S. Rept. 113-90 - 113th Congress (2013-2014)

Report text available as:

Formatting necessary for an accurate reading of this legislative text may be shown by tags (e.g., <DELETED> or <BOLD>) or may be missing from this TXT display. For complete and accurate display of this text, see the PDF.


Senate Report 113-90 - THE EXPANDING ACCESS TO CAPITAL FOR ENTREPRENEURIAL LEADERS (EXCEL) ACT OF 2013

[Senate Report 113-90]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 168
113th Congress                                                   Report
                                 SENATE
 1st Session                                                     113-90

======================================================================



 
THE EXPANDING ACCESS TO CAPITAL FOR ENTREPRENEURIAL LEADERS (EXCEL) ACT 
                                OF 2013

                                _______
                                

               September 10, 2013.--Ordered to be printed

                                _______
                                

        Ms. Landrieu, from the Committee on Small Business and 
               Entrepreneurship, submitted the following

                              R E P O R T

                         [To accompany S. 511]

    The Committee on Small Business and Entrepreneurship, 
having considered the bill (S. 511), to amend the Small 
Business Investment Act of 1958 to enhance the Small Business 
Investment Company Program, and for other purposes, reports 
favorably thereon, with an amendment, and recommends that the 
bill, as amended, do pass.

                            I. INTRODUCTION

    The EXCEL Act (S. 511) was introduced by the Committee's 
Chair, Senator Mary L. Landrieu, on March 11, 2013. The bill's 
other co-sponsors include Committee members Senator Benjamin L. 
Cardin and Senator William M. Cowan.
    The EXCEL Act improves and enhances the Small Business 
Administration's (SBA) Small Business Investment Company (SBIC) 
program at no cost to taxpayers. The bill raises the SBIC 
program's authorization level to meet growing demand and will 
make improvements to increase small businesses' access to 
capital.
    During markup of the bill, the Risch-Landrieu amendment to 
the bill, which struck sections 4-7 of the underlying EXCEL 
Act, was approved unanimously by voice vote. The bill, as 
amended, was also approved by voice vote.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    The Small Business Investment Company program is one of 
several capital access programs administered by the Small 
Business Administration designed to bridge the gap between 
small businesses' need for capital and traditional financing 
sources. The SBA runs this private equity program by 
guaranteeing money borrowed by qualified investment funds who 
invest in small businesses. The qualified funds, or SBICs, are 
privately owned and operated, but licensed and regulated by the 
SBA. Using a combination of private investments and the debt 
guaranteed by the SBA, typically at a ratio of $2 in guaranteed 
funds for every $1 of private capital, SBICs make long-term 
investments in American small businesses. In order to 
participate in the program, funds pay licensing fees which 
serve to cover all SBIC program costs. As a result, the core 
SBIC program (Debenture SBICs) not only boasts a strong success 
rate, but also incurs no cost to the U.S. government.
    The Small Business Investment Company program was 
established by the Investment Company Act of 1958, which was 
co-sponsored by then-Majority Leader Lyndon B. Johnson and 
signed into law by President Dwight Eisenhower. Since the 
program's inception, SBICs have invested over $56 billion in 
over 100,000 small businesses. Companies that have received 
SBIC funding include Apple Computer, AOL, Callaway Golf, 
Costco, Outback Steakhouse, Jenny Craig, and Center Rock of 
Berlin, Pennsylvania, the manufacturer of the drill bit that 
saved the Chilean miners in October, 2010.
    The purpose of the EXCEL Act is to make necessary and 
timely improvements to the already successful SBIC program to 
increase the availability of capital for small businesses. Over 
the past few years, the SBIC program has seen strong growth. 
For example, in Fiscal Year 2011 alone, the program grew by 50 
percent. In Fiscal Year 2012, the third consecutive record year 
for the SBIC program, SBA-guaranteed leverage commitments 
totaled nearly $2 billion, and the SBA expects demand to 
continue to grow. However, despite this impressive growth, the 
program's authorization level, currently capped at $3 billion 
per year, has not been permanently raised since 2003. The EXCEL 
Act contains a provision to raise the SBIC program 
authorization level from $3 billion to $4 billion. In order to 
meet growing demand, the program needs room to grow.
    The second major provision of the EXCEL Act relates to 
``families of funds.'' A family of funds refers to a group of 
several licensed funds operated by a team of SBIC fund 
managers. These funds under common control are currently 
limited to $225 million of SBA-guaranteed debt, and several 
teams of fund managers have already bumped against this cap. 
The EXCEL Act would increase the family of funds limit from 
$225 million to $350 million. Since SBIC fund managers who 
manage more than one fund generally see better investment 
results, the EXCEL Act should encourage continued and 
responsible investments in American small businesses at no cost 
to the taxpayer.
    During the 112th Congress, Small Business Committee Chair 
Landrieu and former Ranking Member Olympia Snowe filed S. 3253, 
the EXCEL Act of 2012, on May 24, 2012. The bill included the 
program authorization level increase and the increase in the 
family of funds leverage limit, as well as a number of other 
program enhancements. While the standalone bill was not acted 
upon further by the Committee, Senator Landrieu included the 
EXCEL Act provisions in several other pieces of legislation 
during the 112th Congress.
    Senate Amendment 1833 (S. Amdt. 1833), an amendment in the 
nature of a substitute to the Jumpstart Our Business Startups 
(JOBS) Act of 2012 (H.R. 3606), contained language to raise the 
family of funds limit to $350 million from $225 million and to 
increase the SBIC program's authorization level to $4 billion. 
S. Amdt. 1833, the Invigorate New Ventures and Entrepreneurs to 
Succeed Today (INVEST) in America Act of 2012, was introduced 
on March 15, 2012 by Senator Jack Reed along with Chair 
Landrieu and Senators Levin, Scott Brown, Merkley, Akaka, 
Whitehouse, Franken, Harkin, and Durbin. S. Amdt. 1833 was 
ultimately not included in the final version of H.R. 3606.
    Additionally, Senator Landrieu included SBIC program 
enhancements in Senate Amendment 2521 (S. Amdt. 2521), which 
she filed to S. 2237, the Small Business Jobs and Tax Relief 
Act of 2012, on July 11, 2012. Division B of S. Amdt. 2521, 
entitled the Success Ultimately Comes from Capital, 
Contracting, Education, Strategic Partnerships, and Smart 
Regulations (SUCCESS) Act, included the EXCEL Act of 2012 as a 
portion of Title II. Although it came up short of the 60 votes 
needed to end debate, the amendment received a strong 57 
bipartisan votes, including five Republicans, when it received 
a vote on the Senate floor on July 12, 2012. Shortly 
thereafter, Chair Landrieu filed the SUCCESS Act as a 
standalone bill. On July 25, 2012, Chair Landrieu introduced S. 
3442, the SUCCESS Act of 2012, with eight co-sponsors including 
Committee members Senator Cardin and Senator Shaheen, as well 
as Senators Blumenthal, Boxer, Gillibrand, Lieberman, Merkley, 
and Whitehouse.
    Ultimately, however, none of the bills or amendments made 
it to the President's desk during the 112th Congress.

                      III. HEARINGS & ROUNDTABLES

    In preparing to draft and introduce the EXCEL Act, the 
Committee held a number of hearings and roundtables analyzing 
the SBA's Small Business Investment Company program. Committee 
staff and members heard from a wide range of stakeholders from 
the SBIC community, including small businesses, fund managers, 
and government officials, on the effectiveness of the program 
and how to improve upon its successes.
    In the 112th Congress:
    On March 22, 2012, the Committee held a roundtable 
entitled, ``A Spotlight on Small Business Investment Companies 
and their Role in the Entrepreneurial Ecosystem.'' The fourteen 
roundtable participants included representatives from the SBA, 
SBICs, SBIC investors, and small businesses. It was during this 
roundtable that the Committee elicited suggestions on enhancing 
the SBIC program that would later comprise the key provisions 
of the EXCEL Act.
    On November 29, 2012, the Committee held a hearing 
entitled, ``Creating Jobs and Growing the Economy: Legislative 
Proposals to Strengthen the Entrepreneurial Ecosystem.'' The 
purpose of the hearing was to discuss the legislative proposals 
included in the ``Success Ultimately Comes from Capital, 
Contracting, Education, Strategic Partnerships, and Smart 
Regulation (SUCCESS) Act of 2012'' (S. 3442), which was the 
result of recommendations gathered during a series of three 
Committee roundtables examining the entrepreneurial ecosystem 
during the 112th Congress. Among the provisions that the 
Committee examined during the hearing were those included in 
the version of the EXCEL Act that Chair Landrieu and former 
Ranking Member Snowe introduced during the 112th Congress.
    In the 113th Congress:
    On March 14, 2013, the Committee held a roundtable entitled 
``Helping Small Businesses Weather Economic Challenges & 
Natural Disasters: Review of Legislative Proposals on Access to 
Capital and Disaster Recovery.'' The purpose of the roundtable 
was to discuss four legislative proposals on small business 
access to capital and disaster recovery on which the Committee 
would focus during the beginning of the 113th Congress, 
including the EXCEL Act. Participants included a wide range of 
small business owners, investors, and stakeholders, and SBA 
representatives, including the Associate Administrator for the 
SBA's Office of Capital Access. The roundtable followed up on 
previous Committee roundtables and legislative hearings held 
during the 112th Congress and provided an opportunity for 
Committee members to highlight their relevant priorities ahead 
of an upcoming markup on access to capital and disaster 
recovery legislation.

                        IV. DESCRIPTION OF BILL

    The purpose of S. 511, the Expanding Access to Capital for 
Entrepreneurial Leaders (EXCEL) Act, is to make necessary and 
timely improvements to the already successful SBIC program to 
increase the availability of equity capital for small 
businesses. The bill, as amended by the Risch-Landrieu 
amendment, which struck sections 4-7 of the underlying EXCEL 
Act, contains two major provisions to enhance the program, both 
of which come at no cost to the taxpayer:
    Section 2 of the bill raises the amount of SBIC debt that 
the Small Business Administration (SBA) can guarantee from $3 
billion to $4 billion, indexed to inflation. Despite inflation 
and the impressive growth that the program has seen over the 
past few years, the program's authorization level has not been 
permanently raised since 2003.
    Section 3 of the bill would increase the amount of leverage 
available to SBIC licensees under common control--also known as 
a ``family of funds''--from $225 million to $350 million. Fund 
managers who manage more than one fund generally see better 
investment results, and this provision will continue supporting 
successful fund managers, thereby deploying more capital to 
America's small businesses.

                           V. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on June 17, 2013.
    A motion to adopt the Expanding Access to Capital for 
Entrepreneurial Leaders (EXCEL) Act of 2013, to amend the Small 
Business Investment Act of 1958 to enhance the Small Business 
Investment Company Program, as amended by the Risch-Landrieu 
amendment, was approved by a voice vote, with the following 
Senator voting in the negative: Scott.

                           VI. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:

                                                    August 2, 2013.
Hon. Mary L. Landrieu,
Chair, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 511, the Expanding 
Access to Capital for Entrepreneurial Leaders Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 511--Expanding Access to Capital for Entrepreneurial Leaders Act

    S. 511 would set the maximum amount of debt that the Small 
Business Administration (SBA) can guarantee under the Small 
Business Investment Company (SBIC) program at $4 billion per 
year, adjusted annually for inflation. Further, the bill would 
raise the maximum amount of debt that the SBA can guarantee for 
a group of companies participating in the program that are 
operated together (``a family of funds'') from $225 million to 
$350 million.
    Under current law, businesses participating in the SBIC 
program are required to pay various fees that are sufficient to 
offset the program's estimated subsidy cost--that is, the 
estimated long-term cost to the government of a loan guarantee, 
calculated on a net-present-value basis. Based on information 
from SBA, CBO expects that increasing the loan levels for the 
program and for a family of funds would not affect the 
estimated subsidy cost, nor would the changes increase the cost 
to administer the program (which is recorded on a cash basis). 
Therefore, CBO estimates that implementing S. 511 would not 
affect discretionary spending. Enacting S. 511 would not affect 
direct spending or revenues; therefore, pay-as-you-go 
procedures do not apply.
    S. 511 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                  VII. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                   VIII. SECTION-BY-SECTION ANALYSIS


Sec. 1. Title

    This section provides the title of the bill. The Act may be 
cited as the ``Expanding Access to Capital for Entrepreneurial 
Leaders Act'' or the ``EXCEL Act''.

Sec. 2. Program authorization

    This section raises the program authorization level to 
$4,000,000,000. That limit will be indexed for inflation.

Sec. 3. Family of funds

    This section raises from $225,000,000 to $350,000,000 the 
maximum amount of outstanding leverage available to two or more 
funds under common control.