H. Rept. 118-469 - INVESTING IN ALL OF AMERICA ACT OF 2023118th Congress (2023-2024)
Committee Report
Hide Overview| Report Type: | House Report |
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| Accompanies: | H.R.5333 |
| Committees: | House Small Business Committee |
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118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 118-469
======================================================================
INVESTING IN ALL OF AMERICA ACT OF 2023
_______
April 26, 2024.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Williams of Texas, from the Committee on Small Business, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 5333]
The Committee on Small Business, to whom was referred the
bill (H.R. 5333) to amend the Small Business Investment Act of
1958 to exclude from the limit on leverage certain amounts
invested in smaller enterprises located in rural or low-income
areas and small businesses in critical technology areas, and
for other purposes, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
CONTENTS
Page
I. Purpose and Bill Summary........................................3
II. Need for Legislation............................................3
III. Hearings........................................................3
IV. Committee Consideration.........................................4
V. Committee Votes.................................................4
VI. Section-by-Section of H.R. 5333.................................7
VII. Congressional Budget Office Cost Estimate.......................7
VIII. New Budget Authority, Entitlement Authority, and Tax Expenditure7
IX. Oversight Findings & Recommendations............................7
X. Performance Goals and Objectives................................8
XI. Statement of Duplication of Federal Programs....................8
XII. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits........................................................8
XIII. Federal Mandates Statement......................................8
XIV. Federal Advisory Committee Statement............................8
XV. Applicability to Legislative Branch.............................8
XVI. Statement of Constitutional Authority...........................8
XVII. Changes in Existing Law, Made by the Bill, As Reported..........8
XVIII.Minority Views.................................................23
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investing in All of America Act of
2023''.
SEC. 2. SBIC MAXIMUM LEVERAGE EXCLUSION.
(a) Definitions.--Section 103(9) of the Small Business Investment Act
of 1958 (15 U.S.C. 662(9)) is amended--
(1) in subparagraph (A)(ii), by striking ``and'' at the end;
(2) in subparagraph (B)(iii)--
(A) in subclause (I), by striking ``established prior
to October 1, 1987'';
(B) in subclause (II)--
(i) by striking ``or'' and inserting ``,'';
and
(ii) by inserting ``, or a foundation,
endowment, or trust of a college or
university'' after ``pension plan''; and
(C) in subclause (III), by striking the semicolon at
the end and inserting ``; and''; and
(3) by adding at the end the following new subparagraph:
``(C) does not include any funds obtained directly or
indirectly from any Federal, State or local government
or any government agency or instrumentality, except for
funds described in subclauses (I) through (III) of
subparagraph (B)(iii), for the purpose of approval by
the Administrator of any request for leverage.''.
(b) In General.--Section 303(b)(2) of the Small Business Investment
Act of 1958 (15 U.S.C. 683(b)(2)) is amended--
(1) in subparagraph (A)(i), by striking ``300'' and inserting
``200'';
(2) in subparagraph (C)--
(A) in the heading--
(i) by inserting ``or rural'' after ``low-
income''; and
(ii) by inserting ``or critical technology
areas'' after ``geographic areas'';
(B) in clause (i)--
(i) by striking ``(i) In calculating'' and
inserting the following:
``(i) In general.--Except as provided in
clause (iii), in calculating'';
(ii) by inserting ``or companies'' after ``of
a company'';
(iii) by striking ``subparagraph (A)'' and
inserting ``subparagraphs (A) and (B)'';
(iv) by striking ``equity'';
(v) by striking ``the company in a smaller
enterprise'' and all that follows and inserting
the following: ``the company or companies in--
``(I) a smaller enterprise located in
a low-income geographic area (as
defined in section 689 of this title)
or in a rural area; or''; and
(vi) by adding at the end the following new
subclause:
``(II) a small business concern in an
area of critical technology (as defined
in section 4801 of title 10, United
States Code) vital to maintaining the
national security of the United
States.'';
(C) by amending clause (ii) to read as follows:
``(ii) Limitation.--While maintaining the
limitation of subparagraph (A)(i) and
consistent with a leverage determination ratio
issued pursuant to section 301(c), the
aggregate amount excluded for a company or
companies under clause (i) from the calculation
of the outstanding leverage of such company or
companies for the purposes of subparagraphs (A)
and (B) may not exceed the lesser of 50 percent
of the private capital of such company or
companies or $125,000,000.''; and
(D) by amending clause (iii) to read as follows:
``(iii) Prospective applicability.--An
investment by a licensee is eligible for
exclusion from the calculation of outstanding
leverage under clause (i) only if such
investment is made by such licensee after the
date of enactment of the Investing in All of
America Act of 2023.''; and
(3) by adding at the end the following new subparagraphs:
``(E) Annual adjustment.--The Administrator shall
adjust the dollar amounts described in subparagraphs
(A) and (B)--
``(i) on the date of the enactment of this
subparagraph, by a percentage equal to the
percentage (if any) by which the Consumer Price
Index (all items; United States city average),
as published by the Bureau of Labor Statistics,
increased during the period--
``(I) beginning on December 18, 2015,
and ending on the date of the enactment
of this subparagraph, for subparagraph
(B); and
``(II) beginning on June 21, 2018,
and ending on the date of the enactment
of this subparagraph, for subparagraph
(A); and
``(ii) on the date that is one year after the
date of the enactment of this subparagraph, and
annually thereafter, by a percentage equal to
the percentage (if any) by which the Consumer
Price Index (all items; United States city
average), as published by the Bureau of Labor
Statistics, increased during the one-year
period preceding the date of the adjustment
under this clause.''.
(c) Report.--Not later than June 30 of the first year beginning after
the date of the enactment of this Act, and annually thereafter, the
Administrator of the Small Business Administration shall submit to the
Committee on Small Business and Entrepreneurship of the Senate and the
Committee on Small Business of the House of Representatives a report on
the results of the exclusion under subparagraph (C) of section
303(b)(2) of the Small Business Investment Act of 1958 (15 U.S.C.
683(b)(2)), as amended by subsection (a), including the economic
activity generated and jobs directly and indirectly created by the
exclusion.
I. Purpose and Bill Summary
On September 1, 2024, Rep. Meuser and Rep. Scholten
introduced H.R. 5333. The purpose of H.R. 5333, the ``Investing
in All of America Act of 2023,'' is to improve the SBIC program
at the SBA by encouraging private investment in overlooked
areas of the country while maintaining a zero-subsidy status.
Specifically, the bill increases the SBIC licensee commitment
levels by a factor of inflation and provides additional
leverage to licensees when committing to invest in smaller
enterprises in rural areas or smaller enterprises developing
technology that is critical to national defense.
II. Need for Legislation
The SBIC program has been successful in funding several
companies that go on to become household names. Many of these
types of companies also go on to produce technology that's
vital to our national security needs. When it comes to
investments made by the SBIC program, often overlooked are
rural areas, and in light of outsourcing, the encouragement of
American-made military technology. With entrepreneurs of all
sorts facing challenges of accessing capital in President
Biden's economy, entrepreneurs in rural America and those
trying to lessen dependence on China should not be forced to
fight with one hand behind their backs.
III. Hearings
In the 118th Congress, the Committee held one hearing
examining the issues covered in H.R. 5333. On April 16, 2024,
the Subcommittee on Economic Growth, Tax, and Capital Access
held a hearing titled ``Exploring SBA Programs: Reviewing the
SBIC and SBIR Programs' Impact on Small Businesses.'' During
the hearing, witnesses testified to the challenges small
businesses are facing to bridge the funding gap that exists in
the marketplace for overlooked areas, and how the SBIC program
differs from other capital access programs at the SBA. Further,
the hearing discussed how improvements could be made to the
SBIC program to continue successfully infusing private
investments into innovative small businesses.
IV. Committee Consideration
The Committee on Small Business met in open session, with a
quorum being present, on April 17, 2024 and ordered H.R. 5333
reported to the House of Representatives. During the markup,
one Amendment in the Nature of a Substitute was 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 voted to favorably report H.R. 5333 to
the House of Representatives at 11:45 AM.
VI. Section-by-Section of H.R. 5333
Section 1--Short title
This section cites the bill as the ``Investing in All of
America Act of 2023.''
Section 2--SBIC Maximum leverage exclusion
This section provides SBICs with access to additional
leverage when they invest in rural, low-income, and critical
technology-focused small businesses. The additional leverage
(known as bonus leverage) is capped at 50 percent of a fund's
private capital or $125 million. The bonus leverage would be
applied prospectively on a fund's eligible investments made
after the bill's effective date. Additionally, this section
adds foundations, endowments, and trusts of public colleges and
universities as eligible private capital that can be leveraged.
This section also provides for an annual inflation
adjustment to the statutory dollar limits for individual funds
or multiple funds under common control, which have not been
adjusted since 2018 and 2015, respectively. Additionally, this
section caps the maximum leverage of an SBIC's private capital
or the statutory dollar limits for individual funds. Lastly,
this section codifies existing federal regulations to clarify
that certain funds invested by Federal, state, or local
government entities, and that are not already exempted by
statute, do not count towards a licensing decision or leverage
determination for an SBIC fund.
VII. Congressional Budget Office Cost Estimate
Pursuant to clause 3(d)(1) of House rule XIII, the
Committee adopts 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. Once available, the cost estimate will be published
in the Congressional Record.
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)(I) 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. 5333 does not increase
the authorization of the SBIC program, nor does it direct any
new spending or mandates.
IX. Oversight Findings & 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. 5333 are incorporated into the descriptive portions of
this report.
X. Performance Goals and Objectives
With respect to the requirements of clause 3(c)(1) of rule
XIII of the Rules of the House of Representatives, the
performance goals and objectives of H.R. 5333 are to annually
report to Congress on the results of the economic activity
generated and the jobs directly or indirectly created as a
result of the bill's implementation.
XI. Statement of 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. 5333 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. Statement of Constitutional Authority
Pursuant to clause 7 of rule XII of the Rules of the House,
the Committee finds that 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, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, 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 (existing law
proposed to be omitted is enclosed in black brackets, 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 I--SHORT TITLE, STATEMENT OF POLICY, AND DEFINITIONS
* * * * * * *
definitions
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;
(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;
(5) the term ``small-business concern'' shall have
the same meaning as in the Small Business Act, except
that, for purposes of this Act--
(A) an investment by a venture capital firm,
investment company (including a small business
investment company) employee welfare benefit
plan or pension plan, or trust, foundation, or
endowment that is exempt from Federal income
taxation--
(i) shall not cause a business
concern to be deemed not independently
owned and operated regardless of the
allocation of control during the
investment period under any investment
agreement between the business concern
and the entity making the investment;
(ii) shall be disregarded in
determining whether a business concern
satisfies size standards established
pursuant to section 3(a)(2) of the
Small Business Act; and
(iii) shall be disregarded in
determining whether a small business
concern is a smaller enterprise. and
(B) in determining whether a business concern
satisfies net income standards established
pursuant to section 3(a)(2) of the Small
Business Act, if the business concern is not
required by law to pay Federal income taxes at
the enterprise level, but is required to pass
income through to the shareholders, partners,
beneficiaries, or other equitable owners of the
business concern, the net income of the
business concern shall be determined by
allowing a deduction in an amount equal to the
sum of--
(i) if the business concern is not
required by law to pay State (and
local, if any) income taxes at the
enterprise level, the net income
(determined without regard to this
subparagraph), multiplied by the
marginal State income tax rate (or by
the combined State and local income tax
rates, as applicable) that would have
applied if the business concern were a
corporation; and
(ii) the net income (so determined)
less any deduction for State (and
local) income taxes calculated under
clause (i), multiplied by the marginal
Federal income tax rate that would have
applied if the business concern were a
corporation;
(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;
(7) the term ``license'' means a license issued by
the Administration as provided in section 301;
(8) the term ``articles'' means articles of
incorporation for an incorporated body and means the
functional equivalent or other similar documents
specified by the Administrator for other business
entities;
(9) the term ``private capital''--
(A) means the sum of--
(i) the paid-in capital and paid-in
surplus of a corporate licensee, the
contributed capital of the partners of
a partnership licensee, or the equity
investment of the members of a limited
liability company licensee; and
(ii) unfunded binding commitments,
from investors that meet criteria
established by the Administrator, to
contribute capital to the licensee:
Provided, That such unfunded
commitments may be counted as private
capital for purposes of approval by the
Administrator of any request for
leverage, but leverage shall not be
funded based on such commitments; [and]
(B) does not include any--
(i) funds borrowed by a licensee from
any source;
(ii) funds obtained through the
issuance of leverage; or
(iii) funds obtained directly or
indirectly from any Federal, State, or
local government, or any government
agency or instrumentality, except for--
(I) funds obtained from the
business revenues (excluding
any governmental appropriation)
of any federally chartered or
government-sponsored
corporation [established prior
to October 1, 1987];
(II) funds invested by an
employee welfare benefit plan
[or], pension plan, or a
foundation, endowment, or trust
of a college or university; and
(III) any qualified
nonprivate funds (if the
investors of the qualified
nonprivate funds do not
control, directly or
indirectly, the management,
board of directors, general
partners, or members of the
licensee)[;]; and
(C) does not include any funds obtained
directly or indirectly from any Federal, State
or local government or any government agency or
instrumentality, except for funds described in
subclauses (I) through (III) of subparagraph
(B)(iii), for the purpose of approval by the
Administrator of any request for leverage.
(10) the term ``leverage'' includes--
(A) debentures purchased or guaranteed by the
Administration;
(B) participating securities purchased or
guaranteed by the Administration; and
(C) preferred securities outstanding as of
October 1, 1995;
(11) the term ``third party debt'' means any
indebtedness for borrowed money, other than
indebtedness owed to the Administration;
(12) the term ``smaller enterprise'' means any small
business concern that, together with its affiliates--
(A) has--
(i) a net financial worth of not more
than $6,000,000, as of the date on
which assistance is provided under this
Act to that business concern; and
(ii) an average net income for the 2-
year period preceding the date on which
assistance is provided under this Act
to that business concern, of not more
than $2,000,000, after Federal income
taxes (excluding any carryover losses)
except that, for purposes of this
clause, if the business concern is not
required by law to pay Federal income
taxes at the enterprise level, but is
required to pass income through to the
shareholders, partners, beneficiaries,
or other equitable owners of the
business concern, the net income of the
business concern shall be determined by
allowing a deduction in an amount equal
to the sum of--
(I) if the business concern
is not required by law to pay
State (and local, if any)
income taxes at the enterprise
level, the net income
(determined without regard to
this clause), multiplied by the
marginal State income tax rate
(or by the combined State and
local income tax rates, as
applicable) that would have
applied if the business concern
were a corporation; and
(II) the net income (so
determined) less any deduction
for State (and local) income
taxes calculated under
subclause (I), multiplied by
the marginal Federal income tax
rate that would have applied if
the business concern were a
corporation; or
(B) satisfies the standard industrial
classification size standards established by
the Administration for the industry in which
the small business concern is primarily
engaged;
(13) the term ``qualified nonprivate funds'' means
any--
(A) funds directly or indirectly invested in
any applicant or licensee on or before August
16, 1982, by any Federal agency, other than the
Administration, under a provision of law
explicitly mandating the inclusion of those
funds in the definition of the term ``private
capital'';
(B) funds directly or indirectly invested in
any applicant or licensee by any Federal agency
under a provision of law enacted after
September 4, 1992, explicitly mandating the
inclusion of those funds in the definition of
the term ``private capital''; and
(C) funds invested in any applicant or
licensee by one or more State or local
government entities (including any guarantee
extended by those entities) in an aggregate
amount that does not exceed 33 percent of the
private capital of the applicant or licensee;
(14) the terms ``employee welfare benefit plan'' and
``pension plan'' have the same meanings as in section 3
of the Employee Retirement Income Security Act of 1974,
and are intended to include--
(A) public and private pension or retirement
plans subject to such Act; and
(B) similar plans not covered by such Act
that have been established and that are
maintained by the Federal Government or any
State or political subdivision, or any agency
or instrumentality thereof, for the benefit of
employees;
(15) the term ``member'' means, with respect to a
licensee that is a limited liability company, a holder
of an ownership interest or a person otherwise admitted
to membership in the limited liability company;
(16) the term ``limited liability company'' means a
business entity that is organized and operating in
accordance with a State limited liability company
statute approved by the Administration;
(17) the term ``long term'', when used in connection
with equity capital or loan funds invested in any small
business concern or smaller enterprise, means any
period of time not less than 1 year;
(18) the term ``Energy Saving debenture'' means a
deferred interest debenture that--
(A) is issued at a discount;
(B) has a 5-year maturity or a 10-year
maturity;
(C) requires no interest payment or annual
charge for the first 5 years;
(D) is restricted to Energy Saving qualified
investments; and
(E) is issued at no cost (as defined in
section 502 of the Credit Reform Act of 1990)
with respect to purchasing and guaranteeing the
debenture;
(19) the term ``Energy Saving qualified investment''
means investment in a small business concern that is
primarily engaged in researching, manufacturing,
developing, or providing products, goods, or services
that reduce the use or consumption of non-renewable
energy resources; and
(20) the term ``underlicensed State'' means a State
in which the number of licensees per capita is less
than the median number of licensees per capita for all
States, as calculated by the Administrator.
* * * * * * *
TITLE III--INVESTMENT DIVISION PROGRAMS
Part A--Small Business Investment Companies
* * * * * * *
borrowing power
Sec. 303. (a) Each small business investment company shall
have authority to borrow money and to issue its securities,
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 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) The total amount of debentures and participating
securities that may be guaranteed by the Administration
and outstanding from a company licensed under section
301(c) of this Act shall not exceed 300 per centum of
the private capital of such company: Provided, That
nothing in this paragraph shall require any such
company that on March 31, 1993, has outstanding
debentures in excess of 300 per centum of its private
capital to prepay such excess: And provided further,
That any such company may apply for an additional
debenture guarantee or participating security guarantee
with the proceeds to be used solely to pay the amount
due on such maturing debenture, but the maturity of the
new debenture or security shall be not later than
September 30, 2002.
(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] 200 percent of such
company's private capital; or
(ii) $175,000,000.
(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 $350,000,000.
(C) Investments in low-income or rural
geographic areas or critical technology
areas.--
(i) In general._[In calculating]
Except as provided in clause (iii), in
calculating the outstanding leverage of
a company or companies for the purposes
of [subparagraph (A)] subparagraphs (A)
and (B), 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.] the company or
companies in--
(I) a smaller enterprise
located in a low-income
geographic area (as defined in
section 689 of this title) or
in a rural area; or
(II) a small business concern
in an area of critical
technology (as defined in
section 4801 of title 10,
United States Code) vital to
maintaining the national
security of the United States.
[(ii) The maximum amount of
outstanding leverage made available
to--
[(I) any 1 company described
in clause (iii) may not exceed
the lesser of 300 percent of
private capital of the company,
or $175,000,000; and
[(II) 2 or more companies
described in clause (iii) that
are under common control (as
determined by the
Administrator) may not exceed
$250,000,000.
[(iii) A company described in this
clause is a company licensed under
section 301(c) in the first fiscal year
after the date of enactment of this
clause or any fiscal year thereafter
that certifies in writing that not less
than 50 percent of the dollar amount of
investments of that company shall be
made in companies that are located in a
low-income geographic area (as that
term is defined in section 351).]
(ii) Limitation.--While maintaining
the limitation of subparagraph (A)(i)
and consistent with a leverage
determination ratio issued pursuant to
section 301(c), the aggregate amount
excluded for a company or companies
under clause (i) from the calculation
of the outstanding leverage of such
company or companies for the purposes
of subparagraphs (A) and (B) may not
exceed the lesser of 50 percent of the
private capital of such company or
companies or $125,000,000.
(iii) Prospective applicability.--An
investment by a licensee is eligible
for exclusion from the calculation of
outstanding leverage under clause (i)
only if such investment is made by such
licensee after the date of enactment of
the Investing in All of America Act of
2023.
(D) Investments in energy saving small
businesses.--
(i) In general.--Subject to clause
(ii), in calculating the outstanding
leverage of a company for purposes of
subparagraph (A), the Administrator
shall exclude the amount of the cost
basis of any Energy Saving qualified
investment in a smaller enterprise made
in the first fiscal year after the date
of enactment of this subparagraph or
any fiscal year thereafter by a company
licensed in the applicable fiscal year.
(ii) Limitations.--
(I) Amount of exclusion.--The
amount excluded under clause
(i) for a company shall not
exceed 33 percent of the
private capital of that
company.
(II) Maximum investment.--A
company shall not make an
Energy Saving qualified
investment in any one entity in
an amount equal to more than 20
percent of the private capital
of that company.
(III) Other terms.--The
exclusion of amounts under
clause (i) shall be subject to
such terms as the Administrator
may impose to ensure that there
is no cost (as that term is
defined in section 502 of the
Federal Credit Reform Act of
1990 (2 U.S.C. 661a)) with
respect to purchasing or
guaranteeing any debenture
involved.
(E) Annual adjustment.--The Administrator
shall adjust the dollar amounts described in
subparagraphs (A) and (B)--
(i) on the date of the enactment of
this subparagraph, by a percentage
equal to the percentage (if any) by
which the Consumer Price Index (all
items; United States city average), as
published by the Bureau of Labor
Statistics, increased during the
period--
(I) beginning on December 18,
2015, and ending on the date of
the enactment of this
subparagraph, for subparagraph
(B); and
(II) beginning on June 21,
2018, and ending on the date of
the enactment of this
subparagraph, for subparagraph
(A); and
(ii) on the date that is one year
after the date of the enactment of this
subparagraph, and annually thereafter,
by a percentage equal to the percentage
(if any) by which the Consumer Price
Index (all items; United States city
average), as published by the Bureau of
Labor Statistics, increased during the
one-year period preceding the date of
the adjustment under this clause.
(3) Subject to the foregoing dollar and percentage
limits, a company licensed under section 301(c) of this
Act may issue and have outstanding both guaranteed
debentures and participating securities: Provided, That
the total amount of participating securities
outstanding shall not exceed 200 per centum of private
capital.
For purposes of this subsection, the term ``venture capital''
includes such common stock, preferred stock, or other financing
with subordination or nonamortization characteristics as the
Administration determines to be substantially similar to equity
financing.
(c) Third Party Debt.--The Administrator--
(1) shall not permit a licensee having outstanding
leverage to incur third party debt that would create or
contribute to an unreasonable risk of default or loss
to the Federal Government;
(2) shall permit such licensees to incur third party
debt only on such terms and subject to such conditions
as may be established by the Administrator, by
regulation or otherwise.
(d) Investments in Smaller Enterprises.--The Administrator
shall require each licensee, as a condition of approval of an
application for leverage, to certify in writing that not less
than 25 percent of the aggregate dollar amount of financings of
that licensee shall be provided to smaller enterprises.
(e) Capital Impairment.--Before approving any application for
leverage submitted by a licensee under this Act, the
Administrator--
(1) shall determine that the private capital of the
licensee meets the requirements of section 302(a); and
(2) shall determine, taking into account the nature
of the assets of the licensee, the amount and terms of
any third party debt owed by such licensee, and any
other factors determined to be relevant by the
Administrator, that the private capital of the licensee
has not been impaired to such an extent that the
issuance of additional leverage would create or
otherwise contribute to an unreasonable risk of default
or loss to the Federal Government.
(f) Redemption or Repurchase of Preferred Stock.--
Notwithstanding any other provision of law--
(1) the Administrator may allow the issuer of any
preferred stock sold to the Administration before
November 1, 1989 to redeem or repurchase such stock,
upon the payment to the Administration of an amount
less than the par value of such stock, for a repurchase
price determined by the Administrator after
consideration of all relevant factors, including--
(A) the market value of the stock;
(B) the value of benefits provided and
anticipated to accrue to the issuer;
(C) the amount of dividends paid, accrued,
and anticipated; and
(D) the estimate of the Administrator of any
anticipated redemption; and
(2) any moneys received by the Administration from
the repurchase of preferred stock shall be available
solely to provide debenture leverage to licensees
having 50 percent or more in aggregate dollar amount of
their financings invested in smaller enterprises.
(g) In order to encourage small business investment companies
to provide equity capital to small businesses, the
Administration is authorized to guarantee the payment of the
redemption price and prioritized payments on participating
securities issued by such companies which are licensed pursuant
to section 301(c) of this Act, and a trust or a pool acting on
behalf of the Administration is authorized to purchase such
securities. Such guarantees and purchases shall be made on such
terms and conditions as the Administration shall establish by
regulation. For purposes of this section, (A) the term
``participating securities'' includes preferred stock, a
preferred limited partnership interest or a similar instrument,
including debentures under the terms of which interest is
payable only to the extent of earnings and (B) the term
``prioritized payments'' includes dividends on stock, interest
on qualifying debentures, or priority returns on preferred
limited partnership interests which are paid only to the extent
of earnings. Participating securities guaranteed under this
subsection shall be subject to the following restrictions and
limitations, in addition to such other restrictions and
limitations as the Administration may determine:
(1) Participating securities shall be redeemed not
later than 15 years after their date of issuance for an
amount equal to 100 per centum of the original issue
price plus the amount of any accrued prioritized
payment: Provided, That if, at the time the securities
are redeemed, whether as scheduled or in advance, the
issuing company (A) has not paid all accrued
prioritized payments in full as provided in paragraph
(2) below and (B) has not sold or otherwise disposed of
all investments subject to profit distributions
pursuant to paragraph (11), the company's obligation to
pay accrued and unpaid prioritized payments shall
continue and payment shall be made from the realized
gain, if any, on the disposition of such investments,
but if on disposition there is no realized gain, the
obligation to pay accrued and unpaid prioritized
payments shall be extinguished: Provided further, That
in the interim, the company shall not make any in-kind
distributions of such investments unless it pays to the
Administration such sums, up to the amount of the
unrealized appreciation on such investments, as may be
necessary to pay in full the accrued prioritized
payments.
(2) Prioritized payments on participating securities
shall be preferred and cumulative and payable out of
the retained earnings available for distribution, as
defined by the Administration, of the issuing company
at 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
securities, adjusted to the nearest one-eighth of 1
percent, plus, for participating securities 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 participating securities under this Act,
which amount may not exceed 1.46 percent per year, and
which shall be paid to and retained by the
Administration.
(3) In the event of liquidation of the company,
participating securities shall be senior in priority
for all purposes to all other equity interests in the
issuing company, whenever created.
(4) Any company issuing a participating security
under this Act shall commit to invest or shall invest
an amount equal to the outstanding face value of such
security solely in equity capital. As used in this
subsection, ``equity capital'' means common or
preferred stock or a similar instrument, including
subordinated debt with equity features which is not
amortized and which provides for interest payments from
appropriate sources, as determined by the
Administration.
(5) The only debt (other than leverage obtained in
accordance with this title) which any company issuing a
participating security under this subsection may have
outstanding shall be temporary debt in amounts limited
to not more than 50 per centum of private capital.
(6) The Administration may permit the proceeds of a
participating security to be used to pay the principal
amount due on outstanding debentures guaranteed by the
Administration, if (A) the company has outstanding
equity capital invested in an amount equal to the
amount of the debentures being refinanced and (B) the
Administration receives profit participation on such
terms and conditions as it may determine, but not to
exceed the per centums specified in paragraph (11).
(7) For purposes of computing profit participation
under paragraph (11), except as otherwise determined by
the Administration, the management expenses of any
company which issues participating securities shall not
be greater than 2.5 per centum per annum of the
combined capital of the company, plus $125,000 if the
company's combined capital is less than $20,000,000.
For purposes of this paragraph, (A) the term ``combined
capital'' means the aggregate amount of private capital
and outstanding leverage and (B) the term ``management
expenses'' includes salaries, office expenses, travel,
business development, office and equipment rental,
bookkeeping and the development, investigation and
monitoring of investments, but does not include the
cost of services provided by specialized outside
consultants, outside lawyers and outside auditors, who
perform services not generally expected of a venture
capital company nor does such term include the cost of
services provided by any affiliate of the company which
are not part of the normal process of making and
monitoring venture capital investments.
(8) Notwithstanding paragraph (9), if a company is
operating as a limited partnership or as a subchapter S
corporation or an equivalent pass-through entity for
tax purposes and if there are no accumulated and unpaid
prioritized payments, the company may make annual
distributions to the partners, shareholders, or members
in amounts not greater than each partner's,
shareholder's, or member's maximum tax liability. For
purposes of this paragraph, the term ``maximum tax
liability'' means the amount of income allocated to
each partner, shareholder, or member (including an
allocation to the Administration as if it were a
taxpayer) for Federal income tax purposes in the income
tax return filed or to be filed by the company with
respect to the fiscal year of the company immediately
preceding such distribution, multiplied by the highest
combined marginal Federal and State income tax rates
for corporations or individuals, whichever is higher,
on each type of income included in such return. For
purposes of this paragraph, the term ``State income
tax'' means the income tax of the State where the
company's principal place of business is located. A
company may also elect to make a distribution under
this paragraph at any time during any calendar quarter
based on an estimate of the maximum tax liability. If a
company makes 1 or more interim distributions for a
calendar year, and the aggregate amount of those
distributions exceeds the maximum amount that the
company could have distributed based on a single annual
computation, any subsequent distribution by the company
under this paragraph shall be reduced by an amount
equal to the excess amount distributed.
(9) After making any distributions as provided in
paragraph (8), a company with participating securities
outstanding may distribute the balance of income to its
investors, specifically including the Administration,
in the per centums specified in paragraph (11), if
there are no accumulated and unpaid prioritized
payments and if all amounts due the Administration
pursuant to paragraph (11) have been paid in full,
subject to the following conditions:
(A) As of the date of the proposed
distribution, if the amount of leverage
outstanding is more than 200 per centum of the
amount of private capital, any amounts
distributed shall be made to private investors
and to the Administration in the ratio of
leverage to private capital.
(B) As of the date of the proposed
distribution, if the amount of leverage
outstanding is more than 100 per centum but not
more than 200 per centum of the amount of
private capital, 50 per centum of any amounts
distributed shall be made to the Administration
and 50 per centum shall be made to the private
investors.
(C) If the amount of leverage outstanding is
100 per centum, or less, of the amount of
private capital, the ratio shall be that for
distribution of profits as provided in
paragraph (11).
(D) Any amounts received by the
Administration under subparagraph (A) or (B)
shall be applied first as profit participation
as provided in paragraph (11) and any remainder
shall be applied as a prepayment of the
principal amount of the participating
securities or debentures.
(10) After making any distributions pursuant to
paragraph (8), a company with participating securities
outstanding may return capital to its investors,
specifically including the Administration, if there are
no accumulated and unpaid prioritized payments and if
all amounts due the Administration pursuant to
paragraph (11) have been paid in full. Any
distributions under this paragraph shall be made to
private investors and to the Administration in the
ratio of private capital to leverage as of the date of
the proposed distribution: Provided, That if the amount
of leverage outstanding is less than 50 per centum of
the amount of private capital or $10,000,000, whichever
is less, no distribution shall be required to be made
to the Administration unless the Administration
determines, on a case by case basis, to require
distributions to the Administration to reduce the
amount of outstanding leverage to an amount less than
$10,000,000.
(11)(A) A company which issues participating
securities shall agree to allocate to the
Administration a share of its profits determined by the
relationship of its private capital to the amount of
participating securities guaranteed by the
Administration in accordance with the following:
(i) If the total amount of participating
securities is 100 per centum of private capital
or less, the company shall allocate to the
Administration a per centum share computed as
follows: the amount of participating securities
divided by private capital times 9 per centum.
(ii) If the total amount of participating
securities is more than 100 per centum but not
greater than 200 per centum of private capital,
the company shall allocate to the
Administration a per centum share computed as
follows:
(I) 9 per centum, plus
(II) 3 per centum of the amount of
participating securities minus private
capital divided by private capital.
(B) Notwithstanding any other provision of this
paragraph--
(i) in no event shall the total per centum
required by this paragraph exceed 12 per
centum, unless required pursuant to the
provisions of (ii) below,
(ii) if, on the date the participating
securities are marketed, the interest rate on
Treasury bonds with a maturity of 10 years is a
rate other than 8 per centum, the
Administration shall adjust the rate specified
in paragraph (A) above, either higher or lower,
by the same per centum by which the Treasury
bond rate is higher or lower than 8 per centum,
and
(iii) this paragraph shall not be construed
to create any ownership interest of the
Administration in the company.
(12) A company may elect to make an in-kind
distribution of securities only if such securities are
publicly traded and marketable. The company shall
deposit the Administration's share of such securities
for disposition with a trustee designated by the
Administration or, at its option and with the agreement
of the company, the Administration may direct the
company to retain the Administration's share. If the
company retains the Administration's share, it shall
sell the Administration's share and promptly remit the
proceeds to the Administration. As used in this
paragraph, the term ``trustee'' means a person who is
knowledgeable about and proficient in the marketing of
thinly traded securities.
(h) The computation of amounts due the Administration under
participating securities shall be subject to the following
terms and conditions:
(1) The formula in subsection (g)(11) shall be
computed annually and the Administration shall receive
distributions of its profit participation at the same
time as other investors in the company.
(2) The formula shall not be modified due to an
increase in the private capital unless the increase is
provided for in a proposed business plan submitted to
and approved by the Administration.
(3) After distributions have been made, the
Administration's share of such distributions shall not
be recomputed or reduced.
(4) If the company prepays or repays the
participating securities, the Administration shall
receive the requisite participation upon the
distribution of profits due to any investments held by
the company on the date of the repayment or prepayment.
(5) If a company is licensed on or before March 31,
1993, it may elect to exclude from profit participation
all investments held on that date and in such case the
Administration shall determine the amount of the future
expenses attributable to such prior investment:
Provided, That if the company issues participating
securities to refinance debentures as authorized in
subsection (g)(6), it may not elect to exclude profits
on existing investments under this paragraph.
(i) Leverage Fee.--With respect to leverage granted by the
Administration to a licensee, the Administration shall collect
from the licensee a nonrefundable fee in an amount equal to 3
percent of the face amount of leverage granted to the licensee
in the following manner: 1 percent upon the date on which the
Administration enters into any commitment for such leverage
with the licensee, and the balance of 2 percent (or 3 percent
if no commitment has been entered into by the Administration)
on the date on which the leverage is drawn by the licensee.
(j) Calculation of Subsidy Rate.--All fees, interest, and
profits received and retained by the Administration under this
section shall be included in the calculations made by the
Director of the Office of Management and Budget to offset the
cost (as that term is defined in section 502 of the Federal
Credit Reform Act of 1990) to the Administration of purchasing
and guaranteeing debentures and participating securities under
this Act.
(k) Energy Saving Debentures.--In addition to any other
authority under this Act, a small business investment company
licensed in the first fiscal year after the date of enactment
of this subsection or any fiscal year thereafter may issue
Energy Saving debentures.
* * * * * * *
XVIII. MINORITY VIEWS
In September 2023, the Small Business Administration
(``SBA'') and the Department of Defense (``DOD'') launched a
joint initiative, known as the Small Business Investment
Company Critical Technologies Initiative (``SBICCT''). The
SBICCT Initiative couples the SBA's Small Business Investment
Company Program (``SBIC Program'') with the DOD's robust
scientific and technical expertise and national security
mission with the goal of attracting and scaling private
investment into businesses in technology areas critical to
national and economic security.
The high priority financing areas in critical technology
are typically venture and scale up/growth equity investment.
Due to the early revenue profile, the often capital-intensive
nature, and pre-profitability status of these businesses, the
majority of financing in these businesses comes in the form of
equity rather than debt. The duration of the funds investing in
businesses engaged in critical technology is significantly
longer than those funds running mezzanine debt and other credit
strategies. As a result, such investments are not always a
``match'' for SBICs with limited partners with typically
shorter time horizons. For example, currently, of the
approximately $24 billion in private capital committed to SBIC
licensed funds only about 30 percent come from traditional
institutional investors with longer time horizons that can
allocate more capital to long duration investments in critical
technology businesses.
In order to resolve this mismatch and ensure institutional
investors with longer time horizons are able to invest in
critical technologies through the SBIC program, and effectively
carryout the SBICCT Initiative, it is necessary to update
antiquated statutory constraints that limit participation in
the SBIC program.
At the same time, there continues to be a significant lack
of capital investment in small businesses in rural and
underserved communities. Importantly, the Small Business
Investment Act has historically permitted ``bonus'' leverage to
be allocated post licensing for investments in low-income
communities. However, due to changes in market conditions and
investment strategies, after the SBIC's fund's formation,
utilization of the ``bonus'' leverage is not typically
utilized. Therefore, to drive additional SBIC investment
capital to small businesses in rural and underserved
communities, it is important to provide utilization of
``bonus'' leverage upfront at the time of licensing, rather
than a licensee requesting additional leverage midway through
the investment period.
The bill would amend the Small Business Investment Act of
1958 to exclude from the limit on leverage certain amounts
invested in smaller enterprises located in rural or low-income
areas and small businesses in critical technology areas.
Nydia M. Velazquez,
Ranking Member.