[Congressional Record Volume 151, Number 95 (Thursday, July 14, 2005)]
[Senate]
[Page S8304]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLEN (for himself and Mr. Santorum):
  S. 1396. A bill to amend the Investment Company Act of 1940 to 
provide incentives for small business investment, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. ALLEN. Mr. President, I am pleased to join with my distinguished 
colleague, Senator Santorum, in introducing the Increased Capital 
Access for Growing Businesses Act. The legislation would help many 
small businesses address the challenge of accessing capital as they 
look to grow, develop and create more jobs.
  I would like to share with colleagues in the Senate why this 
legislation is necessary and desirable to update our securities laws 
for entrepreneurial small business owners. In 1980, Congress passed 
legislation, the Small Business Investment Incentive Act, which 
authorized business development companies, or BDCs, to provide 
financing to small, developing or financially troubled companies. 
Congress recognized the importance of small businesses to the U.S. 
economy and that such businesses may have a more difficult time 
obtaining needed capital to grow and develop.
  BDCs are publicly traded companies that are required to have 70 
percent of their assets invested in eligible assets, or eligible 
portfolio companies, which are generally to be securities of small 
developing or financially troubled businesses. In 1980, the definition 
of a small company for the purposes of a BDC's 70 percent of asset 
category was tied to the Federal Reserve's rules defining marginable 
securities. At the time, about two-thirds or 8,000 publicly traded 
companies were not marginable and were therefore eligible investments 
for BDCs.
  However, there was an unintended consequence of tying the definition 
of small company to those issuers that do not have marginable 
securities--the margin rules have been changed several times, which 
significantly reduced the number of public companies in which BDCs 
could invest. This was obviously not the original intent of Congress, 
but the practical impact was that many small, public companies became 
ineligible to receive BDC financing, even if they could not receive 
more traditional sources of financing.
  Recently, the disqualification of any private company that had issued 
any debt security has significantly narrowed even further the number of 
companies that qualify as eligible portfolio companies. Thus, for the 
first time many companies with no access to the public equity markets 
cannot access capital through a BDC. These companies are either denied 
capital access altogether, or are forced to turn to various unregulated 
sources to meet capital needs. This situation is unfair to the 
shareholders of BDCs, and unfair to the shareholders of businesses that 
could grow if only offered capital access opportunities.
  That is why this legislation is so important. It will allow more 
small private and public companies to receive BDC financing and restore 
the original intent of Congress.
  Specifically, the legislation would use a market capitalization 
standard of $250 million or less to define what is an eligible 
portfolio company for BDCs. The $250 million market capitalization 
level approximates the number of public companies that Congress 
originally intended to qualify as eligible BDC assets. I would note 
that it is also much lower than the market capitalization levels of 
small cap indexes, such as the S&P SmallCap 600, which uses a market 
cap of $300 million to $1 billion for a definition of a small company.
  This legislation adds no costs or risks to the government or 
taxpayers. It will simply correct the unintended consequences of 
current rules and update the securities laws to allow more small 
businesses to access capital. This will in turn encourage small 
business growth, job creation and economic expansion.
  That is why, earlier this year the House of Representatives 
unanimously passed similar legislation to modernize U.S. securities 
laws and allow more small businesses to be eligible for such financing.
  I urge my colleagues in the Senate to join me in supporting this 
common-sense legislation for small businesses in America.
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