INCREASE IN AUTHORIZATION

Section 11 of H.R. 8870 raises the limit on loans SBA may ha outstanding under the Small Business Investment Act of 1958 by $1 million and makes a corresponding increase in the amount authoriz to be appropriated to the Treasury revolving fund that finances SBA programs. SBA estimates that if H.R. 8870 is enacted, t existing $250 million authorization to carry out the 1958 act will be sufficient. Their projections indicate that loans outstandi against this authorization at the end of the current fiscal year w total $298 million, of which $212 million represents SBA section 3 loans to SBIC's, $42 million represents SBA section 303 loans SBIC's, $19 million SBA section 501 loans to State developme companies, and $25 million in SBA loans to State and local develo ment companies under section 502.

It should be pointed out that this authorization does not constitu either an appropriation or obligational authority. It is an over limit on the loans SBA may have outstanding under the 1958 a Before SBA may spend or commit funds under the act, appropriatio must be made to a Treasury revolving fund established under secti 4(c) of the Small Business Act to finance all SBA programs.

SECTION-BY-SECTION SUMMARY OF THE BILL, AS REPORTED The first section provides that the bill may be cited by its sh title the "Small Business Investment Act Amendments of 1961 Section 2

This section amends section 103 of the Small Business Investme Act of 1958 by revising the definition of the term "small busin investment company" to take account of the expiration (on June 3 1961) of the temporary Federal authority to charter such compan and to conform with the amendments consequently made by section of the bill (discussed below). This section also amends section 1 of the 1958 act to provide a definition of the terms "license" a "licensee" for purposes of the new enforcement provisions added section 8 of the bill.

Section 3

Subsection (a) amends section 302 (a) of the Small Business Inve ment Act of 1958 in order to increase the amount which the Sm Business Administration may invest as capital in any one sm business investment company through the purchase of its subor nated debentures to $500,000 (or the amount of the company's paid capital and surplus from other sources, if less), and to permit t Administration to make such investments to stimulate the growth such companies as well as to provide them with initial capital; existi law limits the Administration's investment in a small business inves ment company under this section to $150,000 and restricts such inves ment to initial capital. Investments by the Administration und this section could however be made only to the extent that priva funds are not available, and only during a period (to be fixed by t Administration) ending in the case of any company within 3 yea after the date the company's license is issued or the date of enactme of the bill, whichever is later.

Subsection (b) amends section 302 (b) of the 1958 act so as to increase from 1 to 2 percent the proportion of its capital and surplus which a national bank or other member bank of the Federal Reserve System, or a bank insured under the Federal Deposit Insurance Act, may invest and have outstanding in the stock of small business investment companies.

Section 4

Subsection (a) amends section 303(b) of the Small Business Investment Act of 1958 to limit the authority of the Small Business Administration to make operating loans to small business investment companies to cases where private funds are not available.

Subsection (b) amends section 303(b) of the 1958 act to impose a limit of $5 million on the total amount of operating loans which the Administration may have outstanding to any one small business investment company at any time. The provision of existing law limiting the amount of such loans to one-half of the company's paid-in capital and surplus would be retained, so that whichever of the two limits is lower would apply.

Subsection (c) amends section 303(b) of the 1958 act to require that all operating loans made by the Administration to small business investment companies must be of such sound value as reasonably to assure repayment.

Subsection (d) amends section 303 of the 1958 act by adding thereto a new subsection (c) which is designed to insure that funds obtained by a small business investment company in the form of operating loans from the Administration will not be used to make investments in any one small business concern (in the form of loans or equity capital or both) in an amount aggregating more than $500,000. The new subsection (c) accordingly requires a small business investment company which has received an operating loan from the Administration to maintain at all times, in cash, Government obligations, and investments of less than $500,000, an amount of assets equal to the unpaid principal balance of such operating loan. The new requirement would not apply with respect to any operating loan actually disbursed or authorized by the Administration before the date of enactment of the bill.

Section 5

This section amends section 304 of the Small Business Investment Act of 1958 by adding thereto a new subsection (d) to broaden the existing authority of small business investment companies to furnish equity capital to incorporated small business concerns in cooperation with private entities. Under this amendment a small business investment company would be authorized to provide equity capital to such concerns either directly or in cooperation with other investors (incorporated or unincorporated) through immediate participations; existing law (sec. 308(a)) permits such a company to supply equity capital on a cooperative basis only with "banks or other financial institutions." Section 6

This section amends section 305(b) of the Small Business Investment Act of 1958 to broaden the existing authority of small business investment companies to make loans to small business concerns in cooperation with private entities by authorizing such companies to

make such loans either directly or in cooperation with other lende (incorporated or unincorporated) through immediate or deferred pa ticipations; the existing provisions of section 305(b) authorize th type of cooperation only with other lending "institutions." Section 7

This section amends section 308 (a) of the Small Business Investme Act of 1958 so as to authorize and encourage small business investme companies in the conduct of their operations generally to act in operation with other investors and lenders even though the latter not strictly qualify as "banks" or "financial institutions" (to whi the provision is limited in existing law). The amendments made sections 5 and 6 of the bill (relating to the provision of equity capit and the making of long-term loans to small business concerns) er body specific instances of this general directive.

Section 8

This section adds to title III of the Small Business Investment A of 1958 three new sections (secs. 309, 310, and 311) designed to pr vide the Small Business Administration with more effective enford ment procedures and administrative remedies to insure complian with the act and the regulations thereunder, in place of the prese enforcement provisions (contained in sec. 308 (d) and (e)) whi require application to the Federal courts for any remedial action.

Under the new section 309, the Administration would be authorize to revoke the license of any small business investment company f false statements knowingly made in obtaining the license, for violati of or failure to observe the act or any rule, regulation, or order issue thereunder, or because of preexisting facts which would have justifie a refusal to issue the license originally. In cases of noncomplian with the act or any regulation issued thereunder, the Administratio could issue a cease-and-desist order and could also suspend the con pany's license until such order is complied with. In any case, th Administration would hold a hearing and make its determination o the record in accordance with the Administrative Procedure Act. small business investment company whose license is ordered revoke or suspended or upon which a cease-and-desist order is served coul appeal to the appropriate U.S. court of appeals, which would revie the Administration's action (under the substantial evidence rule, made applicable by the Administrative Procedure Act) and coul affirm, modify, or set aside the order.

The new section 310 authorizes the Administration to investigat any violation or threatened violation of the act or of any rule, regi lation, or order issued thereunder.

The new section 311 continues the existing authority of th Administration to apply to the Federal district courts for injunction against violations or threatened violations of the act or of the rules regulations, or orders issued thereunder. It also provides specifi authority (not contained in the present act) for the court in such proceeding to appoint a trustee or receiver to take control of the sma business investment company where the court deems it necessary. Section 9

This section amends section 502 of the Small Business Investmen Act of 1958 to liberalize the existing authority of the Small Busines

Administration to make loans to State and local development companies for plant construction, conversion, or expansion (including acquisition of land), by increasing the maximum amount of such a loan from $250,000 to $350,000 for each identifiable small business concern to be assisted with the proceeds of the loan and by increasing the maximum maturity of such a loan from 10 to 25 years.

Section 10

This section revises or repeals various provisions of the Small Business Investment Act of 1958 which deal with federally chartered small business investment companies and which have become obsolete by reason of the expiration (on June 30, 1961) of the Federal chartering authority, and makes other necessary changes in the act which are largely of a technical or conforming nature.

Subsections (a) and (b) substantially rewrite section 301 of the 1958 act (which relates to the formation of small business investment companies to operate under the act) so as to eliminate the matter relating to federally chartered companies and combine in one place all of the provisions and procedures required for the organization, approval, and licensing of the State-chartered companies which will actually be in operation under the act.

Subsection (c) makes a conforming amendment in section 308(b) of the 1958 act.

Subsection (d) repeals the existing provisions of the 1958 act which relate to enforcement procedures (see discussion under section 8 of the bill) and makes a conforming amendment in section 308 (g).

Subsection (e) repeals section 309 of the 1958 act, which relates to the approval of State-chartered companies to operate under the act and would be replaced by the new provisions added to section 301 of the act by subsections (a) and (b) of this section of the bill.

Subsection (f) repeals title IV of the 1958 act, which provides for the conversion into small business investment companies of certain State-chartered investment companies and State development companies but which expired June 30, 1961, and is now obsolete.

Subsection (g) makes conforming amendments in the table of contents of the 1958 act.

Subsection (h) repeals section 202(b) of the 1958 act and section 20 of the Small Business Act (which relate to authorizations of appropriations) and adds specific language to section 4(c) of the Small Business Act to make it clear that amounts appropriated to the Small Business Administration's revolving fund for use in carrying out the small business investment company program under the 1958 act as well as amounts appropriated to that fund for the other programs of the Administration will be available for the payment of the administrative expenses incurred in carrying out those programs. Section 11

This section amends section 4(c) of the Small Business Act to increase by $150 million (from $250 million to $400 million) the maximum amount of loans which the Small Business Administration may have outstanding under the Small Business Investment Act of 1958 (including both the small business investment company program and the State and local development company loan program), with a corresponding increase in the total amount authorized to be appropriated to the Administration's revolving fund.