[House Report 117-140]
[From the U.S. Government Publishing Office]
117th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 117-140
======================================================================
INVESTING IN MAIN STREET ACT OF 2021
_______
October 12, 2021.--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. 4256]
The Committee on Small Business, to whom was referred the
bill (H.R. 4256) to amend the Small Business Investment Act of
1958 to increase the amount that certain banks and savings
associations may invest in small business investment companies,
subject to the approval of the appropriate Federal banking
agency, and for other purposes, having considered the same,
reports favorably thereon without amendment and recommends that
the bill do pass.
CONTENTS
Page
I. Purpose and Bill Summary........................................1
II. Background and Need for Legislation.............................2
III. Hearings........................................................3
IV. Committee Consideration.........................................3
V. Committee Votes.................................................3
VI. Section-by-Section Analysis for H.R. 4256.......................3
VII. Congressional Budget Cost Estimate..............................3
VIII. New Budget Authority, Entitlement Authority, and Tax Expenditure4
IX. Committee Oversight Findings and Recommendations................4
X. Statement of General Performance Goals and Objectives...........4
XI. Duplication of Federal Programs.................................4
XII. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits........................................................4
XIII. Federal Mandates Statement......................................4
XIV. Federal Advisory Committee Statement............................5
XV. Applicability to Legislative Branch.............................5
XVI. Constitutional Authority Statement..............................5
XVII. Changes in Existing Law Made by the Bill, as Reported...........5
I. Purpose and Bill Summary
The purpose of H.R. 4256, the ``Investing in Main Street
Act of 2021,'' is to increase the amount of capital and surplus
a financial institution or savings association may invest in a
Small Business Investment Company (SBIC) licensed by the Small
Business Administration (SBA) from 5 to 15 percent with the
goal to improve access to investment capital for small
businesses.
II. Background and Need for Legislation
H.R. 4256 was introduced by Rep. Judy Chu (D-CA) and Rep.
Andrew Garbarino (R-NY) on June 30, 2021. H.R. 4256 is
identical to H.R. 116, which was introduced in the 116th
Congress. H.R. 116 was introduced on January 3, 2019, by Rep.
Chu and Rep. Ralph Norman (R-SC). H.R. 116 passed the House on
January 14, 2019, under Suspension of the Rules by a vote of
403-2 (Roll Call No. 30). H.R. 116 was received in the Senate
and read twice and referred to the Committee on Small Business
and Entrepreneurship on January 15, 2019.
Authorized by the Small Business Investment Act of 1958,
the SBIC program provides access to low-cost, government-backed
investment capital for small businesses, which strengthens
local communities and empowers American business owners to grow
and compete in the global economy. SBA licenses and regulates
privately owned and managed investment funds that use their own
capital, plus SBA-guaranteed leverage, to make equity and debt
investments in small businesses. Leveraged funds obtained under
the program generally carry rates lower than would otherwise be
available from traditional lending sources. This enables SBIC
funds to make investments in greater amounts than would be
possible solely with private funds. The size of an SBIC fund's
private capital determines the amount of SBA funding for which
the SBIC fund is eligible. SBIC funds are generally eligible
for up to two tiers of leverage on their private capital,
meaning an SBIC fund with $75 million in private capital could
have a total fund size of up to $225 million, with up to $150
million of SBA leverage. Investors that typically provide SBICs
with private capital include public and private pension funds,
banks and other financial institutions, institutional
investors, and other high-net-worth individuals. SBIC funds
represent approximately $30 billion in investment capital,
which have helped create or sustain more than 9.5 million jobs
since 1995.
Currently, the Office of the Comptroller of the Currency's
(OCC) regulations permit financial institutions and savings
associations to invest up to 15 percent (subject to OCC
approval) of their capital and surplus into qualified public
welfare investments. An SBIC is considered a public welfare
investment,\1\ however, the Small Business Investment Act of
1958 restricts these institutions from investing more than five
percent of their capital and surplus in SBICs.\2\ To harmonize
the Small Business Investment Act of 1958 with the OCC's public
welfare investment regulations, the bill permits financial
institutions and savings associations to invest up to 15
percent of their capital and surplus in an SBIC, subject to the
approval of the appropriate federal regulator.
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\1\12 CFR Sec. 24.4(a).
\2\15 U.S.C. Sec. 682(b)(1), (2).
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III. Hearings
On May 19, 2015, the Subcommittee on Economic Growth, Tax,
and Capital Access held a hearing on improving SBA's capital
access program, and more specifically there were discussions
about improvements that could be made to the SBIC program.\3\
On April 5, 2016, the Subcommittee on Economic Growth, Tax, and
Capital Access held a field hearing in Pasadena, California.\4\
During the hearing, Ms. Jeri Harman testified in support of
lifting the cap. On September 26, 2019, the Committee held a
management review hearing on the SBIC program, with Mr. Joe
Shepard, Associate Administrator of Investment and Innovation,
and a panel of private sector SBIC program participants and
stakeholders.\5\
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\3\Improving Capital Access Programs Within the SBA: Hearing Before
the H. Comm. on Small Business Subcomm. on Economic Growth, Tax, and
Capital Access, 114th Cong. (2015) (statement of Brett Palmer,
President, Small Business Investor Alliance).
\4\Field Hearing in Pasadena, CA: Bridging the Gap--Increasing
Access to Venture Capital for Small Businesses: Hearing Before the H.
Comm. on Small Business Subcomm. on Economic Growth, Tax, and Capital
Access, 114th Cong. (2016) (statement of Jeri J. Harman, Managing
Partner & CEO, Avante Mezzanine Partners).
\5\SBA Management Review: Small Business Investment Company
Program: Hearing Before the H. Comm. on Small Business, 116th Cong.
(2019).
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IV. Committee Consideration
The Committee on Small Business met in open session, with a
quorum being present, on July 29, 2021 and ordered H.R. 4256
favorably reported to the House of Representatives. During the
markup, no amendments were offered.
V. Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the recorded
votes on the motion to report legislation and amendments
thereto. The Committee approved by voice vote to favorably
report H.R. 4256 to the House at 10:19 AM.
VI. Section-by-Section Analysis for H.R. 4256
Section 1. Short title
This Act may be cited as the ``Investing in Main Street Act
of 2021.''
Section 2. Investments in Small Business Investment Companies
This section increases the percent of capital and surplus a
financial institution or federal savings institution may invest
in an SBIC from 5 to 15 percent, subject to the approval of the
appropriate federal banking agency.
VII. Congressional Budget Cost Estimate
Pursuant to 3(c)(2) of rule XIII of the Rules of the House
of Representatives, the Committee adopts as its as its own the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974. The Committee has requested but not
received from the Director of the Congressional Budget Office a
cost estimate for the Committee's provisions.
VIII. New Budget Authority, Entitlement Authority, and Tax Expenditures
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, the Committee provides the
following opinion and estimate with respect to new budget
authority, entitlement authority, and tax expenditures. While
the Committee has not received an estimate of new budget
authority contained in the cost estimate prepared by the
Director of the Congressional Budget Office pursuant to Sec.
402 of the Congressional Budget Act of 1974, the Committee does
not believe that there will be any additional costs
attributable to this legislation. H.R. 4256 does not direct new
spending, but instead reallocates funding independently
authorized and appropriated.
IX. Committee Oversight Findings and Recommendations
In accordance with clause 3(c)(1) of rule XIII and 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. 4256 are incorporated into the descriptive portions of
this report.
X. Statement of General Performance Goals and Objectives
With respect to the requirements of clause 3(c)(4) of rule
XIII of the Rules of the House of Representatives, the
performance goals and objectives of H.R. 4256 is to increase
the amount of capital and surplus financial institutions and
savings associations may invest in an SBIC to improve access to
investment capital for small businesses.
XI. Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, no provision of H.R. 4256 is known to
be duplicative of another Federal program, including any
program that was included in a report to Congress pursuant to
section 21 of Public Law 111-139 or the most recent Catalog of
Federal Domestic Assistance.
XII. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee finds that the bill
does not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits as defined in clause 9(e),
9(f), or 9(g) of rule XXI of the Rules of the House of
Representatives.
XIII. Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
XIV. Federal Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
XV. Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
XVI. Constitutional Authority Statement
Pursuant to clause 7 of rule XII of the Rules of the House
of Representatives, the Committee finds the authority for this
legislation in Art. I, Sec. 8, cl. 1 of the Constitution of the
United States.
XVII. 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, as shown as follows: existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman:
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 (new matter is
printed in italics and 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
* * * * * * *
capital requirements
Sec. 302.
(a) Amount.--
(1) In general.--Except as provided in paragraph (2),
the private capital of each licensee shall be not less
than--
(A) $5,000,000; or
(B) $10,000,000, with respect to each
licensee authorized or seeking authority to
issue participating securities to be purchased
or guaranteed by the Administration under this
Act.
(2) Exception.--The Administrator may, in the
discretion of the Administrator and based on a showing
of special circumstances and good cause, permit the
private capital of a licensee authorized or seeking
authorization to issue participating securities to be
purchased or guaranteed by the Administration to be
less than $10,000,000, but not less than $5,000,000, if
the Administrator determines that such action would not
create or otherwise contribute to an unreasonable risk
of default or loss to the Federal Government.
(3) Adequacy.--In addition to the requirements of
paragraph (1), the Administrator shall--
(A) determine whether the private capital of
each licensee is adequate to assure a
reasonable prospect that the licensee will be
operated soundly and profitably, and managed
actively and prudently in accordance with its
articles; and
(B) determine that the licensee will be able
both prior to licensing and prior to approving
any request for financing, to make periodic
payments on any debt of the company which is
interest bearing and shall take into
consideration the income which the company
anticipates on its contemplated investments,
the experience of the company's owners and
managers, the history of the company as an
entity, if any, and the company's financial
resources.
(4) Exemption from capital requirements.--The
Administrator may, in the discretion of the
Administrator, approve leverage for any licensee
licensed under subsection (c) or (d) of section 301
before the date of enactment of the Small Business
Program Improvement Act of 1996 that does not meet the
capital requirements of paragraph (1), if--
(A) the licensee certifies in writing that
not less 50 percent of the aggregate dollar
amount of its financings after the date of
enactment of the Small Business Program
Improvement Act of 1996 will be provided to
smaller enterprises; and
(B) the Administrator determines that such
action would not create or otherwise contribute
to an unreasonable risk of default or loss to
the United States Government.
(b) Financial Institution Investments.--
(1) Certain banks.--Notwithstanding the provisions of
section 6(a)(1) of the Bank Holding Company Act of
1956, any national bank, or any member bank of the
Federal Reserve System or nonmember insured bank to the
extent permitted under applicable State law, may invest
in any 1 or more small business investment companies,
or in any entity established to invest solely in small
business investment companies, except that in no event
shall the total amount of such investments of any such
bank exceed 5 percent of the capital and surplus of the
bank or, subject to the approval of the appropriate
Federal banking agency, 15 percent of such capital and
surplus.
(2) Certain savings associations.--Notwithstanding
any other provision of law, any Federal savings
association may invest in any one or more small
business investment companies, or in any entity
established to invest solely in small business
investment companies, except that in no event may the
total amount of such investments by any such Federal
savings association exceed 5 percent of the capital and
surplus of the Federal savings association or, subject
to the approval of the appropriate Federal banking
agency, 15 percent of such capital and surplus.
(3) Appropriate federal banking agency defined.--For
purposes of this subsection, the term ``appropriate
Federal banking agency'' has the meaning given that
term under section 3 of the Federal Deposit Insurance
Act.
(c) Diversification of Ownership.--The Administrator shall
ensure that the management of each licensee licensed after the
date of enactment of the Small Business Program Improvement Act
of 1996 is sufficiently diversified from and unaffiliated with
the ownership of the licensee in a manner that ensures
independence and objectivity in the financial management and
oversight of the investments and operations of the licensee.
* * * * * * *
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