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Title IV-LEASE GUARANTEES

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Sec. 401. Authority of the Administration.
Sec. 402. Powers.
Sec. 403. Fund.

TITLE V-LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES

TITLE VI-CHANGES IN FEDERAL RESERVE AUTHORITY (Omitted as no longer current.)

Title VII-CRIMINAL PEN LITIES

STATEMENT OF POLICY

15 U.S.C. 661.

Sec. 102. It is declared to be the policy of the Congress and the purpose of this Act to improve and stimulate the national economy in general and the small-business segment thereof in particular by establishing a program to stimulate and supplement the flow of private equity capital and long-term loan funds which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply: Provided, however, That this policy shall be carried out in such manner as to insure the maximum participation of private financing sources.

It is the intention of the Congress that the provisions of this Act shall be so administered that any financial assistance provided hereunder shall not result in a substantial increase of unemployment in any area of the country.

DEFINITIONS

15 U.S.C. 662.

SEC. 103. As used in this Act

(1) the term “Administration" means the Small Business Administration;

(2) the term “Administrator” means the Administrator of the Small Business Administration;

(3) the terms "small business investment company”, “company”, and "licensee” mean a company approved by the Administration to operate under the provisions of this Act and issued a license as provided in section 301(c),

(4) the term "State" includes the several States, the Territories and possessions of the United States, the Commonwealth of Puerto Rico, and the District of Columbia. 8

(5) the term "small-business concern” shall have the same meaning as in the Small Business Act;

(6) the term "development companies" means enterprises incorporated under State law with the authority to promote and assist the growth and development of small-business concerns in the areas covered by their operations; and

(7) the term "license” means a license issued by the Adminis

tration as provided in section 301(c). ' * All of former title IV of Public Law 85-699 repealed by sec. 11(f) of Public Law 87-341. New title IV added by Public Law 89-117, sec. 316(a).

7 This language substituted by sec. 2(1) of Public Law 87-341.
8 Amended by sec. 3 of Public Law 86-502 to reflect admission of Alaska and Hawaii to the Union.
9 This language inserted by sec. 2(2) of Public Law 87-341.

TITLE II—SMALL BUSINESS INVESTMENT DIVISION OF THE

SMALL BUSINESS ADMINISTRATION

ESTABLISHMENT OF SMALL BUSINESS INVESTMENT DIVISION

Sec. 201. There is hereby established in the Small Business Administra- 15 U.S.C. 671. tion a division to be known as the Small Business Investment Division. The Division shall be headed by an Associate Administrator who shall be appointed by the Administrator, and shall receive compensation at the rate provided by law for other Associate Administrators of the Small Business Administration.18 [Funds for exercise of functions under this Act authorized in sec. 4(c) of Small Business Act (15 U.S.C. 633(c)). Present authorization for appropriations for these functions is $400,000,000.]

TITLE III-SMALL BUSINESS INVESTMENT COMPANIES

ORGANIZATION OF SMALL BUSINESS INVESTMENT COMPANIES

Sec. 301. (a) A small business investment company shall be an incor- 15 U.S.C.681. porated body, organized and chartered under State law solely for the purpose of performing the functions and conducting the activities contemplated under this title, which has succession for a period of not less than thirty years unless sooner dissolved by its shareholders and possesses the powers reasonably necessary to perform such functions and conduct such activities. The area in which the company is to conduct its operations, and the establishment of branch offices or agencies (if authorized by the articles of incorporation), shall be subject to the approval of the Administration. 11

(b) The articles of incorporation of any small business investment company shall specify in general terms the objects for which the company is formed, the name assumed by such company, the area or areas in which its operations are to be carried on, the place where its principal office is to be located, and the amount and classes of its shares of capital stock. Such articles may contain any other provisions not inconsistent with this Act that the company may see fit to adopt for the regulation of its business and the conduct of its affairs. Such articles and any amendments thereto adopted from time to time shall be subject to the approval of the Administration.

(c) The articles of incorporation and amendments thereto shall be forwarded to the Administration for consideration and approval or disapproval. In determining whether to approve such a company's articles of incorporation and permit it to operate under the provisions of this Act, the Administration shall give due regard, among other things, to the need for the financing of small-business concerns in the area in which the proposed company is to commence business, the general character of the proposed management of the company, the number of such companies previously organized in the United States, and the volume of their operations. After consideration of all relevant factors, if it approves the company's articles of incorporation, the Administration may in its discretion approve the company to operate under the provisions of this Act and issue the company a license for such operation."

10 Amended by sec. 2 of Public Law 89-779 to provide that the Division be headed by an Associate Administrator in lieu of a Deputy Administrator; to delete the provisions stating that the powers of the Administrator under the act be exercised through the Small Business Investment Division; and to transfer the administrative and penal provisions to a

11 New language, contained in sec. 11(a) of Public Law 87-341.

12 New language in second and third sentences substituted by sec. 11(b) (1) and (2) of Public Law 87-341. Previous subsecs. (d) and (e) struck out by sec. 11(b)(3) of Public Law 87-341.

77-051-67-2

new subsec. 308(1).

CAPITAL STOCK AND SUBORDINATED DEBENTURES

15 U.S.C. 682.

Sec. 302. (a) Each company authorized to operate under this Act shall have a paid-in capital and surplus equal to at least $300,000. In order to facilitate the formation and growth of small business investment companies, the Administration is hereby authorized notwithstanding any other provisions of law (but only to the extent that the necessary funds are not available to the company involved from private sources on reasonable terms), to purchase the debentures of any such company in an amount not to exceed the lesser of $700,000 or the amount of the paid-in capital and surplus of the company from other sources; but debentures of a small business investment company may be purchased by the Administration under this subsection only during such period (in no case ending more than five years after the date of the issuance of its license under sec. 301(c) or the date of the enactment of the Small Business Investment Act Amendments of 1963,13 whichever is later) as may be fixed by the Administration.14 Any debentures purchased by the Administration under this subsection shall be subordinate to any other debenture bonds, promissory notes, or other obligations which may be issued by such companies, and shall be deemed a part of the capital and surplus of such companies for purposes of this section and sections 303(b) and 306 of this Act.

(b) Notwithstanding the provisions of section 6(a)(1) of the Bank Holding Company Act of 1956,15 shares of stock in small business investment companies shall be eligible for purchase by national banks, and shall be eligible for purchase by other member banks of the Federal Reserve System and nonmember insured banks to the extent permitted under applicable State law; except that in no event shall any such bank hold shares in small business investment companies in an amount aggregating more than 2 percent of its capital and surplus.16

(c) The aggregate amount of shares in any such company or companies which may be owned or controlled by any stockholder, or by any group or class of stockholders, may be limited by the Administration.

BORROWING POWER

15 U.S.C. 683.

SEC. 303. (a) Each small business investment company shall have authority to borrow money and to issue its debenture bonds, promissory notes, or other obligations under such general conditions and subject to such limitations and regulations as the Administration may prescribe.

(b) To encourage the formation and growth of small business investment companies, the Administration is authorized (but only to the extent that the necessary funds are not available to the company involved from private sources on reasonable terms) to lend funds to such companies either directly or by loans made or effected in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred (standby) basis. Such loans shall bear interest at such rate (in no case lower than the average investment yield, as determined by the Secretary of the Treasury, on marketable obligations of the United States outstanding at the time of the loan involved) and contain such other terms as the Administration may fix, and shall be subject to the following restrictions and limitations:

(1) The total amount of obligations of any one company which may be purchased and outstanding at any one time by the Adminis13 "Small Business Investment Act Amendments of 1963" was enacted on Feb. 28, 1964. 11 This second sentence contains new language substituted by sec. 3(a) of Public Law 87-341, and amended by Public 15 Added by Public Law 86-502. 16 This amount raised from 1 to 2 percent by Public Law 87-341.

Law 88-273.

tration under this subsection (including commitments to purchase
such obligations) shall not exceed 50 per centum of the paid-in capital
and surplus of such company or $4,000,000, whichever is less.

(2) All loans made under this subsection (b) shall be of such
sound value as reasonably to assure repayment.17

18

PROVISION OF EQUITY CAPITAL FOR SMALL-BUSINESS CONCERNS

SEC. 304. (a) It shall be a function of each small business investment 15 U.S.C. 684. company to provide a source of equity capital for incorporated small-business concerns, in such manner and under such terms as the small business investment company may fix in accordance with the regulations of the Administration.

(b) Before any capital is provided to a small-business concern under this section

(1) the company may require such concern to refinance any or all of its outstanding indebtedness so that the company is the only holder of any evidence of indebtedness of such concern; and

(2) except as provided in regulations issued by the Administration, such concern shall agree that it will not thereafter incur any indebtedness without first securing the approval of the company and

giving the company the first opportunity to finance such indebtedness. (c) Whenever a company provides capital to a small-business concern under this section, such concern shall have the right, exercisable in whole or in such part as such concern may elect, to become a stockholder-proprietor by investing in the capital stock of the company 5 per centum of the amount of the capital so provided, in accordance with regulations prescribed by the Administrator.

(d) Equity capital provided to incorporated small-business concerns under this section may be provided directly or in cooperation with other investors, incorporated or unincorporated, through agreements to participate on an immediate basis. 19

LONG-TERM LOANS TO SMALL-BUSINESS CONCERNS

15 U.S.C. 685.

Sec. 305. (a) Each company is authorized to make loans, in 'he manner and subject to the conditions described in this section, to incorporated and unincorporated small-business concerns in order to provide such concerns with funds needed for sound financing, growth, modernization, and expansion.

(b) Loans made under this section may be made directly or in cooperation with other lenders, incorporated or unincorporated, through agreements to participate on an immediate or deferred basis. 20 In agreements to participate in loans on a deferred basis under this subsection, the partic pation by the company shall not be in excess of 90 per centum of the balance of the loan outstanding at the time of disbursement.

(c) The maximum rate of interest for the company's share of any loan made under this section shall be determined by the Administration.

(d) Any loan made under this section shall have a maturity not exceeding twenty years.

(e) Any loan made under this section shall be of such sound value, or so secured, as reasonably to assure repayment.

1: This subsection contains much new language inserted by Public Law 87-341 and by Public Law 88–273.

18 Prior to its amendment by sec. 6 of Public Law 86-502, sec. 304 authorized SBIC's to furnish equity capital only through the purchase of convertible debentures and required, rather than permitted, borrowing small-business concerns to purchase stock in the lending SBIC.

19 This subsection added by sec. 5 of Public Law 87-341. 20 This sentence rewritten by sec. 6 of Public Law 87-341.

(f) Any company which has made a loan to a small-business concern under this section is authorized to extend the maturity of or renew such loan for additional periods, not exceeding ten years, if the company finds that such extension or renewal will aid in the orderly liquidation of such loan.

AGGREGATE LIMITATIONS

15 U.S.C. 686.

SEC. 306. Without the approval of the Administration, the aggregate amount of obligations and securities acquired and for which commitments may be issued by any small business investment company under the provisions of this Act for any single enterprise shall not exceed 20 per centum of the combined capital and surplus of such small business investment company authorized by this Act.21

EXEMPTIONS 22

SEC. 307. (a) Section 3 of the Securities Act of 1933, as amended (15 U.S.C. 77c), is hereby amended by inserting at the end thereof the following new subsection (c):

"(c) The Commission may from time to time by its rules and regulations and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a small business investment company under the Small Business Investment Act of 1958 if it finds, having regard to the purposes of that Act, that the enforcement of this Act with respect to such securities is not necessary in the public interest and for the protection of investors."

(b) Section 304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd) is hereby amended by adding the following subsection (e):

"(e) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed herein, add to the securities exempted as provided in this section any class of securities issued by a small business in vestment company under the Small Business Investment Act of 1958 if it finds, having regard to the purposes of that Act, that the enforcement of this Act with respect to such securities is not necessary in the public interest and for the protection of investors.”

(c) Section 18 of the Investment Company Act of 1940 (15 U.S.C. 80a-18) is amended by adding at the end thereof the following:

“(k) The provisions of subparagraphs (A) and (B) of paragraph (1) of subsection (a) of th's section shall not apply to investment companies operating under the Small Business Investment Act of 1958."

MISCELLANEOUS

SEC. 308. (a) Wherever practicable the operations of a small business investment company, including the generation of business, may be undertaken in cooperation with banks or other investors or lenders, incorporated or unincorporated, and any servicing or initial investigation required for loans or acquisitions of securities by the company under the provisions of this Act may be handled through such banks or other investors or lenders on a fee basis. Any small business investment company may receive fees for services rendered to such banks and other investors and lenders. 23

15 U.S.C. 687.

21 This section rewritten by Public Law 87-341 and by Public Law 88-273.

22 The act provides a specific exemption from the Investment Company Act of 1940 for small business investment companies, releasing them from the 3-to-1 asset coverage requirement in connection with borrowings. The SBA may prescribe limitations on borrowing by small business investment companies. By regulation, SBA has authorized a fio-1 debt-to-equity ratio for SBIC'S.

23 This subsection rewritten by sec. 8 of Public Law 87-341.

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