[Federal Register Volume 62, Number 28 (Tuesday, February 11, 1997)]
[Proposed Rules]
[Pages 6147-6149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3280]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 107


Small Business Investment Companies

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to concerns expressed by a number of small 
business investment companies (SBICs), SBA is proposing to modify the 
examination fees charged to SBICs. SBA believes that the current fee 
schedule places a disproportionate burden on certain classes of 
licensees (particularly those with the largest amount of total assets) 
and, in some cases, results in fee assessments that exceed reasonable 
charges based on the level of effort and time associated with the 
examination process.

DATES: Comments must be submitted on or before March 13, 1997.

ADDRESSES: Written comments should be addressed to Don A. Christensen, 
Associate Administrator for Investment, U.S. Small Business 
Administration, 409 3rd Street, SW., Suite 6300, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, Investment Division, 
at (202) 205-7583.

SUPPLEMENTARY INFORMATION: On January 31, 1996 the Small Business 
Administration (SBA) published final regulations which, among other 
things, increased the examination fees charged to SBICs. See 61 FR 
3177. Fees

[[Page 6148]]

continued to be assessed based on total assets of the licensee, but at 
higher rates. The new fee schedule was designed to produce total 
revenue sufficient to cover the current direct costs to SBA of 
conducting examinations.
    Since the effective date and implementation of this regulation 
(March 1, 1996), SBA has received a number of comments regarding the 
impact of the new fee schedule on licensees in certain asset size 
groups. In particular, bank-owned SBICs argue that they are required to 
bear an unfair portion of the overall fees. In this regard, they note 
that they generally have no federal funds at risk. However, because 
fees are based on total assets and they generally have the largest 
amount of total assets, they are required to pay fees at levels which 
far exceed the level of effort and risk associated with the examination 
process. Similarly, larger SBICs which are not bank-owned and do rely 
on federal funds to supplement private capital argue that the fees 
greatly exceed the amount they pay for financial audits and are not 
representative of the level of effort and time attributable to the 
process.
    Because of these comments, the SBA has re-assessed its examination 
fee schedule and its impact on the various classes of licensees. Based 
on its reassessment, the SBA has concluded that the current fee 
schedule places a disproportionate burden on certain classes of 
licensees and, in some cases, results in fee assessments that exceed 
reasonable charges based on the level of effort and time associated 
with the examination process.
    To remedy this situation, the SBA is proposing revisions to 
Sec. 107.692 to establish fees that are more reasonable in relation to 
the level of effort and resources expended by the Agency. The proposed 
fee schedule would establish ``base fees'' for examinations. The base 
fee increases as a licensee's total assets increase, but is capped at 
$14,000. The base fee would be adjusted upward in circumstances where 
the Agency incurs additional cost or burdens in the process because of 
circumstances solely related to the licensee to be examined. Similarly, 
the base fee would be adjusted downward where circumstances solely 
related to the licensee to be examined are such that the Agency's level 
of effort and time are minimized. In SBA's view, these adjustments are 
incentives for the licensees to adhere to program regulations and will 
serve to further enhance the safety and soundness of the SBIC program. 
The new fee schedule would apply to examinations beginning after the 
effective date of a final rule.

Compliance With Executive Orders, 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    SBA certifies that this proposed rule would not be a significant 
regulatory action for purposes of Executive Order 12866 because it 
would not have an annual effect on the economy of more than $100 
million, and that it would not have a significant economic impact on a 
substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The purpose of the 
proposed rule is to modify the existing regulatory guidance related to 
SBIC examination fees. The proposed regulations would provide for more 
reasonable and equitable examination fees. The proposed fee structure 
would more properly reflect the level of effort and Agency resources 
expended to conduct an examination, would encourage continued 
compliance with program regulations, and would continue to allow for 
efficient and effective program administration.
    The proposed regulations would have some economic effect. The base 
fee for examinations would continue to be based on total assets of a 
licensee and, for the most part, at the rates prescribed in current 
regulations. However, no licensee would have a base fee greater than 
$14,000. The proposed regulations would provide for discounts of the 
base examination fee for (1) licensees that had no outstanding 
regulatory violations at the time of the examination and there were no 
violations noted as a result of the most recent prior examination; and 
(2) licensees that are cooperative with SBA examination personnel by 
being fully responsive to the letter of notification of examination. 
Similarly, the proposed regulations would provide increases to the base 
examination fee for a licensee that (1) is organized as a partnership 
or limited liability company; (2) is authorized to issue Participating 
Securities; and/or (3) maintains its records/files in multiple 
locations.
    The largest licensees, those with total assets exceeding $60 
million, would realize substantial fee decreases. The examination base 
fee of all licensees potentially could be increased or decreased. 
Therefore, all licensees with total assets below $60 million may 
experience a 5% to 25% increase or a 10% to 25% decrease in the cost of 
an annual examination. The economic impact in either case is 
inconsequential given the total number of licensees and the base fees 
applicable to the majority of the licensees. Further, even assuming the 
maximum increases provided for in the proposed regulations, most 
licensees with total assets greater than $60 million would realize 
significant examination fee reductions.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this proposed rule, if adopted in final form, would 
contain no new reporting or recordkeeping requirements that have not 
already been approved by the Office of Management and Budget.
    For purposes of Executive Order 12612, SBA certifies that this rule 
would not have any federalism implications warranting the preparation 
of a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 107

    Investment companies, Loan programs-business, Reporting and 
recordkeeping requirements, Small businesses.

    For the reasons set forth above, SBA hereby proposes to amend Part 
107 of Title 13 of the Code of Federal Regulations as follows:

PART 107--SMALL BUSINESS INVESTMENT COMPANIES

    1. The authority citation for part 107 is revised to read as 
follows:

    Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g 
and 687m, Pub. L. 104-208.

    2. Section 107.692 is revised to read as follows:


Sec. 107.692  Examination fees.

    (a) General. SBA will assess fees for examinations in accordance 
with this Sec. 107.692. Unless SBA determines otherwise on a case by 
case basis, SBA will not assess fees for special examinations to obtain 
specific information.
    (b) Base fee. A base fee will be assessed based on your total 
assets (at cost) as of the date of your latest certified financial 
statement or a more recent interim statement requested by and submitted 
to SBA in connection with the examination. The base fee table is as 
follows:

[[Page 6149]]



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      Total assets of licensee          Base fee                      Plus, percent of assets                   
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$0 to $1,500,000....................       $3,500  +0%.                                                         
$1,500,001 to $5,000,000............        3,700  +.065% of the amount over $1,500,000.                        
$5,000,001 to $10,000,000...........        6,000  +.02% of the amount over $5,000,000.                         
$10,000,001 to $15,000,000..........        7,000  +.01% of the amount over $10,000,000.                        
$15,000,001 to $25,000,000..........        7,700  +.015% of the amount over $15,000,000.                       
$25,000,001 to $50,000,000..........        9,200  +.015% of the amount over $25,000,000.                       
$50,000,001 to $60,000,000..........       13,000  +.01% of the amount over $50,000,000.                        
$60,000,001 and above...............       14,000  +0%.                                                         
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    (c) Adjustments to base fee. Your base fee, as determined by the 
table in paragraph (b) of this section, will be adjusted (increased or 
decreased) based on the following criteria:
    (1) If you have no outstanding regulatory violations at the time of 
the commencement of the examination and SBA did not identify any 
violations as a result of the most recent prior examination, you will 
receive a 15% discount on your base fee;
    (2) If you were fully responsive to the letter of notification of 
examination (that is, you provided all requested documents and 
information within the time period stipulated in the notification 
letter in a complete and accurate manner, and you prepared and had 
available all information requested by the examiner for on-site 
review), you will receive a 10% discount on your base fee;
    (3) If you are organized as a partnership or limited liability 
company, you will pay an additional charge equal to 5% of your base 
fee;
    (4) If you are a Licensee authorized to issue Participating 
Securities, you will pay an additional charge equal to 10% of your base 
fee; and
    (5) If you maintain your records/files in multiple locations (as 
permitted under Sec. 107.600(b)), you will pay an additional charge 
equal to 10% of your base fee.
    (d) Fee discounts and additions table. The following table 
summarizes the discounts and additions noted in paragraph (c) of this 
section:

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                                            Amount of                                                 Amount of 
                                           discount--%                                               addition--%
        Examination fee discounts            of base             Examination fee additions             of base  
                                           examination                                               examination
                                               fee                                                       fee    
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No prior violations......................           15  Partnership or limited liability co........            5
Responsiveness...........................           10  Participating Security Licensee............           10
                                           ...........  Financing Records at Multiple Locations....           10
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    (e) Delay fee. If, in the judgment of SBA, the time required to 
complete your examination is delayed due to your lack of cooperation or 
the condition of your records, SBA may assess an additional fee of up 
to $500 per day.

    Dated: February 4, 1997.
Philip Lader,
Administrator.
[FR Doc. 97-3280 Filed 2-10-97; 8:45 am]
BILLING CODE 8025-01-P