[Congressional Record Volume 149, Number 58 (Thursday, April 10, 2003)]
[Senate]
[Pages S5181-S5182]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE (for herself, Mr. Bond, and Mr. Grassley):
  S. 855. A bill to amend the Internal Revenue Code of 1986 to modify 
the unrelated business income limitation on investment in certain debt-
financed properties; to the Committee on Finance.
  Ms. SNOWE. Mr. President, I rise today to introduce the Small 
Business Investment Company Capital Access Act of 2003 whose purpose is 
to increase the amount of venture capital available to small 
businesses. As the chair of the Committee on Small Business and 
Entrepreneurship, I am pleased that my good friend and former chairman 
of the Committee, Senator Bond, and the chairman of the Senate Finance 
Committee, Senator Grassley, have agreed to be the principal cosponsors 
of this important bill.
  During the past 2 years, there has been a significant contraction of 
the private equity market. During this same period, the Small Business 
Administration's Small Business Investment Company program has taken on 
a significant role in providing venture capital to small businesses 
seeking investments in the range of $500,000 to $3 million.
  Small Business Investment Companies are government-licensed, 
government-regulated, privately managed venture capital firms created 
to invest only in original issue debt or equity securities of U.S. 
small businesses that meet size standards set by law. In the current 
economic environment, the SBIC program represents an increasingly 
important source of capital for small enterprises.
  While debenture SBICs qualify for SBA-guaranteed borrowed capital, 
the Government guarantee forces a number of potential investors, namely 
pension funds and university endowment funds, to avoid investing in 
SBICs because they would be subject to tax liability for unrelated 
business taxable income. More often than not, tax-exempt investors opt 
to invest in venture capital funds that do not create UBTI. As a result 
an estimated 60 percent of the private capital potentially available to 
these SBICs is effectively off limits.
  The Small Business Investment Company Capital Access Act of 2003 
would correct this problem by excluding government-guaranteed capital 
of debenture SBICs from debt for purposes of the UBTI rules. This 
change would permit tax-exempt organizations to invest in SBICs without 
the burdens of UBTI recordkeeping or tax liability.
  In 1958, Congress created the SBIC program to assist small business 
owners in obtaining investment capital. More than 40 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 to $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 
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, when Federal Express needed help 
from reluctant credit markets, it 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 hometowns all over the United States. Main street 
companies provide both stability and growth in our local business 
communities.
  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, six of the top 12 businesses on the list received 
SBIC financing during their critical growth year.
  The Small Business Investment Company Capital Access Act of 2003 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. According to the National 
Association of Small Business Investment Companies, a conservative 
estimate of the effect of this bill would be to increase investments in 
debenture SBICs by $200 million per year from tax-exempt investors. 
Together with SBA-guaranteed leverage, that will mean as much as $500 
million per year in new capital assets for debenture SBICs to invest in 
U.S. small businesses.
  According to the SBA, one job is created for every $36,000 invested 
in a small company. At that rate, this bill could be responsible for 
the creation or support of as many as 16,600 jobs--within companies 
receiving investments directly as well as within those firms 
benefitting indirectly through increased sales of goods and services to 
the former companies. In short, this bill is a jobs creator.
  And the cost? The Joint Committee on Taxation estimated in the last 
Congress that this bill would result in tax revenue loss of only $1 
million per year for the next 10 years.
  Mr. President, the cost is low and the potential for economic gain is 
great. Passage of the bill will make the Government's existing SBIC 
program more effective in providing growth capital for America's small 
business entrepreneurs.
  And most importantly, it will provide sorely needed capital for the 
sector of our economy that provides a majority of the net new jobs in 
this country--small businesses. That is a real stimulus that would 
cause new investments to be made and the creation of critically needed 
new jobs. Our economy is primed for this kind of support, and I urge my 
colleagues to support this important bill.
  I ask unanimous consent that the text of the bill and a summary of 
its provisions be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

    ``Small Business Investment Company Capital Access Act of 2003''


                       description of provisions

       The bill amends section 514 of the Internal Revenue Code to 
     exclude government-guaranteed capital borrowed by Debenture 
     Small Business Investment Companies (SBICs) from debt for 
     purposes of the Unrelated Business Taxable Income (UBTI) 
     rules. This change would permit tax-exempt organizations to 
     invest in SBICs without the burdens of UBTI record keeping or 
     tax liability.
       Currently, while Debenture SBICs qualify for borrowed 
     capital guaranteed by the Small Business Administration, the 
     government guarantee forces a number of potential investors, 
     namely pension funds and university endowment funds, to avoid 
     investing in SBICs because they would be subject to tax 
     lability for UBTI. Frequently, tax-exempt investors generally 
     opt to invest in venture capital funds that do not create 
     UBTI. As a result, an estimated 60% of the private-capital 
     potentially available to these SBICs is effectively ``off 
     limits.''

                                 S. 855

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Investment 
     Company Capital Access Act of 2003''.

     SEC. 2. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION 
                   ON INVESTMENT IN CERTAIN DEBT-FINANCED 
                   PROPERTIES.

       (a) In General.--Section 514(c)(6) of the Internal Revenue 
     Code of 1986 (relating to acquisition indebtedness) is 
     amended--
       (1) by striking ``include an obligation'' and inserting 
     ``include--
       ``(A) an obligation'',
       (2) by striking the period at the end and inserting ``, 
     or'', and
       (3) by adding at the end the following:
       ``(B) indebtedness incurred by a small business investment 
     company licensed under the Small Business Investment Act of 
     1958 which is evidenced by a debenture--
       ``(i) issued by such company under section 303(a) of such 
     Act, or

[[Page S5182]]

       ``(ii) held or guaranteed by the Small Business 
     Administration.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to acquisitions made on or after the date of the 
     enactment of this Act.
                                 ______