section 503 of the Small Business Investment Act of 1958, 
     shall be effective only to the extent that funds are made 
     available under appropriations Acts, which funds shall be 
     utilized by the Administrator to offset the cost (as such 
     term is defined in section 502 of the Federal Credit Reform 
     Act of 1990) of such amendments.
       (e) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 2002.

  Mr. KERRY. Mr. President, I want to say a few words about S. 1196, 
the Small Business Investment Company, SBIC, Amendments Act of 2001.
  For those who don't know, the SBIC program is a very successful 
partnership between the SBA and private venture capital firms. It has 
accounted for about half of all venture capital deals done in the 
country over the past few years, and it has helped finance some of 
America's companies that are now house-hold names--Federal Express, 
Intel, Outback Steakhouse, America Online, Callaway Golf, and 
Massachusetts' own Staples.
  The main purpose of this act is to adjust the fees charged to 
Participating Security SBICs from 1 percent to 1.38 percent. The change 
is necessary because, at the President's request, all funding for this 
program was eliminated. I disagree with that. I preferred to show 
fiscal responsibility by level funding the program and then increasing 
the fees only as much as necessary to raise the program level from $2 
billion to $3.5 billion. Consistent with that opinion, as my colleagues 
may remember, Senator Bond and I offered an amendment to the Budget 
Resolution, Amendment No. 183, that did just that. It was agreed to in 
the Senate by voice vote in April and retained in the final budget 
resolution. Unfortunately, the appropriators had very tough decisions 
to make and the funding agreed to in our budget amendment was not 
included in the appropriations process. Despite my disagreement, I am 
supporting S. 1196 because if we want to continue this program, it must 
be funded entirely through fees, which forces us to authorize the fee 
change.
  For the record, let me state that the National Association of Small 
Business Investment Companies testified before both the Senate and 
House Committees on Small Business in favor of increasing the program 
level from $2 billion to $3.5 billion and raising the fees to make that 
level possible. As I just explained, this legislation makes that 
possible.
  This bill also includes modifications to the program in order to 
strengthen the oversight and authority of the SBA to take action 
against bad actors, to protect the integrity of the SBIC program, and 
to streamline operations.
  With this bill, I am offering an amendment, cosponsored by Senator 
Bond, to reinforce our efforts to keep the economy strong. The 
amendment strikes section six, which my colleagues in the House 
included when they deliberated and voted on this bill, and replaces it 
with similar language which accommodates changes requested by the 
Administration. Specifically, starting in FY2003, it reduces for two 
years the fees for the Small Business Administration's 7(a) and 504 
loan guarantee programs in order to make these loans more affordable 
for borrowers to access capital and lenders to

[[Page S12743]]

make. In reducing the fees, it gives the largest reduction to the 
smallest small business borrowers, those who take out loans of less 
than $150,000. It also provides fee relief for small business borrowers 
who need working capital for medium-sized loans, those in amounts of 
between $150,000 and $700,000.
  The 7(a) program is one of the SBA's most popular and successful 
small business credit programs. In FY2000, 43,748 small businesses were 
approved for 7(a) loans, which added up to $9.3 billion. Of those 
billions, 31 percent went to minority business owners, 11 percent went 
to veteran business owners, and 16 percent went to women business 
owners. These loans would not have been made but for the SBA; in order 
to get an SBA loan, borrowers must demonstrate that they are unable to 
get comparable credit, at comparable rates, from an area lender. Year 
after year, as this program has generated billions of dollars in small 
business development, fueled job creation and generated tax revenue, 
its default rates by cohort have dropped sharply since 1990 from more 
than 6 percent to less than 2 percent. Not only have these loans 
contributed to the economy, but the program has largely paid for 
itself. From fiscal years 1992 through 1998, Congress appropriated 
close to $1.4 billion to run the program, and the lenders and borrowers 
paid $1.3 billion more than necessary in fees to participate in the 
program.

   The track record of the 504 program is equally impressive, and they 
too have overpaid because the SBA and OMB have over-estimated the cost 
of providing these loans. Reducing fees will help encourage lending at 
a time when surveys from the Federal Reserve have found that anywhere 
from 35 to 45 percent of banks have tightened credit to small 
businesses, making it harder and more expensive to get loans.
  Originally, my amendment also included a provision to require the SBA 
to give new markets venture capital companies two years to raise their 
matching capital. Even though we had legislated in the 106th Congress 
to give them two years, and Senator Hollings and Senator Gregg 
reinforced this by making the relevant matching capital available until 
expended as part of supplemental funding to the FY2001 Commerce, 
Justice, State appropriations bill, the Small Business Administration 
required the approved new markets venture capital companies to raise 
their money first in six months, and later proposed extending the 
period to one year. The declining economy, particularly in the 
aftermath of September 11, has made raising capital even more 
difficult. Consequently, these companies need more time than one year. 
Here is what Dr. Julia Sass Rubin, a community development venture 
capital expert from the Harvard Business School, has explained about 
the nature of raising funds these days: ``This task of raising capital 
for a new fund is particularly challenging during an economic slowdown, 
when the sources of funds for any kind of venture capital become more 
difficult to access. Additionally, with the dramatic recent slowdown in 
initial public offerings, even traditional venture capitalists are 
having a very difficult time raising money. It is simply not practical 
to expect a new CDVC fund to capitalize within one year.''
  I am very happy to report that we were able to work out a compromise 
with the Small Business Administration to give these companies to year 
and half to raise their capital. It's not the full two years, but I am 
hopeful that the new markets venture capital companies can raise their 
capital in the that time. The Administration has also recommitted to 
offering a second round of funding starting in the August/September 
time frame of 2002.
  Let me quickly explain a bit about this innovative venture capital 
initiative. The new markets venture capital initiative is modeled after 
the SBA's very successful SBIC program, which I talked about earlier. 
However, unlike the SBIC program which makes larger deals, new markets 
venture capital companies target smaller investments to the development 
of high-growth small businesses in our country's poorest urban and 
rural areas. They tie those investments to the creation of local jobs 
with livable wages and benefits for individuals who historically have 
no opportunities for employment or who are the working poor. One 
excellent example of such a company is City Fresh Foods in Dorchester, 
Massachusetts. They run a smart business, providing a needed service to 
the elderly in their community by producing and distributing meals for 
the Meals-on-Wheels program. They hire from the community, and they 
provide good jobs with sustainable wages. The SBA's new markets venture 
capital investments, if given a real chance to work, could help develop 
more companies like City Fresh Foods.
  I ask my colleagues to support this bill, and ask my colleagues in 
the House to pass this bill as soon as possible.
  I thank Senator Bond for his work on this legislation.
  Mr. BOND. Mr. President, I rise today to urge my colleagues in the 
Senate to support passage of the Small Business Investment Company 
Amendments Act of 2001, S. 1196 and an amendment being offered by 
Senator John Kerry, which I strongly support. Time is of the essence 
since a critical component of the Small Business Investment Company, 
SBIC, Program was shut down on November 28, 2001, when the Commerce 
Justice State appropriations bill became law, while the bill modifying 
the annual fees paid by the Participating Securities SBICs had not been 
enacted. Once S. 1196 becomes law, it paves the way for more investment 
capital to be available for more small businesses that are seeking to 
grow and hire new employees.
  When the Committee on Small Business and Entrepreneurship unanimously 
approved S. 1196 on July 19, 2001, the Committee adopted a fee increase 
from 1.0 percent to 1.28 percent. At that time, some members of the 
committee believed they could obtain an appropriation for the SBIC 
Participating Securities Program that would offset part of the fee 
increase. The final version of the Fiscal Year 2002 Commerce Justice 
State appropriations bill did not include any funds for the SBIC 
program. Consequently, it is critical that legislation be enacted 
increasing the program fee to 1.38 percent. So long as the fee is not 
increased, the SBIC Participating Securities will remain shut down as 
required by the Federal Credit Reform Act of 1990.
  Last month, on November 15, the Senate unanimously passed S. 1196, 
after approving a managers' amendment increasing the annual fee to 1.38 
percent. When the House of Representatives considered the bill, it 
included an amendment that changed the fee structure for two other 
credit programs at the Small Business Administration, SBA: the 7(a) 
Guaranteed Business Loan Program and the 504 Development Company 
Program. Today, Senator Kerry and I are offering an amendment to S. 
1196 that makes minor modifications to the House-passed amendment on 
the 7(a) and 504 loan programs.
  There has been a significant growth in the small business sector of 
the U.S. economy over the past two decades. Today, small businesses 
make up over one-half of the entire U.S. economy. Over 99 percent of 
all employers in the United States are small businesses. They employ 
over 50 percent of workers and provide 75 percent of the net new jobs 
each year. Small businesses generate 51 percent of the Nation's private 
sector output. In light of the ongoing dip in the U.S. economy with the 
accompanying retrenchment by many businesses, both large and small, S. 
1196 will serve as part of the solution to move us toward a recovery.
  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.

[[Page S12744]]

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 manufacturers 
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 of 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,'' as 
amended, would permit the annual interest fee paid by Participating 
Securities SBICs to increase from 1.0 percent to no more than 1.38 
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. The 
fee increase included in the bill, 1.38 percent, will allow the program 
to operate at its authorized level--$3.5 billion--an amount needed to 
help support small businesses as they help lead our country to an 
economic recovery.
  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 it 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 official,'' which includes officers, directors, 
general partners, managers, employees, agents or 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.
  The Kerry-Bond amendment would reduce the fees paid by the 
participants in two SBA programs: the 7(a) guaranteed business loan 
program (7(a) program) and the 504 Development Company program (504 
program). The need for this legislation to reduce fees has been growing 
in recent years. The issues surrounding the fees paid by small business 
borrowers and the banks came to a head earlier this year, when the 
General Accounting Office determined that the Federal government had 
collected over $950 million in excess fees paid by the borrowers and 
lenders and taxpayers' funds appropriated by the Congress. The driving 
force behind this amendment is to adjust the fees paid by small 
business borrowers and lenders to reflect more accurately their 
appropriate share of the cost of the program.
  On May 4, 2001, Senator Kerry, Mr. Manzullo, Ms. Velazquez, and I 
asked the Comptroller General to undertake an in-depth analysis of the 
SBA's 7(a) credit subsidy rate calculations. Specifically, we asked the 
GAO to assess the level of difference between the projected cost of the 
7(a) program's financing account, or loan loss reserve, and the actual 
cost. This calculation is required by the Federal Credit Reform Act of 
1990. The purpose of the credit subsidy rate is to determine the amount 
of funds that should be appropriated each year to cover expected losses 
when the Federal government guarantees 7(a) loans.
  What the GAO uncovered confirmed our worst concerns. The GAO pointed 
out that defaults and recoveries are key variables in the calculation 
of the 7(a) credit subsidy rate. Since FY 1992, the first year under 
the rules of the Federal Credit Reform Act, defaults and recoveries 
were significantly overestimated by the SBA and OMB. Defaults have been 
overestimated by nearly $2 billion and recoveries by $450 billion. What 
the overestimates mean in real costs is that the Federal government 
collected significantly more money than needed to fund its loss reserve 
accounts. Specifically, the Federal government collected over $950 
million in excess fees paid by borrowers and lenders and by taxpayers' 
funds appropriated by Congress.
  My shade tree analysis leads me to believe that small business 
borrowers, banks and taxpayers have been and continue to be overcharged 
for the 7(a) program. First, it is clear that they are paying too much 
because each year the SBA and OMB overestimated the default rate for 
the 7(a) program. Second, if a more accurate default rate were adopted, 
the credit subsidy rate could be reduced. Third, a lower credit subsidy 
rate could mean lower fees paid by small business borrowers. And 
fourth, the 7(a) loan program could expand to meet the demands of small 
businesses without requiring a larger appropriation.
  Mr. President, time is of the essence. We need to act promptly and 
pass the Small Business Investment Company Act of 2001 today, so that 
the House of Representatives has time to act before the Congress 
adjourns in the coming weeks.




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