[House Report 110-347]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 110-347
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SMALL BUSINESS INVESTMENT EXPANSION ACT OF 2007
_______
September 25, 2007.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Velazquez, from the Committee on Small Business, submitted the
following
R E P O R T
[To accompany H.R. 3567]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 3567) to amend the Small Business Investment Act of
1958 to expand opportunities for investments in small
businesses, and for other purposes, having considered the same,
report favorably thereon without amendment and recommend that
the bill do pass.
CONTENTS
Page
I. Purpose and Summary..............................................1
II. Background and Need for Legislation..............................3
III. Hearings........................................................10
IV. Committee Consideration.........................................10
V. Committee Votes.................................................11
VI. Section-by-Section Analysis of H.R. 3567........................11
VII. Congressional Budget Office Cost Estimate.......................20
VIII.Committee Estimate of Costs.....................................23
IX. Oversight Findings..............................................23
X. Statement of Constitutional Authority...........................24
XI. Compliance With Public Law 104-4................................24
XII. Congressional Accountability Act................................24
XIII.Federal Advisory Committee Statement............................24
XIV. Statement of No Earmarks........................................24
XV. Performance Goals and Objectives................................24
XVI. Changes in Existing Law Made by the Bill, as Reported...........24
I. Purpose and Summary
The Small Business Investment Expansion Act of 2007 is
aimed at three broad goals. First, the bill will update and
streamline three programs in the Small Business Investment Act
of 1958, the Small Business Investment Company (SBIC), New
Markets Venture Capital (NMVC) and Surety Bond programs.
Second, the bill will leverage a new investment strategy, angel
investing, to direct more venture capital toward early stage
and startup businesses. Finally, the bill will revise SBA rules
that inhibit the free flow of venture capital investment to
small businesses.
To streamline the SBIC program, this legislation will
simplify the current method of calculating maximum leverage
caps in favor of a straightforward maximum leverage cap that
will remain workable for years to come. The bill will also
revise limitations on aggregate investments to establish
limitations that are more consistent with industry accepted
portfolio risk management practices. Additional provisions of
the bill will increase overall investment in smaller
enterprises and will also establish incentives to form SBIC
funds focused on investment in minority and women owned
businesses. The New Markets Venture Capital program will also
be updated with provisions that emphasize expanding the program
and provide additional incentives for investment in small
manufacturing companies in low-income areas. The final approval
process for conditionally approved NMVC companies will be
streamlined by establishing simplified application documents
and permitting conditionally approved NMVC companies to receive
funding for operational assistance. The operational assistance
aspect will also be improved by eliminating the requirement
that NMVC companies raise matching commitments prior to final
approval and by simplifying the process for operational grant
assistance. Finally, appropriations for the NMVC program will
be authorized in a total amount of $35 million ($30 million to
support debentures and $5 million for operational assistance
grants), of which not less than one quarter must be used to
support NMVC companies that invest primarily in small
manufacturers.
The bill will also establish a new Office of Angel
Investment within the SBA's Investment Division. This office
will be headed by a Director of Angel Investment and will focus
on three initiatives to increase equity investment in small
businesses.
First, an Angel Investment Program will be established to
provide eligible angel groups that have ten or more angel
investors with matching financing leverage. This leverage will
be used to finance early stage small businesses, with priority
in financing going to angel groups that invest in small
businesses controlled by veterans, women, or socially and
economically disadvantaged small businesses. This leverage will
be repaid to the SBA with a pro rata share of returns from the
investment. Appropriations for the purpose of providing
leverage to angel groups will be authorized in a total amount
of $50 million.
Second, a directive will be established within the Office
of Angel Investment to create a Federal Angel Network. This
network will be a searchable directory of angel groups
available on through the SBA's internet website. Additionally,
the directory could be distributed or used by other networks to
increase its exposure. The directory will include the names and
contact information for angel groups and angel investors and
will provide information about the types of investments each
group or investor has made. One million dollars will be
authorized to be appropriated for the establishment of the
angel network.
The Angel Investment Program will also include, a grant
initiative to provide eligible state, federal, and nonprofit
entities with resources to increase awareness and education
about angel investing. As a condition of receiving grant
assistance, however, eligible entities must provide 50 percent
matching contributions, thus amplifying the benefits of grant
assistance. This provision will bring more attention to the
benefits of angel investing and attract more angel investors to
participate in the program. A total of $4.5 million will be
authorized for appropriations to carry out this initiative.
The bill will also address deficiencies in the Surety Bond
program. The maximum permissible bond amount will be increased
by half to $3 million. The bill will also strengthen surety
companies' confidence in the Plan A program by barring the SBA
from denying indemnity on Plan A guaranties based upon
information that was provided as part of the guaranty
application. The SBA will also be required to conduct a study
on the program's current funding structure and report its
findings to Congress within 180 days of the bill's enactment.
The bill will make the Surety Bond program more affordable to
small businesses and surety companies by providing the SBA with
authority to contribute funds for the purpose of reducing the
burden associated with surety and contractor fees on bond
guarantees.
Finally, the bill modifies the Small Business Act to
exclude venture capital investment in SBA's consideration of
whether a firm is small for the purposes of the Act. The
provision provides that when calculating the number of
employees of a small business concern that has venture capital
investment, the SBA will exclude those employees who work for
companies affiliated with the venture capital company. The bill
requires that the venture capital company comply, as
appropriate, with federal registration requirements for
investment companies. In addition, the bill prevents a venture
capital that is controlled by a large business or a venture
capital company with more than 500 employees from being
recognized as a venture capital company under this provision.
II. Background and Need for Legislation
The Small Business Investment Company (SBIC) program is the
SBA's primary capital investment program. It is the agency's
largest and most important in terms of number of investments
made and program level supported. The SBA does not make direct
investments in small business concerns through the SBIC
program, but instead licenses Small Business Investment
Companies (SBICs) to administer the program.
SBICs are state-chartered entities organized solely for the
purpose of providing a source of equity capital for small
business concerns. The SBA provides funding to qualified SBICs
with expertise in certain sectors or industries, which then use
their own funds, plusresources borrowed with an SBA guaranty or
``leverage,'' to invest in small businesses. Although subject to SBA
regulation, SBICs remain privately owned and managed and make their own
decisions about which small businesses investments to make.
The SBA provides leverage to SBICs in two forms,
``debentures'' and ``participating securities.'' To obtain
leverage, SBICs issue debentures or participating securities,
which are guaranteed by the SBA. Separate pools of either SBA-
guaranteed debentures or participating securities are formed
and sold to investors through periodic securities offerings. An
SBIC's business plan and investment strategy are the primary
factors in determining the type of leverage used by the SBIC.
Both debentures and participating securities operate on a
zero-subsidy basis, being funded by fixed commitment and
drawdown fees as well as by annual fees based on a subsidy rate
determined at the time of the commitment. The primary
difference between debentures and participating securities,
however, is the timing in repayment of leverage. Unlike
debentures, which have a fixed time for repayment,
participating securities leverage is repaid only out of profits
of the SBIC fund, enabling the SBA to share in the profits of a
participating securities SBIC.
Debenture SBICs have defined interest obligations to the
SBA. Thus, they tend to focus on investing in companies that
are mature enough to make current interest payments on the
investment. Because interest can accrue on participating
securities obligations, however, the participating securities
program is better suited for investment in seed and early stage
businesses or businesses that either do not have established
cash flow or that need to use available cash for other
purposes.
Legislation is required to address several problems in the
SBIC program. In 2004, the participating securities program
ceased issuing new leverage commitments. This was largely the
result of the Administration's decision to move the program to
zero-subsidy in 2001, which was fundamentally unsuited to a
program that functioned on patient equity investment in long-
term assets. As a result, the program was essentially rendered
insolvent by 2005 when the administration requested no program
funding for the participating securities portion of the SBIC
program in its annual budget request. The Administration
continued to pursue these policies in the FY 2008 budget.
By eliminating the participating securities program,
however, the SBA has become completely reliant on debt-based
programs, which are more suited to providing later stage,
expansion capital to cash-flow-positive businesses. This has
particularly hampered investment in early-stage and capital-
intensive small businesses, which lack the resources to service
heavy debt investment. In 2002 the SBA licensed 41 new SBIC
funds, more than half of which were for early stage investment.
By contrast, in 2006 the SBA licensed only 10 new SBIC funds,
none of which were for investment in early stage businesses.
These statistics demonstrate the need for some legislative
initiative to fill the gap for equitable investment in early
stage businesses.
Eliminating participating securities has also had a
negative impact on the SBA's ability to provide capital
investment for to specific segments of the entrepreneurial
community. In FY 2005 only 3.40 percent of all financings in
the SBIC program went to small businesses that were majority
black owned. Only 1.39 percent of all SBIC investments went to
small businesses that were Hispanic owned and only 2.37 percent
of SBIC investments went to women owned businesses. Veteran-
Owned small businesses fared the worst, receiving only 0.52
percent of all SBIC financings. While these numbers are better
than the 2 percent of equity capital that minority-owned firms
receive in the private sector, it still represents a troubling
performance for a program that was intended to focus on
providing these groups with investment capital.
Additionally, the SBIC program's current leverage limits
have proven difficult to apply, particularly when two SBIC
funds are under common control. This maximum leverage amount
varies depending on the amount of the SBIC's private capital,
but generally will not exceed 300 percent of the SBIC's private
capital up to $15 million, 200 percent of the amount of private
capital between $15 and $30 million, and 100 percent of the
amount of private capital between $30 and $75 million. All of
these figures are linked to an inflation index and adjust
annually. If this program is to have continued success,
legislation will be necessary to simplify the leverage cap
rules and relax restrictions on the amount of leverage
available to SBICs that are under common control.
The New Markets Venture Capital (NMVC) program was
established in December of 2000 to address the unmet equity
needs of low-income communities. The NMVC program was
administered under the purview of the SBA and was modeled after
the SBA's Small Business Investment Company (SBIC) program. A
crucial difference between NMVC and SBIC, however, was that the
NMVC program was established with the specific purpose of
providing economic development in low-income (LI) areas.
Like the SBIC program, the NMVC program operates as a
public-private partnership between the SBA and licensed New
Markets Venture Capital Companies (NMVCCs). The SBA provides
funding to NMVCCs, which then use their own funds, plus
leverage borrowed with an SBA guaranty, to make investments in
smaller enterprises defined by SBA regulations that are located
in LI geographic areas. NMVCCs remain privately owned and
managed and make their own decisions about which small
businesses investments to make.
One crucial advantage that NMVCCs enjoy over SBICs is the
addition of SBA administered operational assistance grants
(OA). The SBA provides matching grant assistance for the
resources that NMVCCs raise to provide marketing, management
and other operational assistance to the businesses in which it
invests.
In principle, the program was intended to permit NMVC
companies to use capital raised with New Markets Tax Credit
allocations to meet the NMVC private capital match. In
practice, however, this was not possible because the first NMTC
allocations were made after NMVC private capital matches were
due (e.g. after September 14, 2001) and because the definitions
of ``low income geographic areas'' for the two programs
weredifferent. This disparity between the two definitions prevented
NMVC companies from using NMTC allocations as matching funds, thus
requiring these companies to rely entirely upon privately raised funds
for this purpose. Given the economic conditions under which they
operate, however, these companies could not find sources of funding.
For the program to function as originally intended, the definitions for
low income geographic areas must be aligned between the NMTC and NMVC
program.
Legislation is also required to achieve the program's
initial purpose of providing equity capital to small businesses
in LI areas. In 2001 Congress appropriated $150 million of
debenture guaranty authority and $30 million for Operational
Assistance (OA) grants. Beginning in 2003, however, the
administration eliminated funding for the NMVC program. In FY
2008, and consistent with its previous budget request, the
administration has not requested any funding for this program.
As a result, the SBA has been unable to bring new NMVC
companies into the program, limiting access to the program for
small businesses in several areas throughout the country.
To date, only six NMVC companies are participating in the
program and the FY 2008 budget allocates no resources to bring
more companies into the program. If the NMVC program is to meet
its full potential to improve economic development in low
income communities, legislation must authorize additional
appropriations for the program and new initiatives must be
established within the program to ensure that the SBA resumes
licensing new NMVC companies throughout the nation.
Legislation is also necessary to address the
Administration's failure to leverage the program's inherent
ability to provide investment capital to industries that have
particular difficulty in acquiring equity capital.
Historically, no particular style or type of business has
attracted NMVC investment. Among existing NMVC Companies, there
are multiple fund types and investment styles. These factors
reflect a primary benefit of the NMVC program. The additional
investment capital provided by the SBA facilitates smaller
transactions that are more suitable to investments in smaller
businesses and has the added benefit of making NMVC companies
less reliant on public market sentiment compared to the
investments made by traditional venture capital firms. This is
particularly important to facilitating investment in small
businesses located in LI areas. As a result, NMVC investments
often occur in industries and geographic areas that have
historically had difficulty attracting private venture capital.
This could provide a particular benefit to LI communities that
have experienced a loss of their small manufacturing and
industrial economic base.
Despite the success of the SBIC and NMVC programs, the need
for early-stage startup capital for small businesses has
largely gone unmet by the SBA's existing investment programs,
particularly with the elimination of funding for the SBIC
Participating Securities program. Additionally, every
investment program currently administered by the SBA provides
small businesses with debt-based financing, which is more
appropriate for investment in later-stage businesses that have
the ability to service debt. As a result, legislation is needed
to not only fill the gap for early stage business investment,
but also provide small businesses with some sort of equity type
financing.
Angel investment is a rapidly growing investment strategy
that focuses specifically on providing early-stage small
business with equity financing. This investment strategy refers
to high net worth individuals who invest in and support start-
up companies in their early stages of growth. Angels typically
invest their own funds, unlike venture capitalists, who manage
the pooled money of others in a professionally-managed fund.
Angel investors are often retired business owners or
executives, and thus often provide valuable management advice
and important contacts to the businesses in which they invest.
This commitment of time to mentor and coach entrepreneurs and
serve on the boards of portfolio companies is naturally suited
to investment in small businesses and mirrors the type of
operational assistance often found in SBA programs.
Angel investments typically range from $100,000 to over $1
million dollars. In this respect, angel investors fill the gap
that small business start-ups often experience in meeting their
needs for equity capital, which are often met with equity
raised by friends and family (under $100,000) and funds created
by conventional venture capital (VC) firms ($1 million and
above). Angel investors will often invest in formal or informal
groups, each investor thus contributing about $100,000, thereby
limiting their individual risk exposure.
Angels continue to be the largest source of seed and start-
up capital, with 46% of 2006 angel investments in the seed and
start-up stage. While angels continue to represent the largest
source of seed and start-up capital, market conditions and the
capital gap in the post seed investing stage are requiring
angels to engage in more later-stage investments. New, first
sequence, investments represent 63% of 2006 angel activity,
indicating that some of this post seed investing is in new
deals.
Angel investment has also contributed to a rise of women
angel investors and women entrepreneurs. In 2006 women angels
represented over 13 percent of the angel market. Women-owned
ventures accounted for nearly 13 percent of the entrepreneurs
that are seeking angel capital and over 21 percent of these
women entrepreneurs received angel investment in 2006.
Additionally, minority angels accounted for over three percent
of the angel population and minority-owned firms represented
nearly 7 percent of the entrepreneurs that presented their
business concept to angels.
According to SBA studies, the total unmet need for early-
stage equity financing for small businesses is about $60
billion annually. Additionally, partly on the basis of the
results of several focus groups that it conducted, the SBA
identified that the greatest equity capital financing need of
small businesses is financing in the amounts of $250,000 to $5
million. Because of their focus on early stage investing in
amounts between $100 thousand to $1 million, angel investing
has the potential to make a significant impact on the unmet
capital needs of small businesses. These investors, however,
are currently poorly organized and may be unaware of the
benefits of co-investing with angel groups or angel networks.
As a result, legislation is needed to increase public awareness
of angel investing, help angel investors to organize into angel
groups, and help these groups maintain their focus on
investment in startup small businesses. The Committee
believesthat these goals can be achieved with an Angel Investment
Program that focuses on the three traditional strengths of angel
investing: providing small business with equity type investment,
establishing networks of angel groups and angel investors, and
increasing awareness of angel investing.
The SBA has also been limited by the rules that it applies
to venture capital companies that invest in small businesses.
Venture capital refers to money provided by professionals who
invest alongside management in young, rapidly growing companies
that have the potential to develop into significant economic
contributors. Venture capital is an important source of equity
for start-up companies. Unlike traditional debt-based lenders
that secure the amount they lend with collateral, venture
firms' investments are backed solely by the strength of the
ideas they invest in. A venture capital firm only earns a
return on its investment if its investment is highly
profitable.
Seeking high-risk investment opportunities because they
yield the highest reward, investment firms expect to be able to
sell their equity in the business in which they invest within
five to ten years. Venture capitalists know that not all their
investments will pay-off. The failure rate of investments can
be high--anywhere from 20 to 90 percent of the enterprises
funded may fail to return the invested capital. As a result,
venture capitalists must invest in dozens of small enterprises
in the hope that a handful will prove successful.
Under the SBA's current rules, however, all investments
made by a single venture capital company are considered
affiliated with each other, irrespective of the size of the
small business that receives the investment or the size of the
venture capital company itself. When added together, the total
number of employees often exceeds 500, making each business
unable to be defined as a small business concern by SBA.
Meeting the requirements of this definition can be the
difference for small firms' participation in a wide-variety of
government programs, including those involved in cutting-edge
defense and health research. The result of this rule is that
investment by all but the smallest of venture capital companies
is deterred. The common ownership affiliation limitation put
forth by the SBA represents a lack of understanding about the
venture capital industry practices. The SBA's rule is also
inconsistent with industry practices, other SBA programs, and
SBA's own statute. For instance, this standard exists even
though Small Business Investment Companies, which are
themselves venture capital companies, are exempt from such
affiliation standards.\1\
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\1\13 CFR 121,103(b)(1).
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In addition, SBA's size standard definition specifies that
affiliation occurs when one entity controls or has the power to
control another entity.\2\ 13 CFR 121.103(c) states that ``[a]
person that owns, or has power to control, 50 percent more of a
concern's voting stock, or block of voting stock which is large
compared to other outstanding blocks of voting stock, controls
or has the power to control the concern.'' For most instances,
this provision has the effect of deeming venture capital
companies to control or have the power to control the concern
that they are invested in. This in turn results in the SBA
determining that portfolio companies are affiliated with each
other through the common affiliation of the venture capital
company.
---------------------------------------------------------------------------
\2\13 CFR 121,103(a).
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Consequently, legislation is necessary to revise the SBA's
application of affiliation rules to small venture capital
companies. While venture capital companies invest in multiple
business concerns, the affiliation that exists among these
portfolio companies is non-existent. Portfolio companies, while
receiving investment from the same venture capital company, do
not have any common organizational, management, or ownership
structures. Portfolio companies are separate entities and
cannot and do not exercise control over each other. With regard
to the venture capital company, portfolio companies receive
investment and management assistance, often in the form of
director appointments. However, venture capital companies do
control portfolio companies that they invest in, rather, they
rely on existing management to guide and build the business
concerns' profitability. Venture capital companies' ultimate
goal is to sell their in the business concern, typically within
five to ten years of initial investment.
As a result, the legislation provides that when both the
venture capital company and the business receiving investment
are small and have less than 500 employees, and when the
venture capital company is neither controlled by a large
company nor under foreign control, the SBA should not aggregate
the whole of the venture capital company's investments for
purposes of defining affiliation. In order to allay unfounded
fears about the intent of venture capital companies, safeguards
have been included to ensure that large companies cannot
control venture capital companies, that the venture capital
company has less than 500 employees, and is located in the
United States.
Legislation is also necessary to strengthen the SBA's
Surety Bond Guaranty (SBG) program. The SBG program was
established to assist small businesses that would otherwise be
able to compete for construction contracts because they failed
to meet the criteria necessary to obtain a surety bond. To
resolve this problem, the SBG program provides the SBA with
authority to guarantee bid, performance, and payment bonds for
individual contracts of $2 million or less. In this manner, the
SBA provides sureties an incentive to provide bonding for
eligible contractors, thereby strengthening contractors'
ability to obtain bonding and greater access to contracting
opportunities.
The SBA Office of Surety Guarantees (OSG) administers the
SBG Program as a public-private partnership between the federal
government and the surety industry. The SBG program consists of
the Prior Approval program (Plan A) and the Preferred Surety
Bond (PSB or Plan B) program.
Under the Plan A, an independent bonding agent reviews the
contractor's application package and recommends it to the
surety company for approval. If the surety company agrees to
issue a bond with the SBA guarantee, the package is forwarded
to the appropriate SBA/SBG Area Office and evaluated by SBG
personnel. The SBA must approve each bond guarantee
individually, based on information submitted by contractor and
the surety. If the SBA determines that the applicant is
eligible, the SBA issues a bond guarantee to the surety
company. The surety then issues the bond to the contractor.The
SBA's guarantee agreement is with the surety company, not with the
small business contractor. Any surety company certified by the U.S.
Treasury to issue bonds may apply for participation in the Prior
Approval program.
When Plan A was established, however, many traditional
surety companies chose not to participate, often because their
business focus was on lower risk, larger contractors, or
because the administrative costs of submitting each bond for
prior approval of a guaranty were significant. To encourage
more sureties to participate, the SBA promulgated the Preferred
Surety Bond Program (Plan B).
Plan B addressed the concerns of the non-SBA sureties in a
number of ways. First, the program provided that if a surety
was approved by the SBA for Plan B, it would be granted a
dollar value of guaranties from the SBA that would be
automatically valid, without prior approval of each bond. In
exchange for this reduction of paperwork, however, the sureties
would receive only a 70 percent guaranty of loss on each bond
rather than the 80 or 90 percent guaranty associated with the
Plan A program.
From the perspective of surety companies, the burden
associated with the Plan A program has always been justified by
the fact that Plan A bonds were reviewed and approved by the
SBA prior to the surety issuing the bond. Because of this, Plan
A bonds carried the benefits of a speedier guaranty payment in
the event that the contract was breached and the bond was
executed. Recently, however, many surety companies have
complained of the SBA engaging in additional reviews of Plan A
bonds to unravel its guaranty after the bond was approved and
issued by the surety. This presents a serious problem for
sureties because their bond cannot be canceled after having
been issued and once the SBA has refused indemnification,
sureties bear the entire cost of default.
At the same time that the SBA has faced increasing
unpopularity for participation in the Plan A program, Plan B
has also become less attractive to surety companies. The
primary disincentive for this program has largely been
attributed to limitations on the rates that surety companies
have been permitted to charge and to the steadily rising cost
of fees to participate in the program. With fewer surety
companies participating in the SBG program, small businesses
have had increasing difficulty finding sources of surety bonds.
As a result, legislation is needed to resolve the
disincentives that have steadily driven surety companies from
the Plan A and Plan B portions of the program. The SBA's
ability to refuse indemnification based upon information that
was provided as part of the guaranty application for a Plan A
bond should be limited. Additionally, the SBA must have
statutory authority to raise premium rates under the Plan B
program and reduce the cost of participation fees as necessary.
III. Hearings
In the 110th Congress, the Committee on Small Business held
a hearing to examine the SBA's investment programs and the role
of venture capital in small business investment on June 21,
2007. The Committee subsequently held a hearing on legislative
proposals to address issues raised in the June 21, 2007 hearing
and expand small business investment on September 6, 2007.
IV. Committee Consideration
The Committee on Small Business met in open session on
September 20, 2007, and ordered H.R. 3567 reported to the House
by a voice vote.
V. Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Ms. Velazquez to report the bill, without amendment,
to the House with a favorable recommendation was AGREED to by
voice vote.
VI. Section-by-Section Analysis of H.R. 3567
TITLE I. SBIC PROGRAM
Section 1. Simplified maximum leverage limits
Currently, the leverage caps for SBIC companies vary
depending on the amount of the SBIC's private capital, but
effectively will not exceed 300 percent of the SBIC's private
capital up to $15 million, 200 percent of the amount of private
capital between $15 and $30 million, and 100 percent of the
amount of private capital between $30 and $75 million. All of
these figures are linked to an inflation index and adjust
annually.
It is common for SBICs with good records to secure a second
or even third SBIC license (supported by new private capital)
so that they can continue to operate with uninterrupted
investment before winding up all affairs of previous funds and
repaying all leverage. The fact that the leverage cap applies
to the whole family of funds, however, often makes it
impossible for a successful SBIC to operate a second or third
fund due to lack of available leverage because of the leverage
cap, not because of any increased risk to SBA based on poor
financial performance.
This provision is intended to simplify the leverage cap
rules to a single formula, regardless of the amount of private
capital that the SBIC has, with a maximum leverage cap of $150
million. Additionally, this provision will make ``transition''
leverage available for SBIC companies under common control so
that successful SBICs may operate a second or third fund while
still maintaining safeguards against increased risk to the SBA
and a maximum leverage cap for SBICs under common control.
These changes are not intended to have retroactive effect.
These would be prospective changes only, intended only for SBIC
firms licensed in the fiscal year following enactment of this
provision. Additionally, these changes are not intended to
serve as anentitlement for SBIC firms to receive the maximum
leverage limit or to receive multiple licenses. The Committee fully
intends for the SBA's to exercise the same discretion as it currently
has in deciding the amount of leverage any SBIC firm may receive.
Section 2. Increased investments in women-owned and socially
disadvantaged small businesses
Currently, there are no special incentives to encourage
SBICs to invest in women-owned and minority-owned small
businesses. Additionally, the incentives for investments in
low-income areas are confusing and difficult to administer.
This section will establish a simple incentive to form funds
focused on investment in minority, veteran, and women owned
businesses by permitting such funds to operate with increased
maximum leverage limits. This section is not intended to
displace existing low-and-moderate income debentures or other
initiatives aimed at encouraging investment in low income
areas, but should be a compliment to these efforts at
increasing investment in women, veteran, and minority owned
small businesses.
Section 3. Increased investments in smaller enterprises
Currently, SBICs that use of leverage up to $90 million
must make no less than 20 percent of its investments in a
subset of qualified small businesses defined as ``smaller
enterprises.'' SBICs that use more than $90 million in leverage
must make 100 percent of its investments with leverage above
$90 million in ``smaller enterprises.'' As the leverage cap
continues to grow this provision creates record keeping
problems and imposes additional ``tracking'' workloads on the
SBA and the affected SBICs.
This provision will simplify the requirements for
investment in smaller enterprises and is intended to increase
overall investment in smaller enterprises through the SBIC
program. This section will establish a flat 25 percent
``smaller enterprises'' requirement for all SBICs, regardless
of whether they have more than $90 million in leverage. This is
intended to simplify the administration and increase the
percentage of all investments that must be in smaller
enterprises.
Section 4. Simplified aggregate investment limitations
The term ``Aggregate Limitations'' refers to the maximum
amount of capital any leveraged SBIC may invest in a single
small business or smaller enterprise. The purpose of the
limitation is to ensure that leveraged SBICs have diversified
portfolios, thus mitigating investment risk for both private
investors and the government. Section 306(a) of the Small
Business Investment Act of 1958 provides that no leveraged SBIC
may make an investment in a small business or smaller
enterprise that exceeds an amount equal to 20% of the SBIC's
private capital.
This aggregate limitation creates a problem because
different leveraged SBICs plan for different ratios of leverage
to private capital in their formation process. The projected
ratios most often approved in the licensing process are between
1:1 and 2:1 even though the SBIA provides for as much as 3:1 in
some cases. The application of a maximum investment amount
based on a percentage of private capital versus a percentage of
total capital to be managed produces inconsistent results
unrelated to risk and prevents many SBICs from supporting small
businesses, particularly larger and more well-established small
businesses.
This section is intended to revise the current limit on the
amount that can be invested in any one portfolio company to
standards that are more consistent with industry accepted
portfolio risk management practices. This change would apply
the portfolio management rule (``no more than 10% should be
invested in any one company'') that is the accepted norm in the
non-SBIC venture capital world and would ensure that SBIC
management teams had both the financial and time resources
required to help their portfolio companies achieve their growth
goals.
It is the Committee's understanding that very few SBIC
firms are licensed with business plans to operate with a third
tier of leverage, and virtually no firms set forth plans to
operate a third tier in the business plan approved by the
Administration at the time the company's license was granted.
Consequently, these changes are not intended to have
retroactive effect. These would be prospective changes only,
intended only for SBIC firms licensed in the fiscal year
following enactment of this provision.
TITLE II. NEW MARKETS VENTURE CAPITAL PROGRAM
Section 1. Expansion of new markets venture capital program
To date, only six NMVC companies are participating in the
New Markets program and the SBA's FY 2008 budget allocates no
resources to bring more companies into the program.
This section is intended to establish mandatory language in
the Small Business Investment Act of 1958 directing the SBA
Administrator to actively engage in affirmative actions to
expand the number of NMVC companies and increase the number of
investments made by current and new NMVC companies.
This section would also require the Administrator to
perform a study on their success in expanding the NMVC program
and report his progress in expanding the program no later than
one year after the enactment of this provision.
Section 2. Improved nationwide distribution
Currently, small business investment is concentrated in
only a handful of geographic areas, which are primarily located
along the East and West coasts of the U.S. This section is
intended to direct the SBA Administrator to ensure that there
is a uniform distribution of NMVC companies nationwide to the
maximum extent possible. In licensing new NMVC companies, this
section intends the Administrator to avoid allocating his
limited program resources to license newNMVC companies where
existing NMVC companies already exist and can meet the demand for small
business investment in low income areas.
Section 3. Increased investment in small manufacturers
Many low income communities throughout the nation have
suffered as a result of a loss of their small manufacturing and
industrial economic base. The NMVC company has an inherent
ability to provide investment capital to these communities
because the additional investment capital provided by the SBA
facilitates smaller transactions that are more suitable to
investments in low income communities and makes NMVC companies
less reliant on public market sentiment compared to the
investments made by traditional venture capital firms.
Consequently, NMVC investments can flow to industries like
small manufacturing, which has recently suffered particular
difficulty in attracting private venture capital.
This section will reduce the capital requirements required
for NMVC companies primarily engaged in investment in small
manufacturers, making it easier for these companies to secure
final approval from the SBA. It is expected that the SBA will
facilitate the licensing of these NMVC companies, particularly
in low income communities that have lost a significant portion
of their small manufacturing industry.
Section 4. Updating definition of low-income geographic area
This section would amend the current definition of ``low-
income geographic area'' by simply referring the definition
directly to the definition of a ``low-income community'' in the
Internal Revenue Code.
The Committee believes that the NMVC program's current
definition of ``low income geographic area'' creates a
significant barrier to the program's success. As long as the
definitions between the NMVC program and the NMTC program are
different, NMVC companies will have difficulty in operating in
low income communities. This result is inconsistent with the
program's original intent.
This section is intended to establish parity between the
definitions of the eligible NMVC investments and NMTC
allocations, thereby bringing these two programs into
alignment. This change will help the program operate as it was
originally intended and will permit investment firms to use
capital raised with New Markets Tax Credit allocations to meet
the program's requirements for matching private capital.
Additionally, this approach ensures that the two definitions
will remain aligned even in the event that eligibility
conditions for tax credit allocations are changed at a future
date.
Section 5. Study on availability of equity capital
This Section also requires the Chief Counsel for Advocacy
of the SBA to conduct a study on the availability of equity
capital in low-income urban and rural areas and report its
findings to Congress within 90 days of the study's completion.
Section 6. Expanding operational assistance to conditionally approved
companies
This section will permit New Markets Venture Capital
Companies that have received conditional approval from the SBA
under section 354 to receive early grant assistance up to
$50,000 at the point of initial designation. In the event that
a conditionally approved NMVC company fails to win final
approval, however, the grant must be repaid to the SBA. If the
company wins final approval, however, amount of early grant
assistance will be deducted from the total amount of
operational grant assistance the company receives.
Additionally, this section provides NMVC companies with two
full years to raise private capital and matching funds for
operational assistance. Currently, these companies have up to
two years under current law.
These changes are intended to remedy two longstanding
problems in the NMVC program. Under existing statutes, NMVC
companies could not receive operational assistance grants until
after they received final approval. This restriction severely
limited the ability of NMVC companies to provide this
assistance to their investment concerns, which is often vital
to ensuring the success of these businesses and the security of
their investment. This change is intended to provide very
limited OA grants prior to final approval.
These changes are also intended to remedy the problem that
many NMVC companies experienced in reaching final approval. For
many NMVC companies, raising the private capital and matching
OA funds was the greatest barrier to winning final approval. By
extending the timeframe for matching funds to two full years,
these companies should have adequate time to raise private
capital that is integral to the NMVC program.
Section 7. Streamlined application for new markets venture capital
program
This section will require the SBA to develop a set of
documents that reduce the cost and burden for New Markets
Venture Capital companies applying for final approval under the
program. These documents must be created within 60 days after
the enactment of the bill.
This section is intended to simplify the application
process for new NMVC companies, enabling the SBA to license
more companies and expand the program. This section is also
intended to operate in conjunction with the expansion and
nationwide distribution initiatives established by this
legislation.
Section 8. Elimination of matching requirement
This section will eliminate the minimum amount of matching
commitments for operational assistance that an NMVC company
must raise before receiving final approval. Currently, this
minimum is set at not less than 30 percent of the total amount
of private capital or binding capital commitments the NMVC
company has raised.
The requirement for matching OA commitments proved to be
the greatest barrier to licensing new NMVC companies. The
required matching commitments were simply too high for many
NMVC companies to meet, particularly given the economic
conditions in the communities in which they operate. By
eliminating this requirement, this section is intended to
enable many more NMVC companies to participate in the program
and should streamline the process to winning final approval
from the SBA.
Section 9. Simplified formula for operational assistance grants
This section will revise the amount of operational
assistance grants a NMVC company may receive. The new amounts
will be equal to either 10 percent of the private resources the
company has raised for operational assistance, or $1 million,
whichever is less.
This section is intended to significantly simplify the
formula for determining the amount of OA grants a NMVC company
may receive, enabling companies to receive their OA allocations
more quickly than they currently do and providing these
companies with greater certainty as to the amount of OA
resources that they will have.
Section 10. Authorization of appropriations and dedication to small
manufacturing
This section reauthorizes appropriations in a total amount
of $30 million to fund debenture guarantees and $5 million for
operational assistance grants for fiscal years 2008, 2009, and
2010. Additionally, this section requires that at least a
quarter of these authorized funds be used for the purpose of
entering into participation agreements and providing
operational assistance to NMVC companies that invest primarily
in small manufacturing business concerns.
This section is intended to reestablish funding for the
NMVC companies and, in conjunction with the program expansion
and licensing initiatives of this legislation would require the
SBA to resume licensing new NMVC companies and providing
additional leverage commitments to existing NMVC companies. The
initiative for small manufacturing is specifically intended to
increase the number of NMVC companies that primarily invest in
small manufacturers. This section should not, however, present
an additional barrier for NMVC companies that wish to invest in
low income areas or that do not wish to invest in small
manufacturers.
TITLE III. ANGEL INVESTMENT PROGRAM
Establishment of Angel Investment Program
This legislation will establish an Office of Angel
Investment within the Investment Division of the SBA. This
office will be headed by a Director of Angel Investment, who
will be responsible for administering the Angel Finance Program
and Federal Angel Network established by the bill.
As with other SBA programs, the Angel Finance Program will
function as a public-private partnership between the SBA and
privately organized ``angel groups.'' Angel groups will consist
of ten or more accredited investors (as that term is defined
under Rule 501 of Regulation D of the Securities and Exchange
Act of 1933, 17 C.F.R. Part 230 et seq.). Alternately, an
individual may qualify as an angel investor on the basis of
such factors as financial sophistication, income, net worth,
knowledge, and experience in financial matters, or amount of
assets under management. Angel groups should have demonstrated
experience in making investments in local small business
concerns and must have established protocols for performing due
diligence in its investments prior to making investments.
Additionally, these angel groups should have an established
code of ethics and policies and procedures to avoid conflicts
of interest between members of the group and the companies in
which they invest.
These angel groups will be licensed by the SBA specifically
for the purpose of making investments early stage domestic
small business concerns located in the same community as the
angel group. In exchange for complying with the program's
licensing and investment requirements, angel groups will
receive up to $2 million in leverage financing from the SBA
that will be co-invested with the angel group's own funds. SBA
leverage should only be used to invest in small business
concerns that have been in existence for less than 5 years and
that have fewer than 75 employees. Additionally, angel groups
should not invest SBA leverage abroad, but should use this
leverage to invest in local small business concerns that are
located within their own community. Finally in selecting angel
groups to receive leverage, the SBA should, to the maximum
extent possible, avoid licensing new angel groups where a
strong angel network already exists and should give priority
consideration to angel groups that invest in small businesses
owned by veterans, minorities, and women.
Leverage financing that angel groups receive must be
invested in a local small business concern with an equal or
greater amount of private investment capital raised by the
angel group. SBA leverage should function as a true sidecar
investment, and should mirror the private matching investment
vehicle. Leverage will be repaid from the pro rata share of any
returns on the private matching investment, whether positive or
negative, but relative to the amount of leverage that the angel
group receives on their investments. Repayment is not premised
upon a timeframe, but is instead dependent upon the
distribution of any return, whether positive or negative.
Additionally, SBA leverage should maintain any preemptive
rights in the event that additional ownership interests in the
investment enterprise are issued.
As leverage is repaid, amounts collected by the SBA will be
deposited in an Angel Investment Fund at the U.S. Treasury. The
Angel Investment Fund will serve as a revolving source of
leverage financing for the Angel Finance Program to operate
without regard to fiscal year limitations.
The legislation will also create Federal Angel Network
within the Office of Angel Investment that will collect and
maintain information on local and regional angelinvestors and
angel groups. This information will include a list of names and
addresses of angel groups and angel investors, information about the
types of investments each angel investor or angel group has made, and
information on other public and private resources on angel investors
and angel groups. This information will be maintained in a regularly
updated searchable database available through the SBA's database.
Additionally, information contained within the database will be readily
available for use and distribution by other angel networks and groups,
thereby augmenting the exposure of the Federal Angel Network. Angel
investors and angel groups will have the option of excluding their
information from the network.
Finally, the Administrator will also carry out a grant
program to make grants to entities that develop new or existing
angel groups or to increase awareness and education about angel
investing. Grant recipients could include units of state or
local governments, nonprofit organizations, or Small Business
Development Centers or Women Business Centers established under
the Small Business Act. To receive grant assistance, however,
eligible entities must raise matching funds equal to half of
the grant amount, thus strengthening their commitment and
amplifying the grant assistance itself. As with SBA leverage,
the grants administered under this section are intended to go
to entities located in areas where a strong network of angel
groups currently does not exist, but where there are sufficient
numbers of potential angel investors.
TITLE IV. SURETY BOND PROGRAM
Section 1. Study and report
This section requires that within 180 days of enactment,
the Administrator must conduct a study of the program's current
funding structure and report its results to Congress. This
study should include:
(1) An assessment of whether the program's current
funding framework and program fees are retarding the
program's growth;
(2) An assessment of whether surety companies and
small business concerns could benefit from an
alternative funding structure;
(3) An assessment of whether permissible premium
rates fore surety companies participating in the
program should be placed on parity with the rates
authorized by appropriate state insurance regulators
and how such a change would affect the program under
the current funding framework.
This section is intended to examine the Surety Bond
programs current funding structure as a revolving fund program.
The findings in this study would serve as the basis for
additional legislative action that could reform the funding
structure for the program.
Section 2. Preferred surety bond program
This provision will establish explicit statutory authority
for a preferred surety bond program that would essentially
mirror the preferred lender program under section 7(a) of the
Small Business Act. Under the PSB program, the Administrator
shall carry out a program under which a written agreement
between the surety and the Administration delegates to the
surety complete authority to issue, monitor, and service bonds
subject to guaranty from the Administration without obtaining
the prior specific approval of the Administration. The
Administration may recertify PSB sureties for an additional
term not to exceed two years. Prior to recertification, the
Administration shall review a surety's bonds, policies, and
procedures for compliance with relevant rules and regulations.
Bonds made under this program shall carry a 70% guaranty.
This section should not make any substantive changes to the
existing preferred surety bond program, but is intended to
establish more discrete statutory authority for the program
that will simplify the process for future revisions or changes
to the program.
Section 3. Denial of liability
For bonds made or executed with the Administration's prior
approval, the Administration shall not deny liability to a
surety based upon information that was provided as part of the
guaranty application.
This section is intended to prevent the problem of the SBA
denying indemnification for guarantees issued with prior
approval from the SBA if the SBA's basis for denying
indemnification could have been resolved with a proper review
of information contained in the guaranty application.
Section 4. Increasing the bond threshold
This section will increase the maximum permissible bond
amount from $2 million to $3 million. This is intended to
permit bond companies to issue larger bonds with SBA
guarantees, which should encourage greater participation in the
program by both small businesses and bond companies.
Section 5. Fees
This section will permit the Administrator to make
contributions for the purpose of reducing fees, if and when an
appropriation is made available for that purpose. The Committee
intends for this provision to make the surety bond program more
affordable to small businesses and surety companies that
participate in the program by providing the SBA with authority
to contribute funds for the purpose of reducing the burden
associated with bonding fees. The Committee does not believe
that the stability that the program currently enjoys will be
disturbed by this change. The administration will continue to
asses and collect the fees necessary to operate the program
without and will continue to calculate the budget estimates and
assumptions for the fiscal year just as it currently does to
operate the program. The Committee foresees no circumstance in
which the program would cease operation or be short of
necessary program level to operate at full capacity.
This section simply provides the administration with the
authority to contribute funds to reduce the fee burden
associated bond guarantees if and when an appropriation is made
available for that purpose. In years when no appropriation is
made available, the Committee expects the program to function
with the stability that currently exists. In years when a
subsidy is made available, small businesses and surety
companies will enjoy the benefits of reduced fee burdens.
TITLE V. VENTURE CAPITAL INVESTMENT
Section 1. Determining whether business concern is independently owned
and operated
This section specifies that the SBA shall not consider
venture capital investment in determining whether or not a
company is defined as a small business. The provision provides
that when calculating the number of employees of a small
business concern that has venture capital investment, the SBA
will exclude those employees who work for companies affiliated
with the venture capital company. The bill requires that the
venture capital company comply, as appropriate, with federal
registration requirements for investment companies. In
addition, the bill prevents a venture capital that is
controlled by a large business or a venture capital company
with more than 500 employees from being recognized as a venture
capital company under this provision. The legislation also
prevents concerns not located in the United States that control
small business concerns to be able to take advantage of this
definition.
This section is intended to remove the current disincentive
that exists for small businesses to seek and accept venture
capital financing. Under the SBA's current rules, all
investments made by a single venture capital company are
considered affiliated with each other, irrespective of the size
of the small business that receives the investment or the size
of the venture capital company itself. When added together, the
total number of employees often exceeds 500, making each
business unable to qualify as a small business concern under
the SBA's size standards. Because several federal programs are
tied to this qualification, small businesses that receive
venture capital financing are frequently disqualified from
participating in a wide-variety of government programs that
provide substantial benefits to small benefits.
The Committee does not intend for this section to provide a
mechanism for large businesses to benefit from small business
opportunities, as both the venture capital company and the
small business must themselves qualify as small businesses in
their own capacity and cannot be controlled by a large
business.
TITLE VI. REGULATIONS
This section requires the SBA to promulgate revisions
implementing necessary regulatory changes within 90 days.
VII. Congressional Budget Office Cost Estimate
September 25, 2007.
Hon. Nydia M. Velazquez,
Chairwoman, Committee on Small Business,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 3567, the Small
Business Investment Expansion Act of 2007.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Peter R. Orszag.
Enclosure.
H.R. 3567--Small Business Expansion Act of 2007
Summary: H.R. 3567 would reauthorize the Small Business
Administration's (SBA's) New Markets Venture Capital Program
(NMVC), amend its surety guarantee program, and change certain
investment limits imposed on SBA's small business investment
program. The bill also would establish the Angel Investment
Program to provide venture capital to certain groups working
with small businesses in their communities. Finally, the SBA
would be required to produce a number of reports for the
Congress about the effectiveness of the program changes
authorized by the bill.
Based on information from SBA, CBO estimates that
implementing H.R. 3567 would cost $8 million in 2008 and $102
million over the 2008-2012 period, assuming appropriation of
the necessary and specified amounts. Enacting H.R. 3567 would
not affect direct spending or revenues.
H.R. 3567 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 3567 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
------------------------------------------------------------------------
By fiscal year, in millions of
dollars--
---------------------------------------
2008 2009 2010 2011 2012
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
New Markets Venture Capital
Program:
Loan Guarantees:
Estimated Authorization 2 2 2 0 0
Level..................
Estimated Outlays....... 1 2 2 1 0
Grants:
Authorization Level..... 2 2 1 0 0
Estimated Outlays....... 0 1 2 1 1
Angel Investment Program:
Equity Investments:
Authorization Level..... 10 20 20 0 0
Estimated Outlays....... 2 26 20 2 0
Grants:
Authorization Level..... 2 2 2 0 0
Estimated Outlays....... 0 1 1 1 1
Administrative Cost:
Authorization Level..... 1 0 0 0 0
Estimated Outlays....... 1 0 0 0 0
Surety Bond Fees:
Estimated Authorization 8 8 8 8 8
Level......................
Estimated Outlays........... 4 8 8 8 8
Total Changes:
Estimated 25 34 33 8 8
Authorization Level
Estimated Outlays... 8 38 33 13 10
------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the start of fiscal year 2008, that
the necessary amounts will be appropriated for each fiscal
year, and that spending for programs authorized by the bill
will follow historical spending patterns for similar SBA
programs.
The budgetary accounting for SBA's direct loan and loan
guarantee programs is governed by the Federal Credit Reform Act
(FCRA) of 1990, which requires an appropriation of subsidy and
administrative costs associated with loan guaranteesand loan
operations. The subsidy cost is the estimated long-term cost to the
government of a loan or loan guarantee, calculated on a net-present-
value basis, excluding administrative costs. Administrative costs,
recorded on a cash basis, include activities related to making,
servicing, and liquidating loans as well as overseeing the performance
of lenders.
The effect of the changes that H.R. 3567 would make to
SBA's small business investment programs is measured in terms
of projected subsidy costs. The bill does not specify an
authorization level for either the subsidy or administrative
costs, if any, that could be incurred as a result of
implementing the amendments in the bill. CBO has estimated
those amounts based on information from SBA regarding the
historical demand for credit assistance and costs of the
agency's small business investment programs. CBO assumes that
administrative activities related to those loans would need to
continue beyond the 2008-2010 authorization period addressed in
this bill.
New Markets Venture Capital Program (NMVC)
The bill would reauthorize the NMVC for three years,
through 2010, by authorizing the appropriation of funds
sufficient to offer $30 million in loan guarantees and $5
million in technical assistance grants over the three-year
period. The bill would direct SBA to approve at least one
company from each of SBA's geographic regions to participate in
the program, if practicable. H.R. 3567 also would authorize SBA
to award technical assistance grants to companies that have
received conditional, but not yet final, approval to
participate in the program.
Based on information from SBA, CBO expects that the subsidy
rate for the NMVC program would be about 17 percent. CBO
estimates that reauthorizing the NMVC program would cost $1
million in 2008 and $11 million over the 2008-2012 period,
assuming appropriation of the necessary and specified amounts.
Of the five-year total, $6 million would be for costs
associated with extending loan guarantees; the remaining $5
million would be for costs associated with awarding technical
assistance grants.
Angel Investment Program
The bill would authorize a new program to provide equity
investments in ``angel groups'' to provide capital to small
businesses located in their communities. As a condition of
participation in the program, such groups would be required to
repay SBA for any investments that earn a profit. Any amount to
be repaid would be prorated based on the share of capital
provided by SBA. Repayments would be held by SBA for the
purpose of providing new financing to angel groups, subject to
provisions in annual appropriation acts. Based on information
from SBA, CBO expects that equity investments in angel groups
would take several years to generate profits; therefore, a
negligible amount of repayments would be collected from such
groups over the 2008-2012 period. Moreover, no direct spending
savings from such profit-sharing receipts could be credited to
this legislation because subsequent appropriation acts would
determine the amount and timing of any federal funds made
available for the Angel Investment Program.
The bill would establish the Office of Angel Investments
within SBA to oversee the Angel Investment Program, to develop
a database of information related to angel groups and angel
investors, and to award grants to eligible entities to develop
new angel groups.
The bill would authorize the appropriation of $13 million
in 2008 and $57 million over the 2008-2012 period to carry out
the investment, grant, and administrative activities of the
program. Based on information from SBA, CBO estimates that
implementing the Angel Investment Program would cost $3 million
in 2008 and $55 million over the 2008-2012 period, assuming
appropriation of the specified amounts.
Surety bond program
The bill would authorize SBA to delegate its authority to
issue, monitor, and service surety bonds to entities approved
by SBA for such activities. The bill also would eliminate fees
that are currently charged to contractors and sureties under
the program and authorize the appropriation of sufficient funds
to offset the loss of income from fees.
Under current law, SBA's surety bond program provides
guarantees to eligible contractors that SBA will reimburse the
surety (an entity issuing an assurance that a contractor will
perform according to the terms of a signed contract) for a
portion of the loss should the contractor breach the terms of
the contract. To cover the costs of those guarantees, fees are
paid to SBA by both the contractor receiving the guarantee, and
the surety that issues the bond for the contractor's
performance. In 2006, SBA provided guarantees under the surety
bond program for about 5,000 bonded contracts and collected
about $7 million in fees. (Those collections are recorded as an
offset to discretionary appropriations.) Based on information
from SBA, CBO expects that eliminating the fees paid by
participants would lead to a small increase in participation in
the program.
Guarantees provided under the surety bond program are
recorded as cash expenditures rather than net-present-value
costs under FCRA. This is because under the surety bond
program, SBA is not guaranteeing repayment under a contract for
a loan; rather, it is guaranteeing actual performance under a
contract for services, which does not qualify as a loan or loan
guarantee under FCRA. CBO estimates that implementing this
provision of H.R. 3567 would cost $4 million in 2008 and $36
million over the 2008-2012 period, assuming appropriation of
the necessary amounts.
Other provisions
H.R. 3567 would amend provisions of current law that limit
the amount of capital SBA can provide to participating small
business investment companies (SBICs). Among other things, the
bill would change the method for calculating the maximum amount
of capital that can be provided to SBICs and raise those limits
for SBICs that agree to invest specific amounts in companies
owned by individuals from socially or economically
disadvantaged or low-income areas, veterans, or members of the
National Guard or Reserves. Based on information from SBA, CBO
estimates that those changes to the operations of the small
business investment program would have an insignificant effect
on the federal budget.
The bill also would require SBA to produce four reports for
the Congress that assess either the current practices of
programs authorized by the bill or the effectiveness of new
programs. CBO estimates that the cost of producing those
reports would be less than $500,000 per year over the 2008-2012
period.
Intergovernmental and private-sector impact: H.R. 3567
contains no intergovernmental or private-sector mandates as
defined in UMRA. The bill would benefit state and local
governments by authorizing grants to develop an investment
program for small business.
Estimate prepared by: Federal Costs: Susan Willie; Impact
on State, Local, and Tribal Governments: Elizabeth Cove; Impact
on the Private Sector: Jacob Kuipers.
Estimate approved by: Peter H. Fontaine, Assistant Director
for Budget Analysis.
VIII. Committee Estimate of Costs
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 3567. However, clause 3(d)(3)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act.
IX. Oversight Findings
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House of Representatives, the oversight findings and
recommendations of the Committee on Small Business with respect
to the subject matter contained in H.R. 3567 are incorporated
into the descriptive portions of this report.
X. Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, Section 8, clause 18, of the
Constitution of the United States.
XI. Compliance With Public Law 104-4
H.R. 3567 contains no unfunded mandates.
XII. Congressional Accountability Act
H.R. 3567 does not relate to the terms and conditions of
employment or access to public services or accommodations with
the meaning of section 102(b)(3) of P.L. 104-1.
XIII. Federal Advisory Committee Statement
This legislation does not establish or authorize the
establishment of any new advisory committees.
XIV. Statement of No Earmarks
Pursuant to clause 9 of rule XXI, H.R. 3567 does not
contain any congressional earmarks, limited tax benefits, or
limited tariff benefits as defined in clause 9(d), 9(e), or
9(f) of rule XXI.
XV. Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
H.R. 3567 includes a number of provisions designed to
update and improve the Small Business Administration's SBIC,
NMVC, and Surety Bond programs, establish a new Angel
Investment Program under the purview of the Small Business
Administration, and revise existing SBA rules that inhibit
venture capital investment in small businesses.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS INVESTMENT ACT OF 1958
* * * * * * *
TITLE III--INVESTMENT DIVISION PROGRAMS
Part A--Small Business Investment Companies
* * * * * * *
BORROWING POWER
Sec. 303. (a) * * *
(b) To encourage the formation and growth of small business
investment companies the Administration is authorized when
authorized in appropriation Acts, to purchase, or to guarantee
the timely payment of all principal and interest as scheduled
on, debentures or participating securities issued by such
companies. Such purchases or guarantees may be made by the
Administration on such terms and conditions as it deems
appropriate, pursuant to regulations issued by the
Administration. The full faith and credit of the United States
is pledged to the payment of all amounts which may be required
to be paid under any guarantee under this subsection.
Debentures purchased or guaranteed by the Administration under
this subsection shall be subordinate to any other debenture
bonds, promissory notes, or other debts and obligations of such
companies, unless the Administration in its exercise of
reasonable investment prudence and in considering the financial
soundness of such company determines otherwise. Such debentures
may be issued for a term of not to exceed fifteen years and
shall bear interest at a rate not less than a rate determined
by the Secretary of the Treasury taking into consideration the
current average market yield on outstanding marketable
obligations of the United States with remaining periods to
maturity comparable to the average maturities on such
debentures, adjusted to the nearest one-eighth of 1 per centum,
plus, for debentures obligated after September 30, 2001, an
additional charge, in an amount established annually by the
Administration, as necessary to reduce to zero the cost (as
defined in section 502 of the Federal Credit Reform Act of 1990
(2 U.S.C. 661a)) to the Administration of purchasing and
guaranteeing debentures under this Act, which amount may not
exceed 1.38 percent per year, and which shall be paid to and
retained by the Administration. The debentures or participating
securities shall also contain such other terms as the
Administration may fix, and shall be subject to the following
restrictions and limitations:
(1) * * *
[(2) Maximum leverage.--
[(A) In general.--After March 31, 1993, the
maximum amount of outstanding leverage made
available to a company licensed under section
301(c) of this Act shall be determined by the
amount of such company's private capital--
[(i) if the company has private
capital of not more than $15,000,000,
the total amount of leverage shall not
exceed 300 percent of private capital;
[(ii) if the company has private
capital of more than $15,000,000 but
not more than $30,000,000, the total
amount of leverage shall not exceed
$45,000,000 plus 200 percent of the
amount of private capital over
$15,000,000; and
[(iii) if the company has private
capital of more than $30,000,000, the
total amount of leverage shall not
exceed $75,000,000 plus 100 percent of
the amount of private capital over
$30,000,000 but not to exceed an
additional $15,000,000.
[(B) Adjustments.--
[(i) In general.--The dollar amounts
in clauses (i), (ii), and (iii) of
subparagraph (A) shall be adjusted
annually to reflect increases in the
Consumer Price Index established by the
Bureau of Labor Statistics of the
Department of Labor.
[(ii) Initial adjustments.--The
initial adjustments made under this
subparagraph after the date of the
enactment of the Small Business
Reauthorization Act of 1937 shall
reflect only increases from March 31,
1993.
[(C) Investments in low-income geographic
areas.--In calculating the outstanding leverage
of a company for the purposes of subparagraph
(A), the Administrator shall not include the
amount of the cost basis of any equity
investment made by the company in a smaller
enterprise located in a low-income geographic
area (as defined in section 351), to the extent
that the total of such amounts does not exceed
50 percent of the company's private capital.]
(2) Maximum leverage.--
(A) In general.--The maximum amount of
outstanding leverage made available to any one
company licensed under section 301(c) of this
Act may not exceed the lesser of--
(i) 300 percent of such company's
private capital; or
(ii) $150,000,000.
(B) Multiple licenses under common control.--
The maximum amount of outstanding leverage made
available to two or more companies licensed
under section 301(c) of this Act that are
commonly controlled (as determined by the
Administrator) and not under capital impairment
may not exceed $225,000,000.
(C) Increased investments in women-owned and
socially disadvantaged small businesses.--The
limits provided in subparagraphs (A)(ii) and
(B) shall be $175,000,000 and $250,000,000,
respectively, for any company that certifies in
writing that not less than 50 percent of the
company's aggregate dollar amount of
investments will be made in small businesses
that prior to the investment are--
(i) majority owned by one or more--
(I) socially or economically
disadvantaged individuals (as
defined by Administrator);
(II) veterans of the Armed
Forces; or
(III) current or former
members of the National Guard
or Reserve; or
(ii) located in a low-income
geographic area (as defined in section
351).
* * * * * * *
[(4) Maximum aggregate amount of leverage.--
[(A) In general.--Except as provided in
subparagraph (B), the aggregate amount of
outstanding leverage issued to any company or
companies that are commonly controlled (as
determined by the Administrator) may not exceed
$90,000,000, as adjusted annually for increases
in the Consumer Price Index.
[(B) Exceptions.--The Administrator may, on a
case-by-case basis--
[(i) approve an amount of leverage
that exceeds the amount described in
subparagraph (A) for companies under
common control; and
[(ii) impose such additional terms
and conditions as the Administrator
determines to be appropriate to
minimize the risk of loss to the
Administration in the event of default.
[(C) Applicability of other provisions.--Any
leverage that is issued to a company or
companies commonly controlled in an amount that
exceeds $90,000,000, whether as a result of an
increase in the Consumer Price Index or a
decision of the Administrator, is subject to
subsection (d).
[(D) Investments in low-income geographic
areas.--In calculating the aggregate
outstanding leverage of a company for the
purposes of subparagraph (A), the Administrator
shall not include the amount of the cost basis
of any equity investment made by the company in
a smaller enterprise located in a low-income
geographic area (as defined in section 351), to
the extent that the total of such amounts does
not exceed 50 percent of the company's private
capital.]
* * * * * * *
[(d) Required Certifications.--
[(1) In general.--The Administrator shall require
each licensee, as a condition of approval of an
application for leverage, to certify in writing--
[(A) for licensees with leverage less than or
equal to $90,000,000, that not less than 20
percent of the licensee's aggregate dollar
amount of financings will be provided to
smaller enterprises; and
[(B) for licensees with leverage in excess of
$90,000,000, that, in addition to satisfying
the requirements of subparagraph (A), 100
percent of the licensee's aggregate dollar
amount of financings made in whole or in part
with leverage in excess of $90,000,000 will be
provided to smaller enterprises (as defined in
section 103(12)).
[(2) Multiple licensees.--Multiple licensees under
common control (as determined by the Administrator)
shall be considered to be a single licensee for
purposes of determining both the applicability of and
compliance with the investment percentage requirements
of this subsection.]
(d) Increased Investments in Smaller Enterprises.--The
Administrator shall require each licensee, as a condition of an
application for leverage, to certify in writing that not less
than 25 percent of the licensee's aggregate dollar amount of
financings will be provided to smaller enterprises (as defined
in section 103(12)).
* * * * * * *
AGGREGATE LIMITATIONS
Sec. 306. [(a) If any small business investment company has
obtained financing from the Administration and such financing
remains outstanding, the aggregate amount of obligations and
securities acquired and for which commitments may be issued by
such company under the provisions of this title for any single
enterprise shall not exceed 20 per centum of the private
capital of such company, without the approval of the
Administration.]
(a) If any small business investment company has obtained
financing from the Administration and such financing remains
outstanding, the aggregate amount of securities acquired and
for which commitments may be issued by such company under the
provisions of this title for any single enterprise shall not,
without the approval of the Administration, exceed 10 percent
of the sum of--
(1) the private capital of such company; and
(2) the total amount of leverage projected by the
company in the company's business plan that was
approved by the Administration at the time of the grant
of the company's license.
* * * * * * *
Part B--New Markets Venture Capital Program
SEC. 351. DEFINITIONS.
In this part, the following definitions apply:
(1) * * *
[(2) Low-income individual.--The term ``low-income
individual'' means an individual whose income (adjusted
for family size) does not exceed--
[(A) for metropolitan areas, 80 percent of
the area median income; and
[(B) for nonmetropolitan areas, the greater
of--
[(i) 80 percent of the area median
income; or
[(ii) 80 percent of the statewide
nonmetropolitan area median income.
[(3) Low-income geographic area.--the term ``low-
income geographic area'' means--
[(A) any population census tract (or in the
case of an area that is not tracted for
population census tracts, the equivalent county
division, as defined by the Bureau of the
Census of the Department of Commerce for
purposes of defining poverty areas), if--
[(i) the poverty rate for that census
tract is not less than 20 percent;
[(ii) in the case of a tract--
[(I) that is located within a
metropolitan area, 50 percent
or more of the households in
that census tract have an
income equal to less than 60
percent of the area median
gross income; or
[(II) that is not located
within a metropolitan area, the
median household income for
such tract does not exceed 80
percent of the statewide median
household income; or
[(iii) as determined by the
Administrator based on objective
criteria, a substantial population of
low-income individuals reside, an
inadequate access to investment capital
exists, or other indications of
economic distress exist in that census
tract; or
[(B) any area located within--
[(i) a HUBZone (as defined in section
3(p) of the Small Business Act and the
implementing regulations issued under
that section);
[(ii) an urban empowerment zone or
urban enterprise community (as
designated by the Secretary of Housing
and Urban Development); or
[(iii) a rural empowerment zone or
rural enterprise community (as
designated by the Secretary of
Agriculture).]
(2) Low-income geographic area.--The term ``low-
income geographic area'' has the same meaning given the
term ``low-income community'' in section 45D(e) of the
Internal Revenue Code of 1986 (26 U.S.C. 45D(e)).
[(4)] (3) New markets venture capital company.--The
term ``New Markets Venture Capital company'' means a
company that--
(A) * * *
* * * * * * *
[(5)] (4) Operational assistance.--The term
``operational assistance'' means management, marketing,
and other technical assistance that assists a small
business concern with business development.
[(6)] (5) Participation agreement.--The term
``participation agreement'' means an agreement, between
the Administrator and a company granted final approval
under section 354(e), that--
(A) * * *
* * * * * * *
[(7)] (6) Specialized small business investment
company.--The term ``specialized small business
investment company'' means any small business
investment company that--
(A) * * *
* * * * * * *
[(8)] (7) State.--The term ``State'' means such of
the several States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands, Guam,
American Samoa, the Commonwealth of the Northern
Mariana Islands, and any other commonwealth, territory,
or possession of the United States.
* * * * * * *
SEC. 353. ESTABLISHMENT.
In accordance with this part, the Administrator shall
establish a New Markets Venture Capital Program, under which
the Administrator [may] shall--
(1) * * *
* * * * * * *
SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.
(a) * * *
* * * * * * *
(d) Requirements To Be Met for Final Approval.--The
Administrator shall grant each conditionally approved company
[a period of time, not to exceed 2 years,] 2 years to satisfy
the following requirements:
(1) Capital requirement.--[Each]
(A) In general.--Except as provided in
subparagraph (B), each conditionally approved
company shall raise not less than $5,000,000 of
private capital or binding capital commitments
from one or more investors (other than agencies
or departments of the Federal Government) who
met criteria established by the Administrator.
(B) Small manufacturer investment capital
requirements.--Each conditionally approved
company engaged primarily in development of and
investment in small manufacturers shall raise
not less than $3,000,000 of private capital or
binding capital commitments from one or more
investors (other than agencies or departments
of the Federal Government) who meet criteria
established by the Administrator.
(2) Nonadministration resources for operational
assistance.--
(A) In general.--In order to provide
operational assistance to smaller enterprises
expected to be financed by the company, each
conditionally approved company--
(i) shall have binding commitments
(for contribution in cash or in kind)--
(I) from any sources other
than the Small Business
Administration that meet
criteria established by the
Administrator; and
(II) payable or available
over a multiyear period
acceptable to the Administrator
(not to exceed 10 years); [and]
[(III) in an amount not less
than 30 percent of the total
amount of capital and
commitments raised under
paragraph (1);]
* * * * * * *
(f) Geographic Expansion.--From among companies submitting
applications under subsection (b), the Administrator shall
consider the selection criteria and nationwide distribution
under subsection (c) and shall, to the maximum extent
practicable, approve at least one company from each geographic
region of the Small Business Administration.
* * * * * * *
SEC. 358. OPERATIONAL ASSISTANCE GRANTS.
(a) In General.--
(1) * * *
* * * * * * *
(4) Grant amount.--
(A) New markets venture capital companies.--
The amount of a grant made under this
subsection to a New Markets Venture Capital
company [shall be equal to the resources (in
cash or in kind) raised by the company under
section 354(d)(2).] shall be equal to the
lesser of--
(i) 10 percent of the resources (in
cash or in kind) raised by the company
under section 354(d)(2); or
(ii) $1,000,000.
* * * * * * *
(6) Grants to conditionally approved companies.--
(A) In general.--Subject to subparagraphs (A)
and (B), upon the request of a company
conditionally-approved under section 354(c),
the Administrator shall make a grant to the
company under this subsection.
(B) Repayment by companies not approved.--If
a company receives a grant under paragraph (6)
and does not enter into a participation
agreement for final approval, the company shall
repay the amount of the grant to the
Administrator.
(C) Deduction from grant to approved
company.--If a company receives a grant under
paragraph (6) and receives final approval under
section 354(e), the Administrator shall deduct
the amount of the grant under that paragraph
from the total grant amount that the company
receives for operational assistance.
(D) Amount of grant.--No company may receive
a grant of more than $50,000 under this
paragraph.
* * * * * * *
SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.
(a) In General.--There are authorized to be appropriated for
[fiscal years 2001 through 2006] fiscal years 2008 through
2010, to remain available until expended, the following sums:
(1) Such subsidy budget authority as may be necessary
to guarantee [$150,000,000] $30,000,000 of debentures
under this part, of which not less than one-quarter
shall be used to guarantee debentures of companies
engaged primarily in development of and investment in
small manufacturers.
(2) [$30,000,000] $5,000,000 to make grants under
this part, of which not less than one-quarter shall be
used to make grants to companies engaged primarily in
development of and investment in small manufacturers.
PART C--ANGEL INVESTMENT PROGRAM
SEC. 380. OFFICE OF ANGEL INVESTMENT.
(a) Establishment.--There is established, in the Investment
Division of the Small Business Administration, the Office of
Angel Investment.
(b) Director.--The head of the Office of Angel Investment is
the Director of Angel Investment.
(c) Duties.--Subject to the direction of the Secretary, the
Director shall perform the following functions:
(1) Provide support for the development of angel
investment opportunities for small business concerns.
(2) Administer the Angel Investment Program under
section 382 of this Act.
(3) Administer the Federal Angel Network under
section 383 of this Act.
(4) Administer the grant program for the development
of angel groups under section 384 of this Act.
(5) Perform such other duties consistent with this
section as the Administrator shall prescribe.
SEC. 381. DEFINITIONS.
In this part:
(1) The term ``angel group'' means 10 or more angel
investors organized for the purpose of making
investments in local or regional small business
concerns that--
(A) consists primarily of angel investors;
(B) requires angel investors to be accredited
investors; and
(C) actively involves the angel investors in
evaluating and making decisions about making
investments.
(2) The term ``angel investor'' means an individual
who--
(A) qualifies as an accredited investor (as
that term is defined under Rule 501 of
Regulation D of the Securities and Exchange
Commission (17 C.F.R. 230.501));
(B) provides capital to or makes investments
in a small business concern.
(3) The term ``small business concern owned and
controlled by veterans'' has the meaning given that
term under section 3(q)(3) of the Small Business Act
(15 U.S.C. 632(q)(3)).
(4) The term ``small business concern owned and
controlled by women'' has the meaning given that term
under section 8(d)(3)(D) of such Act (15 U.S.C.
637(d)(3)(D)).
(5) The term ``socially and economically
disadvantaged small business concern'' has the meaning
given that term under section 8(a)(4)(A) of such Act
(15 U.S.C. 637(a)(4)(A)).
SEC. 382. ANGEL INVESTMENT PROGRAM.
(a) In General.--The Director of Angel Investment shall
establish and carry out a program, to be known as the Angel
Investment Program, to provide financing to approved angel
groups for the purpose of providing venture capital investment
in small businesses in their communities.
(b) Eligibility.--To be eligible to receive financing under
this section, an angel group shall--
(1) have demonstrated experience making investments
in local or regional small business concerns;
(2) have established protocols and a due diligence
process for determining its investment strategy;
(3) have an established code of ethics; and
(4) submit an application to the Director of Angel
Investment at such time and containing such information
and assurances as the Director may require.
(c) Use of Funds.--An angel group that receives financing
under this section shall use the amounts received to make
investments in small business concerns--
(1) that have been in existence for less than 5 years
as of the date on which the investment is made;
(2) that have fewer than 75 employees as of the date
on which the investment is made;
(3) more than 50 percent of the employees of which
perform substantially all of their services in the
United States as of the date on which the investment is
made; and
(4) within the geographic area determined by the
Director under subsection (e).
(d) Limitation on Amount.--No angel group receiving financing
under this section shall receive more than $2,000,000.
(e) Limitation on Geographic Area.--For each angel group
receiving financing under this section, the Director shall
determine the geographic area in which a small business concern
must be located to receive an investment from that angel group.
(f) Priority in Providing Financing.--In providing financing
under this section, the Director shall give priority to angel
groups that invest in small business concerns owned and
controlled by veterans, small business concerns owned and
controlled by women, and socially and economically
disadvantaged small business concerns.
(g) Nationwide Distribution of Financing.--In providing
financing under this section, the Director shall, to the extent
practicable, provide financing to angel groups that are located
in a variety of geographic areas.
(h) Matching Requirement.--As a condition of receiving
financing under this section, the Director shall require that
for each small business concern in which the angel group
receiving such financing invests, the angel group shall invest
an amount that is equal to or greater than the amount of
financing received under this section from a source other than
the Federal Government that is equal to the amount of the
financing provided under this section that the angel group
invests in that small business concern.
(i) Repayment of Financing.--As a condition of receiving
financing under this section, the Director shall require an
angel group to repay the Director for any investment on which
the angel group makes a profit an amount equal to the
percentage of the returns that is equal to the percentage of
the total amount invested by the angel group that consisted of
financing received under this section.
(j) Angel Investment Fund.--
(1) Establishment.--There is in the Treasury a fund
to be known as the Angel Investment Fund.
(2) Deposit of certain amounts.--Amounts collected
under subsection (i) shall be deposited in the fund.
(3) Use of deposits.--Deposits in the fund shall be
available for the purpose of providing financing under
this section in the amounts specified in annual
appropriation laws without regard to fiscal year
limitations.
(k) Authorization of Appropriations.--There is authorized to
be appropriated to carry out this section--
(1) $10,000,000 for fiscal year 2008;
(2) $20,000,000 for fiscal year 2009; and
(3) $20,000,000 for fiscal year 2010.
SEC. 383. FEDERAL ANGEL NETWORK.
(a) In General.--Subject to the succeeding provisions of this
subsection, the Director of the Office of Angel Investment
shall establish and maintain a searchable database, to be known
as the Federal Angel Network, to assist small business concerns
in identifying angel investors.
(b) Network Contents.--The Federal Angel Network shall
include--
(1) a list of the names and addresses of angel groups
and angel investors;
(2) information about the types of investments each
angel group or angel investor has made; and
(3) information about other public and private
resources and registries that provide information about
angel groups or angel investors.
(c) Collection of Information.--
(1) In general.--The Director shall collect the
information to be contained in the Federal Angel
Network and shall ensure that such information is
updated regularly.
(2) Request for exclusion of information.--The
Director shall not include such information concerning
an angel investor if that investor contacts the
Director to request that such information be excluded
from the Network.
(d) Availability.--The Director shall make the Federal Angel
Network available on the Internet website of the Administration
and shall do so in a manner that permits others to download,
distribute, and use the information contained in the Federal
Angel Network.
(e) Authorization of Appropriations.--There is authorized to
be appropriated to carry out this section $1,000,000, to remain
available until expended.
SEC. 384. GRANT PROGRAM FOR DEVELOPMENT OF ANGEL GROUPS.
(a) In General.--The Director of the Office of Angel
Investment shall establish and carry out a grant program to
make grants to eligible entities for the development of new or
existing angel groups and to increase awareness and education
about angel investing.
(b) Eligible Entities.--In this section, the term ``eligible
entity'' means--
(1) a State or unit of local government;
(2) a nonprofit organization;
(3) a state mutual benefit corporation;
(4) a Small Business Development Center established
pursuant to section 21 of the Small Business Act (15
U.S.C. 648); or
(5) a women's business center established pursuant to
section 29 of the Small Business Act (15 U.S.C. 656).
(c) Matching Requirement.--The Administrator shall require,
as a condition of any grant made under this section, that the
eligible entity receiving the grant provide from resources (in
cash or in kind), other than those provided by the
Administrator or any other Federal source, a matching
contribution equal to 50 percent of the amount of the grant.
(d) Application.--To receive a grant under this section, an
eligible entity shall submit an application that contains--
(1) a proposal describing how the grant would be
used; and
(2) any other information or assurances as the
Director may require.
(e) Report.--Not later than 3 years after the date on which
an eligible entity receives a grant under this section, such
eligible entity shall submit a report to the Administrator
describing the use of grant funds and evaluating the success of
the angel group developed using the grant funds.
(f) Authorization of Appropriations.--There is authorized to
be appropriated to carry out this section $1,500,000, for each
of fiscal years 2008 through 2010.
TITLE IV--GUARANTEES
* * * * * * *
Part B--Surety Bond Guarantees
* * * * * * *
AUTHORITY OF THE ADMINISTRATION
Sec. 411. (a)(1) The Administration may, upon such terms and
conditions as it may prescribe, guarantee and enter into
commitments to guarantee any surety against loss resulting from
a breach of the terms of a bid bond, payment bond, performance
bond, or bonds ancillary thereto, by a principal on any total
work order or contract amount at the time of bond execution
that does not exceed [$2,000,000] $3,000,000.
* * * * * * *
[(3) The Administration may authorize any surety, without
further administration approval, to issue, monitor, and service
such bonds subject to the Administration's guarantee.
[(4) No such guarantee may be issued, unless--
[(A) the person who would be principal under the bond
is a small business concern;
[(B) the bond is required in order for such person to
bid on a contract, or to serve as a prime contractor or
subcontractor thereon;
[(C) such person is not able to obtain such bond on
reasonable terms and conditions without a guarantee
under this section; and
[(D) there is a reasonable expectation that such
principal will perform the covenants and conditions of
the contract with respect to which such bond is
required, and the terms and conditions of such bond are
reasonable in the light of the risks involved and the
extent of the surety's participation.
[(5)(A) The Administration shall promptly act upon an
application from a surety to participate in the Preferred
Surety Bond Guarantee Program, authorized by paragraph (3), in
accordance with criteria and procedures established in
regulations pursuant to subsection (d).
[(B) The Administration is authorized to reduce the allotment
of bond guarantee authority or terminate the participation of a
surety in the Preferred Surety Program Guarantee Program based
on the rate of participation of such surety during the 4 most
recent fiscal year quarters compared to the median rate of
participation by the other sureties in the program.]
(b) Subject to the provisions of this section, in connection
with the issuance by the Administration of a guarantee to a
surety as provided by subsection (a), the Administration may
agree to indemnify such surety against a loss sustained by such
surety in avoiding or attempting to avoid a breach of the terms
of a bond guaranteed by the Administration pursuant to
subsection (a): Provided, however
(1) * * *
(2) a surety must obtain approval from the
Administration prior to making any payments pursuant to
this subsection unless the surety is participating
under [the authority of subsection (a)(3)] the
authority of section 413; and
* * * * * * *
(c) Any guarantee or agreement to indemnify under this
section shall obligate the Administration to pay to the surety
a sum--
[(1) not to exceed 70 per centum of the loss incurred
and paid by a surety authorized to issue bonds subject
to the Administration's guarantee under subsection
(a)(3);]
[(2)] (1) not to exceed 90 per centum of the loss
incurred and paid in the case of a surety requiring the
Administration's specific approval for the issuance of
such bond, but in no event may the Administration make
any duplicate payment pursuant to subsection (b) or any
other subsection;
[(3)] (2) equal to 90 per centum of the loss incurred
and paid in the case of a surety requiring the
administration's specific approval for the issuance of
a bond, if--
(A) * * *
* * * * * * *
[(4)] (3) determined pursuant to subsection (b), if
applicable.
* * * * * * *
(g)(1) * * *
* * * * * * *
(3) Each surety participating under [the authority of
paragraph (3) of subsection (a)] the authority of section 413
shall be audited at least once every three years by examiners
selected and approved by the Administration.
* * * * * * *
(k) For bonds made or executed with the prior approval of the
Administration, the Administration shall not deny liability to
a surety based upon information that was provided as part of
the guaranty application.
(l) To the extent that amounts are made available to the
Administrator for the purpose of fee contributions, the
Administrator shall use such funds to offset fees established
and assessed under this section. Each fee contribution shall be
effective for one fiscal quarter and shall be adjusted as
necessary to ensure that amounts made available are fully used.
SEC. 413. PREFERRED SURETY BOND PROGRAM.
(a) Program Required.--The Administrator shall carry out a
program, to be known as the Preferred Surety Bond Program,
under which the Administration, by a written agreement between
the surety and the Administration, delegates to the surety
complete authority to issue, monitor, and service bonds subject
to guaranty from the Administration without obtaining the
specific approval of the Administration. Bonds made under the
program shall carry a 70 percent guaranty.
(b) Term.--The term of a delegation of authority under such
an agreement shall not exceed 2 years.
(c) Renewal.--Such an agreement may be renewed one or more
times, each such renewal providing one additional term. Before
each renewal, the Administrator shall review the surety's
bonds, policies, and procedures for compliance with relevant
rules and regulations.
(d) Application.--The Administrator shall promptly act upon
an application from a surety to participate in the program, in
accordance with criteria and procedures established in
regulations pursuant to section 411(d).
(e) Reduction or Termination of Participation.--The
Administrator is authorized to reduce the allotment of bond
guarantee authority or terminate the participation of a surety
in the program based on the rate of participation of such
surety during the 4 most recent fiscal year quarters compared
to the median rate of participation by the other sureties in
the program.
* * * * * * *
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SMALL BUSINESS ACT
* * * * * * *
Sec. 3. (a)(1) * * *
* * * * * * *
(5) Non-affiliation of Venture Capital From Consideration
of Small Business Concern.--For purposes of determining whether
a small business concern is independently owned and operated
under paragraph (1) or meets the small business size standards
instituted under paragraph (2), the Administrator shall not
consider a concern that has received financing from a venture
capital operating company to be affiliated with either the
venture capital operating company or any other business which
the venture capital operating company has financed.
(6) Definition of ``Independently Owned and Operated''.--
For purposes of this section, a business concern shall be
deemed to be ``independently owned and operated'' if it is
owned in majority part by one or more natural persons or
venture capital operating companies meeting the definition in
paragraph (7).
(7) Definition of ``Venture Capital Operating Company''.--
For purposes of this section, the term ``venture capital
operating company'' means a business concern--
(A) that--
(i) is a Venture Capital Operating Company,
as that term is defined in regulations
promulgated by the Secretary of Labor; or
(ii) is an entity that--
(I) is registered under the
Investment Company Act of 1940 (15
U.S.C. 80a-51 et seq.);
(II) is an investment company, as
defined in section 3(c)(14) of such Act
(15 U.S.C. 80a-3(c)(14)), which is not
registered under such Act because it is
beneficially owned by less than 100
persons; or
(III) is a nonprofit organization
affiliated with, or serving as a patent
and licensing organization for, a
university or other institution of
higher education and that invests
primarily in small business concerns;
and
(B) that is not controlled by any business concern
that is not a small business concern within the meaning
of section 3; and
(C) that has fewer than 500 employees; and
(D) that is itself a business concern incorporated
and domiciled in the United States, or is controlled by
a business concern that is incorporated and domiciled
in the United States.
* * * * * * *