3245-0109 Supporting Statement 12-5-12

OMB FORM 83-I SUPPORTING STATEMENT

PAPERWORK REDUCTION ACT SUBMISSION FOR

U.S. SMALL BUSINESS ADMINISTRATION'S (SBA)

SMALL BUSINESS INVESTMENT COMPANY (SBIC) PROGRAM

INFORMATION COLLECTION 3245-0109

SBA FORM 857: Request for Information Concerning Portfolio Financing

A. Justification

1. Circumstances necessitating the collection of information. The Office of Investment (OI) of the Small Business Administration (SBA) is required to examine Small Business Investment Companies (SBICs) pursuant to Section 310 of the Small Business Investment Act of 1958, as amended, 15 U.S.C. Section 687b, and the implementing regulations at 13 CFR 107.690-691. The purpose of the examination, as provided by statute, is to determine, in part, whether or not an SBIC has engaged “solely in lawful activities and those [activities] contemplated” by title III of the Small Business Investment Act. As part of its effort to meet this statutory requirement, SBA’s Office of SBIC Examinations collects information on SBA Form 857, Request for Information Concerning Portfolio Financing, as a means of gathering independent information relevant to each SBIC examination, which is required by statute to occur at least biennially (15 U.S.C. Section 687b(c)).

SBA seeks OMB’s approval to extend this collection of information (approved under control number 3245-0109). SBA has not modified any of the information collected by SBA Form 857, but has made a few technical revisions to clarify the instructions to respondents or for consistency with other SBA information collections used by the Office of SBIC Examinations.

2. How, by whom, and for what purpose information will be used. SBA Form 857 is used by an SBIC examiner as part of an on-site examination of an SBIC. In advance of a scheduled exam, the SBA examiner mails the form directly to a sample of portfolio concerns (usually 5 to 10 small businesses) that received financing by the SBIC being examined. The voluntary responses are used by the SBA examiner to verify information reported or otherwise provided to SBA regarding the SBIC’s financing activities and/or to obtain additional insight from the portfolio company concerning the nature of its financing arrangement with the SBIC. The information collected by SBA Form 857 assists SBIC examiners in determining an SBIC’s compliance with various statutory and regulatory provisions, including those governing conflicts of interest, small business size standards, maximum allowable interest rates, and use of financing proceeds by portfolio companies.

3. Technological collection techniques. This information collection does not employ technological collection techniques. SBIC examiners select the small businesses (respondents) from the portfolio of the SBIC being examined and contact them directly via mail with the information collection and an accompanying, self-addressed envelope for returning the completed form. Each respondent is selected based upon its relationship with the SBIC being examined, and each respondent is in direct contact with an SBIC examiner at the time the information is both requested and collected. SBA believes this method is appropriate, as it is typical of an auditor’s request for confirmation of information by third parties.

4. Avoidance of Duplication. Although some of the information is provided to SBA by the SBICs, SBA Form 857 provides SBIC examiners with independent verification of the information previously reported by the SBICs, Questions 1, 2 and 3 cover information on, among other things, the terms of the financing; such information is also reported by SBICs on SBA Form 468 (Annual Financial Statement) although not necessarily as of the same date (examination dates are usually different from the dates when SBICs submit audited financial reports to SBA). Question 4, regarding the portfolio company’s use of proceeds, is also reported by SBICs on SBA Form 1031 (Portfolio Financing Report, Part C, Financing Information), although not necessarily as of the same date and with greater detail. Questions 5 and 6, regarding the portfolio company’s affiliation with the SBIC, cover information that is required to be maintained and/or provided by SBICs under the regulations but not necessarily collected by SBA directly. Such information is also not typically provided to or obtained by an SBIC’s independent public accountant during the course of auditing an SBIC’s financial statements.

5. Impact on small business or other small entities. The portfolio companies asked to complete SBA Form 857 are small businesses, but the impact of the information collection on these small businesses is not significant. Responses are voluntary and requests are made by SBIC Examiners no more often than once a year. The information requested is not extensive and is the type of information that a portfolio company would maintain in the normal course of business. Additionally, Question 7 provides the opportunity for a portfolio company to report directly to an SBIC examiner any dispute or concern about its relationship with an SBIC. This information may help SBA identify and address any SBIC actions that could be deemed detrimental to small business and/or contrary to the laws, rules and regulations, and established policies governing the SBIC program.

6. Consequences if collection of information is not conducted. This collection provides financial information that is current at the time of an SBIC examination and may provide valuable insight regarding the SBIC’s financing activities that may or may not be detectable solely from the SBIC’s reported financial statements. Verification from the SBIC’s portfolio companies helps to determine whether or not the SBIC is in compliance with certain key regulations, including those governing conflicts of interest, size standards, maximum allowable interest rates, related party transactions, and permissible uses of financing proceeds. Without independent confirmation, SBA would be unable to evaluate key aspects of an SBIC’s financial health and regulatory compliance, increasing the risk of financial loss to the government. The collection also helps to maintain the integrity of the SBIC program, because: (1) awareness of this aspect of SBA oversight may act as a deterrent to SBICs from submitting incorrect information, and (2) verification of reported financial information may allow SBA to identify problems and take timely action, if necessary, to minimize financial losses to the government.

7. Existence of special circumstances. This collection of information requests voluntary responses within 10 days of receipt by the respondent. The requested turn-around time is intended to minimize the time involved in the conduct of each SBIC examination, which is required by statute to occur at least biennially (15 U.S.C. Section 687b). In order to comply with this statutory mandate using limited examination staff resources, SBA must limit the time consumed by each examination as much as possible. SBA believes the 10-day response time balances SBA’s need to limit the duration of each examination and the time needed by portfolio companies to respond to each request.

8. Solicitation of public comment. A notice was published in the Federal Register on March 2, 2012, 77FR 12901. No comments were received.

9. Payment or gifts. Not applicable. No payment or gifts were provided to respondents.

10. Assurance of confidentiality. Assurances of confidentiality to the extent permitted by law are provided to portfolio concerns of SBICs responding to this collection, as SBA Form 857 includes confidential business and financial information of a portfolio company. Records are maintained under conditions designed to preclude access by persons other than Agency personnel with a need to know. The financial data in particular is protected from disclosure under the Freedom of Information Act; specifically, exemptions 4, 6 and 8 which allow SBA to withhold financial data on individual companies.

11. Questions of a sensitive nature. SBA Form 857 requests confidential business and financial information of a portfolio company, which SBA reviews to verify information reported by an SBIC and to determine whether an SBIC has engaged in prohibited actions. Although this information is needed to fulfill SBA’s statutory responsibilities with respect to SBIC examinations, it is not retrieved by individual identifiers.

12. Estimate of the hourly burden of the collection of information. The estimated annual hour burden of this information collection is based upon:

SBIC program size: 300 SBICs (5-10 portfolio concerns = 7.5)

Number of respondents: 300 x 7.5 = 2,250

Number of responses per respondent: 1

Hours to complete form: 1

Total estimated burden hours: 2,250

SBIC examiners have observed portfolio concern representatives complete this information collection within 30 minutes. However, SBA estimates 1 hour on average to allow for circumstances where the respondent is either unfamiliar with the form and/or the transaction details of the SBIC financing to the portfolio company.

The estimated hourly cost to respondents is calculated using the mean hourly wage of $33.72 (mean annual salary rate of $70,150) for an accounting manager of a company or enterprise (rate obtained from the 2011 Bureau of Labor Statistics, Occupational Employment Statistics):

Estimated total hour cost: [$34 x 1] x 2,250 = $76,500

13. Estimate of total annual cost burden. There is no annual cost burden to respondents other than the cost of the hour burden provided in item 12.

14. Estimated annualized cost to the Federal government. The estimated annual cost of this information collection to the Federal government is calculated using 2012 postal rates and the base hourly rate of $38.92 (base annual salary of $81,230) for a GS-13, Step 5 (rate obtained from the 2012 General Services schedule):

Number of respondents: 2,250

Hours to prepare/mail/review, per form: 1

Postage (to and from respondents): [$.90 x 2,250] + [$.45 x 2,250] = $3,038

Total hour cost: [2,250 x 1] x $39 = $87,750

Total estimated annual cost: $3,038 + $87,750 = $90,788

15. Explanation of program changes in Items 13 or 14 on OMB Form 83-I. Changes in burden estimates reflect an increase in the anticipated number of respondents based upon the current size of the SBIC program.

15. Collection of information whose results will be published. Not applicable. The results of this collection of information will not be published.

15. Expiration date for collection of information. Not applicable. The expiration date will be displayed.

15. Exceptions to certifications in Block 19 on OMB Form 83-1. Not applicable. There are no exceptions to the certification statement identified in Item 19, “Certification for Paperwork Reduction Act Submissions,” of OMB 83-1.

2. Collections of Information Employing Statistical Methods

This collection of information does not employ statistical methods.

Attachments:

• SBA Form 857, Request For Information Concerning Portfolio Financing

• Federal Register Notice

• Authorizing Statutory and Regulatory Provisions

• Data Sources for Burden Estimations