[Pages S12740-S12744]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

SMALL BUSINESS INVESTMENT COMPANY AMENDMENTS ACT OF 2001

Mr. REID. Mr. President, I ask that the Chair lay before the Senate a
message from the House on S. 1196.
The Presiding Officer laid before the Senate a message from the House
as follows:

Resolved, That the bill from the Senate (S. 1196) entitled
``An Act to amend the Small Business Investment Act of 1958,
and for other purposes,'' do pass with the following
amendment:
Strike out all after the enacting clause and insert:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Small Business Investment
Company Amendments Act of 2001''.

SEC. 2. SUBSIDY FEES.

(a) In General.--Section 303 of the Small Business
Investment Act of 1958 (15 U.S.C. 683) is amended--
(1) in subsection (b)--
(A) by striking ``of not more than 1 percent per year'';
(B) by inserting ``which amount may not exceed 1.38 percent
per year, and'' before ``which shall be paid''; and
(C) by striking ``September 30, 2000'' and inserting
``September 30, 2001''; and
(2) in subsection (g)(2)--
(A) by striking ``of not more than 1 percent per year'';
(B) by inserting ``which amount may not exceed 1.38 percent
per year, and'' before ``which shall be paid''; and
(C) by striking ``September 30, 2000'' and inserting
``September 30, 2001''.
(b) Effective Date.--The amendments made by this section
shall become effective on October 1, 2001.

[[Page S12741]]

SEC. 3. CONFLICTS OF INTEREST.

Section 312 of the Small Business Investment Act of 1958
(15 U.S.C. 687d) is amended by striking ``(including
disclosure in the locality most directly affected by the
transaction)''.

SEC. 4. PENALTIES FOR FALSE STATEMENTS.

(a) Criminal Penalties.--Section 1014 of title 18, United
States Code, is amended by inserting ``, as defined in
section 103 of the Small Business Investment Act of 1958 (15
U.S.C. 662), or the Small Business Administration in
connection with any provision of that Act'' after ``small
business investment company''.
(b) Civil Penalties.--Section 951 of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
(12 U.S.C. 1833a) is amended--
(1) by redesignating subsections (d) through (g) as
subsections (e) through (h), respectively; and
(2) in subsection (c)--
(A) in paragraph (1), by striking ``or'' at the end;
(B) in paragraph (2)--
(i) by striking ``1341;'' and inserting ``1341''; and
(ii) by striking ``institution.'' and inserting
``institution; or'';
(C) by inserting immediately after paragraph (2) the
following:
``(3) section 16(a) of the Small Business Act (15 U.S.C.
645(a)).''; and
(D) by striking ``This section shall'' and inserting the
following:
``(d) Effective Date.--This section shall''.

SEC. 5. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

Section 313 of the Small Business Investment Act of 1958
(15 U.S.C. 687e) is amended to read as follows:

``SEC. 313. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

``(a) Definition of `Management Official'.--In this
section, the term `management official' means an officer,
director, general partner, manager, employee, agent, or other
participant in the management or conduct of the affairs of a
licensee.
``(b) Removal of Management Officials.--
``(1) Notice of removal.--The Administrator may serve upon
any management official a written notice of its intention to
remove that management official whenever, in the opinion of
the Administrator--
``(A) such management official--
``(i) has willfully and knowingly committed any substantial
violation of--

``(I) this Act;
``(II) any regulation issued under this Act; or
``(III) a cease-and-desist order which has become final; or

``(ii) has willfully and knowingly committed or engaged in
any act, omission, or practice which constitutes a
substantial breach of a fiduciary duty of that person as a
management official; and
``(B) the violation or breach of fiduciary duty is one
involving personal dishonesty on the part of such management
official.
``(2) Contents of notice.--A notice of intention to remove
a management official, as provided in paragraph (1), shall
contain a statement of the facts constituting grounds
therefor, and shall fix a time and place at which a hearing
will be held thereon.
``(3) Hearings.--
``(A) Timing.--A hearing described in paragraph (2) shall
be fixed for a date not earlier than 30 days nor later than
60 days after the date of service of notice of the hearing,
unless an earlier or a later date is set by the Administrator
at the request of--
``(i) the management official, and for good cause shown; or
``(ii) the Attorney General of the United States.
``(B) Consent.--Unless the management official shall appear
at a hearing described in this paragraph in person or by a
duly authorized representative, that management official
shall be deemed to have consented to the issuance of an order
of removal under paragraph (1).
``(4) Issuance of order of removal.--
``(A) In general.--In the event of consent under paragraph
(3)(B), or if upon the record made at a hearing described in
this subsection, the Administrator finds that any of the
grounds specified in the notice of removal has been
established, the Administrator may issue such orders of
removal from office as the Administrator deems appropriate.
``(B) Effectiveness.--An order under subparagraph (A)
shall--
``(i) become effective at the expiration of 30 days after
the date of service upon the subject licensee and the
management official concerned (except in the case of an order
issued upon consent as described in paragraph (3)(B), which
shall become effective at the time specified in such order);
and
``(ii) remain effective and enforceable, except to such
extent as it is stayed, modified, terminated, or set aside by
action of the Administrator or a reviewing court in
accordance with this section.
``(c) Authority to Suspend or Prohibit Participation.--
``(1) In general.--The Administrator may, if the
Administrator deems it necessary for the protection of the
licensee or the interests of the Administration, suspend from
office or prohibit from further participation in any manner
in the management or conduct of the affairs of the licensee,
or both, any management official referred to in subsection
(b)(1), by written notice to such effect served upon the
management official.
``(2) Effectiveness.--A suspension or prohibition under
paragraph (1)--
``(A) shall become effective upon service of notice under
paragraph (1); and
``(B) unless stayed by a court in proceedings authorized by
paragraph (3), shall remain in effect--
``(i) pending the completion of the administrative
proceedings pursuant to a notice of intention to remove
served under subsection (b); and
``(ii) until such time as the Administrator shall dismiss
the charges specified in the notice, or, if an order of
removal or prohibition is issued against the management
official, until the effective date of any such order.
``(3) Judicial review.--Not later than 10 days after any
management official has been suspended from office or
prohibited from participation in the management or conduct of
the affairs of a licensee, or both, under paragraph (1), that
management official may apply to the United States district
court for the judicial district in which the home office of
the licensee is located, or the United States District Court
for the District of Columbia, for a stay of the suspension or
prohibition pending the completion of the administrative
proceedings pursuant to a notice of intent to remove served
upon the management official under subsection (b), and such
court shall have jurisdiction to stay such action.
``(d) Authority To Suspend on Criminal Charges.--
``(1) In general.--Whenever a management official is
charged in any information, indictment, or complaint
authorized by a United States attorney, with the commission
of or participation in a felony involving dishonesty or
breach of trust, the Administrator may, by written notice
served upon that management official, suspend that management
official from office or prohibit that management official
from further participation in any manner in the management or
conduct of the affairs of the licensee, or both.
``(2) Effectiveness.--A suspension or prohibition under
paragraph (1) shall remain in effect until the subject
information, indictment, or complaint is finally disposed of,
or until terminated by the Administrator.
``(3) Authority upon conviction.--If a judgment of
conviction with respect to an offense described in paragraph
(1) is entered against a management official, then at such
time as the judgment is not subject to further appellate
review, the Administrator may issue and serve upon the
management official an order removing that management
official, which removal shall become effective upon service
of a copy of the order upon the licensee.
``(4) Authority upon dismissal or other disposition.--A
finding of not guilty or other disposition of charges
described in paragraph (1) shall not preclude the
Administrator from thereafter instituting proceedings to
suspend or remove the management official from office, or to
prohibit the management official from participation in the
management or conduct of the affairs of the licensee, or
both, pursuant to subsection (b) or (c).
``(e) Notification to Licensees.--Copies of each notice
required to be served on a management official under this
section shall also be served upon the interested licensee.
``(f) Procedural Provisions; Judicial Review.--
``(1) Hearing venue.--Any hearing provided for in this
section shall be--
``(A) held in the Federal judicial district or in the
territory in which the principal office of the licensee is
located, unless the party afforded the hearing consents to
another place; and
``(B) conducted in accordance with the provisions of
chapter 5 of title 5, United States Code.
``(2) Issuance of orders.--After a hearing provided for in
this section, and not later than 90 days after the
Administrator has notified the parties that the case has been
submitted for final decision, the Administrator shall render
a decision in the matter (which shall include findings of
fact upon which its decision is predicated), and shall issue
and cause to be served upon each party to the proceeding an
order or orders consistent with the provisions of this
section.
``(3) Authority to modify orders.--The Administrator may
modify, terminate, or set aside any order issued under this
section--
``(A) at any time, upon such notice, and in such manner as
the Administrator deems proper, unless a petition for review
is timely filed in a court of appeals of the United States,
as provided in paragraph (4)(B), and thereafter until the
record in the proceeding has been filed in accordance with
paragraph (4)(C); and
``(B) upon such filing of the record, with permission of
the court.
``(4) Judicial review.--
``(A) In general.--Judicial review of an order issued under
this section shall be exclusively as provided in this
subsection.
``(B) Petition for review.--Any party to a hearing provided
for in this section may obtain a review of any order issued
pursuant to paragraph (2) (other than an order issued with
the consent of the management official concerned, or an order
issued under subsection (d)), by filing in the court of
appeals of the United States for the circuit in which the
principal office of the licensee is located, or in the United
States Court of Appeals for the District of Columbia Circuit,
not later than 30 days after the date of service of such
order, a written petition praying that the order of the
Administrator be modified, terminated, or set aside.
``(C) Notification to administration.--A copy of a petition
filed under subparagraph (B) shall be forthwith transmitted
by the clerk of the court to the Administrator, and thereupon
the Administrator shall file in the court the record in the
proceeding, as provided in section 2112 of title 28, United
States Code.
``(D) Court jurisdiction.--Upon the filing of a petition
under subparagraph (A)--
``(i) the court shall have jurisdiction, which, upon the
filing of the record under subparagraph (C), shall be
exclusive, to affirm, modify, terminate, or set aside, in
whole or in part, the

[[Page S12742]]

order of the Administrator, except as provided in the last
sentence of paragraph (3)(B);
``(ii) review of such proceedings shall be had as provided
in chapter 7 of title 5, United States Code; and
``(iii) the judgment and decree of the court shall be
final, except that the judgment and decree shall be subject
to review by the Supreme Court of the United States upon
certiorari, as provided in section 1254 of title 28, United
States Code.
``(E) Judicial review not a stay.--The commencement of
proceedings for judicial review under this paragraph shall
not, unless specifically ordered by the court, operate as a
stay of any order issued by the Administrator under this
section.''.

SEC. 6. REDUCTION OF FEES.

(a) Two-Year Reduction of Section 7(a) Fees.--
(1) Guarantee fees.--Section 7(a)(18) of the Small Business
Act (15 U.S.C. 636(a)(18)) is amended by adding at the end
the following:
``(C) Two-year reduction in fees.--With respect to loans
approved during the 2-year period beginning on October 1,
2002, the guarantee fee under subparagraph (A) shall be as
follows:
``(i) A guarantee fee equal to 2 percent of the deferred
participation share of a total loan amount that is not more
than $250,000.
``(ii) A guarantee fee equal to 3 percent of the deferred
participation share of a total loan amount that is more than
$250,000.''.
(2) Annual fees.--Section 7(a)(23)(A) of the Small Business
Act (15 U.S.C. 636(a)(23)(A)) is amended by adding at the end
the following: ``With respect to loans approved during the 2-
year period beginning on October 1, 2002, the annual fee
assessed and collected under the preceding sentence shall be
in an amount equal to 0.25 percent of the outstanding balance
of the deferred participation share of the loan.''.
(b) Reduction of Section 504 Fees.--Section 503 of the
Small Business Investment Act of 1958 (15 U.S.C. 697) is
amended--
(1) in subsection (b)(7)(A)--
(A) by redesignating clauses (i) and (ii) as subclauses (I)
and (II), respectively, and moving the margins 2 ems to the
right;
(B) by striking ``not exceed the lesser'' and inserting
``not exceed--
``(i) the lesser''; and
(C) by adding at the end the following:
``(ii) 50 percent of the amount established under clause
(i) in the case of a loan made during the 2-year period
beginning on October 1, 2002, for the life of the loan;
and''; and
(2) by adding at the end the following:
``(i) Two-Year Waiver of Fees.--The Administration may not
assess or collect any up front guarantee fee with respect to
loans made under this title during the 2-year period
beginning on October 1, 2002.''.
(c) Budgetary Treatment of Loans and Financings.--
Assistance made available under any loan made or approved by
the Small Business Administration under section 7(a) of the
Small Business Act (15 U.S.C. 636(a)) or financings made
under title III or V of the Small Business Investment Act of
1958 (15 U.S.C. 697a), during the 2-year period beginning on
October 1, 2002, shall be treated as separate programs of the
Small Business Administration for purposes of the Federal
Credit Reform Act of 1990 only.
(d) Use of Funds.--The amendments made by this section
shall be effective only to the extent that funds are made
available under appropriations Acts, which funds shall be
utilized by the Administrator to offset the cost (as such
term is defined in section 502 of the Federal Credit Reform
Act of 1990) of such amendments.
(e) Effective Date.--The amendments made by this section
shall become effective on October 1, 2002.

Mr. REID. Mr. President, I ask unanimous consent that the Senate
concur in the House amendment with a further amendment which is at the
desk; that the amendment be agreed to and the motion to reconsider be
laid on the table, with no intervening action.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment (No. 2460) was agreed to, as follows:

Strike section 6 and all that follows through the end of
the matter proposed to be inserted by the House of
Representatives, and insert the following:

SEC. 6. REDUCTION OF FEES.

(a) Two-Year Reduction of Section 7(a) Fees.--
(1) Guarantee fees.--Section 7(a)(18) of the Small Business
Act (15 U.S.C. 636(a)(18)) is amended by adding at the end
the following:
``(C) Two-year reduction in fees.--With respect to loans
approved during the 2-year period beginning on October 1,
2002, the guarantee fee under subparagraph (A) shall be as
follows:
``(i) A guarantee fee equal to 1 percent of the deferred
participation share of a total loan amount that is not more
than $150,000.
``(ii) A guarantee fee equal to 2.5 percent of the deferred
participation share of a total loan amount that is more than
$150,000, but not more than $700,000.
``(iii) A guarantee fee equal to 3.5 percent of the
deferred participation share of a total loan amount that is
more than $700,000.''.
(2) Annual fees.--Section 7(a)(23)(A) of the Small Business
Act (15 U.S.C. 636(a)(23)(A)) is amended by adding at the end
the following: ``With respect to loans approved during the 2-
year period beginning on October 1, 2002, the annual fee
assessed and collected under the preceding sentence shall be
in an amount equal to 0.25 percent of the outstanding balance
of the deferred participation share of the loan.''.
(b) Reduction of Section 504 Fees.--Section 503 of the
Small Business Investment Act of 1958 (15 U.S.C. 697) is
amended--
(1) in subsection (b)(7)(A)--
(A) by redesignating clauses (i) and (ii) as subclauses (I)
and (II), respectively, and moving the margins 2 ems to the
right;
(B) by striking ``not exceed the lesser'' and inserting
``not exceed--
``(i) the lesser''; and
(C) by adding at the end the following:
``(ii) 50 percent of the amount established under clause
(i) in the case of a loan made during the 2-year period
beginning on October 1, 2002, for the life of the loan;
and''; and
(2) by adding at the end the following:
``(i) Two-Year Waiver of Fees.--The Administration may not
assess or collect any up front guarantee fee with respect to
loans made under this title during the 2-year period
beginning on October 1, 2002.''.
(c) Budgetary Treatment of Loans and Financings.--
Assistance made available under any loan made or approved by
the Small Business Administration under section 7(a) of the
Small Business Act (15 U.S.C. 636(a)) or financings made
under title V of the Small Business Investment Act of 1958
(15 U.S.C. 695 et seq.), during the 2-year period beginning
on October 1, 2002, shall be treated as separate programs of
the Small Business Administration for purposes of the Federal
Credit Reform Act of 1990 only.
(d) Use of Funds.--The amendments made by this section to
section 503 of the Small Business Investment Act of 1958,
shall be effective only to the extent that funds are made
available under appropriations Acts, which funds shall be
utilized by the Administrator to offset the cost (as such
term is defined in section 502 of the Federal Credit Reform
Act of 1990) of such amendments.
(e) Effective Date.--The amendments made by this section
shall become effective on October 1, 2002.

Mr. KERRY. Mr. President, I want to say a few words about S. 1196,
the Small Business Investment Company, SBIC, Amendments Act of 2001.
For those who don't know, the SBIC program is a very successful
partnership between the SBA and private venture capital firms. It has
accounted for about half of all venture capital deals done in the
country over the past few years, and it has helped finance some of
America's companies that are now house-hold names--Federal Express,
Intel, Outback Steakhouse, America Online, Callaway Golf, and
Massachusetts' own Staples.
The main purpose of this act is to adjust the fees charged to
Participating Security SBICs from 1 percent to 1.38 percent. The change
is necessary because, at the President's request, all funding for this
program was eliminated. I disagree with that. I preferred to show
fiscal responsibility by level funding the program and then increasing
the fees only as much as necessary to raise the program level from $2
billion to $3.5 billion. Consistent with that opinion, as my colleagues
may remember, Senator Bond and I offered an amendment to the Budget
Resolution, Amendment No. 183, that did just that. It was agreed to in
the Senate by voice vote in April and retained in the final budget
resolution. Unfortunately, the appropriators had very tough decisions
to make and the funding agreed to in our budget amendment was not
included in the appropriations process. Despite my disagreement, I am
supporting S. 1196 because if we want to continue this program, it must
be funded entirely through fees, which forces us to authorize the fee
change.
For the record, let me state that the National Association of Small
Business Investment Companies testified before both the Senate and
House Committees on Small Business in favor of increasing the program
level from $2 billion to $3.5 billion and raising the fees to make that
level possible. As I just explained, this legislation makes that
possible.
This bill also includes modifications to the program in order to
strengthen the oversight and authority of the SBA to take action
against bad actors, to protect the integrity of the SBIC program, and
to streamline operations.
With this bill, I am offering an amendment, cosponsored by Senator
Bond, to reinforce our efforts to keep the economy strong. The
amendment strikes section six, which my colleagues in the House
included when they deliberated and voted on this bill, and replaces it
with similar language which accommodates changes requested by the
Administration. Specifically, starting in FY2003, it reduces for two
years the fees for the Small Business Administration's 7(a) and 504
loan guarantee programs in order to make these loans more affordable
for borrowers to access capital and lenders to

[[Page S12743]]

make. In reducing the fees, it gives the largest reduction to the
smallest small business borrowers, those who take out loans of less
than $150,000. It also provides fee relief for small business borrowers
who need working capital for medium-sized loans, those in amounts of
between $150,000 and $700,000.
The 7(a) program is one of the SBA's most popular and successful
small business credit programs. In FY2000, 43,748 small businesses were
approved for 7(a) loans, which added up to $9.3 billion. Of those
billions, 31 percent went to minority business owners, 11 percent went
to veteran business owners, and 16 percent went to women business
owners. These loans would not have been made but for the SBA; in order
to get an SBA loan, borrowers must demonstrate that they are unable to
get comparable credit, at comparable rates, from an area lender. Year
after year, as this program has generated billions of dollars in small
business development, fueled job creation and generated tax revenue,
its default rates by cohort have dropped sharply since 1990 from more
than 6 percent to less than 2 percent. Not only have these loans
contributed to the economy, but the program has largely paid for
itself. From fiscal years 1992 through 1998, Congress appropriated
close to $1.4 billion to run the program, and the lenders and borrowers
paid $1.3 billion more than necessary in fees to participate in the
program.

The track record of the 504 program is equally impressive, and they
too have overpaid because the SBA and OMB have over-estimated the cost
of providing these loans. Reducing fees will help encourage lending at
a time when surveys from the Federal Reserve have found that anywhere
from 35 to 45 percent of banks have tightened credit to small
businesses, making it harder and more expensive to get loans.
Originally, my amendment also included a provision to require the SBA
to give new markets venture capital companies two years to raise their
matching capital. Even though we had legislated in the 106th Congress
to give them two years, and Senator Hollings and Senator Gregg
reinforced this by making the relevant matching capital available until
expended as part of supplemental funding to the FY2001 Commerce,
Justice, State appropriations bill, the Small Business Administration
required the approved new markets venture capital companies to raise
their money first in six months, and later proposed extending the
period to one year. The declining economy, particularly in the
aftermath of September 11, has made raising capital even more
difficult. Consequently, these companies need more time than one year.
Here is what Dr. Julia Sass Rubin, a community development venture
capital expert from the Harvard Business School, has explained about
the nature of raising funds these days: ``This task of raising capital
for a new fund is particularly challenging during an economic slowdown,
when the sources of funds for any kind of venture capital become more
difficult to access. Additionally, with the dramatic recent slowdown in
initial public offerings, even traditional venture capitalists are
having a very difficult time raising money. It is simply not practical
to expect a new CDVC fund to capitalize within one year.''
I am very happy to report that we were able to work out a compromise
with the Small Business Administration to give these companies to year
and half to raise their capital. It's not the full two years, but I am
hopeful that the new markets venture capital companies can raise their
capital in the that time. The Administration has also recommitted to
offering a second round of funding starting in the August/September
time frame of 2002.
Let me quickly explain a bit about this innovative venture capital
initiative. The new markets venture capital initiative is modeled after
the SBA's very successful SBIC program, which I talked about earlier.
However, unlike the SBIC program which makes larger deals, new markets
venture capital companies target smaller investments to the development
of high-growth small businesses in our country's poorest urban and
rural areas. They tie those investments to the creation of local jobs
with livable wages and benefits for individuals who historically have
no opportunities for employment or who are the working poor. One
excellent example of such a company is City Fresh Foods in Dorchester,
Massachusetts. They run a smart business, providing a needed service to
the elderly in their community by producing and distributing meals for
the Meals-on-Wheels program. They hire from the community, and they
provide good jobs with sustainable wages. The SBA's new markets venture
capital investments, if given a real chance to work, could help develop
more companies like City Fresh Foods.
I ask my colleagues to support this bill, and ask my colleagues in
the House to pass this bill as soon as possible.
I thank Senator Bond for his work on this legislation.
Mr. BOND. Mr. President, I rise today to urge my colleagues in the
Senate to support passage of the Small Business Investment Company
Amendments Act of 2001, S. 1196 and an amendment being offered by
Senator John Kerry, which I strongly support. Time is of the essence
since a critical component of the Small Business Investment Company,
SBIC, Program was shut down on November 28, 2001, when the Commerce
Justice State appropriations bill became law, while the bill modifying
the annual fees paid by the Participating Securities SBICs had not been
enacted. Once S. 1196 becomes law, it paves the way for more investment
capital to be available for more small businesses that are seeking to
grow and hire new employees.
When the Committee on Small Business and Entrepreneurship unanimously
approved S. 1196 on July 19, 2001, the Committee adopted a fee increase
from 1.0 percent to 1.28 percent. At that time, some members of the
committee believed they could obtain an appropriation for the SBIC
Participating Securities Program that would offset part of the fee
increase. The final version of the Fiscal Year 2002 Commerce Justice
State appropriations bill did not include any funds for the SBIC
program. Consequently, it is critical that legislation be enacted
increasing the program fee to 1.38 percent. So long as the fee is not
increased, the SBIC Participating Securities will remain shut down as
required by the Federal Credit Reform Act of 1990.
Last month, on November 15, the Senate unanimously passed S. 1196,
after approving a managers' amendment increasing the annual fee to 1.38
percent. When the House of Representatives considered the bill, it
included an amendment that changed the fee structure for two other
credit programs at the Small Business Administration, SBA: the 7(a)
Guaranteed Business Loan Program and the 504 Development Company
Program. Today, Senator Kerry and I are offering an amendment to S.
1196 that makes minor modifications to the House-passed amendment on
the 7(a) and 504 loan programs.
There has been a significant growth in the small business sector of
the U.S. economy over the past two decades. Today, small businesses
make up over one-half of the entire U.S. economy. Over 99 percent of
all employers in the United States are small businesses. They employ
over 50 percent of workers and provide 75 percent of the net new jobs
each year. Small businesses generate 51 percent of the Nation's private
sector output. In light of the ongoing dip in the U.S. economy with the
accompanying retrenchment by many businesses, both large and small, S.
1196 will serve as part of the solution to move us toward a recovery.
In 1958, Congress created the SBIC program to assist small business
owners in obtaining investment capital. Forty years later, small
businesses continue to experience difficulty in obtaining investment
capital from banks and traditional investment sources. Although
investment capital is readily available to large businesses from
traditional Wall Street investment firms, small businesses seeking
investments in the range of $500,000--$3 million have to look
elsewhere. SBICs are frequently the only sources of investment capital
for growing small businesses.

Often we are reminded that the SBIC program has helped some of our
Nations best known companies. It has provided a financial boost at
critical points in the early growth period for many companies that are
familiar to all of us. For example, Federal Express received a needed
infusion of capital from two SBA-licensed SBICs at a critical juncture
in its development stage.

[[Page S12744]]

The SBIC program also helped other well-known companies, when they were
not so well-known, such as Intel, Outback Steakhouse, America Online,
and Callaway Golf.
What is not well known is the extraordinary help the SBIC program
provides to Main Street America small businesses. These are companies
we know from home towns all over the United States. Main Street
companies provide both stability and growth in our local business
communities. A good example of a Main Street company is Steelweld
Equipment Company, founded in 1932, which designs and manufacturers
utility truck bodies in St. Clair, Missouri. The truck bodies are
mounted on chassis made by Chrysler, Ford, and General Motors.
Steelweld provides truck bodies for Southwestern Bell Telephone Co.,
Texas Utilities, Paragon Cable, GTE, and GE Capital Fleet.
Steelweld is a privately held, woman-owned corporation. The owner,
Elaine Hunter, went to work for Steelweld in 1966 as a billing clerk
right out of high school. She rose through the ranks of the company and
was selected to serve on the board of directors. In December 1995,
following the death of Steelweld's founder and owner, Ms. Hunter
received financing from a Missouri-based SBIC, Capital for Business
CFB, Venture Fund II, to help her complete the acquisition of
Steelweld. CFB provided $500,000 in subordinated debt. Senior bank debt
and seller debt were also used in the acquisition.
Since Ms. Hunter acquired Steelweld, its manufacturing process was
redesigned to make the company run more efficiently. By 1997,
Steelweld's profitability had doubled, with annual sales of $10 million
and 115 employees. SBIC program success stories like Ms. Hunter's
experience at Steelweld occur regularly throughout the United States.
In 1991, the SBIC program was experiencing major losses, and the
future of the program was in doubt. Consequently, in 1992 and 1996, the
Committee on Small Business worked closely with the Small Business
Administration to correct deficiencies in the law in order to ensure
the future of the program.
Today, the SBIC Program is expanding rapidly in an effort to meet the
growing demands of small business owners for debt and equity investment
capital. And it is important to focus on the significant role that is
played by the SBIC program in support of growing small businesses.
When Fortune Small Business compiled its list of 100 fastest growing
small companies in 2000, 6 of the top 12 businesses on the list
received SBIC financing during their critical growth years.

The ``Small Business Investment Company Amendments Act of 2001,'' as
amended, would permit the annual interest fee paid by Participating
Securities SBICs to increase from 1.0 percent to no more than 1.38
percent. In addition, the bill would make three technical changes to
the Small Business Investment Act of 1958 (`58 Act) that are intended
to make improvements in the day-to-day operation of the SBIC program.
Projected demand for the Participating Securities SBIC program for FY
2002 is $3.5 billion, a significant increase over the FY 2001 program
level of $2.5 billion. It is imperative that Congress approve this
relatively small increase in the annual interest charge paid by the
Participating Securities SBICs before the end of the fiscal year. The
fee increase included in the bill, 1.38 percent, will allow the program
to operate at its authorized level--$3.5 billion--an amount needed to
help support small businesses as they help lead our country to an
economic recovery.
The Small Business Investment Company Amendments Act of 2001 would
also make some relatively technical changes the `58 Act that are
drafted to improve the operations of the SBIC program. Section 3 would
remove the requirement that the SBA take out local advertisements when
it seeks to determine if a conflict of interest exists involving an
SBIC. This section has been recommended by the SBA, that has informed
me that it has never received a response to a local advertisement and
believes the requirement is unnecessary.
The bill would amend title 12 and title 18 of the United States Code
to insure that false statements made to the SBA under the SBIC program
would have the same penalty as making false statements to an SBIC. This
section would make it clear that a false statement to SBA or to an SBIC
for the purpose of influencing their respective actions taken under the
`58 Act would be a criminal violation. The courts could then assess
civil and criminal penalties for such violations.
Section 5 of the bill would amend section 313 of the `58 Act to
permit the SBA to remove or suspend key management officials of an SBIC
when they have willfully and knowingly committed a substantial
violation of the `58 Act, any regulation issued by the SBA under the
act, a cease-and-desist order that has become final, or committed or
engaged in any act, omission or practice that constitutes a substantial
breach of a fiduciary duty of that person as a management official.
The amendment expands the definition of persons covered by section
313 to be ``management official,'' which includes officers, directors,
general partners, managers, employees, agents or other participants in
the management or conduct of the SBIC. At the time section 313 of the
`58 Act was enacted in November 1966, an SBIC was organized as a
corporation. Since that time, SBIC has been organized as partnerships
and Limited Liability Companies, LLCs, and this amendment would take
into account those organizations.
The Kerry-Bond amendment would reduce the fees paid by the
participants in two SBA programs: the 7(a) guaranteed business loan
program (7(a) program) and the 504 Development Company program (504
program). The need for this legislation to reduce fees has been growing
in recent years. The issues surrounding the fees paid by small business
borrowers and the banks came to a head earlier this year, when the
General Accounting Office determined that the Federal government had
collected over $950 million in excess fees paid by the borrowers and
lenders and taxpayers' funds appropriated by the Congress. The driving
force behind this amendment is to adjust the fees paid by small
business borrowers and lenders to reflect more accurately their
appropriate share of the cost of the program.
On May 4, 2001, Senator Kerry, Mr. Manzullo, Ms. Velazquez, and I
asked the Comptroller General to undertake an in-depth analysis of the
SBA's 7(a) credit subsidy rate calculations. Specifically, we asked the
GAO to assess the level of difference between the projected cost of the
7(a) program's financing account, or loan loss reserve, and the actual
cost. This calculation is required by the Federal Credit Reform Act of
1990. The purpose of the credit subsidy rate is to determine the amount
of funds that should be appropriated each year to cover expected losses
when the Federal government guarantees 7(a) loans.
What the GAO uncovered confirmed our worst concerns. The GAO pointed
out that defaults and recoveries are key variables in the calculation
of the 7(a) credit subsidy rate. Since FY 1992, the first year under
the rules of the Federal Credit Reform Act, defaults and recoveries
were significantly overestimated by the SBA and OMB. Defaults have been
overestimated by nearly $2 billion and recoveries by $450 billion. What
the overestimates mean in real costs is that the Federal government
collected significantly more money than needed to fund its loss reserve
accounts. Specifically, the Federal government collected over $950
million in excess fees paid by borrowers and lenders and by taxpayers'
funds appropriated by Congress.
My shade tree analysis leads me to believe that small business
borrowers, banks and taxpayers have been and continue to be overcharged
for the 7(a) program. First, it is clear that they are paying too much
because each year the SBA and OMB overestimated the default rate for
the 7(a) program. Second, if a more accurate default rate were adopted,
the credit subsidy rate could be reduced. Third, a lower credit subsidy
rate could mean lower fees paid by small business borrowers. And
fourth, the 7(a) loan program could expand to meet the demands of small
businesses without requiring a larger appropriation.
Mr. President, time is of the essence. We need to act promptly and
pass the Small Business Investment Company Act of 2001 today, so that
the House of Representatives has time to act before the Congress
adjourns in the coming weeks.

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