Regulation

SMALL BUSINESS INVESTMENT ACT TABLE OF CONTENTS
Sec. 101

Short title.

Sec. 102

Statement of policy. 15 USC 661.

Sec. 103

Definitions. 15 USC 662.
TITLE II—Small Business Investment Division of the Small Business
Administration

Sec. 201

Establishment of Small Business Investment Division. 15 USC 671.
TITLE III—Investment Division Programs
Part A—Small Business Investment Companies

Sec. 301

Organization of small business investment companies. 15 USC 681.

Sec. 302

Capital requirements. 15 USC 682.

Sec. 303

Borrowing power. 15 USC 683.

Sec. 304

Provision of equity capital for small business concerns. 15 USC 684.

Sec. 305

Long-term loans to small-business concerns. 15 USC 685.

Sec. 306

Aggregate limitations. 15 USC 686.

Sec. 307

Exemptions.

Sec. 308

Miscellaneous. 15 USC 687.

Sec. 309

Revocation and suspension of licenses; cease and desist orders. 15 USC 687.

Sec. 310

Examinations and investigations. 15 USC 687b.

Sec. 311

Injunctions and other orders. 15 USC 687c.

Sec. 312

Conflicts of interest. 15 USC 687d.

Sec. 313

Removal or suspension of directors and officers of licensees. 15 USC 687e.

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958
Sec. 314

Unlawful acts and omissions by officers, directors, employees, or agents;
breach of fiduciary duty. 15 USC 687f.

Sec. 315

Penalties and forfeitures. 15 USC 687g.

Sec. 316

Jurisdiction and service of process. 15 USC 687h.

Sec. 317

Exemption.

Sec. 318

Guaranteed obligations not eligible for purchase by Federal Financing Bank.
15 USC 687k.

Sec. 319

Issuance and guarantee of trust certificates. 15 USC 687l.

Sec. 320

Periodic issuance of guarantees and trust certificates. 15 USC 687m.
Part B—New Markets Venture Capital Program

Sec. 351

Definitions. 15 USC 689.

Sec. 352

Purposes. 15 USC 689a.

Sec. 353

Establishment. 15 USC 689b.

Sec. 354

Selection of New Markets Venture Capital companies. 15 USC 689c.

Sec. 355

Debentures. 15 USC 689d.

Sec. 356

Issuance and guarantee of trust certificates. 15 USC 689e.

Sec. 357

Fees. 15 USC 689f.

Sec. 358

Operational assistance grants. 15 USC 689g.

Sec. 359

Bank participation. 15 USC 689h.

Sec. 360

Federal Financing Bank. 15 USC 689i.

Sec. 361

Reporting requirements. 15 USC 689j.

Sec. 362

Examinations. 15 USC 689k.

Sec. 363

Injunctions and other orders. 15 USC 689l.

Sec. 364

Additional penalties for noncompliance. 15 USC 689m.

ii

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958
Sec. 365

Unlawful acts and omissions; breach of fiduciary duty. 15 USC 689n.

Sec. 366

Removal or suspension of directors or officers. 15 USC 689o.

Sec. 367

Regulations. 15 USC 689p.

Sec. 368

Authorizations of appropriations. 15 USC 689q.
Part C—Renewable Fuel Capital Investment Pilot Program

Sec. 381

Definitions. 15 USC 690.

Sec. 382

Purposes. 15 USC 690a.

Sec. 383

Establishment. 15 USC 690b.

Sec. 384

Selection of Renewable Fuel Capital Investment companies. 15 USC
690c.

Sec. 385

Debentures. 15 USC 690d.

Sec. 386

Issuance and guarantee of trust certificates. 15 USC 690e.

Sec. 387

Fees. 15 USC 690f.

Sec. 388

Fee contribution. 15 USC 690g.

Sec. 389

Operational assistance grants. 15 USC 690h.

Sec. 390

Bank participation. 15 USC 690i.

Sec. 391

Federal Financing Bank. 15 USC 690j.

Sec. 392

Reporting requirement. 15 USC 690k.

Sec. 393

Examinations. 15 USC 690l.

Sec. 394

Miscellaneous. 15 USC 690m.

Sec. 395

Removal or suspension of directors or officers. 15 USC 690n.

Sec. 396

Regulations. 15 USC 690o.

Sec. 397

Authorization of appropriations. 15 USC 690p.

Sec. 398

Termination. 15 USC 690q.

iii

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

TITLE IV—Guarantees
Part A—Lease Guarantees
Sec. 401

Authority of the Administration. 15 USC 692.

Sec. 402

Powers. 15 USC 693.

Sec. 403

Fund. [Repealed].

Sec. 404

Pollution control. 15 USC 694-1.

Sec. 405

Fund. 15 USC 694-2.
Part B—Surety Bond Guarantees

Sec. 410

Definitions. 15 USC 694a.

Sec. 411

Authority of the Administration. 15 USC 694b.

Sec. 412

Fund. 15 USC 694c.
TITLE V—Loans to State and Local Development Companies

Sec. 501

State development companies. 15 USC 695.

Sec. 502

Loans for plant acquisition, construction, conversion, and expansion. 15 USC
696.

Sec. 503

Development company debentures. 15 USC 697.

Sec. 504

Private debenture sales. 15 USC 697a.

Sec. 505

Pooling of debentures. 15 USC 697b.

Sec. 506

Restrictions on development company assistance. 15 USC 697c.

Sec. 507

Accredited lenders program. 15 USC 697d.

Sec. 508

Premier certified lenders program. 15 USC 697e.

Sec. 509

Prepayment of development company debentures. 15 USC 697f.

Sec. 510

Foreclosure and liquidation of loans. 15 USC 697g.

iv

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958
TITLE VI—Changes in Federal Reserve Authority [omitted as no longer current]
TITLE VII—Criminal Penalties.

v

(Rev. 15)

§ 101 to
§ 103

This compilation includes
P.L. 114-328, enacted 12/23/16.

SMALL BUSINESS INVESTMENT ACT OF 1958
(Public Law 85-699, 1 as amended)
Sec. 101. 2

SHORT TITLE

This Act may be cited as the “Small Business Investment Act of 1958.”

Sec. 102.

15 USC 661.

STATEMENT OF POLICY

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

Statement of
policy.

It is the intention of the Congress that the provisions of this Act shall be so
administered that any financial assistance provided hereunder shall not result in a substantial
increase of unemployment in any area of the country.
It 3 is the intention of the Congress that in the award of financial assistance under this
Act, when practicable, priority be accorded to small business concerns which lease or
purchase equipment and supplies which are produced in the United States and that small
business concerns receiving such assistance be encouraged to continue to lease or purchase
such equipment and supplies.
Sec. 103.

DEFINITIONS.
15 USC 662.

As used in this Act --

1

Approved Aug. 21, 1958 (72 Stat. 689).

2

The table of contents formerly found in section 101 was removed by § 2(d)(3) of P.L. 106-9, approved April 5, 1999
(113 Stat. 17).

3

This paragraph added by § 416 of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1019).

(Rev. 15)

§ 103(1) to
§ 103(5)(B)

SMALL BUSINESS INVESTMENT ACT OF 1958
(1)

the term “Administration” means the Small Business Administration; “Administration.”

(2)
the term “Administrator” means the Administrator of the Small
Business Administration;
4

(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;

“Administrator.”
“Small business
investment
company.”
“Company.”
“Licensee.”

(4) 5 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 6 that, for purposes of this Act—

“State.”

“Small
business
concern.”

(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; 7
(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) 8 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
4

Amended by § 2(l) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 752). Section 2(a) of P.L. 92-595, approved Oct. 27, 1972
(86 Stat. 1314), deleted “(c)” after “section 301”.

5

Amended by § 3 of P.L. 86-502, approved June 11, 1960 (74 Stat. 196), to reflect admission of Alaska and Hawaii to the
Union.

6

7

8

Exception added by § 208(a)(1) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-739).
Phrase beginning with “regardless” added by § 402(a) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763).
Subparagraph 103(5)(B) added by § 2(c)(1)(D) of P.L. 106-9, approved April 5, 1999 (113 Stat. 17).

2

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 103(5)(B)(i) to
§ 103(9)(A)

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;

“Development
companies.”

(7) 9 the term “license” means a license issued by the Administration as
provided in section 301; and

“License.”

(8) 10 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.

“Articles.”

(9)

11

“Private
capital.”

the term “private capital”—
(A)

means the sum of—

9

Paragraph 103(7) added by § 2(2) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 752). Section 2(a) of P.L. 92-595, approved
Oct. 27, 1972 (86 Stat. 1314), deleted “(c)” after “section 301”.

10

Paragraph 103(8) added by § 106(a) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

11
Paragraphs (9) and (10) added by § 410 of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1017). Paragraph (9) rewritten by §
208(a)(2) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-739). Text of former paragraph (9) is reprinted below:

Notwithstanding any other provision of law, the term “private capital” means the private paid-in capital and paid-in
surplus of a corporate licensee, or the private partnership capital of an unincorporated licensee, inclusive of (A) any
funds invested in the licensee by a public or private pension fund, (B) any funds invested in the licensee by State or
local government entities, to the extent that such investment does not exceed 33 percent of a licensee's total private
capital and otherwise meets criteria established by the Administration, and (C) unfunded commitments from
institutional investors that meet criteria established by the Administration, but it excludes any funds which are
borrowed by the licensee from any source or which are obtained or derived, directly or indirectly, from any Federal
source, including the Administration: Provided, that no unfunded commitment from an institutional investor may be
used for the purpose of meeting the minimum amount of private capital required by this Act or as the basis for the
Administration to issue obligations to provide financing

3

(Rev. 15)

§ 103(9)(A)(i) to
§ 103(10)(B)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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) 12 funds obtained from the business revenues
(excluding any governmental appropriation) of any federally chartered or governmentsponsored corporation established prior to October 1, 1987;
(II)

funds invested by an employee welfare benefit

plan or pension plan; 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);
“Leverage.”

(10) 13 the term “leverage” includes—
(A)

debentures purchased or guaranteed by the Administration;

(B)

participating securities purchased or guaranteed by the

Administration; and

12

Subclauses 103(9)(B)(iii)(I) and (II) redesignated as (II) and (III), respectively, and new subclause 103(9)(B)(iii)(I)
added by § 213 of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2601).
13
Paragraph 103(10) rewritten by § 208(a)(3) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-740). Text of former
paragraph 10 reprinted below:

the term “leverage” includes debentures purchased or guaranteed by the Administration, participating securities
purchased or guaranteed by the Administration, or preferred securities issued by companies licensed under section
301(d) of this Act and which have been purchased by the Administration.

4

(Rev. 15)

§ 103(10)(C) to
§ 103(13)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958
(C)

preferred securities outstanding as of October 1, 1995;

(11) 14 the term “third party debt” means any indebtedness for borrowed
money, other than indebtedness owed to the Administration;

“Third party
debt.”

(12) the term “smaller enterprise” means any small business concern that,
together with its affiliates—

“Smaller
enterprise.”

(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) 15 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)

“Qualified
nonprivate
funds.”

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";
14

Paragraphs (11) through (16) added by § 208(a) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-740).

15

The exception in clause 103(12)(A)(ii) added by § 2(c)(2) of P.L. 106-9, approved April 9, 1999 (113 Stat. 17).

5

(Rev. 15)

§ 103(13)(B) to
§ 103(18)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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)

“Employee
welfare
benefit plan.”
“Pension plan.”

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
[li]ability 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;

“Member.”

“Limited
liability
company.”

(17) 16 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) 17 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;
16

New paragraph 103(17) added by § 402(b)(3) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763).

17

Paragraphs (18) and (19) added by §1205(b) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat. 1773).

6

(Rev. 15)

“Energy Saving
debenture.”

§ 103(18)(D) to
§ 301(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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; and
(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 nonrenewable energy resources.

“Energy Saving
qualified
investment.”

TITLE II -- SMALL BUSINESS INVESTMENT DIVISION OF THE
SMALL BUSINESS ADMINISTRATION
Sec. 201. 18

15 USC 671.

ESTABLISHMENT OF SMALL BUSINESS INVESTMENT
DIVISION

There is hereby established in the Small Business Administration a division to be
known as the Small Business Investment Division. The Division shall be headed by an
Associate Administrator who shall be appointed by the Administrator, and shall receive
compensation at the rate provided by law for other Associate Administrators of the Small
Business Administration.
TITLE III—INVESTMENT DIVISION PROGRAMS 19
PART A—SMALL BUSINESS INVESTMENT COMPANIES
Sec. 301.

ORGANIZATION OF SMALL BUSINESS INVESTMENT
COMPANIES

15 USC 681.

(a) 20 A small business investment company shall be an incorporated body, a limited
liability company, 21 or a limited partnership 22 organized and chartered or otherwise
existing 23 under State law solely for the purpose of performing the functions and conducting
18
Amended by § 2 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1359), to provide that the Division be headed by an Associate
Administrator in lieu of a Deputy Administrator; to delete the provisions stating that the powers of the Administrator under the
Act be exercised through the Small Business Investment Division; and to transfer the administrative and penal provisions to a
new sec. 308(f).
19

Heading for Title III changed from “SMALL BUSINESS INVESTMENT COMPANIES” and “PART A” added by § 101(b)
of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763).
20

Sec. 301(a) rewritten by § 11(a) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 756).

21

Reference to limited liability company added by § 208(b)(1) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-741).

22

The phrase “or a limited partnership” added by § 106(b) (1) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

23

The phrase “or otherwise existing” added by § 106(b)(2) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

7

(Rev. 15)

§ 301(b) to
§ 301(c)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958
the activities contemplated under this title, which, if incorporated, has succession for a period
of not less than thirty years unless sooner dissolved by its shareholders, and if a limited
partnership, has succession for a period of not less than ten years, 24 and possesses the powers
reasonably necessary to perform such functions and conduct such activities. The area in
which the company is to conduct its operations, and the establishment of branch offices or
agencies (if authorized by the articles 25), shall be subject to the approval of the
Administration.
(b)
The articles 26 of any small business investment company shall specify in
general terms the objects for which the company is formed, the name assumed by such
company, the area or areas in which its operations are to be carried on, the place where its
principal office is to be located, and the amount and classes of its shares of capital stock.
Such articles may contain any other provisions not inconsistent with this Act that the
company may see fit to adopt for the regulation of its business and the conduct of its affairs.
Such articles and any amendments thereto adopted from time to time shall be subject to the
approval of the Administration.
(c) 27

Articles.

Issuance of
license.

ISSUANCE OF LICENSE.—

(1)
SUBMISSION OF APPLICATION.—Each applicant for a license to
operate as a small business investment company under this Act shall submit to the
Administrator an application, in a form and including such documentation as may be
prescribed by the Administrator.
(2)

PROCEDURES.—

24

“Or partners” added by § 106(b)(3) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663). The clause “has succession for a
period of not less than thirty years unless sooner dissolved by its shareholders or partners” changed to current language by § 105
of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2993).
25

The phrase “of incorporation” deleted by § 106(b)(4) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

26
The phrase “of incorporation” deleted wherever it appeared in this subsection per § 106(c) of P.L. 94-305, approved June 4,
1976 (90 Stat. 663).
27

Subsection 301(c) rewritten by § 208(b)(2) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-741). Text of former
subsection 301(c) is reprinted below:
The articles and amendments thereto shall be forwarded to the Administration for consideration and approval or
disapproval. In determining whether to approve such a company's articles and permit it to operate under the provisions
of this Act, the Administration shall give due regard, among other things, to the need and availability for the financing
of small business concerns in the geographic area in which the proposed company is to commence business, the general
business reputation and character of the proposed owners and management of the company, and the probability of
successful operations of such company including adequate profitability and financial soundness. After consideration of
all relevant factors, if it approves the company's articles, the Administration may in its discretion approve the company
to operate under the provisions of this Act and issue the company a license for such operation.

8

(Rev. 15)

§ 301(c)(2)(A) to
§ 301(c)(4)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
STATUS.—Not later than 90 days after the initial receipt by
the Administrator of an application under this subsection, the Administrator shall provide the
applicant with a written report detailing the status of the application and any requirements
remaining for completion of the application.
(B)
APPROVAL OR DISAPPROVAL.—Within a reasonable time
after receiving a completed application submitted in accordance with this subsection and in
accordance with such requirements as the Administrator may prescribe by regulation, the
Administrator shall—
(i)
approve the application and issue a license for such
operation to the applicant if the requirements of this section are satisfied; or
(ii)

disapprove the application and notify the applicant in

writing of the disapproval.
(3)
MATTERS CONSIDERED.—In reviewing and processing any
application under this subsection, the Administrator—
(A)

shall determine whether—
(i)

the applicant meets the requirements of subsections (a)

and (c) of section 302; and
(ii)
the management of the applicant is qualified and has
the knowledge, experience, and capability necessary to comply with this Act;
(B)

shall take into consideration—

(i)
the need for and availability of financing for small
business concerns in the geographic area in which the applicant is to commence business;
(ii)
management of the applicant; and

the general business reputation of the owners and

(iii) the probability of successful operations of the applicant,
including adequate probability [profitability] and financial soundness; and
(C)
unavailability of leverage.
(4)

shall not take into consideration any projected shortage or

EXCEPTION.—

(A)
IN GENERAL.—Notwithstanding any other provision of this
Act, the Administrator may, in the discretion of the Administrator and based on a showing of

9

(Rev. 15)

§ 301(c)(4)(A)(i) to
§ 301(e)

SMALL BUSINESS INVESTMENT ACT OF 1958

special circumstances and good cause, approve an application and issue a license under this
subsection with respect to any applicant that—
(i)

has private capital of not less than $3,000,000;

(ii)
would otherwise be issued a license under this
subsection, except that the applicant does not satisfy the requirements of section 302(a); and
(iii) has a viable business plan reasonably projecting
profitable operations and a reasonable timetable for achieving a level of private capital that
satisfies the requirements of section 302(a).
(B) 28 LEVERAGE.—An applicant licensed pursuant to the
exception provided in this paragraph shall not be eligible to receive leverage as a licensee
until the applicant satisfies the requirements of section 302(a), unless the applicant—
(i)
files an application for a license not later than 180 days
after the date of enactment of the Small Business Reauthorization Act of 1997;
(ii)

is located in a State that is not served by a licensee; and

(iii) agrees to be limited to 1 tier of leverage available under
section 302(b), until the applicant meets the requirements of section 302(a).
(d) 29

[Repealed].

(e) 30

FEES—

Licensing
fees.

28

Subparagraph 301(c)(4)(B) rewritten by § 212 of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2601). Text of former
subparagraph 301(c)(4)(B) is reprinted below:
LEVERAGE.—An applicant licensed pursuant to the exception provided in this paragraph shall not be eligible to
receive leverage as a licensee until the applicant satisfies the requirements of section 302(a).

29
Subsection 301(d) repealed by § 208(b)(3)(A) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-742). Section
208(b)(3)(B) provides that: “[t]he repeal under subparagraph (A) shall not be construed to require the Administrator to cancel,
revoke, withdraw, or modify any license issued under section 301(d) of the Small Business Investment Act of 1958 before the
date of enactment of this Act.” Text of repealed provision is reprinted below:

Notwithstanding any other provision of this Act, a small business investment company, the investment policy of which
is that its investments will be made solely in small business concerns which will contribute to a well-balanced national
economy by facilitating ownership in such concerns by persons whose participation in the free enterprise system is
hampered because of social or economic disadvantages may be organized and chartered under State business or
nonprofit corporation statutes, or formed as a limited partnership and may be licensed by the Administration to operate
under the provisions of this Act.
30

New subsection 301(e) added by § 214 of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2601).

10

(Rev. 15)

§ 301(e)(1) to
§ 302(a)(3)(B)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
IN GENERAL.—The Administration may prescribe fees to be paid by
each applicant for a license to operate as a small business investment company under this
Act.
(2)

USE OF AMOUNTS.—Fees collected under this subsection—

(A)
the Administration; and

shall be deposited in the account for salaries and expenses of

(B)
licensing examinations.

are authorized to be appropriated solely to cover the costs of

Sec. 302.
(a)

CAPITAL REQUIREMENTS 31

15 USC 682.

AMOUNT.—

(1)
IN GENERAL.—Except as provided in paragraph (2), the private
capital of each licensee shall be not less than—
(A)

Capital
requirements
for SBICs.

$5,000,000; or

(B)
$10,000,000, with respect to each licensee authorized or
seeking authority to issue participating securities to be purchased or guaranteed by the
Administration under this Act.
(2)
EXCEPTION.—The Administrator may, in the discretion of the
Administration and based on a showing of special circumstances and good cause, permit the
private capital of a licensee authorized or seeking authorization to issue participating
securities to be purchased or guaranteed by the Administration to be less than $10,000,000,
but not less than $5,000,000, if the Administrator determines that such action would not
create or otherwise contribute to an unreasonable risk of default or loss to the Federal
Government.
(3)
ADEQUACY.—In addition to the requirements of paragraph (1), the
Administrator shall—
(A)
determine whether the private capital of each licensee is
adequate to assure a reasonable prospect that the licensee will be operated soundly and
profitably, and managed actively and prudently in accordance with its articles; and
(B)
determine that the licensee will be able, 32 both prior to
licensing and prior to approving any request for financing, to make periodic payments on any
31

Heading amended by § 203(b) of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 269).

32

Subsection 302(a) rewritten to this point by § 208(c)(1) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-742). Text
of former subsection 302(a) is reprinted below:

11

(Rev. 15)

§ 302(a)(4) to
§ 302(b)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

debt of the company which is interest bearing and shall take into consideration the income
which the company anticipates on its contemplated investments, the experience of the
company's owners and managers, the history of the company as an entity, if any, and the
company's financial resources.
(4) 33 EXEMPTION FROM CAPITAL REQUIREMENTS.—The
Administrator may, in the discretion of the Administrator, approve leverage for any licensee
licensed under subsection (c) or (d) of section 301 before the date of enactment of the Small
Business Program Improvement Act of 1996 that does not meet the capital requirements of
paragraph (1), if—

Exemption
from capital
requirements.

(A)
the licensee certifies in writing that not less [than] 50 percent
of the aggregate dollar amount of its financings after the date of enactment of the Small
Business Program Improvement Act of 1996 will be provided to smaller enterprises; and
(B)
the Administrator determines that such action would not create
or otherwise contribute to an unreasonable risk of default or loss to the United States
Government.
(b)

Bank
participation.

FINANCIAL INSTITUTION INVESTMENTS.—

(1)
CERTAIN BANKS.—Notwithstanding the provisions of section
6(a)(1) of the Bank Holding Company Act of 1956, 34 any national bank, or any member bank
The combined private paid-in capital and paid-in surplus of any company licensed pursuant to sections 301(c) and (d)
of this Act shall not be less than $150,000: Provided, however, That the combined private paid-in capital and paid-in
surplus of any company licensed on or after October 1, 1992 pursuant to sections 301(c) of this title shall be not less
than $2,500,000 and pursuant to section 301(d) of this title shall be not less than $1,500,000. In all cases, such capital
and surplus shall be adequate to assure a reasonable prospect that the company will be operated soundly and profitably,
and managed actively and prudently in accordance with its articles. The Administration shall also determine the ability
of the company,[.]
Subsection 302(a) substantially rewritten two times - first by § 203(a) of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 269), to
transfer SBIC authority to sell subordinated debentures to SBA to sec. 303(b); second by § 105 of P.L. 95-507, approved Oct.
24, 1978 (92 Stat. 1757), to raise the minimum start-up capital to $500,000 for SBICs licensed on or after Oct. 1, 1979. The last
sentence (beginning with “In all cases,”) was added by § 406(a) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1015).
33

Paragraph 302(a)(4) added by § 208(c)(2) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-743).

34

Reference to the Bank Holding Company Act added by § 5 of P.L. 86-502, approved June 11, 1960 (74 Stat. 196), to allow a
bank subsidiary of a holding company to invest in an SBIC subsidiary of the same holding company. Section 6 of the Bank
Holding Company Act was repealed by § 9 of P.L. 89-485, approved July 1, 1966 (80 Stat. 240). Section 6(a)(1) was formerly
12 USC 1845(a)(1); see now 12 USC 371c. The maximum amount of shares a bank may hold in SBICs, formerly set at 2
percent of capital and surplus by § 3(b) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 752) and at 5 percent but not to exceed
49 percent of any class of voting shares by § 204 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 270), is now limited only by
the 5 percent provision under § 107 of P.L. 94-305, approved June 4, 1976 (90 Stat. 663). The word “and” was inserted between
the words “capital” and “surplus” by § 210 of P.L. 95-89, approved Aug. 4, 1977 (91 Stat. 553).

Subsection 302(b) was rewritten by § 215(a) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2601). Text of former
subsection 302(b) is reprinted below:

12

(Rev. 15)

§ 302(b)(2) to
§ 303(b)

SMALL BUSINESS INVESTMENT ACT OF 1958

of the Federal Reserve System or nonmember insured bank to the extent permitted under
applicable State law, may invest in any 1 or more small business investment companies, or in
any entity established to invest solely in small business investment companies, except that in
no event shall the total amount of such investments of any such bank exceed 5 percent of the
capital and surplus of the bank.
(2) 35 CERTAIN SAVINGS ASSOCIATIONS.—Notwithstanding any other
provision of law, any Federal savings association may invest in any 1 or more small business
investment companies, or in any entity established to invest solely in small business
investment companies, except that in no event may the total amount of such investments by
any such Federal savings association exceed 5 percent of the capital and surplus of the
Federal savings association.
(c) 36 DIVERSIFICATION OF OWNERSHIP.—The Administrator shall ensure
that the management of each licensee licensed after the date of enactment of the Small
Business Program Improvement Act of 1996 is sufficiently diversified from and unaffiliated
with the ownership of the licensee in a manner that ensures independence and objectivity in
the financial management and oversight of the investments and operations of the licensee.

Stock holding
limitations.

Sec. 303.

15 USC 683.

BORROWING POWER.

(a)
Each small business investment company shall have authority to borrow
money and to issue its securities 37, promissory notes, or other obligations under such general
conditions and subject to such limitations and regulations as the Administration may
prescribe.
(b) 38 To encourage the formation and growth of small business investment
companies the Administration is authorized 39 when authorized in appropriation Acts, to

Borrowing
power.

Debentures and
participating
securities, SBA
guarantee.

shares of stock in small business investment companies shall be eligible for purchase by national banks, and shall be
eligible for purchase by other member banks of the Federal Reserve System and nonmember insured banks to the
extent permitted under applicable State law; except that in no event may any such bank acquire shares in any small
business investment company if, upon the making of that acquisition, the aggregate amount of shares in small
business investment companies then held by the bank would exceed 5 percent of its capital and surplus.
35

New paragraph 302(b)(2) added by § 403(2) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-690).

36

Subsection 302(c) rewritten by § 208(c)(3) of P.L 104-208, approved Sept. 30, 1996 (110 Stat. 3009-743). Text of former
subsection 302(c) is reprinted below:
The aggregate amount of shares in any such company or companies which may be owned or controlled by any
stockholder, or by any group or class of stockholders, may be limited by the Administration.
37
The term “securities” substituted for “debenture bonds” by § 208(h)(1)(A)(i) of P.L. 104-208, approved Sept. 30, 1996 (110
Stat. 3009-746).
38

Section 205 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 270), substantially recast the authority of SBA to purchase the
debentures of SBICs and incorporated within this sec. 303(b) the debenture purchasing authority formerly set out in sec. 302(a).
As amended, sec. 303(b) increases the capacity of SBICs to borrow from SBA and provides an even greater borrowing capacity
for equity-oriented SBICs. Section 10 of P.L. 92-213, approved Dec. 22, 1971 (85 Stat. 776), amended the sec. 303(b)

13

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§ 303(b)

SMALL BUSINESS INVESTMENT ACT OF 1958
purchase, or to guarantee the timely payment of all principal and interest as scheduled on,
debentures or participating securities 40 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. 41 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 percent, 42 plus, for debentures obligated after September 30, 2001 43,
an additional charge, in an amount established annually by the Administration, 44 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 45 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:

debenture purchase authority of SBA by adding the authority to guarantee the timely payment of principal and interest on such
debentures but requiring that the authority to purchase or guarantee be exercisable only when specially authorized in
appropriation Acts; and by expressly pledging the full faith and credit of the United States to the payment of such guarantees.
39

The phrase “(but only to the extent that the necessary funds are not available to said company from private sources on
reasonable terms)” removed by § 208(d)(1) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-743).
40

Phrase “or participating securities” added by § 402(1) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1008).

41

The “timely payment” and “full faith and credit” features and the word “guarantee” after the word “purchase” and all
variations thereon throughout subsection (b) added by § l0 of P.L. 92-213, approved Dec. 22, 1971 (85 Stat. 775).
42
The last part of this sentence was changed from “1 per centum, plus such additional charge, if any, toward covering other costs
of the program as the Administration may determine to be consistent with its purposes” by § 208(c)(6)(A) of P.L. 104-208,
approved Sept. 30, 1996 (110 Stat. 3009-744). This phrase was changed again, from “plus an additional charge of 1 percent per
annum which shall be paid to and retained by the Administration” by § 404(a) of P.L. 106-554, approved Dec. 21, 2000 (114
Stat. 2763A-690).
43

Date changed from 2000 to 2001 by § 2(a)(1)(C) of P.L. 107-100, approved Dec. 21 , 2001 (115 Stat. 966). Section 2(b)
of that law provides that the effective date of the change shall be October 1, 2001.
44
Phrase “of not more than 1 percent per year” deleted by § 2(a)(1)(A) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat.
966). See previous footnote for effective date.
45

Subsidy fee limit of 1.38 percent added by § 2(a)(1)(B) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 966). See
footnote 43 for effective date.

14

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 303(b)(1) to
§ 303(b)(2)(A)

(1) 46 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 repay
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) 47 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
46

Paragraphs 303(b)(1) - (3) were rewritten by § 402(2) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1008). Text of
former paragraphs (1) - (3) follows:
(1) The total amount of debentures purchased or guaranteed and outstanding at any one time from a company which
does not qualify under the terms of paragraph (2) of this subsection, shall not exceed 300 percent of the combined
private paid-in capital and paid-in surplus of such company. In no event shall the debentures guaranteed and
outstanding under this title of any such company or companies which are commonly controlled as determined by the
Administration exceed $35,000,000.
(2) The total amount of debentures which may be purchased or guaranteed and outstanding any one time from a
company not complying with section 301(d) of this Act, which has investments or legal commitments of 65 per centum
or more of its total funds available for investment in small business concerns invested or committed in venture capital,
and which has combined private paid-in capital and paid-in surplus of $500,000 or more shall not exceed 400 per
centum of its combined private paid-in capital and paid-in surplus. In no event shall the debentures of any such
company purchased or guaranteed and outstanding under this paragraph exceed $35,000,000. Such additional
purchases or guarantees which the Administration makes under this paragraph shall contain conditions to insure
appropriate maintenance by the company receiving such assistance of the described ratio during the period in which
debentures under this paragraph are outstanding.
(3) Outstanding amounts of financial assistance provided to a company by the Administration prior to the effective
date of the Small Business Investment Act Amendments of 1967 shall be deducted from the maximum amount of
debentures which the Administration would otherwise be authorized to purchase or guarantee under this subsection.
47
Subparagraphs 303(b)(2)(A) and (B) were rewritten by § of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 156). The text
of former subparagraphs (A) and (B) follows:

(A) IN GENERAL.—After March 31, 1993, the maximum amount of outstanding leverage made available to a
company licensed under section 301(c) of this Act shall be determined by the amount of such company's private
capital—
(i) if the company has private capital of not more than $15,000,000, the total amount of leverage shall not exceed
300 percent of private capital;
(ii) if the company has private capital of more than $15,000,000 but not more than $30,000,000, the total amount of
leverage shall not exceed $45,000,000 plus 200 percent of the amount of private capital over $15,000,000; and
(iii) if the company has private capital of more than $30,000,000, the total amount of leverage shall not exceed

15

(Rev. 15)

§ 303(b)(2)(A)(i) to
§ 303(b)(2)(C)(ii)(II)

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)

300 percent of such company’s private capital; or

(ii)

$150,000,000.

(B) 48 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 49.
(C)

INVESTMENTS IN LOW-INCOME GEOGRAPHIC

AREAS.—
(i)
In calculating the outstanding leverage of a company
for the purposes of subparagraph (A), 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.
(ii) 50

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.

$75,000,000 plus 100 percent of the amount of private capital over $30,000,000 but not to exceed an additional
$15,000,000.
(B) ADJUSTMENTS.—
(i) IN GENERAL.—The dollar amounts in clauses (i), (ii), and (iii) of subparagraph (A) shall be adjusted annually
to reflect increases in the Consumer Price Index established by the Bureau of Labor Statistics of the Department of
Labor.
(ii) INITIAL ADJUSTMENTS.—The initial adjustments made under this subparagraph after the date of enactment
of the Small Business Reauthorization Act of 1997 shall reflect only increases from March 31, 1993.
48

Subparagraph 303(b)(2)(D) added by § 215(b)(1)(A) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2602). Paragraph
303(b)(2) was reorganized by § 101(d) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763). Subparagraph
303(b)(2)(D) was renumbered as 303(b)(2)(B) and new subparagraph 303(b)(2)(C) was added in this change.
49

Amount changed from $225,000,000 by § 521(b), Title V, Division E of P.L. 114-113, approved Dec. 18, 2015 ( Stat. ).

50

New clauses 303(b)(2)(C)(ii) and (iii) added by § 505(a)(2) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat.156).

16

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 303(b)(2)(C)(iii) to
§ 303(b)(4)

(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 lowincome geographic area (as that term is defined in section 351).
(D) 51 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.
(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.
(4) 52
51

[Deleted.]

New subparagraph 303(b)(2)(D) added by § 1206(a) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat. 1773).

52

Paragraph 303(b)(4) deleted by § 505(a)(3) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 156). Text of former
paragraph 303(b)(4) is reprinted below:
MAXIMUM AGGREGATE AMOUNT OF LEVERAGE—
(A) IN GENERAL.—Except as provided in subparagraph (B), the aggregate amount of outstanding leverage issued
to any company or companies that are commonly controlled (as determined by the Administrator) may not exceed
$90,00,000, as adjusted annually for increases in the Consumer Price Index.
(B) EXCEPTIONS.—The Administrator may, on a case-by-case basis—
(i) approve an amount of leverage that exceeds the amount described in subparagraph (A) for companies under
common control; and
(ii) impose such additional terms and conditions as the Administrator determines to be appropriate to minimize the
risk of loss to the Administration in the event of default.
(C) APPLICABILITY OF OTHER PROVISIONS.—Any leverage that is issued to a company or companies
commonly controlled in an amount that exceeds $90,000,000, whether as a result of an increase in the Consumer

17

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§ 303(c)

SMALL BUSINESS INVESTMENT ACT OF 1958

(c) 53

Third party
debt.

THIRD PARTY DEBT.—The Administrator—

Price Index or a decision of the Administrator, is subject to subsection (d).
(D) INVESTMENTS IN LOW-INCOME GEOGRAPHIC AREAS.—In calculating the aggregate outstanding
leverage of a company for the purposes of subparagraph (A), 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.
(E) INVESTMENTS IN ENERGY SAVING SMALL BUSINESSES.—
(i) IN GENERAL.—Subject to clause (ii), in calculating the aggregate 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.

Paragraph 303(b)(4) rewritten by § 215(b)(1)(B) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2602). Text of former
paragraph 303(b)(4) is reprinted below:
In no event shall the aggregate amount of outstanding leverage of any such company or companies which are
commonly controlled as determined by the Administration exceed $90,000,000, unless the Administration
determines on a case by case basis to permit a higher amount for companies under common control and imposes
such additional terms and conditions as it determines appropriate to minimize the risk of loss to the Administration
in the event of default.
New subparagraph 303(b)(4)(D) added by § 1(d)(2) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-665).
New subparagraph 303(b)(4)(E) added by § 1206(b) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat. 1774).
53

Subsection 303(c) rewritten by § 208(d)(2) of P.L 104-208, approved Sept. 30, 1996 (110 Stat. 3009-743). Text of former
subsection 303(c) is reprinted below:
Subject to the following conditions, the Administration is authorized to purchase securities, and to purchase, or to
guarantee the timely payment of all principal and interest payments as scheduled, on debentures issued by small
business investment companies operating under authority of section 301(d) of this Act. 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. As used in this subsection, the term “securities” means shares of nonvoting stock or other corporate
securities or limited partnership interests which have similar characteristics.
(1) The Administration may purchase such securities: Provided, That—

18

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SMALL BUSINESS INVESTMENT ACT OF 1958

(A) dividends are preferred and cumulative to the extent of 3 per centum of par value per annum;
(B) on liquidation or redemption the Administration is entitled to the preferred payment of the par value of such
securities; and prior to any distribution (other than to the Administration) the Administration shall be paid any amounts
as may be due pursuant to subparagraph (i) of this paragraph;
(C) the purchase price shall be at par value and, in any one sale, $50,000 or more; and
(D) the amount of such securities purchased and outstanding at any one time shall not exceed—
(i) from a company licensed on or before October 13, 1971, 200 per centum of the combined private paid-in capital
and paid-in surplus of such company, or
(ii) from any such company licensed after October 13, 1971, and having a combined paid-in capital and paid-in surplus
of less than $500,000, 100 per centum of such capital and surplus, or
(iii) from any such company licensed after October 13, 1971, and having a combined private paid-in capital and
paid-in surplus of $500,000 or more, 200 per centum of such capital and surplus.
(E) The amount of such securities purchased by the Administration in excess of 100 per centum of such capital and
surplus from any company described in clause (i) or (iii) may not exceed an amount equal to the amount of its funds
invested in or legally committed to be invested in equity securities. For the purposes of the subsection, the term “equity
securities” means stock of any class (including preferred stock) or limited partnership interests, or shares in a
syndicate, business trust, joint stock company or association, mutual corporation, cooperative or other joint ventures for
profit, or unsecured debt instruments which are subordinated by their terms to all other borrowings of the issuer.
(2) The Administration may purchase or guarantee debentures subordinated pursuant to subsection (b) of this section
(other than securities purchased under paragraph (1) of this subsection (c)): Provided, That—
(A) such debentures are issued for a term of not to exceed fifteen years;
(B) the interest rate is determined pursuant to this section or section 317; and
(C) the amount of debentures purchased or guaranteed and outstanding at any one time pursuant to this paragraph (2)
from a company having combined private paid-in capital and paid-in surplus of less than $500,000 shall not exceed 300
per centum of its combined private paid-in capital and paid-in surplus less the amount of preferred securities
outstanding under paragraph (1) of this subsection, nor from a company having combined private paid-in capital and
paid-in surplus of $500,000 or more, 400 per centum of its combined private paid-in capital and paid-in surplus less the
amount of such preferred securities.
(3) Debentures purchased and outstanding pursuant to section 303(b) of this section may be retired simultaneously
with the issuance of preferred securities to meet the requirements of subparagraph (2)(C) of this subsection (c).
(4) The Administration may require, as a condition of the purchase or guarantee of any securities in excess of 300 per
centum of the combined private paid-in capital and paid-in surplus of a company, that the company maintain a
percentage of its total funds available for investment in small business concerns invested or legally committed in
venture capital (as defined in subsection (b) of this section) determined by the Administration to be reasonable and
appropriate.
(5) Notwithstanding the foregoing provisions of this subsection, securities purchased by the Administration on or after
the effective date of this Act (A) shall provide that dividends shall be preferred and cumulative to the extent of 4 per
centum of par value per annum and (B) shall include a provision requiring the issuer to redeem such securities,
including any accrued and unpaid dividends, in 15 years from the date of issuance: Provided, That the Administration
may, in its discretion, guarantee debentures in such amounts as will permit the simultaneous redemption of such
securities, including such amounts as it deems appropriate to include all or any part of accrued and unpaid dividends:

19

(Rev. 15)

§ 303(c)(1) to
§ 303(d)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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; and
(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) 54 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.

Provided further, That the Administration shall not pay any part of the interest on such debentures except pursuant to its
guarantee in the event of default in payment by the issuer.
(6) In no event shall the Administration purchase or guarantee debentures or securities under the provisions of this title
if the amount of outstanding securities and debentures of a company operating under the authority of section 301(d)
would exceed 400 per centum of its combined private paid-in capital and paid-in surplus or $35,000,000, which ever is
less except as provided in paragraph (7);
(7) The Administration may guarantee debentures or may guarantee the payment of the redemption price and
prioritized payments on participating securities under subsection (g) from a company operating under section 301(d) of
this Act in amounts above $35,000,000 but not to exceed the maximum amounts specified in section 303(b) subject to
the following:
(A) The interest rate on debentures and the rate of prioritized payments on participating securities shall be specified in
subsection 303(g)(2) without any reductions.
(B) Any outstanding assistance under paragraphs (1) to (6) of this subsection shall be subtracted from such company's
eligibility under section 303(b)(2)(A).
54

Subsection 303(d) was first rewritten by § 208(d)(3) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-743). Text of
former subsection 303(d) is reprinted below:
If the Administration guarantees debentures issued by a small business investment company operating under authority
of section 301(d) of this Act, it shall make, on behalf of the company payments in such amounts as will reduce the
effective rate of interest to be paid by the company during the first five years of the term of such debentures to a rate of
interest 3 points below the market rate of interest determined pursuant to section 321. Such payments shall be made by
the Administration to the holder of the debenture, its agents or assigns, or to the appropriate central registration agent, if
any. The authority to reduce interest rates as provided in this subsection shall be limited to amounts provided in
advance in appropriations Acts, and the total amount shall be reserved within the business loan and investment fund to
pay an amount equal to the amount of the reduction as it becomes due.
Subsection 303(d) was rewritten again by § 215(b)(2) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2602). Text of former
subsection 303(d) is reprinted below:
REQUIREMENT TO FINANCE 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 20 percent of the
aggregate dollar amount of the financings of the licensee will be provided to smaller enterprises.

20

(Rev. 15)

§ 303(e) to
§ 303(e)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(e) 55 CAPITAL IMPAIRMENT.—Before approving any application for leverage
submitted by a licensee under this Act, the Administrator—

Capital
impairment

(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
Subsection 303(d) was rewritten again by § 505(c) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 157). Text of former
subsection 303(d) is reprinted below:
REQUIRED CERTIFICATIONS—
(1) IN GENERAL.—The Administrator shall require each licensee, as a condition of approval of an application for
leverage, to certify in writing—
(A) for licensees with leverage less than or equal to $90,000,000, that not less than 20 percent of the licensee’s
aggregate dollar amount of financings will be provided to smaller enterprises; and
(B) for licensees with leverage in excess of $90,000,000, that, in addition to satisfying the requirements of
subparagraph (A), 100 percent of the licensee’s aggregate dollar amount of financings made in whole or in part with
leverage in excess of $90,000,000 will be provided to smaller enterprises (as defined in section 103(12)).
(2) MULTIPLE LICENSEES.—Multiple licensees under common control (as determined by the Administrator)
shall be considered to be a single licensee for purposes of determining both the applicability of and compliance with
the investment percentage requirements of this subsection.
55

Subsection 303(e) rewritten by § 208(c)(4)(A) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-744). Section
208(c)(4)(B) provides:
(B) REGULATIONS.—
(i) UNIFORM APPLICABILITY.—Any regulation issued by the Administration to implement section 303(e) of the
Small Business Investment Act of 1958 that applies to any licensee with outstanding leverage obtained before the
effective date of that regulation, shall apply uniformly to all licensees with outstanding leverage obtained before that
effective date.
(ii) DEFINITIONS.—For purposes of this subparagraph, the terms “Administration,” “leverage” and “licensee” have
the same meanings as in section 103 of the Small Business Investment Act of 1958.
Text of former subsection 303(e) is reprinted below:
In determining the private capital of a small business investment company licensed under section 301(d) and
notwithstanding section 103(9), Federal, State, or local government funds received from sources other than the
Administration shall be included solely for regulatory purposes, and not for the purpose of obtaining financial
assistance from or licensing by the Administration, providing such funds were invested [prior] to November 21, 1989:
Provided, That such companies may include in private capital for any purpose funds indirectly obtained from State or
local governments. As used in this subsection, the term “capital indirectly obtained” includes income generated by a
State financing authority or similar State institution or agency or from the investment of State or local money or
amounts originally provided to nonprofit institutions or corporations which such institutions or corporations, in their
discretion, determine to invest in a company licensed under section 301(d).

21

(Rev. 15)

§ 303(f) to
§ 303(g)

SMALL BUSINESS INVESTMENT ACT OF 1958
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) 56 REDEMPTION OR REPURCHASE OF PREFERRED STOCK.—
Notwithstanding any other provision of law—

Redemption or
repurchase of
preferred stock.

(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

(C)

the amount of dividends paid, accrued, and anticipated; and

(D)

the estimate of the Administrator of any anticipated

issuer;

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) 57 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

Participating
securities.

56

Subsection 303(f) rewritten by § 208(h)(1)(A)(ii) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-746). Text of
former subsection 303(f) is reprinted below:
Notwithstanding the provisions of any other law, rule, or regulation, the Administration is authorized to allow the issuer
of any preferred stock heretofore sold to the Administration to redeem or repurchase such stock upon the payment to
the Administration of an amount less than the par value of such stock. The Administration, in its sole discretion, shall
determine the repurchase price after considering factors including, but not limited to, the market value of the stock, the
value of benefits previously provided and anticipated to accrue to the issuer, the amount of dividends previously paid,
accrued, and anticipated, and the Administration's estimate of any anticipated redemption. The Administration may
guarantee debentures as provided in paragraph (5) of subsection (c) and allow the issuer to use the proceeds to make the
payments authorized herein. Any monies received by the Administration from the repurchase of preferred stock shall
be deposited in the business loan and investment fund and shall be available solely to provide assistance to companies
operating under the authority of section 301(d), to the extent and in the amounts provided in advance in appropriations
Acts.
57

Subsections (g) and (h) added by § 403 of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1009).

22

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 303(g)(1) to
§ 303(g)(2)

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:

“Participating
securities.”
“Prioritized
payments.”

(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 payments 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 payment 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, 58
plus, for participating securities obligated after September 30, 2001, 59 an additional charge,
in an amount established annually by the Administration, 60 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,
58

The last part of this sentence was changed from “1 per centum, plus, at the time the guarantee is issued, such additional charge,
if any, toward covering other costs of the program as the Administration may determine to be consistent with its purposes, but
not to exceed 2 per centum” by § 208(c)(6)(B) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-744). The phrase was
changed again from “plus an additional charge of 1 percent per annum which shall be paid to and retained by the
Administration” by § 404(b) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-691).
59
Date changed from 2000 to 2001 by § 2(a)(2)(B) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 966). Section 2(b)
of that law provides that the effective date of this change is October 1, 2001.
60

Phrase “of not more than 1 percent per year” deleted by § 2(a)(2)(A) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat.
966). See previous footnote for effective date.

23

(Rev. 15)

§ 303(g)(3) to
§ 303(g)(7)

SMALL BUSINESS INVESTMENT ACT OF 1958

which amount may not exceed 1.46 percent per year, 61 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 62 shall
commit to invest or shall invest 63 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. 64

“Equity
capital.”

(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

“Combined
capital.”

“Management
expenses.”

61

Subsidy rate fee changed to 1.38 percent by § 2(a)(2)(B) of P. L. 107-100, approved Dec. 21, 2001 (115 Stat. 966). See
footnote 56 for effective date. Fee changed again to 1.46 by § 117 of P.L. 108-84, approved Sept. 30, 2003 (117 Stat.
1044). The same change was made again in § 1(b) of P.L. 108-172, approved Dec. 6, 2003 (117 Stat. 2065).
62

63

“Subsection” changed to “Act” by § 201(1) of P.L. 108-447, approved Dec. 8, 2004 (118 Stat. 2809-657).
The phrase “and maintain” was removed by § 208(c)(5) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-744).

64

Section 201(2) of P.L. 108-447, approved Dec. 8, 2004 (118 Stat. 2809-657) substituted language beginning with “from
appropriate sources” for “contingent upon and limited to the extent of earnings.”

24

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 303(g)(8) to
§ 303(g)(9)(B)

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 65 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. 66 A company may also
elect to make a distribution under this paragraph at 67 any time during any calendar quarter
based on an estimate of the maximum tax liability. If a company makes 1 or more interim 68
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.

“Maximum
tax liability.”

“State
income
tax.”

(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
65

The references to members throughout this subsection were added by § 208(h)(1)(A)(iii) of P.L. 104-208, approved Sept. 30,
1996 (110 Stat. 3009-746).

66

Language following the footnote signal was added by § 215(c) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2603).

67
Last part of this sentence changed from “the end of any calendar quarter based on a quarterly” by § 405(2) of P.L. 106554, approved Dec. 21, 2000 (114 Stat. 2763A-691).
68

“Interim” substituted for “quarterly” by § 405(3) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-691).

25

(Rev. 15)

§ 303(g)(9)(C) to
§ 303(g)(11)(B)

SMALL BUSINESS INVESTMENT ACT OF 1958

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—

26

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 303(g)(11)(B)(i) to
§ 303(h)(2)

(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.

“Trustee.”

(13) 69 Repealed.
(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.
69

Paragraph 303(g)(13) repealed by § 2(d)(1) of P.L. 106-9, approved April 5, 1999 (113 Stat. 17). Text of paragraph
303(g)(13), which was added by § 215 of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4184), is reprinted below:
PARTICIPATING SECURITIES FOR SMALLER SMALL BUSINESS INVESTMENT COMPANIES.—
(A) IN GENERAL.—Subject to the provisions of subparagraph (B), of the amount of the annual program level of
participating securities approved in appropriations Acts, 50 percent shall be reserved for funding small business
investment companies with private capital of not more than $20,000,000.
(B) EXCEPTION.—During the last quarter of each fiscal year, if the Administrator determines that there is a lack
of qualified applicants with private capital of not more than $20,000,000, the Administrator may utilize all or any
part of the program level for securities reserved under subparagraph (A) for qualified applicants with private capital
of more than $20,000,000.

27

(Rev. 15)

§ 303(h)(3) to
§ 304

SMALL BUSINESS INVESTMENT ACT OF 1958

(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) 70 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 71 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) 72 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.

Leverage
fee.

Calculation of
subsidy rate.
[2 USC 661a].

(k) 73 ENERGY SAVING DEBENTURES.—In addition to any other authority
Energy saving
under this Act, a small business investment company licensed in the first fiscal year after the debentures.
date of enactment of this subsection or any fiscal year thereafter may issue Energy Saving
debentures.
Sec. 304. 74
70

PROVISION OF EQUITY CAPITAL FOR SMALL BUSINESS

Equity capital.
15 USC 684.

Subsection 303(i) added by § 208(c)(6)(C) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-744).

71

Language after the footnote signal was substituted for “, payable upon the earlier of the date of entry into any commitment
for such leverage or the date on which the leverage is drawn by the licensee” by § 215(d) of P.L. 105-135, approved Dec.2,
1997 (111 Stat. 2603).

72

Subsection 303(j) added by § 208(c)(6)(C) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-744).

73

Subsection 303(k) added by § 1205(a) of P.L. 110-140, approved Dec. 19, 2007.

74

Prior to its amendment by § 6 of P.L. 86-502, approved June 11, 1960 (74 Stat. 196), sec. 304 authorized SBICs to furnish

28

(Rev. 15)

§ 304(a) to
§ 305(b)

SMALL BUSINESS INVESTMENT ACT OF 1958
CONCERNS
(a)
It shall be a function of each small business investment company to provide a
source of equity capital for incorporated and unincorporated 75 small-business concerns, in
such manner and under such terms as the small business investment company may fix in
accordance with the regulations of the Administration.
(b)

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

(1)
the company may require such concern to refinance any or all of its
outstanding indebtedness so that the company is the only holder of any evidence of
indebtedness of such concern; and
(2)
except as provided in regulations issued by the Administration, such
concern shall agree that it will not thereafter incur any indebtedness without first securing the
approval of the company and giving the company the first opportunity to finance such
indebtedness.
(c) 76

[Repealed.]

(d) 77 Equity capital provided to incorporated small-business concerns under this
section may be provided directly or in cooperation with other investors, incorporated or
unincorporated, through agreements to participate on an immediate basis.
Sec. 305.

LONG-TERM LOANS TO SMALL-BUSINESS CONCERNS

(a)
Each company is authorized to make loans, in the manner and subject to the
conditions described in this section, to incorporated and unincorporated small-business
concerns in order to provide such concerns with funds needed for sound financing, growth,
modernization, and expansion.
(b)
Loans made under this section may be made directly or in cooperation with
other lenders, incorporated or unincorporated, through agreements to participate on an
immediate or deferred basis. 78

Long-term
loans.
15 USC 685.

Form of loan direct,
participation,
or guarantee.

equity capital only through the purchase of convertible debentures.
75

The words “and unincorporated” added by § 2(e) of P.L. 92-595, approved Oct. 27, 1972 (86 Stat. 1314).

76

Section 206 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 271), repealed sec. 304(c) which gave to companies receiving
equity financing from an SBIC an option to purchase stock in the SBIC.

77

This subsection added by § 5 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 752).

78
This sentence amended by § 6 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 753), to substitute “other lenders, incorporated
or unincorporated” for “other lending institutions”. The sentence “In agreements to participate in loans on a deferred basis under
this subsection, the participation by the company shall not be in excess of 90 per centum of the balance of the loan outstanding at
the time of disbursement”, was repealed by § 105 of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

29

(Rev. 15)

§ 305(c) to
§ 306(b)

SMALL BUSINESS INVESTMENT ACT OF 1958

(c)
The maximum rate of interest for the company's share of any loan made under
this section shall be determined by the Administration: Provided, That the Administration
also shall permit those companies which have issued debentures pursuant to this Act to
charge a maximum rate of interest based upon the coupon rate of interest on the outstanding
debentures, determined on an annual basis, plus such other expenses of the company as may
be approved by the Administration 79.
(d)

Conditions
of loan.

Any loan made under this section shall have a maturity not exceeding twenty

years.
(e)
Any loan made under this section shall be of such sound value, or so secured,
as reasonably to assure repayment.
(f)
Any company which has made a loan to a small-business concern under this
section is authorized to extend the maturity of or renew such loan for additional periods, not
exceeding ten years, if the company finds that such extension or renewal will aid in the
orderly liquidation of such loan.
Sec. 306.

AGGREGATE LIMITATIONS

(a) 80 PERCENTAGE LIMITATION ON PRIVATE CAPITAL.—If any small
business investment company has obtained financing from the Administrator and such
financing remains outstanding, the aggregate amount of securities acquired and for which
commitments may be issued by such company under the provisions of this title for any single
enterprise shall not, without the approval of the Administrator, exceed 10 percent of the sum
of—
(1)

Aggregate
limitations.
15 USC 686.

the private capital of such company; and

(2)
the total amount of leverage projected by the company in the
company’s business plan that was approved by the Administrator at the time of the grant of
the company’s license.

(b)
79

[Repealed.] 81

Proviso added by § 411 of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1018).

80

Subsection 306(a) rewritten by § 408(a) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1016). Text of former § 306(a)
follows:
Without the approval of the Administration, the aggregate amount of obligations and securities acquired and for which
commitments may be issued by any small business investment company under the provisions of this Act for any single
enterprise shall not exceed 20 percent of the combined private paid-in capital and paid-in surplus of such company.
Subsection 306(a) rewritten again by § 505(b) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 156). Text of former subsection
306(a) is reprinted below:

30

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 306(c) to
§ 307(b)

(c) 82 With respect to obligations or securities acquired prior to the effective date of
the Small Business Investment Act Amendments of 1967, and with respect to legally binding
commitments issued prior to such date, the provisions of this section as in effect immediately
prior to such effective date shall continue to apply.
Sec. 307. 83

EXEMPTIONS

[P.L. 90-104].

Exemptions.

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

[15 USC 77c]

“(c) The Commission may from time to time by its rules and regulations and
subject to such terms and conditions as may be prescribed therein, add to the securities
exempted as provided in this section any class of securities issued by a small business
investment company under the Small Business Investment Act of 1958 if it finds, having
regard to the purposes of that Act, that the enforcement of this Act with respect to such
securities is not necessary in the public interest and for the protection of investors.”
(b)
Section 304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd) is hereby
amended by adding the following subsection (e):

[15 USC 77ddd]

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

If any small business investment company has obtained financing from the Administration and such financing
remains outstanding, the aggregate amount of obligations and securities acquired and for which commitments may
be issued by such company under the provisions of this title for any single enterprise shall not exceed 20 per centum
of the private capital of such company, without the approval of the Administration.
81

Repealed by § 2(f) of P.L. 92-595, approved Oct. 27, 1972 (86 Stat. 1314). Former sec. 306(b) reprinted below to provide a
clearer understanding of this entire section:
(b) For the purpose of this section, the combined paid-in capital and paid-in surplus of any company licensed prior to
January 1, 1968, shall consist of (1) the paid-in capital and paid-in surplus of such company and (2) the following
portions of the funds outstanding from the Administration through the issuance of subordinated debentures as of the
effective date of the Small Business Investment Act Amendments of 1967, or on January 1 of each of the following
calendar years, whichever is less: (A) 100 percent, during 1968; (B) 75 percent, during 1969; (C) 50 percent, during
1970; (D) 25 percent, during 1971; and (E) zero, during 1972 and thereafter.
82
Added by § 207 of P.L. 90-104, the Small Business Investment Act Amendments of 1967, approved Oct. 11, 1967 (81 Stat.
271). Effective date of P.L. 90-104 referred to in this subsection is Jan. 1, 1968, per § 211 of P.L. 90-104.
83

The Act provides a specific exemption from the Investment Company Act of 1940 for SBICs, releasing them from a 3-to-1
asset coverage requirement in connection with borrowings. SBA may prescribe limitations on borrowing by SBICs.

31

(Rev. 15)

§ 307(c) to
§ 308(b)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958
(c)
Section 18 of the Investment Company Act of 1940 (15 U.S.C. 80a - 18) is
amended by adding at the end thereof the following:

[15 USC 80a-18]

“(k) The provisions of subparagraphs (A) and (B) of paragraph (1) of subsection
(a) of this section shall not apply to investment companies operating under the Small
Business Investment Act of 1958.” 84
15 USC 687.

Sec. 308.

MISCELLANEOUS

(a) 85 Wherever practicable the operations of a small business investment company,
including the generation of business, may be undertaken in cooperation with banks or other
investors or lenders, incorporated or unincorporated, and any servicing or initial investigation
required for loans or acquisitions of securities by the company under the provisions of this
Act may be handled through such banks or other investors or lenders on a fee basis. Any
small business investment company may receive fees for services rendered to such banks and
other investors and lenders.
(b)
Each small business investment company may make use, wherever
practicable, of the advisory services of the Federal Reserve System and of the Department of
Commerce which are available for and useful to industrial and commercial businesses, and
may provide consulting and advisory services on a fee basis and have on its staff persons
competent to provide such services. Any Federal Reserve bank is authorized to act as a
depository or fiscal agent for any company operating under the provisions of this Act. 86 Any
such company that is licensed before October 1, 2004 and has outstanding financings is
authorized to invest funds not needed for its operations—

Cooperation
with banks or
other investors.

Advisory
services.

Investment
of funds.

(1)
in direct obligations of, or obligations guaranteed as to principal and
interest by, the United States;

84

See sec. 317 of the Small Business Investment Act for further amendment.

85

Sec. 308(a) amended by § 8 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 753), to substitute “investors or lenders,
incorporated or unincorporated” for “financial institutions.”

86

The last seven words of this sentence added by § 11(c) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 756). The last sentence
first revised by § 5 of P.L. 88-273, approved Feb. 28, 1964 (78 Stat. 147), to permit deposits of idle SBIC funds in insured
savings accounts; later revised by § 102 of P.L. 95-507, approved Oct. 24, 1978 (92 Stat. 1757), to equalize SBA's treatment of
FSLIC and FDIC insured institutions. Phrase “with outstanding financings” added by § 408(c) of P.L. 102-366, approved Sept.
4, 1992 (106 Stat. 1016). The last sentence was completely rewritten by § 202 of P.L. 108-447, approved Dec. 8, 2004 (118
Stat. 2809-657). Text of the previous version is reprinted below:
Such companies with outstanding financings are authorized to invest funds not reasonably needed for their
operations in direct obligations of, or obligations guaranteed as to principal and interest by, the United States, or in
certificates of deposit maturing within one year or less, issued by any institution the accounts of which are insured
by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, or in savings
accounts of such institutions

32

(Rev. 15)

§ 308(b)(2) to
§ 308(g)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

(2)
in certificates of deposit or other accounts of federally insured banks
or other federally insured depository institutions, if the certificates or other accounts mature
or are otherwise fully available not more than 1 year after the date of the investment; or
(3)
in mutual funds, securities, or other instruments that consist of, or
represent pooled assets of, investments described in paragraphs (1) or (2).
(c) 87 The Administration is authorized to prescribe regulations governing the
operations of small business investment companies, and to carry out the provisions of this
Act, in accordance with the purposes of this Act.

Regulations.

(d)
Should any small business investment company violate or fail to comply with
any of the provisions of this Act or of regulations prescribed hereunder, all of its rights,
privileges, and franchises derived therefrom may thereby be forfeited. Before any such
company shall be declared dissolved, or its rights, privileges, and franchises forfeited, any
noncompliance with or violation of this Act shall be determined and adjudged by a court of
the United States of competent jurisdiction in a suit brought for that purpose in the district,
territory, or other place subject to the jurisdiction of the United States, in which the principal
office of such company is located. Any such suit shall be brought by the United States at the
instance of the Administration or the Attorney General.

Noncompliance.

(e)
Except as expressly provided otherwise in this Act, 88 nothing in this Act or in
any other provision of law shall be deemed to impose any liability on the United States with
respect to any obligations entered into, or stocks issued, or commitments made, by any
company operating under the provisions of this Act. 89
(f) 90 In the performance of, and with respect to the functions, powers, and duties
vested by this Act, the Administrator and the Administration shall (in addition to any
authority otherwise vested by this Act) have the functions, powers, and duties set forth in the [15 USC 631]
[15 USC 642]
Small Business Act, and the provisions of sections 13 and 16 of that Act, insofar as
applicable, are extended to the functions of the Administrator and the Administration under [15 USC 645]
this Act.
(g) 91 (1)
The Administration shall include in its annual report, made pursuant to
section 10(a) of the Small Business Act, a full and detailed account of its operations under

Annual report.
[15 USC
639(a)]

87

The provisions relating to examinations and reports by SBICs were deleted from this subsection by § 3(1) of P.L. 89-779,
approved Nov. 6, 1966 (80 Stat. 1359), and added as a new sec. 310(b) by § 5(2) of P.L. 89-779.

88

Clause beginning “Except as” added by § 208(e) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-745).

89

The last seven words added by § 11(d) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 756). The same section also struck out
the previous sec. 308(e) and (f) and redesignated this subsection (formerly (g)) as (e). The former sec. 308(e) and (f)) were
rewritten and expanded by § 9 of P.L. 87-341 and designated as secs. 309, 310, and 311.

90

Sec. 308(f) added by § 3 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1359), and contains the provision transferred from §
201.
91

Sec. 308(g) added by § 3(2) of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1359), and redesignated as sec. 308(g)(1) by §

33

(Rev. 15)

§ 308(g)(2) to
§ 308(g)(2)(G)

SMALL BUSINESS INVESTMENT ACT OF 1958

this Act. Such report shall set forth the amount of losses sustained by the Government as a
result of such operations during the preceding fiscal year, together with an estimate of the
total losses which the Government can reasonably expect to incur as a result of such
operations during the then current fiscal year.
(2) 92 In its annual report for the year ending December 31, 1967, and in
each succeeding annual report made pursuant to section 10(a) of the Small Business Act, the
Administration shall include full and detailed accounts relative to the following matters:
(A)
The Administration's recommendations with respect to the
feasibility and organization of a small business capital bank to encourage private financing of
small business investment companies to replace Government financing of such companies.
(B)
The Administration's plans to insure the provision of small
business investment company financing to all areas of the country and to all eligible small
business concerns including steps taken to accomplish same.
(C)
Steps taken by the Administration to maximize recoupment of
Government funds incident to the inauguration and administration of the small business
investment company program and to insure compliance with statutory and regulatory
standards relating thereto.
(D)
An accounting by the Bureau of the Budget 93 with respect to
Federal expenditures to business by executive agencies, specifying the proportion of said
expenditures going to business concerns falling above and below small business size
standards applicable to small business investment companies.
(E)
An accounting by the Treasury Department with respect to tax
revenues accruing to the Government from business concerns, incorporated and
unincorporated, specifying the source of such revenues by concerns falling above and below
the small business size standards applicable to small business investment companies.
(F)
An accounting by the Treasury Department with respect to
both tax losses and increased tax revenues related to small business investment company
financing of both individual and corporate business taxpayers.
(G)
Recommendations to the Treasury Department with respect to
additional tax incentives to improve and facilitate the operations of small business investment
companies and to encourage the use of their financing facilities by eligible small business
concerns.
210 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 271).
92

Sec. 308(g)(2) added by § 210 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 271).

93

This should read “Office of Management and Budget” per Reorganization Plan No. 2 of 1970.

34

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 308(g)(2)(H) to
§ 308(h)

(H)
A report from the Securities and Exchange Commission
enumerating actions undertaken by that agency to simplify and minimize the regulatory
requirements governing small business investment companies under the Federal securities
laws and to eliminate overlapping regulation and jurisdiction as between the Securities and
Exchange Commission, the Administration, and other agencies of the executive branch.
(I)
A report from the Securities and Exchange Commission with
respect to actions taken to facilitate and stabilize the access of small business concerns to the
securities markets.
(J)
Actions undertaken by the Securities and Exchange
Commission to simplify compliance by small business investment companies with the
requirements of the Investment Company Act of 1940 and to facilitate the election to be
taxed as regulated investment companies pursuant to section 851 of the Internal Revenue
Code of 1954.

[15 USC 80a-1]
[26 USC 851]

(3) 94 In its annual report for the year ending on December 31, 1993, and in
each succeeding annual report made pursuant to section 10(a) of the Small Business Act, the
Administration shall include a full and detailed description or account relating to—
(A)
the number of small business investment companies the
Administration licensed, the number of licensees that have been placed in liquidation, and the
number of licensees that have surrendered their licenses in the previous year, identifying the
amount of government leverage each has received and the type of leverage instruments each
has used;
(B)
the amount of government leverage that each licensee received
in the previous year and the types of leverage instruments each licensee used;
(C)
for each type of financing instrument, the sizes, geographic
locations, and other characteristics of the small business investment companies using them,
including the extent to which the investment companies have used the leverage from each
instrument to make small business loans, equity investments, or both; and
(D)
the frequency with which each type of investment instrument
has been used in the current year and a comparison of the current year with previous years.
(h) 95

Certifications
of eligibility.

CERTIFICATIONS OF ELIGIBILITY.—

94

Paragraph 308(g)(3) added by § 417(a) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1019). Section 417(b) of P.L. 102366 reads: “Not later than 4 years after the date of enactment of this Act, the Comptroller General of the United States shall
transmit to the Committees on Small Business of the House of Representatives and the Senate a report that reviews the Small
Business Investment Company program (established under the Small Business Investment Act of 1958) for the 3-year period
following the date of enactment of this Act, with respect to each item listed in section 308(g)(3) of the Small Business
Investment Act of 1958, as amended by subsection (a).”
95

New subsection 308(h) added by § 214 of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4184). For history of prior

35

(Rev. 15)

§ 308(h)(1) to
§ 308(i)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
CERTIFICATION BY SMALL BUSINESS CONCERN.—Prior to
receiving financial assistance from a company licensed pursuant to section 301, 96 a small
business concern shall certify in writing that it meets the eligibility requirements of the Small
Business Investment Company Program or the Specialized Small Business Investment
Company Program, as applicable.
(2)
CERTIFICATION BY COMPANY.—Prior to providing financial
assistance to a small business concern under this Act, a company licensed pursuant to section
301 shall certify in writing that it has reviewed the application for assistance of the small
business concern and that all documentation and other information supports the eligibility of
the applicant.
(3)
RETENTION OF CERTIFICATIONS.—Certificates made pursuant to
paragraphs (1) and (2) shall be retained by the company licensed pursuant to section 301 for
the duration of the financial assistance.
(i) 97 (1)
The purpose of this subsection is to facilitate the orderly and necessary
flow of long-term loans and equity funds from small business investment companies to small
business concerns.

Long-term
loans and
equity funds.

subsection 308(h), see previous edition of this Handbook.
96

References to “subsection (c) or (d) of section 301” were replaced with references to “section 301” throughout subsection
308(h) by § 208(h)(1)(B) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-747).
97

New subsection 308(i) added by § 1 of P.L. 99-226, approved Dec. 28, 1985 (99 Stat. 1744). Sec. 2 of P.L. 99-226 provides
that the Act shall apply to maximum interest rates prescribed by the Administration on or after April 1, 1980. The Act was
intended to be a technical amendment, clarifying the policy embodied in P.L. 96-221, approved Mar. 31, 1980 (94 Stat. 132).
House report 99-306 states that Congress, by enacting P.L. 99-226, “makes it clear that SBA, by regulation, has the authority to
determine the maximum allowable interest rates on loans to small businesses which are made by SBICs and MESBICs.”
The text of prior Sec. 308(i) is provided:
(i) (1) The purpose of this subsection is to facilitate the orderly and necessary flow of long-term loans and equity
funds from small business investment companies to small business concerns.
(2) In the case of a business loan, the small business investment company making such loan may charge interest on
such loan at a rate which does not exceed the lowest of the rates described in subparagraphs (A), (B), and (C).
(A) The rate described in this subparagraph is the maximum rate prescribed by regulation by the Small Business
Administration for loans made by any small business investment company (determined without regard to any State rate
incorporated by such regulation).
(B) The rate described in this subparagraph is the maximum rate authorized by an applicable State law or
constitutional provision which is not preempted for purposes of this subsection.
(C) (i) The rate described in this subparagraph is the higher of the Federal Reserve rate or the maximum rate
authorized by applicable State law or constitutional provision (determined without regard to the preemption of such
State law or constitutional provision).
(ii) For purposes of clause (i), the term “Federal Reserve rate” means the rate equal to the sum of 1 percentage point
plus the discount rate on ninety-day commercial paper in effect at the Federal Reserve bank in the Federal Reserve

36

(Rev. 15)

§ 308(i)(2) to
§ 308(i)(4)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(2)
In the case of a business loan, the small business investment company Interest rate
limitations.
making such loan may charge interest on such loan at a rate which does not exceed the
maximum rate prescribed by regulation by the Administration for loans made by any licensee
(determined without regard to any State rate incorporated by such regulation). In this
paragraph, the term “interest” includes only the maximum mandatory sum, expressed in
“Interest.”
dollars or as a percentage rate, that is payable with respect to the business loan amount
received by the small business concern, and does not include the value, if any, of contingent
obligations, including warrants, royalty, or conversion rights, granting the small business
investment company an ownership interest in the equity or increased future revenue of the
small business concern receiving the business loan. 98
(3)
A State law or constitutional provision shall be preempted for purposes
of paragraph (2) with respect to any loan if such loan is made before the date, on or after
April 1, 1980, on which such State adopts a law or certifies that the voters of such State have
voted in favor of any provision, constitutional or otherwise, which states explicitly and by its
terms that such State does not want the provisions of this subsection to apply with respect to
loans made in such State, except that such State law or constitutional or other provision shall
be preempted in the case of a loan made, on or after the date on which such law is adopted or
such certification is made, pursuant to a commitment to make such loan which was entered
into on or after April 1, 1980, and prior to the date on which such law is adopted or such
certification is made.
(4)
(A)
If the maximum rate of interest authorized under paragraph (2)
on any loan made by a small business investment company exceeds the rate which would be
authorized by applicable State law if such State law were not preempted for purposes of this
subsection, the charging of interest at any rate in excess of the rate authorized by paragraph
district in which the principal office of the small business investment company is located.
(iii) The rate described in this subparagraph shall not apply to loans made in a State if there is no maximum rate
authorized by applicable State law or constitutional provision for such loans or there is a maximum rate authorized by
an applicable State law or constitutional provision which is not preempted for purposes of this subsection.
Prior history of old Sec. 308(i)
Sec. 308(i), effective April 1, 1980, was added by § 524 of P.L. 96- 221 (94 Stat. 132) in Title V -- State Usury Laws
(94 Stat. 161), approved Mar. 31, 1980. Title V of P.L. 96-221 repealed P.L. 96-104, § 105(a)(2) of P.L. 96-161, and
the amendments and provisions of Title II of P.L. 96-161, except that as to any loan made in any State during any
period when such laws were in effect in such State, the provisions of such laws shall continue to apply.
Sec. 528 of P.L. 96-221 provided:
In any case in which one or more provisions of, or amendments made by, this title, section 529 of the National Housing
Act, or any other provision of law, including section 5197 of the Revised Statutes (12 U.S.C. 85), apply with respect to
the same loan, mortgage, credit sale, or advance, such loan, mortgage, credit sale, or advance may be made at the
highest applicable rate.
98

The last sentence in paragraph 308(i)(2) added by § 2(a) of P.L. 106-9, approved April 5, 1999 (113 Stat. 17).

37

(Rev. 15)

§ 308(i)(4)(B) to
§ 309(b)

SMALL BUSINESS INVESTMENT ACT OF 1958

(2) shall be deemed a forfeiture of the greater of (i) all interest which the loan carries with it,
or (ii) all interest which has been agreed to be paid thereon.
(B)
In the case of any loan with respect to which there is a
forfeiture of interest under subparagraph (A), the person who paid the interest may recover
from a small business investment company making such loan an amount equal to twice the
amount of the interest paid on such loan. Such interest may be recovered in a civil action
commenced in a court of appropriate jurisdiction not later that two years after the most recent
payment of interest.
Sec. 309. 99

REVOCATION AND SUSPENSION OF LICENSES; CEASE AND DESIST
ORDERS

Suspend or
revoke
licenses.
15 USC 687a.

(a) 100 A license may be revoked or suspended by the Administration—
(1)
for false statements knowingly made in any written statement required
under this title, or under any regulation issued under this title by the Administration;
(2)
If any written statement required under this title, or under any
regulation issued under this title by the Administrator, fails to state a material fact necessary
in order to make the statement not misleading in the light of the circumstances under which
the statement was made;
(3)
for willful or repeated violation of, or willful or repeated failure to
observe, any provision of this Act;
(4)
for willful or repeated violation of or willful or repeated failure to
observe, any rule or regulation of the Administration authorized by this Act; or
(5)
for violation of, or failure to observe, any cease and desist order issued
by the Administration under this section.
(b)
Where a licensee or any other person has not complied with any provision of
this Act, or of any regulation issued pursuant thereto by the Administration, or is engaging or
is about to engage in any acts or practices which constitute or will constitute a violation of
such Act or regulation, the Administration may order such licensee or other person to cease
and desist from such action or failure to act. The Administration may further order such
licensee or other person to take such action or to refrain from such action as the

Cease and
desist orders.

99

Sec. 309 added by § 9 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 753). Previous sec. 309 was repealed by § 11(e) of P.L.
87-341.

100
Heading and subsections 309(a), (b), (c), (e) and (f) amended by § 4 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1359), to
reflect license revocation authority granted to SBA; to delete limitation of grounds for suspension of license for false or
misleading statements made for purpose of obtaining a license; and to authorize issuance and enforcement of cease and desist
orders against individuals as well as licensees.

38

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 309(c) to
§ 309(e)

Administration deems necessary to insure compliance with the Act and the regulations. The
Administration may also suspend the license of a licensee, against whom an order has been
issued, until such licensee complies with such order.
(c)
Before revoking or suspending a license pursuant to subsection (a) or issuing a
cease and desist order pursuant to subsection (b), the Administration shall serve upon the
licensee and any other person involved an order to show cause why an order revoking or
suspending the license or a cease and desist order should not be issued. Any such order to
show cause shall contain a statement of the matters of fact and law asserted by the
Administration and the legal authority and jurisdiction under which a hearing is to be held,
and shall set forth that a hearing will be held before the Administration at a time and place
stated in the order. If after hearing, or a waiver thereof, the Administration determines on the
record that an order revoking or suspending the license or a cease and desist order should
issue, it shall promptly issue such order, which shall include a statement of the findings of the
Administration and the grounds and reasons therefor and specify the effective date of the
order, and shall cause the order to be served on the licensee and any other person involved.
(d)
The Administration may require by subpena [sic] the attendance and
testimony of witnesses and the production of all books, papers, and documents relating to the
hearing from any place in the United States. Witnesses summoned before the Administration
shall be paid by the party at whose instance they were called the same fees and mileage that
are paid witnesses in the courts of the United States. In case of disobedience to a subpena
[sic], the Administration , or any party to a proceeding before the Administration, may
invoke the aid of any court of the United States in requiring the attendance and testimony of
witnesses and the production of books, papers, and documents.
(e)
An order issued by the Administration under this section shall be final and
conclusive unless within thirty days after the service thereof the licensee, or other person
against whom an order is issued, 101 appeals to the United States court of appeals for the
circuit in which such licensee has its principal place of business by filing with the clerk of
such court a petition praying that the Administration's order be set aside or modified in the
manner stated in the petition. After the expiration of such thirty days, a petition may be filed
only by leave of court on a showing of reasonable grounds for failure to file the petition
theretofore. The clerk of the court shall immediately cause a copy of the petition to be
delivered to the Administration, and the Administration shall thereupon certify and file in the
court a transcript of the record upon which the order complained of was entered. If before
such record is filed the Administration amends or sets aside its order, in whole or in part, the
petitioner may amend the petition within such time as the court may determine, on notice to
the Administration. The filing of a petition for review shall not of itself stay or suspend the
operation of the order of the Administration, but the court of appeals in its discretion may
restrain or suspend, in whole or in part, the operation of the order pending the final hearing
and determination of the petition. 102 The court may affirm, modify, or set aside the order of

Order to
show cause.

Hearing.

Subpoena.

Appeals
procedure.

101

Section 4(e) of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1360), added the clause “or other person against whom an order
is issued.”
102

Section 402(15) of P.L. 98-620, approved Nov. 11, 1984, Federal Courts Improvements Act (98 Stat. 3335 at 3357), removed

39

(Rev. 15)

§ 309(f) to
§ 310(a)

SMALL BUSINESS INVESTMENT ACT OF 1958
the Administration. If the court determines that the just and proper disposition of the case
requires the taking of additional evidence, the court shall order the Administration to reopen
the hearing for the taking of such evidence, in such manner and upon such terms and
conditions as the court may deem proper. The Administration may modify its findings as to
the facts, or make new findings, by reason of the additional evidence so taken, and it shall
file its modified or new findings and the amendments, if any, of its order, with the record of
such additional evidence. No objection to an order of the Administration shall be considered
by the court unless such objection was urged before the Administration or, if it was not so
urged, unless there were reasonable grounds for failure to do so. The judgment and decree of
the court affirming, modifying, or setting aside any such order of the Administration shall be
subject only to review by the Supreme Court of the United States upon certification or
[28 USC 1254]
certiorari as provided in section 1254 of title 28, United States Code.
(f) 103 If any licensee or other person against which or against whom an order is
issued under this section fails to obey the order, the Administration may apply to the United
States court of appeals, within the circuit where the licensee has its principal place of
business, for the enforcement of the order and shall file a transcript of the record upon which
the order complained of was entered. Upon the filing of the application the court shall cause
notice thereof to be served on the licensee or other person. The evidence to be considered,
the procedure to be followed, and the jurisdiction of the court shall be the same as is provided
in subsection (e) for applications to set aside or modify orders.
Sec. 310.

Enforcement
of order.

15 USC 687b.
Investigations.

EXAMINATIONS AND INVESTIGATIONS 104

(a)
The Administration may make such investigations as it deems necessary to
determine whether a licensee or any other person has engaged or is about to engage in any
acts or practices which constitute or will constitute a violation of any provision of this Act, or
of any rule or regulation under this Act, or of any order issued under this Act. The
Administration shall permit any person to file with it a statement in writing, under oath or
otherwise as the Administration shall determine, as to all the facts and circumstances
concerning the matter to be investigated. For the purpose of any investigation, the
Administration is empowered to administer oaths and affirmations, subpena [sic] witnesses,
compel their attendance, take evidence, and require the production of any books, papers, and
documents which are relevant to the inquiry. Such attendance of witnesses and the
production of any such records may be required from any place in the United States. In case
of contumacy by, or refusal to obey a subpena [sic] issued to, any person, including a
licensee, the Administration may invoke the aid of any court of the United States within the
the sentence at this point, which made “proceedings in such cases in the court of appeals” a preferred cause to be expedited in
every way.
103

Amended by § 4(f) of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1360), to provide for enforcement of cease and desist
orders against individuals as well as against licensees. Amended again by § 402(15) of P.L. 98-620, supra, to remove last
sentence making such case a preferred cause.
104

Sec. 310 added by § 9 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 755). Section heading amended by § 5 of P.L. 89-779,
approved Nov. 6, 1966 (80 Stat. 1360).

40

(Rev. 15)

§ 310(b) to
§ 310(c)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

jurisdiction of which such investigation or proceeding is carried on, or where such person
resides or carries on business, in requiring the attendance and testimony of witnesses and the
production of books, papers, and documents; and such court may issue an order requiring
such person to appear before the Administration, there to produce records, if so ordered, or
to give testimony touching the matter under investigation. Any failure to obey such order of
the court may be punished by such court as a contempt thereof. All process in any such case
may be served in the judicial district whereof such person is an inhabitant or wherever he
may be found.
Examinations.
(b)
Each small business investment company shall be subject to examinations
105
Private sector
made by direction of the Investment Division of the Administration, which may be
entity.
conducted with the assistance of a private sector entity that has both the qualifications to
conduct and expertise in conducting such examinations, 106 and the cost of such examinations,
including the compensation of the examiners, may in the discretion of the Administration be
assessed against the company examined and when so assessed shall be paid by such
company. Fees collected under this subsection shall be deposited in the account for salaries Fees for cost of
and expenses of the Administration, and are authorized to be appropriated solely to cover the examinations;
collection; use.
costs of examinations and other program oversight activities. 107 Every such company shall
make such reports to the Administration at such times and in such form as the Administration
Reports.
may require; except that the Administration is authorized to exempt from making such
reports any such company which is registered under the Investment Company Act of 1940 to
the extent necessary to avoid duplication in reporting requirements.

(c) 108 Each small business investment company shall be examined at least every two
years in such detail so as to determine whether or not-(1)

it has engaged solely in lawful activities and those contemplated by

(2)

it has engaged in prohibited conflicts of interest;

this title;

105

Phrase “Investment Division of” substituted for “examiners selected or approved by” by § 407(a) of P.L. 102-366, approved
Sept. 4, 1992 (106 Stat. 1016). Section 407(b) provides: “Effective October 1, 1992, the personnel, assets, liabilities, contracts,
property, records, and unexpended balances of appropriations, authorizations, and other funds employed, held, used, arising
from, available or to be made available, which are related to the examination function provided by section 310 of the Small
Business Investment Act of 1958 shall be transferred by the Inspector General of the Small Business Administration to the
Investment Division of the Small Business Administration.”
106

The clause allowing examinations to be performed by a private sector entity was added by § 208(f)(1) of P.L. 104-208,
approved Sept. 30, 1996 (110 Stat. 3009-745).
107

Second sentence in subsection 310(b) added by § 216 of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2603).

108

Section 104 of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2993), added subsection 310(c) and deleted the following from
subsection 310(b):
Each such company shall be examined at least once each year, except that the Administrator may waive examination in
the case of a company whose operations have been suspended by reason of the fact that the company is involved in
litigation or is in receivership.

41

(Rev. 15)

§ 310(c)(3) to
§ 310(d)(1)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(3)

it has acquired or exercised illegal control of an assisted small

(4)

it has made investments in small businesses for 109 not less than 1 year;

business;

(5)
it has invested more than 20 per centum of its capital in any individual
small business, if such restriction is applicable, 110
(6)
investments; or
(7)

it has engaged in relending, foreign investments, or passive

it has charged an interest rate in excess of the maximum permitted by

law:
Provided, That the Administration may waive the examination (A) for up to one additional
year if, in its discretion, it determines such a delay would be appropriate, based upon the
amount of debentures being issued by the company and its repayment record, the prior
operating experience of the company, the contents and results of the last examination and the
management expertise of the company, or (B) if it is a company whose operations have been
suspended while the company is involved in litigation or is in receivership.
Valuations.

(d) 111 VALUATIONS.—
(1)

FREQUENCY OF VALUATIONS.—

(A)
IN GENERAL.—Each licensee shall submit to the
Administrator a written valuation of the loans and investments of the licensee not less often
than semiannually or otherwise upon the request of the Administrator, except that any
licensee with no leverage outstanding shall submit such valuations annually, unless the
Administrator determines otherwise.
109
The phrase “not less than four years in the case of section 301(d) licensees and in all other cases,” was deleted by §
208(h)(1)(C) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-747). The time was changed from 5 years to 1 year by §
406 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-691).
110

Phrase “if such restriction is applicable” added by § 408(b) of P.L. 102-366, approved Sept. 4, 1992 (106 Stat. 1016).

111

Subsection 310(d) rewritten by § 208(f)(2) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-745). Text of former
subsection 310(d) is reprinted below:
Each small business investment company shall adopt written guidelines for determination of the value of investments
made by such company. The board of directors of corporations and the general partners of partnerships shall have the
sole responsibility for making a good faith determination of the fair market value of the investments made by such
company. Determinations shall be made and reported to the Administration not less than semiannually or at more
frequent intervals as the Administration determines appropriate: Provided, That any company which does not have
outstanding financial assistance under the provisions of this title shall be required to make such determinations and
reports to the Administration annually, unless the Administration, in its discretion, determines otherwise.

42

(Rev. 15)

§ 310(d)(1)(B) to
§ 311(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)
MATERIAL ADVERSE CHANGES.—Not later than 30 days
after the end of a fiscal quarter of a licensee during which a material adverse change in the
aggregate valuation of the loans and investments or operations of the licensee occurs, the
licensee shall notify the Administrator in writing of the nature and extent of that change.
(C)

INDEPENDENT CERTIFICATION.—

(i)
IN GENERAL.—Not less than once during each fiscal
year, each licensee shall submit to the Administrator the financial statements of the licensee,
audited by an independent certified public accountant approved by the Administrator.
(ii)
under clause (i) shall include—

Certification and
audit of financial
statements.

AUDIT REQUIREMENTS.—Each audit conducted

(I)
a review of the procedures and documentation
used by the licensee in preparing the valuations required by this section; and
(II)
a statement by the independent certified public
accountant that such valuations were prepared in conformity with the valuation criteria
applicable to the licensee established in accordance with paragraph (2).
(2)
VALUATION CRITERIA.—Each valuation submitted under this
subsection shall be prepared by the licensee in accordance with valuation criteria, which
shall—
(A)

be established or approved by the Administrator; and

(B)
include appropriate safeguards to ensure that the noncash assets
of a licensee are not overvalued.
Sec. 311. 112

INJUNCTIONS AND OTHER ORDERS

Injunctions.
15 USC 687c.

(a)
Whenever, in the judgment of the Administration, a licensee or any other
person has engaged or is about to engage in any acts or practices which constitute or will
constitute a violation of any provision of this Act, or of any rule or regulation under this Act,
or of any order issued under this Act, the Administration may make application to the proper
district court of the United States or a United States court of any place subject to the
jurisdiction of the United States for an order enjoining such acts or practices, or for an order
enforcing compliance with such provision, rule, regulation, or order, and such courts shall
have jurisdiction of such actions and, upon a showing by the Administration that such
licensee or other person has engaged or is about to engage in any such acts or practices, a

112

Section 9 of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 755), added sec. 311(a) (formerly substantially contained in section
308(e)) and sec. 311(b), authorizing the appointment of a trustee or receiver.

43

(Rev. 15)

§ 311(b) to
§ 313

SMALL BUSINESS INVESTMENT ACT OF 1958
permanent or temporary injunction, restraining order, or other order, shall be granted without
bond. 113
(b)
In any such proceeding the court as a court of equity may, to such extent as it
deems necessary, take exclusive jurisdiction of the licensee or licensees and the assets
thereof, wherever located; and the court shall have jurisdiction in any such proceeding to
appoint a trustee or receiver to hold or administer under the direction of the court the assets
so possessed.
(c) 114 The Administration shall have authority to act as trustee or receiver of the
licensee. Upon request by the Administration, the court may appoint the Administration to
act in such capacity unless the court deems such appointment inequitable or otherwise
inappropriate by reason of the special circumstances involved.
Sec. 312. 115

Trustee or
receiver.

Conflicts of
interest.
15 USC 687d.

CONFLICTS OF INTEREST

For the purpose of controlling conflicts of interest which may be detrimental to small
business concerns, to small business investment companies, to the shareholders, partners, or
members 116 of either, or to the purposes of this Act, the Administration shall adopt
regulations to govern transactions with any officer, director, shareholder, partner, or member
of any small business investment company, or with any person or concern, in which any
interest, direct or indirect, financial or otherwise, is held by any officer, director, shareholder,
partner, or member of (1) any small business investment company, or (2) any person or
concern with an interest, direct or indirect, financial or otherwise, in any small business
investment company. Such regulations shall include appropriate requirements for public
Directors and
disclosure 117 necessary to the purposes of this section.
officers, removal
Sec. 313. 118

REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.

or suspension.
15 USC 687e.

113

Section 402(15) of P.L. 98-620, approved Nov. 11, 1984 (98 Stat. 3357), repealed the last sentence which made an application
by SBA for an injunction or compliance order "a preferred cause" to be expedited in every way.
114

Sec. 311(c) added by § 6 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1360).

115

Sec. 312 added by § 6 of P.L. 88-273, approved Feb. 28, 1964 (78 Stat. 147). The words “or partner” and “or partners” added
by § 106(f)(1) and (2) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).
116

References to “member[s]” throughout this section added by § 208(h)(1)(D) of P.L. 104-208, approved Sept. 30, 1996 (110
Stat. 3009-747).
117

Phrase “(including disclosure in the locality most directly affected by the transaction)” in § 312 deleted by § 3 of P.L.
107-100, approved Dec. 21, 2001 (115 Stat. 966).
118

Sec. 313 added by § 7 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1361). The section was completely rewritten by § 5 of
P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 967). The text of former § 313 is reprinted below:
(a) The Administration may serve upon any director or officer of a licensee a written notice of its intention to
remove him from office whenever, in the opinion of the Administration, such director of officer—
(1) has willfully and knowingly committed any substantial violation of—

44

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A) this Act,
(B) any regulation issued under this Act, or
(C) a cease-and-desist order which has become final, or
(2) has willfully and knowingly committed or engaged in any act, omission, or practice which constitutes a
substantial breach of his fiduciary duty as such director or officer, and that such violation or such breach of
fiduciary duty is one involving personal dishonesty on the part of such director or officer.
(b) In respect to any director or officer referred to in subsection (a), the Administration may, if it deems it necessary
for the protection of the licensee or the interests of the Administration, by written notice to such effect served upon
such director or officer, suspend him from office and/or prohibit him from further participation in any manner in the
conduct of the affairs of the licensee. Such suspension and/or prohibition shall become effective upon service of
such notice and, unless stayed by a court in proceedings authorized by subsection (d), shall remain in effect pending
the completion of the administrative proceedings pursuant to the notice served under subsection (a) and until such
time as the Administration shall dismiss the charges specified in such notice, or, if an order of removal and/or
prohibition is issued against the director or officer, until the effective date of any such order. Copies of any such
notice shall also be served upon the interested licensee.
(c) A notice of intention to remove a director of [sic; should read "or"] officer, as provided in subsection (a), 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. Such hearing shall be fixed for a date not earlier than thirty days nor later than sixty days after the
date of service of such notice, unless an earlier or a later date is set by the Administration at the request of (1) such
director or officer and for good cause shown, or (2) the Attorney General of the United States. Unless such director
or officer shall appear at the hearing in person or by a duly authorized representative, he shall be deemed to have
consented to the issuance of an order of such removal. In the event of such consent, or if upon the record made at
any such hearing the Administration shall find that any of the grounds specified in such notice has been established,
the Administration may issue such orders of removal from office as it deems appropriate. Any such order shall
become effective at the expiration of thirty days after service upon such licensee and the director or officer
concerned (except in the case of an order issued upon consent, which shall become effective at the time specified
therein). Such order shall remain effective and enforceable except to such extent as it is stayed, modified,
terminated, or set aside by action of the Administration or a reviewing court.
(d) Within ten days after any director or officer has been suspended from office and/or prohibited from participation
in the conduct of the affairs of a licensee under subsection (b), such director or officer 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 such suspension and/or prohibition pending the completion
of the administrative proceedings pursuant to the notice served upon such director or officer under subsection (a),
and such court shall have jurisdiction to stay such suspension and/or prohibition.
(e) Whenever any director or officer of a licensee 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 Administration may, by written notice served upon such director or officer, suspend him from
office and/or prohibit him from further participation in any manner in the conduct of the affairs of the licensee. A
copy of such notice shall also be served upon the licensee. Such suspension and/or prohibition shall remain in effect
until such information, indictment, or complaint is finally disposed of or until terminated by the Administration. In
the event that a judgment of conviction with respect to such offense is entered against such director or officer, and at
such time as such judgment is not subject to further appellate review, the Administration may issue and serve upon
such director or officer an order removing him from office. A copy of such order shall be served upon such
licensee, whereupon such director or officer shall cease to be a director or officer of such licensee. A finding of not
guilty or other disposition of the charge shall not preclude the Administration from thereafter instituting proceedings
to suspend or remove such director or officer from office and/or to prohibit him from further participation in
licensee affairs, pursuant to subsection (a) or (b).

45

(Rev. 15)

§ 313(a) to
§ 313(b)(1)(A)(i)(II)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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)

“Management
official.”

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)

Notice of
removal.

such management official—
(i)

has willfully and knowingly committed any substantial

violation of—
(I)

this Act;

(II)

any regulation issued under this Act; or

(f) (1) Any hearing provided for in this section shall be 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 shall be conducted in accordance with the provisions of chapter 5 of title 5 of the United States Code. After
such hearing, and within ninety days after the Administration has notified the parties that the case has been
submitted to it for final decision, the Administration shall render its decision (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. Judicial review of any such order shall be exclusively
as provided in this subsection. Unless a petition for review is timely filed in a court of appeals of the United States,
as hereinafter provided in paragraph (2) of this subsection, and thereafter until the record in the proceeding has been
filed as so provided, the Administration may at any time, upon such notice, and in such manner as it shall deem
proper, modify, terminate, or set aside any such order. Upon such filing of the record, the Administration may
modify, terminate, or set aside any such order with permission of the court.
(2) Any party to such proceeding may obtain a review of any order served pursuant to paragraph (1) of this
subsection (other than an order issued with the consent of the director or officer concerned, or an order issued under
subsection (e) of this section), 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, within thirty days after the date of service of such order, a written petition praying that the order of the
Administration be modified, terminated, or set aside. A copy of such petition shall be forthwith transmitted by the
clerk of the court to the Administration, and thereupon the Administration shall file in the court the record in the
proceeding, as provided in section 2112 of title 28 of the United States Code. Upon the filing of such petition, such
court shall have jurisdiction, which upon the filing of the record shall, except as provided in the last sentence of said
paragraph (1), be exclusive, to affirm, modify, terminate, or set aside, in whole or in part, the order of the
Administration. Review of such proceedings shall be had as provided in chapter 7 of title 5 of the United States
Code. The judgment and decree of the court shall be final, except that the same shall be subject to review by the
Supreme Court upon certiorari as provided in section 1254 of title 28 of the United States Code.
(3) The commencement of proceedings for judicial review under paragraph (2) of this subsection shall not, unless
specifically ordered by the court, operate as a stay of any order issued by the Administration.

46

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958
(III)

§ 313(b)(1)(A)(i)(III) to
§ 313(b)(4)(B)(i)

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)

Hearing.

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)

Consent to
order of
removal.

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— Effective

(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

47

(Rev. 15)

date of
order of
removal.

§ 313(b)(4)(B)(ii) to
§ 313(d)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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)

Authority to
suspend or
prohibit
participation.

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.

48

(Rev. 15)

Judicial
review of
suspension.

Authority to
suspend on
criminal
charges.

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 313(d)(2) to
§ 313(f)(3)

(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—

Notice to
licensee.

Procedural
provisions;
judicial
review.

(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)
title 5, United States Code.

conducted in accordance with the provisions of chapter 5 of

(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—

49

(Rev. 15)

[5 USC Ch. 5]

§ 313(f)(3)(A) to
§ 313(f)(4)(E)

SMALL BUSINESS INVESTMENT ACT OF 1958

(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)
(4)

upon such filing of the record, with permission of the court.

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 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.

50

(Rev. 15)

[28 USC 1254].

§ 314 to
§ 315

SMALL BUSINESS INVESTMENT ACT OF 1958
Sec. 314. 119 UNLAWFUL ACTS AND OMISSIONS BY OFFICERS, DIRECTORS,
EMPLOYEES, OR AGENTS; BREACH OF FIDUCIARY DUTY

15 USC 687f.

(a)
Wherever a licensee violates any provision of this Act or regulation issued
thereunder by reason of its failure to comply with the terms thereof or by reason of its
engaging in any act or practice which constitutes or will constitute a violation thereof, such
violation shall be deemed to be also a violation and an unlawful act on the part of any person
who, directly or indirectly, authorizes, orders, participates in, or causes, brings about,
counsels, aids, or abets in the commission of any acts, practices, or transactions which
constitute or will constitute, in whole or in part, such violation.
(b)
It shall be unlawful for any officer, director, employee, agent, or other
participant in the management or conduct of the affairs of a licensee to engage in any act or
practice, or to omit any act, in breach of his fiduciary duty as such officer, director,
employee, agent, or participant, if, as a result thereof, the licensee has suffered or is in
imminent danger of suffering financial loss or other damage.
(c)

Except with the written consent of the Administration, it shall be unlawful—

(1)
for any person hereafter to take office as an officer, director, or
employee of a licensee, or to become an agent or participant in the conduct of the affairs or
management of a licensee, if—
(A)
he has been convicted of a felony, or any other criminal offense
involving dishonesty or breach of trust, or
(B)
he has been found civilly liable in damages, or has been
permanently or temporarily enjoined by an order, judgment, or decree of a court of
competent jurisdiction, by reason of any act or practice involving fraud or breach of trust; or
(2)
capacities, if—

for any person to continue to serve in any of the above-described

(A)
he is hereafter convicted of a felony, or any other criminal
offense involving dishonestly or breach of trust, or
(B)
he is hereafter found civilly liable in damages, or is
permanently or temporarily enjoined by an order, judgment, or decree of a court of
competent jurisdiction, by reason of any act or practice involving fraud or breach of trust.
Sec. 315. 120

PENALTIES AND FORFEITURES

119

Sec. 314 added by § 7 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1363).

120

Sec. 315 added by § 7 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1364).

51

Penalties and
forfeitures.
15 USC 687g.

(Rev. 15)

§ 315(a) to
§ 317

SMALL BUSINESS INVESTMENT ACT OF 1958

(a)
Except as provided in subsection (b) of this section, a licensee which violates
any regulation or written directive issued by the Administrator, requiring the filing of any
regular or special report pursuant to section 310(b) of this Act, shall forfeit and pay to the
United States a civil penalty of not more than $100 for each and every day of the continuance
of the licensee's failure to file such report, unless it is shown that such failure is due to
reasonable cause and not due to willful neglect. The civil penalties provided for in this
section shall accrue to the United States and may be recovered in a civil action brought by
the Administration.

Penalty.

(b)
The Administration may by rules and regulations, or upon application of an
interested party, at any time previous to such failure, by order, after notice and opportunity
for hearing, exempt in whole or in part, any small business investment company from the
provisions of subsection (a) of this section, upon such terms and conditions and for such
period of time as it deems necessary and appropriate, if the Administration finds that such
action is not inconsistent with the public interest or the protection of the Administration. The
Administration may for the purposes of this section make any alternative requirements
appropriate to the situation.
Sec. 316. 121

Jurisdiction.
15 USC 687h.

JURISDICTION AND SERVICE OF PROCESS

Any suit or action brought under section 308, 309, 311, 313, or 315 by the
Administration at law or in equity to enforce any liability or duty created by, or to enjoin any
violation of, this Act, or any rule, regulation, or order promulgated thereunder, shall be
brought in the district wherein the licensee maintains its principal office, and process in such
cases may be served in any district in which the defendant maintains its principal office or
transacts business, or wherever the defendant may be found.
Sec. 317. 122

121

Sec. 316 added by § 7 of P.L. 89-779, approved Nov. 6, 1966 (80 Stat. 1364).

122

Sections 317 and 318 were deleted by § 208(h)(1)(E) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-747). The
same section redesignated old sections 319-322 as sections 317-320, respectively. Text of former section 317 is reprinted
below:
Notwithstanding section 303(b), the effective rate of interest after October 13, 1971, during the first five years
thereafter of the term of any debenture purchased by the Administration from a small business investment company
under authority of section 303(c), shall be the greater of 3 per centum or 3 percentage points below the interest rate
determined pursuant to section 303(b). The Administration is authorized to apply interest paid to it by such company
for the period from October 13, 1971, to the effective date of this section, without interest thereon, to interest payable
after such effective date.
Text of former section 318 is reprinted below:
The Administration is authorized to extend the benefits of sections 303(c) and 317 to any small business investment
company operating under authority of section 301(d) of this Act, and which is owned, in whole or in part, by one or
more small business investment companies, in accordance with regulations promulgated by the Administration.

52

(Rev. 15)

§ 318 to
§ 319

SMALL BUSINESS INVESTMENT ACT OF 1958
Section 18 of the Investment Company Act of 1940, as amended (15 U.S.C. 80a - 18), [15 USC 80a18(k)]
is further amended by amending subsection (k) to read as follows:
“(k) The provisions of subparagraphs (A) and (B) of paragraph (1) of subsection (a)
of this section shall not apply to investment companies operating under the Small Business
Investment Act of 1958, and the provisions of paragraph (2) of said subsection shall not
apply to such companies so long as such class of senior security shall be held or guaranteed
by the Small Business Administration.”

Preferred stock
asset coverage
requirement,
exemption.

Sec. 318. 123 GUARANTEED OBLIGATIONS NOT ELIGIBLE FOR PURCHASE BY
FEDERAL FINANCING BANK

15 USC 687k.

Nothing in any provision of law shall be construed to authorize the Federal Financing
Bank to acquire after September 30, 1985—
(1)
any obligation the payment of principal or interest on which has at any
time been guaranteed in whole or in part under this title,
(2)
paragraph (1), or

any obligation which is an interest in any obligation described in

(3)
any obligation which is secured by, or substantially all of the value of
which is attributable to, any obligation described in paragraph (1) or (2).
Sec. 319. 124

15 USC 687l.

ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES

123

Section 318 (former § 320; redesignated by § 208(h)(1)(E) of P.L. 104-208) added by § 18004(a) of P.L. 99-272, approved
April 7, 1986 (100 Stat. 364).
124
Section 319 (former § 321; redesignated by § 208(h)(1)(E) of P.L. 104-208) completely rewritten by § 404 of P.L. 102-366,
approved Sept. 4, 1992 (106 Stat. 1013). Text of former § 321 follows:

(a) The Administration is authorized to issue trust certificates representing ownership of all or a fractional part of
debentures issued by small business investment companies, including companies operating under the authority of
section 301(d), and guaranteed by the Administration under this Act: Provided, That such trust certificates shall be
based on and backed by a trust or pool approved by the Administration and composed solely of guaranteed debentures.
(b) The Administration is authorized, upon such terms and conditions as are deemed appropriate, to guarantee the
timely payment of the principal of and interest on trust certificates issued by the Administration or its agent for
purposes of this section. Such guarantee shall be limited to the extent of principal and interest on the guaranteed
debentures which compose the trust or pool. In the event that a debenture in such trust or pool is prepaid, either
voluntarily or in the event of default, the guarantee of timely payment of principal and interest on the trust certificates
shall be reduced in proportion to the amount of principal and interest such prepaid debenture represents in the trust or
pool. Interest on prepaid or defaulted debentures shall accrue and be guaranteed by the Administration only through
the date of payment on the guarantee. During the term of the trust certificate, it may be called for redemption due to
prepayment or default of all debentures constituting the pool.
(c) 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 of such trust certificates issued by the Administration or its agent pursuant to this section.
(d) The Administration shall not collect any fee for any guarantee under this section: Provided, That nothing herein

53

(Rev. 15)

§ 319(a) to
§ 319(b)

SMALL BUSINESS INVESTMENT ACT OF 1958

(a)
The Administration is authorized to issue trust certificates representing
ownership of all or a fractional part of debentures issued by small business investment
companies 125 and guaranteed by the Administration under this Act, or participating securities
which are issued by such companies and purchased and guaranteed pursuant to section
303(g): Provided, That such trust certificates shall be based on and backed by a trust or pool
approved by the Administration and composed solely of guaranteed debentures or guaranteed
participating securities.

Issuance and
guarantee of
trust
certificates.

(b)
The Administration is authorized, upon such terms and conditions as are
deemed appropriate, to guarantee the timely payment of the principal of and interest on trust
certificates issued by the Administration or its agent for purposes of this section. Such
guarantee shall be limited to the extent of principal and interest on the guaranteed debentures
or the redemption price of and priority payments on the participating securities, which
compose the trust or pool. In the event that a debenture in such trust or pool is prepaid, or
participating securities are redeemed, either voluntarily or involuntarily, or in the event of
default of a debenture or voluntary or involuntary redemption of a participating security, the
guarantee of timely payment of principal and interest on the trust certificates shall be reduced
in proportion to the amount of principal and interest such prepaid debenture or redeemed
participating security and priority payments represent in the trust or pool. Interest on prepaid
shall preclude any agent of the Administration from collecting a fee approved by the Administration for the functions
described in subsection (f)(2) of this section.
(e) (1) In the event the Administration pays a claim under a guarantee issued under this section, it shall be subrogated
fully to the rights satisfied by such payment.
(2) No State or local law, and no Federal law, shall preclude or limit the exercise by the Administration of its
ownership rights in the debentures constituting the trust or pool against which the trust certificates are issued.
(f) The Administration shall—
(1) provide for a central registration of all trust certificates sold pursuant to this section; such central registration shall
include with respect to each sale, identification of each development company; the interest rate paid by the
development company; commissions, fees, or discounts paid to brokers and dealers in trust certificates; identification of
each purchaser of the trust certificate; the price paid by the purchaser for the trust certificate; the interest rate paid on
the trust certificate; the fees of any agent for carrying out the functions described in paragraph (2); and such other
information as the Administration deems appropriate;
(2) contract with an agent to carry out on behalf of the Administration the central registration functions of this section
and the issuance of trust certificates to facilitate poolings; such agent shall provide a fidelity bond or insurance in such
amounts as the Administration determines to be necessary to fully protect the interests of the Government;
(3) prior to any sale, require the seller to disclose to a purchaser of a trust certificate issued pursuant to this section,
information on the terms, conditions, and yield of such instrument; and
(4) have the authority to regulate brokers and dealers in trust certificates sold pursuant to this section.
125

Phrase “including companies operating under the authority of section 301(d)” was deleted by § 208(h)(1)(F)(i) of P.L. 104208, approved Sept. 30, 1996 (110 Stat. 3009-747).

54

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

§ 319(c) to
§ 319(f)(2)

or defaulted debentures, or priority payments on participating securities, shall accrue and be
guaranteed by the Administration only through the date of payment of the guarantee. During
the term of the trust certificate, it may be called for redemption due to prepayment or default
of all debentures or redemption, whether voluntary or involuntary, of all participating
securities residing in the pool.
(c)
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 of such trust certificates
issued by the Administration or its agent pursuant to this section.
(d)
The Administration shall not collect a fee for any guarantee under this section:
Provided, That nothing herein shall preclude any agent of the Administration from collecting
a fee approved by the Administration for the functions described in subsection (f)(2) of this
section.
(e)
(1)
In the event the Administration pays a claim under a guarantee issued
under this section, it shall be subrogated fully to the rights satisfied by such payment.
(2)
No State or local law, and no Federal law, shall preclude or limit the
exercise by the Administration of its ownership rights in the debentures or participating
securities residing in a trust or pool against which trust certificates are issued.
(f)
(1)
The Administration shall provide for a central registration of all trust
certificates sold pursuant to this section. 126

Registration of
trust certificates.

(2)
The Administrator shall contract with an agent or agents to carry out
on behalf of the Administration the pooling and the central registration functions of this
section including, notwithstanding any other provision of law, maintenance on behalf of and
under the direction of the Administration, such commercial bank accounts or investments in
obligations of the United States 127 as may be necessary to facilitate trusts or pools backed by
debentures or participating securities guaranteed under this Act, and the issuance of trust
126

Paragraph 319(f)(1) (former § 321(f)(1)) was rewritten by § 205(b)(1) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat.
3009-738). Text of former 321(f)(1) is reprinted below:
Such central registration shall include with respect to each sale—
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)

identification of each small business investment company;
the interest rate or prioritized payment rate paid by the small business investment company;
commissions, fees, or discounts paid to brokers and dealers in trust certificates;
identification of each purchaser of the trust certificate;
the price paid by the purchaser for the trust certificate;
the interest rate on the trust certificate;
the fee of any agent for carrying out the functions described in paragraph (2); and
such other information as the Administration deems appropriate.

127

Phrase “or investments in obligations of the United States” added by § 208(h)(1)(F)(ii) of P.L. 104-208, approved Sept. 30,
1996 (110 Stat. 3009-747).

55

(Rev. 15)

§ 319(f)(3) to
§ 351(2)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958
certificates to facilitate such poolings. Such agent or agents shall provide a fidelity bond or
insurance in such amounts as the Administration determines to be necessary to fully protect
the interests of the Government.
(3)
Prior to any sale, the Administrator shall require the seller to disclose
to a purchaser of a trust certificate issued pursuant to this section, information on the terms,
conditions, and yield of such instrument.
(4)
The Administrator is authorized to regulate brokers and dealers in trust
certificates sold pursuant to this section.
(5) 128 Nothing in this subsection shall prohibit the use of a book-entry or
other electronic form of registration for trust certificates.
Sec. 320. 129

PERIODIC ISSUANCE OF GUARANTEES AND TRUST CERTIFICATES 15 USC 687m.

The Administration shall issue guarantees under section 303 and trust certificates
under section 319 at periodic intervals of not less than every 12 months 130 and shall do so at
such shorter intervals as its [sic] deems appropriate, taking into consideration the amount and
number of such guarantees or trust certificates.

Periodic
issuance of
guarantees and
trust
certificates.

PART B—NEW MARKETS VENTURE CAPITAL PROGRAM 131
Sec. 351

15 USC 689.

DEFINITIONS.

In this part, the following definitions apply:
(1)
DEVELOPMENTAL VENTURE CAPITAL.—The term “developmental
venture capital” means capital in the form of equity capital investments in businesses made
with a primary objective of fostering economic development in low-income geographic
areas. For the purposes of this paragraph, the term “equity capital” has the same meaning
given such term in section 303(g)(4).
(2)
LOW-INCOME INDIVIDUAL.—The term “low-income individual” means
an individual whose income (adjusted for family size) does not exceed—
(A)
128

“Developmental venture
capital.”
“Equity capital.”

“Low-income
individual.”

for metropolitan areas, 80 percent of the area median income; and

Paragraph 319(f)(5) added by § 205(b)(2) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-738).

129

Section 320 (former § 322; redesignated by § 208(h)(1)(E) of P.L. 104-208) added by § 106(a) of P.L. 100-590, approved
Nov. 3, 1988 (102 Stat. 2993).
130
“Three months” changed to “6 months” by § 215(e) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2603). “Six
months” changed to “12 months” by § 2(d)(2) of P.L. 106-9, approved April 5, 1999 (113 Stat. 17).
131

Part B, the New Markets Venture Capital Program, added by § 101(b)(3) of P.L. 106-554, approved Dec. 21, 2000 (114
Stat. 2763A-653).

56

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)

§ 351(2)(B) to
§ 351(4)

for nonmetropolitan areas, the greater of—
(i)

80 percent of the area median income; or

(ii)

80 percent of the statewide nonmetropolitan area median

income.
(3)
LOW-INCOME GEOGRAPHIC AREA.— the term “low-income geographic
area” means—

“Low-income
geographic
area.”

(A)
any population census tract (or in the case of an area that is not tracted
for population census tracts, the equivalent county division, as defined by the Bureau of the
Census of the Department of Commerce for purposes of defining poverty areas), if—
(i)

the poverty rate for that census tract is not less than 20 percent;

(ii)

in the case of a tract—

(I)
that is located within a metropolitan area, 50 percent or
more of the households in that census tract have an income equal to less than 60 percent of
the area median gross income; or
(II)
that is not located within a metropolitan area, the
median household income for such tract does not exceed 80 percent of the statewide median
household income; or
(iii) as determined by the Administrator based on objective criteria,
a substantial population of low-income individuals reside, an inadequate access to investment
capital exists, or other indications of economic distress exist in that census tract; or
(B)

any area located within—

(i)
HUBZone (as defined in section 3(p) of the Small Business Act
and the implementing regulations issued under that section);
(ii)
an urban empowerment zone or urban enterprise community
(as designated by the Secretary of Housing and Urban Development); or
(iii) a rural empowerment zone or rural enterprise community (as
designated by the Secretary of Agriculture).
(4)
NEW MARKETS VENTURE CAPITAL COMPANY.—The term “New
Markets Venture Capital company” means a company that—

57

(Rev. 15)

“New
Markets
Venture
Capital
Company.”

§ 351(4) to
§ 352(1)

SMALL BUSINESS INVESTMENT ACT OF 1958
(A)

has been granted final approval by the Administrator under section

(B)

has entered into a participation agreement with the Administrator.

354(e); and

(5)
OPERATIONAL ASSISTANCE.—The term “operational assistance” means “Operational
assistance.”
management, marketing, and other technical assistance that assists a small business concern
with business development.
“Participation
(6)
PARTICIPATION AGREEMENT.—The term “participation agreement”
means an agreement, between the Administrator and a company granted final approval under agreement.”
section 354(e), that—

(A)

details the company’s operating plan and investment criteria; and

(B)
requires the company to make investments in smaller enterprises at
least 80 percent of which are located in low-income geographic areas.
(7)
SPECIALIZED SMALL BUSINESS INVESTMENT COMPANY.—The
term “specialized small business investment company” means any small business investment
company that—

“Specialized
small
business
investment
company.”

(A)
invests solely in small business concerns that contribute to a wellbalanced national economy by facilitating ownership in such concerns by persons whose
participation in the free enterprise system is hampered because of social or economic
disadvantages;
(B)
is organized or chartered under State business or nonprofit
corporations statutes, or formed as a limited partnership; and
(C)

was licensed under section 301(d), as in effect before September 30,

1996.
(8)
STATE.—The term “State” means such of the several States, the District of
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa,
the Commonwealth of the Northern Mariana Islands, and any other commonwealth, territory,
or possession of the United States.
Sec. 352

“State.”

Purposes.
15 USC 689a.

PURPOSES

The purposes of the New Markets Venture Capital Program established under this
part are—
(1)
to promote economic development and the creation of wealth and job
opportunities in low-income geographic areas and among individuals living in such areas by

58

(Rev. 15)

§ 352(2) to
§ 354(a)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958
encouraging developmental venture capital investments in smaller enterprises primarily
located in such areas; and
(2)
to establish a developmental venture capital program, with the mission of
addressing the unmet equity investment needs of small enterprises located in low-income
geographic areas, to be administered by the Administrator—
(A)
Capital companies;

to enter into participation agreements with New Markets Venture

(B)
to guarantee debentures of New Markets Venture Capital companies to
enable each such company to make developmental venture capital investments in smaller
enterprises in low-income geographic areas; and
(C)
to make grants to New Markets Venture Capital companies, and to
other entities, for the purpose of providing operational assistance to smaller enterprises
financed, or expected to be financed, by such companies.
Establishment.
15 USC 689b.

Sec. 353. ESTABLISHMENT
In accordance with this part, the Administrator shall establish a New Markets Venture
Capital Program, under which the Administrator may—
(1)
enter into participation agreements with companies granted final approval
under section 354(e) for the purposes set forth in section 352;
(2)
guarantee the debentures issued by New Markets Venture Capital companies
as provided in section 355; and
(3)
make grants to New Markets Venture Capital companies, and to other entities,
under section 358.
Sec. 354.

SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.

(a)
ELIGIBILITY.—A company shall be eligible to apply to participate, as a
New Markets Venture Capital company, in the program established under this part if—
(1)
the company is a newly formed for-profit entity or a newly formed forprofit subsidiary of an existing entity;
(2)
the company has a management team with experience in community
development financing or relevant venture capital financing; and
(3)
the company has a primary objective of economic development of
low-income geographic areas.

59

(Rev. 15)

Selection.
15 USC 689c.
Eligibility.

§ 354(b) to
§ 354(c)(2)(B)

SMALL BUSINESS INVESTMENT ACT OF 1958

(b)
APPLICATION.—To participate, as a New Markets Venture Capital
company, in the program established under this part a company meeting the eligibility
requirements set forth in subsection (a) shall submit an application to the Administrator that
includes—
(1)
a business plan describing how the company intends to make
successful developmental venture capital investments in identified low-income geographic
areas;
(2)
information regarding the community development finance or relevant
venture capital qualifications and general reputation of the company’s management;
(3)
a description of how the company intends to work with community
organizations and to seek to address the unmet capital needs of the communities served;
(4)
a proposal describing how the company intends to use the grant funds
provided under this part to provide operational assistance to smaller enterprises financed by
the company, including information regarding whether the company intends to use licensed
professionals, when necessary, on the company’s staff or from an outside entity;
(5)
with respect to binding commitments to be made to the company under
this part, an estimate of the ratio of cash to in-kind contributions;
(6)
a description of the criteria to be used to evaluate whether and to what
extent the company meets the objectives of the program established under this part;
(7)
information regarding the management and financial strength of any
parent firm, affiliated firm, or any other firm essential to the success of the company’s
business plan; and
(8)
(c)

such other information as the Administrator may require.
Conditional
approval.

CONDITIONAL APPROVAL.—

(1)
IN GENERAL.—From among companies submitting applications
under subsection (b), the Administrator shall, in accordance with this subsection,
conditionally approve companies to participate in the New Markets Venture Capital Program.
(2)
SELECTION CRITERIA.—In selecting companies under paragraph
(1), the Administrator shall consider the following:
(A)

The likelihood that the company will meet the goal of its

(B)

The experience and background of the company’s management

business plan.

team.

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SMALL BUSINESS INVESTMENT ACT OF 1958

§ 354 (c)(2)(C) to
§ 354(d)(2)(A)(i)(I)

(C)
The need for developmental venture capital investments in the
geographic areas in which the company intends to invest.
(D)
The extent to which the company will concentrate its activities
on serving the geographic areas in which it intends to invest.
(E)
The likelihood that the company will be able to satisfy the
conditions under subsection (d).
(F)
The extent to which the activities proposed by the company
will expand economic opportunities in the geographic areas in which the company intends to
invest.
(G)
The strength of the company’s proposal to provide operational
assistance under this part as the proposal relates to the ability of the applicant to meet
applicable cash requirements and properly utilize in-kind contributions, including the use of
resources for the services of licensed professionals, when necessary, whether provided by
persons on the company’s staff or by persons outside of the company.
(H)

Any other factors deemed appropriate by the Administrator.

(3)
NATIONWIDE DISTRIBUTION.—The Administrator shall select
companies under paragraph (1) in such a way that promotes investment nationwide.
(d)
REQUIREMENTS TO BE MET FOR FINAL APPROVAL.—The
Administrator shall grant each conditionally approved company a period of time, not to
exceed 2 years, to satisfy the following requirements:
(1)
CAPITAL REQUIREMENT.—Each conditionally approved company
shall raise not less than $5,000,000 of private capital or binding capital commitments from
one or more investors (other than agencies or departments of the Federal Government) who
met criteria established by the Administrator.
(2)
ASSISTANCE.—

NONADMINISTRATION RESOURCES FOR OPERATIONAL

(A)
IN GENERAL.—In order to provide operational assistance to
smaller enterprises expected to be financed by the company, each conditionally approved
company—
(i)

shall have binding commitments (for contribution in

cash or in kind)—
(I)
from any sources other than the Small Business
Administration that meet criteria established by the Administrator;

61

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Final
approval.

§ 354(d)(2)(A)(i)(II) to
§ 354(e)

SMALL BUSINESS INVESTMENT ACT OF 1958

(II)
payable or available over a multiyear period
acceptable to the Administrator (not to exceed 10 years); and
(III) in an amount not less than 30 percent of the total
amount of capital and commitments raised under paragraph (1);
(ii)

shall have purchased an annuity—
(I)

from an insurance company acceptable to the

Administrator;
(II)
using funds (other than the funds raised under
paragraph (1)), from any source other than the Administrator; and
(III) that yields cash payments over a multiyear
period acceptable to the Administrator (not to exceed 10 years) in an amount not less than 30
percent of the total amount of capital and commitments raised under paragraph (1); or
(iii) shall have binding commitments (for contributions in
cash or in kind) of the type described in clause (i) and shall have purchased an annuity of the
type described in clause (ii), which in the aggregate make available, over a multiyear period
acceptable to the Administrator (not to exceed 10 years), an amount not less than 30 percent
of the total amount of capital and commitments raised under paragraph (1).
(B)
EXCEPTION.—The Administrator may, in the discretion of
the Administrator and based upon a showing of special circumstances and good cause,
consider an applicant to have satisfied the requirements of subparagraph (A) if the applicant
has—
(i)
a viable plan that reasonably projects the capacity of the
applicant to raise the amount (in cash or in-kind) required under subparagraph (A); and
(ii)
binding commitments in an amount equal to not less
than 20 percent of the total amount required under paragraph (A).
(C)
LIMITATION.—In order to comply with the requirements of
subparagraphs (A) and (B), the total amount of a company’s in-kind contributions may not
exceed 50 percent of the company’s total contributions.
(e)
FINAL APPROVAL; DESIGNATION—The Administrator shall, with
respect to each applicant conditionally approved to operate as a New Markets Venture
Capital company under subsection (c), either—

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§ 354(e)(1) to
§ 355(e)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
grant final approval to the applicant to operate as a New Markets
Venture Capital company under this part and designate the applicant as such a company, if
the applicant—
(A)
satisfies the requirements of subsection (d) on or before the
expiration of the time period described in that subsection; and
(B)

enters into a participation agreement with the Administrator; or

(2)
if the applicant fails to satisfy the requirements of subsection (d) on or
before the expiration of the time period described in that subsection, revoke the conditional
approval granted under that subsection.
Sec. 355

Debentures.
15 USC 689d.

DEBENTURES.

(a)
IN GENERAL.—The Administrator may guarantee the timely payment of
principal and interest, as scheduled, on debentures issued by any New Markets Venture
Capital company.
(b)
TERMS AND CONDITIONS.—The Administrator may make guarantees
under this section on such terms and conditions as it deems appropriate, except that the term
of any debenture guaranteed under this section shall not exceed 15 years.
(c)
FULL FAITH AND CREDIT OF THE UNITED STATES.—The full faith
and credit of the United States is pledged to pay all amounts that may be required to be paid
under any guarantee under this part.
(d)

MAXIMUM GUARANTEE.—

(1)
IN GENERAL.—Under this section, the Administrator may guarantee
the debentures issued by a New Markets Venture Capital company only to the extent that the
total face amount of outstanding guaranteed debentures of such company does not exceed
150 percent of the private capital of the company, as determined by the Administrator.
(2)
TREATMENT OF CERTAIN FEDERAL FUNDS.—For the purposes
of paragraph (1), private capital shall include capital that is considered to be Federal funds, if
such capital is contributed by an investor other than an agency or department of the Federal
Government.
(e) 132 INVESTMENT LIMITATIONS.—
(1)
DEFINITION.—In this subsection, the term “covered New Markets
Venture Capital company” means a New Markets Venture Capital company—

132

New subsection 355(e) added by § 1115 of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).

63

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Debenture
guarantee.

§ 355(e)(1)(A) to
§ 356(c)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
granted final approval by the Administrator under section
354(e) on or after March 1, 2002; and
(B)

that has obtained a financing from the Administrator.

(2)
LIMITATION.—Except to the extent approved by the Administrator,
a covered New Markets Venture Capital company may not acquire or issue commitments for
securities under this title for any single enterprise in an aggregate amount equal to more than
10 percent of the sum of—
(A)

the regulatory capital of the covered New Markets Venture

Capital company; and
(B)
the total amount of leverage projected in the participation
agreement of the covered New Markets Venture Capital. [sic]
Sec. 356

ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

(a)
ISSUANCE.—The Administrator may issue trust certificates representing
ownership of all or a fractional part of debentures issued by a New Markets Venture Capital
company and guaranteed by the Administrator under this part, if such certificates are based
on and backed by a trust or pool approved by the Administrator and composed solely of
guaranteed debentures.
(b)

GUARANTEE.—

(1)
IN GENERAL.—The Administrator may, under such terms and
conditions as it deems appropriate, guarantee the timely payment of the principal of and
interest on trust certificates issued by the Administrator or its agents for purposes of this
section.
(2)
LIMITATION.—Each guarantee under this subsection shall be limited
to the extent of principal and interest on the guaranteed debentures that compose the trust or
pool.
(3)
PREPAYMENT OR DEFAULT.—In the event that a debenture in a
trust or pool is prepaid, or in the event of default of such a debenture, the guarantee of timely
payment of principal and interest on the trust certificates shall be reduced in proportion to the
amount of principal and interest such prepaid debenture represents in the trust or pool.
Interest on prepaid or defaulted debentures shall accrue and be guaranteed by the
Administrator only through the date of payment of the guarantee. At any time during its
term, a trust certificate may be called for redemption due to prepayment or default of all
debentures.
(c)
FULL FAITH AND CREDIT OF THE UNITED STATES.—The full faith
and credit of the United States is pledged to pay all amounts that may be required to be paid

64

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Trust
certificates.
15 USC 689e.

§ 356(d) to
§ 356(f)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958
under any guarantee of a trust certificate issued by the Administrator or its agents under this
section.
(d)
FEES.—The Administrator shall not collect a fee for any guarantee of a trust
certificate under this section, but any agent of the Administrator may collect a fee approved
by the Administrator for the functions described in subsection (f)(2).
(e)

SUBROGATION AND OWNERSHIP RIGHTS.—

(1)
SUBROGATION.—In the event the Administrator pays a claim under
a guarantee issued under this section, it shall be subrogated fully to the rights satisfied by
such payment.
(2)
OWNERSHIP RIGHTS.—No Federal, State, or local law shall
preclude or limit the exercise by the Administrator of its ownership rights in the debentures
residing in a trust or pool against which trust certificates are issued under this section.
(f)

MANAGEMENT AND ADMINISTRATION.—

(1)
REGISTRATION.—The Administrator may provide for a central
registration of all trust certificates issued under this section.
(2)

CONTRACTING OF FUNCTIONS.—

(A)
IN GENERAL.—The Administrator may contract with an
agent or agents to carry out on behalf of the Administrator the pooling and the central
registration functions provided for in this section including, notwithstanding any other
provision of law—
(i)
maintenance, on behalf of and under the direction of the
Administrator, of such commercial bank accounts or investments in obligations of the United
States as may be necessary to facilitate the creation of trusts or pools backed by debentures
guaranteed under this part; and
(ii)

the issuance of trust certificates to facilitate the creation

of such trusts or pools.
(B)
FIDELITY BOND OR INSURANCE REQUIREMENT.—
Any agent performing functions on behalf of the Administrator under this paragraph shall
provide a fidelity bond or insurance in such amounts as the Administrator determines to be
necessary to fully protect the interests of the United States.
(3)
REGULATION OF BROKERS AND DEALERS.—The
Administrator may regulate brokers and dealers in trust certificates issued under this section.

65

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Fees.

§ 356(f)(4) to
§ 358(a)(4)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(4)
ELECTRONIC REGISTRATION.—Nothing in this subsection may
be construed to prohibit the use of a bookentry or other electronic form of registration for
trust certificates issued under this section.
Sec. 357.

Fees.
15 USC 689f.

FEES

Except as provided in section 356(d), the Administrator may charge such fees as it
deems appropriate with respect to any guarantee or grant issued under this part.
Sec. 358
(a)

Operational
assistance grants.
15 USC 689g.

OPERATIONAL ASSISTANCE GRANTS.
IN GENERAL.—

(1)
AUTHORITY.—In accordance with this section, the Administrator
may make grants to New Markets Venture Capital companies and to other entities, as
authorized by this part, to provide operational assistance to smaller enterprises financed, or
expected to be financed, by such companies or other entities.
(2)
TERMS.—Grants made under this subsection shall be made over a
multiyear period not to exceed 10 years, under such other terms as the Administrator may
require.
(3)
COMPANIES.—

GRANTS TO SPECIALIZED SMALL BUSINESS INVESTMENT

(A)
AUTHORITY.—In accordance with this section, the
Administrator may make grants to specialized small business investment companies to
provide operational assistance to smaller enterprises financed, or expected to be financed, by
such companies after the effective date of the New Markets Venture Capital Program Act of
2000.
(B)
USE OF FUNDS.—The proceeds of a grant made under this
paragraph may be used by the company receiving such grant only to provide operational
assistance in connection with an equity investment (made with capital raised after the
effective date of the New Markets Venture Capital Program Act of 2000) in a business
located in a low-income geographic area.
(C)
SUBMISSION OF PLANS –A specialized small business
investment company shall be eligible for a grant under this section only if the company
submits to the Administrator, in such form and manner as the Administrator may require, a
plan for use of the grant.
(4)

GRANT AMOUNT.—

(A)
NEW MARKETS VENTURE CAPITAL COMPANIES.—
The amount of a grant made under this subsection to a New Markets Venture Capital

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SMALL BUSINESS INVESTMENT ACT OF 1958

§ 358(a)(4)(B) to
§ 360

company shall be equal to the resources (in cash or in kind) raised by the company under
with [sic] section 354(d)(2).
(B)
OTHER ENTITIES.—The amount of a grant made under this
subsection to any entity other than a New Markets Venture capital company shall be equal to
the resources (in cash or in kind) raised by the entity in accordance with the requirements
applicable to New Markets Venture Capital companies set forth in section 354(d)(2).
(5)
PRO RATA REDUCTIONS.—If the amount made available to carry
out this section is insufficient for the Administrator to provide grants in the amounts provided
for in paragraph (4), the Administrator shall make pro rata reductions in the amounts
otherwise payable to each company and entity under such paragraph.
(b)

SUPPLEMENTAL GRANTS.—

(1)
IN GENERAL.—The Administrator may make supplemental grants to
New Markets Venture Capital companies and to other entities, as authorized by this part,
under such terms as the Administrator may require, to provide additional operational
assistance to smaller enterprises financed, or expected to be financed, by the companies.
(2)
MATCHING REQUIREMENT.—The Administrator may require, as
a condition of any supplemental grant made under this subsection, that the company or entity
receiving the grant provide from resources (in cash or in kind), other than those provided by
the Administrator, a matching contribution equal to the amount of the supplemental grant.
(c)
LIMITATION.—None of the assistance made available under this section
may be used for any overhead or general and administrative expense of a New Markets
Venture Capital company or a specialized small business investment company.
Sec. 359

Bank
participation.
15 USC 689h.

BANK PARTICIPATION.

(a)
IN GENERAL.—Except as provided in subsection (b), any national bank, any
member bank of the Federal Reserve System, and (to the extent permitted under applicable
State law) any insured bank that is not a member of such system, may invest in any New
Markets Venture Capital company, or in any entity established to invest solely in New
Markets Venture Capital companies.
(b)
LIMITATION.—No bank described in subsection (a) may make investments
described in such subsection that are greater than 5 percent of the capital and surplus of the
bank.
Sec. 360.

FEDERAL FINANCING BANK.

15 USC 689i.

Section 318 shall not apply to any debenture issued by a New Markets Venture
Capital company under this part.

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§ 361 to
§ 363(a)

SMALL BUSINESS INVESTMENT ACT OF 1958
Sec. 361.

REPORTING REQUIREMENTS.

Each New Markets Venture Capital company that participates in the program
established under this part shall provide to the Administrator such information as the
Administrator may require, including—

Reporting
requirements.
15 USC 689j.

(1)
information related to the measurement criteria that the company proposed in
its program application; and
(2)
in each case in which the company under this part makes an investment in, or
a loan or grant to, a business that is not located in a low-income geographic area, a report on
the number and percentage of employees of the business who reside in such areas.
Sec. 362.

EXAMINATIONS.

Examinations.
15 USC 689k.

(a)
IN GENERAL.—Each New Markets Venture Capital company that
participates in the program established under this part shall be subject to examinations made
at the direction of the Investment Division of the Small Business Administration in
accordance with this section.
(b)
ASSISTANCE OF PRIVATE SECTOR ENTITIES.—Examinations under
this section may be conducted with the assistance of a private sector entity that has both the
qualifications and the expertise necessary to conduct such examinations.
(c)

COSTS.—
(1)

ASSESSMENT.—

(A)
IN GENERAL.—The Administrator may assess the cost of
examinations under this section, including compensation of the examiners, against the
company examined.
(B)
PAYMENT.—Any company against which the Administrator
assess costs under this paragraph shall pay such costs.
(2)
DEPOSIT OF FUNDS.—Funds collected under this section shall be
deposited in the account for salaries and expenses of the Small Business Administration.
Sec. 363.

Injunctions.
15 USC 689l.

INJUNCTIONS AND OTHER ORDERS.

(a)
IN GENERAL.—Whenever, in the judgment of the Administrator, a New
Markets Venture Capital company or any other person has engaged or is about to engage in
any acts or practices which constitute or will constitute a violation of any provision of this
Act, or of any rule or regulation under this Act, or of any order issued under this Act, the
Administrator may make application to the proper district court of the United States or a
United States court of any place subject to the jurisdiction of the United States for an order

68

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§ 363(b) to
§ 364(b)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

enjoining such acts or practices, or for an order enforcing compliance with such provision,
rule, regulation, or order, and such courts shall have jurisdiction of such actions and, upon a
showing by the Administrator that such New Markets Venture Capital company or other
person has engaged or is about to engage in any such acts or practices, a permanent or
temporary injunction, restraining order, or other order, shall be granted without bond.
(b)
JURISDICTION.—In any proceeding under subsection (a), the court as a
court of equity may, to such extent as it deems necessary, take exclusive jurisdiction of the
New Markets Venture Capital company and the assets thereof, wherever located, and the
court shall have jurisdiction in any such proceeding to appoint a trustee or receiver to hold or
administer under the direction of the court the assets so possessed.
(c)

ADMINISTRATOR AS TRUSTEE OR RECEIVER.—

(1)
AUTHORITY.—The Administrator may act as trustee or receiver of a
New Markets Venture Capital company.
(2)
APPOINTMENT.—Upon request of the Administrator, the court may
appoint the Administrator to act as a trustee or receiver of a New Markets Venture Capital
company unless the court deems such appointment inequitable or otherwise inappropriate by
reason of the special circumstances involved.
Sec. 364.

Penalties for
noncompliance.
15 USC 689m.

ADDITIONAL PENALTIES FOR NONCOMPLIANCE.

(a)
IN GENERAL.—With respect to any New Markets Venture Capital company
that violates or fails to comply with any of the provisions of this Act, of any regulation issued
under this Act, or of any participation agreement entered into under this Act, the
Administrator may in accordance with this section—
(1)

void the participation agreement between the Administrator and the

company; and
(2)
cause the company to forfeit all of the rights and privileges derived by
the company from this Act.
(b)

ADJUDICATION OF NONCOMPLIANCE.

(1)
IN GENERAL.—Before the Administrator may cause a New Markets
Venture Capital company to forfeit rights or privileges under subsection (a), a court of the
United States of competent jurisdiction must find that the company committed a violation, or
failed to comply, in a cause of action brought for the purpose in the district, territory, or other
place subject to the jurisdiction of the United States, in which the principal office of the
company is located.

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§ 364(b)(2) to
§ 365(c)(2)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(2)
PARTIES AUTHORIZED TO FILE CAUSES OF ACTION.—Each
cause of action brought by the United States under this subsection shall be brought by the
Administrator or by the Attorney General.
Sec. 365.

UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY
DUTY.

(a)
PARTIES DEEMED TO COMMIT A VIOLATION.—Whenever any New
Markets Venture Capital company violates any provision of this Act, of a regulation issued
under this Act, or of a participation agreement entered into under this Act, by reason of its
failure to comply with its terms or by reason of its engaging in any act or practice that
constitutes or will constitute a violation thereof, such violation shall also be deemed to be a
violation and an unlawful act committed by any person who, directly or indirectly,
authorizes, orders, participates in, causes, brings about, counsels, aids, or abets in the
commission of any acts, practices, or transactions that constitute or will constitute, in whole
or in part, such violation.
(b)
FIDUCIARY DUTIES.—It shall be unlawful for any officer, director,
employee, agent, or other participant in the management or conduct of the affairs of a New
Markets Venture Capital company to engage in any act or practice, or to omit any act or
practice, in breach of the person’s fiduciary duty as such officer, director, employee, agent,
or participant if, as a result thereof, the company suffers or is in imminent danger of suffering
financial loss or other damage.
(c)
UNLAWFUL ACTS.—Except with the written consent of the Administrator,
it shall be unlawful—
(1)
for any person to take office as an officer, director, or employee of any
New Markets Venture Capital company, or to become an agent or participant in the conduct
of the affairs or management of such a company, if the person—
(A)
has been convicted of a felony, or any other criminal offense
involving dishonesty or breach of trust, or
(B)
has been found civilly liable in damages, or has been
permanently or temporarily enjoined by an order, judgment, or decree of a court of
competent jurisdiction, by reason of any act or practice involving fraud, or breach of trust;
and
(2)
paragraph (1), if—

for any person to continue to serve in any of the capacities described in

(A)
the person is convicted of a felony, or any other criminal
offense involving dishonesty or breach of trust, or

70

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Unlawful acts.
Breach of
fiduciary duty.
15 USC 689n.

§ 365(c)(2)(B) to
§ 381

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)
the person is found civilly liable in damages, or is permanently
or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction,
by reason of any act or practice involving fraud, or breach of trust.
Sec. 366.

REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.

Using the procedures for removing or suspending a director or an officer of a licensee
set forth in section 313 (to the extent that such procedures are not inconsistent with the
requirements of this part), the Administrator may remove or suspend any director or officer
of any New Markets Venture Capital company.
Sec. 367.

Regulations.
15 USC 689p.

REGULATIONS.

The Administrator may issue such regulations as it deems necessary to carry out the
provisions of this part in accordance with its purposes.
Sec. 368.

Removal or
suspension of
directors.
15 USC 689o.

AUTHORIZATIONS OF APPROPRIATIONS.

Authorizations of
appropriations.
15 USC 689q.

(a)
IN GENERAL.—There are authorized to be appropriated for fiscal years 2001
through 2006, to remain available until expended, the following sums:
(1)
Such subsidy budget authority as may be necessary to guarantee
$150,000,000 of debentures under this part.
(2)

$30,000,000 to make grants under this part.

(b)
FUNDS COLLECTED FOR EXAMINATIONS.—Funds deposited under
section 362(c)(2) are authorized to be appropriated only for the costs of examinations under
section 362 and for the costs of other oversight activities with respect to the program
established under this part.
PART C—RENEWABLE FUEL CAPITAL INVESTMENT PILOT PROGRAM 133
Sec. 381.

DEFINITIONS.

15 USC 690.

In this part:

133

Part C, the Renewable Fuel Capital Investment Pilot Program, added by § 1207 of P.L. 110-140, approved Dec. 19, 2007
(121 Stat. 1774). Section 1208 of P.L. 110-140 provides:
STUDY AND REPORT.—The Administrator of the Small Business Administration shall conduct a study of the
Renewable Fuel Capital Investment Program under part C of title III of the Small Business Investment Act of 1958,
as added by this Act. Not later than 3 years after the date of enactment of this Act, the Administrator shall complete
the study under this section and submit to Congress a report regarding the results of the study.

71

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§ 381(1) to
§ 382

SMALL BUSINESS INVESTMENT ACT OF 1958
(1)
OPERATIONAL ASSISTANCE.—The term “operational assistance” means
management, marketing, and other technical assistance that assists a small business concern
with business development.

“Operational
assistance.”

(2)
PARTICIPATION AGREEMENT.—The term “participation agreement”
“Participation
means an agreement, between the Administrator and a company granted final approval under agreement.”
section 384(e), that—
(A)

details the operating plan and investment criteria of the company; and

(B)
requires the company to make investments in smaller enterprises
primarily engaged in researching, manufacturing, developing, producing, or bringing to
market goods, products, or services that generate or support the production of renewable
energy.
“Renewable

(3)
RENEWABLE ENERGY.—The term “renewable energy” means energy
energy.”
derived from resources that are regenerative or that cannot be depleted, including solar, wind,
ethanol, and biodiesel fuels.
(4)
RENEWABLE FUEL CAPITAL INVESTMENT COMPANY.—The term
“Renewable Fuel Capital Investment company” means a company—
(A)

“Renewable
Fuel Capital
Investment
company.”

that—
(i)

has been granted final approval by the Administrator under

(ii)

has entered into a participation agreement with the

section 384(e); and

Administrator; or
(B)

that has received conditional approval under section 384(c).

(5)
STATE.—The term “State” means each of the several States, the District of
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa,
the Commonwealth of the Northern Mariana Islands, and any other commonwealth, territory,
or possession of the United States.

“State.”

(6)
VENTURE CAPITAL.—The term “venture capital” means capital in the form
of equity capital investments, as that term is defined in section 303(g)(4).

“Venture
capital.”

Sec. 382.

PURPOSES.

15 USC 690a.

The purposes of the Renewable Fuel Capital Investment Program established under
this part are—

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§ 382(1) to
§ 384(a)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
to promote the research, development, manufacture, production, and bringing
to market of goods, products, or services that generate or support the production of renewable
energy by encouraging venture capital investments in smaller enterprises primarily engaged
[in] such activities; and
(2)
to establish a venture capital program, with the mission of addressing the
unmet equity investment needs of smaller enterprises engaged in researching, developing,
manufacturing, producing, and bringing to market goods, products, or services that generate
or support the production of renewable energy, to be administered by the Administrator—
(A)
to enter into participation agreements with Renewable Fuel Capital
Investment companies;
(B)
to guarantee debentures of Renewable Fuel Capital Investment
companies to enable each such company to make venture capital investments in smaller
enterprises engaged in the research, development, manufacture, production, and bringing to
market of gods, products, or services that generate or support the production of renewable
energy; and
(C)
to make grants to Renewable Fuel Investment Capital companies, and
to other entities, for the purpose of providing operational assistance to smaller enterprises
financed, or expected to be financed, by such companies.
Sec. 383.

Establishment.
15 USC 690b.

ESTABLISHMENT.

The Administrator shall establish a Renewable Fuel Capital Investment Program,
under which the Administrator may—
(1)

enter into participation agreements for the purposes described in section 382;

and
(2)
guarantee the debentures issued by Renewable Fuel Capital Investment
companies as provided in section 385.
Sec. 384.
SELECTION OF RENEWABLE FUEL CAPITAL INVESTMENT
COMPANIES.
(a)
ELIGIBILITY.—A company is eligible to apply to be designated as a
Renewable Fuel Capital Investment company if the company—
(1)
is a newly formed for-profit entity or a newly formed for-profit
subsidiary of an existing entity;
(2)
has a management team with experience in alternative energy
financing or relevant venture capital financing; and

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Selection.
15 USC 690c.

§ 384(a)(3) to
§ 384(c)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(3)
has a primary objective of investment in smaller enterprises that
research, manufacture, develop, produce, or bring to market goods, products, or services that
generate or support the production of renewable energy.
(b)
APPLICATION.—A company desiring to be designated as a Renewable Fuel
Capital Investment company shall submit an application to the Administrator that includes—
(1)
a business plan describing how the company intends to make
successful venture capital investments in smaller enterprises primarily engaged in the
research, manufacture, develop, produce, or bringing to market goods, products, or services
that generate or support the production of renewable energy;
(2)
information regarding the relevant venture capital qualifications and
general reputation of the management of the company;
(3)
a description of how the company intends to seek to address the unmet
capital needs of the smaller enterprises served;
(4)
a proposal describing how the company intends to use the grant funds
provided under this part to provide operational assistance to smaller enterprises financed by
the company, including information regarding whether the company has employees with
appropriate professional licenses or will contract with another entity when the services of
such an individual are necessary;
(5)
with respect to binding commitments to be made to the company under
this part, an estimate of the ratio of cash to in-kind contributions;
(6)
a description of whether and to what extent the company meets the
criteria under subsection (c)(2) and the objectives of the program established under this part;
(7)
information regarding the management and financial strength of any
parent firm, affiliated firm, or any other firm essential to the success of the business plan of
the company; and
(8)
(c)

such other information as the Administrator may require.
Conditional
approval.

CONDITIONAL APPROVAL.—

(1)
IN GENERAL.—From among companies submitting applications
under subsection (b), the Administrator shall conditionally approve companies to operate as
Renewable Fuel Capital Investment companies.
(2)
SELECTION CRITERIA.—In conditionally approving companies
under paragraph (1), the Administrator shall consider—

74

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§ 384(c)(2)(A) to
§ 384(d)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958
(A)

the likelihood that the company will meet the goal of its

(B)

the experience and background of the management team of the

business plan;

company;
(C)
the need for venture capital investments in the geographic areas
in which the company intends to invest;
(D)
the extent to which the company will concentrate its activities
on serving the geographic areas in which it intends to invest;
(E)
the likelihood that the company will be able to satisfy the
conditions under subsection (d);
(F)
the extent to which the activities proposed by the company will
expand economic opportunities in the geographic areas in which the company intends to
invest;
(G)
the strength of the proposal by the company to provide
operational assistance under this part as the proposal relates to the ability of the company to
meet applicable cash requirements and properly use in-kind contributions, including the use
of resources for the services of licensed professionals, when necessary, whether provided by
employees or contractors; and
(H)

any other factor determined appropriate by the Administrator.

(3)
NATIONWIDE DISTRIBUTION.—From among companies
submitting applications under subsection (b), the Administrator shall consider the selection
criteria under paragraph (2) and shall, to the maximum extent practicable, approve at least
one company from each geographic region of the Administration.
(d)

Final
approval.

REQUIREMENTS TO BE MET FOR FINAL APPROVAL.—

(1)
IN GENERAL.—The Administrator shall grant each conditionally
approved company 2 years to satisfy the requirements of this subsection.
(2)
CAPITAL REQUIREMENT.—Each conditionally approved company
shall raise not less than $3,000,000 of private capital or binding capital commitments from 1
or more investors (which shall not be departments or agencies of the Federal Government)
who meet criteria established by the Administrator.
(3)
ASSISTANCE.—

NONADMINISTRATION RESOURCES FOR OPERATIONAL

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§ 384(d)(3)(A) to
§ 385(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
IN GENERAL.—In order to provide operational assistance to
smaller enterprises expected to be financed by the company, each conditionally approved
company shall have binding commitments (for contribution in cash or in-kind)—
(i)
from sources other than the Administrtion that meet
criteria established by the Administrator; and
(ii)
payable or available over a multiyear period determined
appropriate by the Administrator (not to exceed 10 years).
(B)
EXCEPTION.—The Administrator may, in the discretion of
the Administrator and based upon a showing of special circumstances and good cause,
consider an applicant to have satisfied the requirements of subparagraph (A) if the applicant
has—
(i)
a viable plan that reasonably projects the capacity of the
applicant to raise the amount (in cash or in-kind) required under subparagraph (A); and
(ii)
binding commitments in an amount equal to not less
than 20 percent of the total amount required under paragraph (A).
(C)
LIMITATION.—The total amount of a [sic] in-kind
contributions by a company shall be not more than 50 percent of the total contributions by a
company.
(e)
FINAL APPROVAL; DESIGNATION.—The Administrator shall, with
respect to each applicant conditionally approved under subsection (c)—
(1)
grant final approval to the applicant to operate as a Renewable Fuel
Capital Investment company under this part and designate the applicant such a company, if
the applicant—
(A)
satisfies the requirements of subsection (d) on or before the
expiration of the time period described in that subsection; and
(B)

enters into a participation agreement with the Administrator; or

(2)
if the applicant fails to satisfy the requirements of subsection (d) on or
before the expiration of the time period described in paragraph (1) of that subsection, revoke
the conditional approval granted under that subsection.
Sec. 385.

Debentures.
15 USC 690d.

DEBENTURES.

(a)
IN GENERAL.—The Administrator may guarantee the timely payment of
principal and interest, as scheduled, on debentures issued by any Renewable Fuel Capital
Investment company.

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§ 385(b) to
§ 386(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

(b)
TERMS AND CONDITIONS.—The Administrator may make guarantees
under this section on such terms and conditions as it determines appropriate, except that—
(1)
the term of any debenture guaranteed under this section shall not
exceed 15 years; and
(2)

a debenture guaranteed under this section—
(A)

shall carry no front-end or annual fees;

(B)

shall be issued at a discount;

(C)
shall require no interest payments during the 5-year period
beginning on the date the debenture is issued;
(D)
shall be prepayable without penalty after the end of the 1-year
period beginning on the date the debenture is issued; and
(E)
shall require semiannual interest payments after the period
described in subparagraph (C).
(c)
FULL FAITH AND CREDIT OF THE UNITED STATES.—The full faith
and credit of the United States is pledged to pay all amounts that may be required to be paid
under any guarantee under this part.
(d)

MAXIMUM GUARANTEE.—

(1)
IN GENERAL.—Under this section, the Administrator may guarantee
the debentures issued by a Renewable Fuel Capital Investment company only to the extent
that the total face amount of outstanding guaranteed debentures of such company does not
exceed 150 percent of the private capital of he company, as determined by the Administrator.
(2)
TREATMENT OF CERTAIN FEDERAL FUNDS.—For the purposes
of paragraph (1), private capital shall include capital that is considered to be Federal funds, if
such capital is contributed by an investor other than a department or agency of the Federal
Government.
Sec. 386

Trust
certificates.
15 USC 690e.

ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

(a)
ISSUANCE.—The Administrator may issue trust certificates representing
ownership of all or a fractional part of debentures issued by a Renewable Fuel Capital
Investment company and guaranteed by the Administrator under this part, if such certificates
are based on and backed by a trust or pool approved by the Administrator and composed
solely of guaranteed debentures.

77

(Rev. 15)

§ 386(b) to
§ 386(f)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958
(b)

GUARANTEE.—

(1)
IN GENERAL.—The Administrator may, under such terms and
conditions as it determines appropriate, guarantee the timely payment of the principal of and
interest on trust certificates issued by the Administrator or its agents for purposes of this
section.
(2)
LIMITATION.—Each guarantee under this subsection shall be limited
to the extent of the principal and interest on the guaranteed debentures that compose the trust
or pool.
(3)
PREPAYMENT OR DEFAULT.—If a debenture in a trust or pool is
prepaid, or in the event of default of such a debenture, the guarantee of timely payment of
principal and interest on the trust certificates shall be reduced in proportion to the amount of
principal and interest such prepaid debenture represents in the trust or pool. Interest on
prepaid or defaulted debentures shall accrue and be guaranteed by the Administrator only
through the date of payment of the guarantee. At any time during its term, a trust certificate
may be called for redemption due to prepayment or default of all debentures.
(c)
FULL FAITH AND CREDIT OF THE UNITED STATES.—The full faith
and credit of the United States is pledged to pay all amounts that may be required to be paid
under any guarantee of a trust certificate issued by the Administrator or its agents under this
section.
(d)
FEES.—The Administrator shall not collect a fee for any guarantee of a trust
certificate under this section, but any agent of the Administrator may collect a fee approved
by the Administrator for the functions described in subsection (f)(2).
(e)

SUBROGATION AND OWNERSHIP RIGHTS.—

(1)
SUBROGATION.—If the Administrator pays a claim under a
guarantee issued under this section, it shall be subrogated fully to the rights satisfied by such
payment.
(2)
OWNERSHIP RIGHTS.—No Federal, State, or local law shall
preclude or limit the exercise by the Administrator of its ownership rights in the debentures
residing in a trust or pool against which trust certificates are issued under this section.
(f)

MANAGEMENT AND ADMINISTRATION.—

(1)
REGISTRATION.—The Administrator may provide for a central
registration of all trust certificates issued under this section.
(2)

CONTRACTING OF FUNCTIONS.—

78

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§ 386(f)(2)(A) to
§ 388(b)

SMALL BUSINESS INVESTMENT ACT OF 1958
(A)
IN GENERAL.—The Administrator may contract with an
agent or agents to carry out on behalf of the Administrator the pooling and the central
registration functions provided for in this section, including, not withstanding [sic] any other
provision of law—
(i)
maintenance, on behalf of and under the direction of the
Administrator, of such commercial bank accounts or investments in obligations of the United
States as may be necessary to facilitate the creation of trusts or pools backed by debentures
guaranteed under this part; and
(ii)

the issuance of trust certificates to facilitate the creation

of such trusts or pools.
(B)
FIDELITY BOND OR INSURANCE REQUIREMENT.—
Any agent performing functions on behalf of the Administrator under this paragraph shall
provide a fidelity bond or insurance in such amounts as the Administrator determines to be
necessary to fully protect the interests of the United States.
Regulation of
brokers and
dealers.

(3)
REGULATION OF BROKERS AND DEALERS.—The
Administrator may regulate brokers and dealers in trust certificates issued under this section.
(4)
ELECTRONIC REGISTRATION.—Nothing in this subsection may
be construed to prohibit the use of a book-entry or other electronic form of registration for
trust certificates issued under this section.
Sec. 387.

Fees.
15 USC 690f.

FEES.

(a)
IN GENERAL.—Except as provided in section 386(d), the Administrator may
charge such fees as it determines appropriate with respect to any guarantee or grant issued
under this part, in an amount established annually by the Administrator, as necessary to
reduce to zero the cost (as defined in section 502 of the Federal Credit Reform Act of 1990)
to the Administration of purchasing and guaranteeing debentures under this part, which
amounts shall be paid to and retained by the Administrtion.
(b)
OFFSET.—the Administrator may, as provided by section 388, offset fees
charged and collected under subsection (a).
Sec. 388.

Fee contribution.
15 USC 690g.

FEE CONTRIBUTION.

(a)
IN GENERAL.—To the extent that amounts are made available to the
Administrator for the purpose of fee contributions, the Administrator shall contribute to fees
paid by the Renewable Fuel Capital Investment companies under section 387.
(b)
ANNUAL ADJUSTMENT.—Each fee contribution under subsection (a) shall
be effective for 1 fiscal year and shall be adjusted as necessary for each fiscal year thereafter
to ensure that amounts under subsection (a) are fully used. The fee contribution for a fiscal

79

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§ 389 to
§ 389(a)(5)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958

year shall be based on the outstanding commitments made and the guarantees and grants that
the Administrator projects will be made during that fiscal year, given the program level
authorized by law for that fiscal year and any other factors that the Administrator determines
appropriate.
Sec. 389.
(a)

OPERATIONAL ASSISTANCE GRANTS.

Operational
assistance grants.
15 USC 690h.

IN GENERAL.—

(1)
AUTHORITY.—The Administrator may make grants to Renewable
Fuel Capital Investment companies to provide operational assistance to smaller enterprises
financed, or expected to be financed, by such companies or other entities.
(2)
TERMS.—A grant under this subsection shall be made over a
multiyear period not to exceed 10 years, under such other terms as the Administrator may
require.
(3)
GRANT AMOUNT.—The amount of a grant made under this
subsection to a Renewable Fuel Capital Investment company shall be equal to the lesser of—
(A)
10 percent of the resources (in cash or in kind) raised by the
company under section 384(d)(2); or
(B)

$1,000,000.

(4)
PRO RATA REDUCTIONS.—If the amount made available to carry
out this section is insufficient for the Administrator to provide grants in the amounts provided
for in paragraph (3), the Administrator shall make pro rata reductions in the amounts
otherwise payable to each company and entity under such paragraph.
(5)

GRANTS TO CONDITIONALLY APPROVED COMPANIES.—

(A)
IN GENERAL.—Subject to subparagraphs (B) and (C), upon
the request of a company conditionally approved under section 384(c), the Administrator
shall make a grant to the company under this subsection.
(B)
REPAYMENT BY COMPANIES NOT APPROVED.—If a
company receives a grant under this paragraph and does not enter into a participation
agreement for final approval, the company shall, subject to controlling Federal law, repay the
amount of the grant to the Administrator.
(C)
DEDUCTION OF GRANT TO APPROVED COMPANY.—If
a company receives a grant under this paragraph and receives final approval under section
384(e), the Administrator shall deduct the amount of the grant from the total grant amount
the company receives for operational assistance.

80

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§ 389(a)(5)(D) to
§ 392(1)

SMALL BUSINESS INVESTMENT ACT OF 1958
(D)
AMOUNT OF GRANT.—No company may receive a grant of
more than $100,000 under this paragraph.
(b)

Supplemental
grants.

SUPPLEMENTAL GRANTS.—

(1)
IN GENERAL.—The Administrator may make supplemental grants to
Renewable Fuel Capital Investment companies and to other entities, as authorized by this
part, under such terms as the Administrator may require, to provide additional operational
assistance to smaller enterprises financed, or expected to be financed, by the companies.
(2)
MATCHING REQUIREMENT.—The Administrator may require, as
a condition of any supplemental grant made under this subsection, that the company or entity
receiving the grant provide from resources (in cash or in kind), other than those provided by
the Administrator, a matching contribution equal to the amount of the supplemental grant.
(c)
LIMITATION.—None of the assistance made available under this section
may be used for any overhead or general and administrative expense of a Renewable Fuel
Capital Investment company.
Sec. 390.

BANK PARTICIPATION.

(a)
IN GENERAL.—Except as provided in subsection (b), any national bank, any
member bank of the Federal Reserve System, and (to the extent permitted under applicable
State law) any insured bank that is not a member of such system, may invest in any
Renewable Fuel Capital Investment company, or in any entity established to invest solely in
Renewable Fuel Capital Investment companies.

Bank
participation.
15 USC 690i.

(b)
LIMITATION.—No bank described in subsection (a) may make investments
described in such subsection that are greater than 5 percent of the capital and surplus of the
bank.
Sec. 391.

15 USC 690j.

FEDERAL FINANCING BANK.

Notwithstanding section 318, the Federal Financing Bank may acquire a debenture
issued by a Renewable Fuel Capital Investment company under this part.
Sec. 392.

Reporting
requirement.
15 USC 690k.

REPORTING REQUIREMENT.

Each Renewable Fuel Capital Investment company that participates in the program
established under this part shall provide to the Administrator such information as the
Administrator may require, including—
(1)
information related to the measurement criteria that the company proposed in
its program application; and

81

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§ 392(2) to
§ 395

SMALL BUSINESS INVESTMENT ACT OF 1958
(2)
in each case in which the company makes, under this part, an investment in, or
a loan or a grant to, a business that is not primarily engaged in the research, development,
manufacture, or bringing to market of renewable energy sources, a report on the nature,
origin, and revenues of the business in which investments are made.
Sec. 393.

EXAMINATIONS.

Examinations.
15 USC 690l.

(a)
IN GENERAL.—Each Renewable Fuel Capital Investment company that
participates in the program established under this part shall be subject to examinations made
at the direction of the Investment Division of the Administrtion in accordance with this
section.
(b)
ASSISTANCE OF PRIVATE SECTOR ENTITIES.—Examinations under
this section may be conducted with the assistance of a private sector entity that has both the
qualifications and the expertise necessary to conduct such examinations.
(c)

COSTS.—
(1)

ASSESSMENT.—

(A)
IN GENERAL.—The Administrator may assess the cost of
examinations under this section, including compensation of the examiners, against the
company examined.
(B)
PAYMENT.—Any company against which the Administrator
assesses costs under this paragraph shall pay such costs.
(2)
DEPOSIT OF FUNDS.—Funds collected under this section shall be
deposited in the account for salaries and expenses of the Administration.
Sec. 394.

15 USC 690m.

MISCELLANEOUS.

To the extent such procedures are not inconsistent with the requirements of this part,
the Administrator may take such action as set forth in sections 309, 311, 312, and 314 and an
officer, director, employee, agent, or other participant in the management or conduct of the
affairs of a Renewable Fuel Capital Investment company shall be subject to the requirements
of such sections.
Sec. 395.

REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.

Using the procedures for removing or suspending a director an officer of a licensee
set forth in section 313 (to the extent such procedures are not inconsistent with the
requirements of this part), the Administrator may remove or suspend any director or officer
of any Renewable Fuel Capital Investment company.

82

(Rev. 15)

Removal of
directors or
officers.
15 USC 690n.

§ 396 to
§ 401(a)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958
Sec. 396.

REGULATIONS.

Regulations.
15 USC 690o.

The Administrator may issue such regulations as the Administrator determines
necessary to carry out the provisions of this part in accordance with its purposes.
Sec. 397.

Authorization of
appropriations.
15 USC 690p.

AUTHORIZATIONS OF APPROPRIATIONS.

(a)
IN GENERAL.—Subject to the availability of appropriations, the
Administrator is authorized to make $15,000,000 in operational assistance grants under
section 389 for each of fiscal years 2008 and 2009.
(b)
FUNDS COLLECTED FOR EXAMINATIONS.—Funds deposited under
section 393(c)(2) are authorized to be appropriated only for the costs of examinations under
section 393 and for the costs of other oversight activities with respect to the program
established under this part.
Sec. 398.

TERMINATION.

Termination.
15 USC 690q.

The program under this part shall terminate at the end of the second full fiscal year
after the date that the Administrator establishes the program under this part.
TITLE IV – GUARANTEES
PART A -- LEASE GUARANTEES
Sec. 401. 134

Lease
guarantees.
15 USC 692.

AUTHORITY OF THE ADMINISTRATION

(a)
The Administration may, whenever it determines such action to be necessary
or desirable, and upon such terms and conditions as it may prescribe, guarantee the payment
of rentals under leases of commercial and industrial property entered into by small business
concerns to enable such concerns to obtain such leases. 135 Any such guarantee may be made
or effected either directly or in cooperation with any qualified surety company or other
qualified company through a participation agreement with such company. The foregoing
powers shall be subject, however, to the following restrictions and limitations:
(1)
No guarantee shall be issued by the Administration (A) if a guarantee
meeting the requirements of the applicant is otherwise available on reasonable terms, and (B)
134

Original title IV, which provided for the conversion of State chartered investment companies and State development
companies into SBICs, was repealed by § 11(f) of P.L. 87-341, approved Oct. 3, 1961 (75 Stat. 756), and new Title IV, Lease
Guarantees, was added by § 316(a) of P.L. 89-117, the Housing and Urban Development Act of 1965, approved Aug. 10, 1965
(79 Stat. 482). Title heading amended by § 911(a)(1) of P.L. 91-609, the Housing and Urban Development Act of 1970,
approved Dec. 31, 1970 (84 Stat. 1812). [Beginning with FY 1977, no appropriation for new lease guarantees has been made.]
135

Section 209 of P.L. 90-104, approved Oct. 11, 1967 (81 Stat. 271), extended the lease guarantee program to small business
concerns generally by deleting the language which had limited the program to small concerns displaced by federally aided
construction or eligible for title IV loans under the Economic Opportunity Act of 1964 (42 USC 2901 et seq.).

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§ 401(a)(2) to
§ 401(c)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958

unless the Administration determines that there exists a reasonable expectation that the small
business concern in behalf of which the guarantee is issued will perform the covenants and
conditions of the lease.
(2)
The Administration shall, to the greatest extent practicable, exercise
the powers conferred by this section in cooperation with qualified surety or other companies
on a participation basis.
Fees.
(b)
The Administration shall fix a uniform annual fee for its share of any
guarantee under this section which shall be payable in advance at such time as may be
prescribed by the Administrator. The amount of any such fee shall be determined in
accordance with sound actuarial practices and procedures, to the extent practicable, but in no
case shall such amount exceed, on the Administration's share of any guarantee made under
this part, 136 2-l/2 per centum per annum of the minimum annual guaranteed rental payable
under any guarantee lease: Provided, That the Administration shall fix the lowest fee that
experience under the program established hereby has shown to be justified. The
Administration may also fix such uniform fees for the processing of applications for
guarantees under this section as the Administrator determines are reasonable and necessary to
pay the administrative expenses that are incurred in connection therewith.

(c)
In connection with the guarantee of rentals under any lease pursuant to
authority conferred by this section, the Administrator may require, in order to minimize the
financial risk assumed under such guarantee (1)
that the lessee pay an amount, not to exceed one-fourth of the
minimum guaranteed annual rental required under the lease, which shall be held in escrow
and shall be available (A) to meet rental charges accruing in any month for which the lessee
is in default, or (B) if no default occurs during the term of the lease, for application (with
accrued interest) toward final payments of rental charges under the lease;

Escrow.

(2)
that upon occurrence of a default under the lease, the lessor shall, as a
condition precedent to enforcing any claim under the lease guarantee, utilize the entire
period, for which there are funds available in escrow for payment of rentals, in reasonably
diligent efforts to eliminate or minimize losses, by releasing the commercial or industrial
property covered by the lease to another qualified tenant, and no claim shall be made or paid
under the guarantee until such effort has been made and such escrow funds have been
exhausted;
(3)
that any guarantor of the lease will become a successor of the lessor
for the purpose of collecting from a lessee in default rentals which are in arrears and with
respect to which the lessor has received payment under a guarantee made pursuant to this
section; and

136

The reference to “this part” inserted in lieu of “this title” by § 911(a)(2) of P.L. 91-609, the Housing and Urban Development
Act of 1970, approved Dec. 31, 1970 (84 Stat. 1812).

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§ 401(c)(4) to
§ 404(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

part,

137

(4)
such other provisions, not inconsistent with the purposes of this
as the Administrator may in his discretion require.

Sec. 402.

POWERS

Without limiting the authority conferred upon the Administrator and the
Administration by section 201 138 of this Act, the Administrator and the Administration shall
have, in the performance of and with respect to the functions, powers, and duties conferred
by this part, all the authority and be subject to the same conditions prescribed in section 5(b)
of the Small Business Act with respect to loans, including the authority to execute subleases,
assignments of lease and new leases with any person, firm, organization, or other entity, in
order to aid in the liquidation of obligations of the Administration hereunder.
Sec. 403.

FUND [Repealed] 139

Sec. 404. 140

POLLUTION CONTROL

(a)

15 USC 693.
Administrator,
powers.

15 USC 694-1.

For purposes of this section, the term—

137

The reference to “this part” inserted in lieu of “this title” by § 911(a)(2) of P.L. 91-609, the Housing and Urban Development
Act of 1970, approved Dec. 31, 1970 (84 Stat. 1812).
138

The “section 201” authority referred to was transferred from sec. 201 to new sec. 308(f) pursuant to P.L. 89-779, approved
Nov. 6, 1966 (80 Stat. 1359).
139

Sec. 403 repealed and remaining funds transferred to business loan and investment fund, §§ 4(c)(1) and (2) of the Small
Business Act, by § 111(b) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2995). Text of section 403 and its legislative
history set out below:
There is hereby created within the Treasury a separate fund for guarantees which shall be available to the Administrator
without fiscal year limitations as a revolving fund for the purposes of section 401. All amounts received by the
Administrator, including any moneys, property, or assets derived by him from his operations in connection with section
401, shall be deposited in the fund. All expenses, excluding administrative expenses, pursuant to operations of the
Administrator under section 401 shall be paid from the fund.
Sec. 403 rewritten by § 911(a)(3) of P.L. 91-609, the Housing and Urban Development Act of 1970, approved Dec. 31,
1970 (84 Stat. 1812), to increase the amount of the revolving fund and extend its use to the Surety Bond Guarantees
under Part B of Title IV. Sec. 403 rewritten by § 6(a) of P.L. 93-386, the Small Business Amendments of 1974,
approved Aug. 23, 1974 (88 Stat. 742), to establish a separate revolving fund to provide capital for Surety Bond
Guarantees under Part B of Title IV. The amount authorized for the sec. 403 fund was previously set at $10 million by
§ 911(a)(3) of P.L. 91-609, to be shared by the Surety Bond Program and the Lease Guarantee Program under Part A of
Title IV. (See sec. 412 for the Surety Bond Program Revolving Fund.) Sec. 403 rewritten in its current language by
§ 103 of P.L. 95-89, approved Aug. 4, 1977, effective Oct. 1, 1977 (91 Stat. 553). The authorization language was
transferred to § 20 of the Small Business Act; SBA was no longer required to pay interest to the Treasury on
appropriated funds to be used to pay claims under the Real Estate Lease Guarantee Program and the authority to invest
idle funds obtained as fees was also eliminated. “Section 401” was substituted for “this part” by § 103 of P.L. 94-305,
approved June 4, 1976 (90 Stat. 663.)
140

Added by § 102 of P.L. 94-305, approved June 4, 1976 (90 Stat. 663). While this section has not been repealed, the program
has been transferred to § 7(a)(12)(B) of the Small Business Act by § 111(c) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat.
2995), as a guaranteed financing program pursuant to that section.

85

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§ 404(a)(1) to
§ 404(b)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
“pollution control facilities” means such property (both real and
personal) as the Administration in its discretion determines is likely to help prevent, reduce,
abate, or control noise, air or water pollution or contamination by removing, altering,
disposing or storing pollutants, contaminants, wastes, or heat, and such property (both real
and personal) as the Administration determines will be used for the collection, storage,
treatment, utilization, processing, or final disposal of solid or liquid waste.
(2)
“person” includes corporations, companies, associations, firms,
partnerships, societies, joint stock companies, States, territories, and possessions of the
United States, or subdivisions of any of the foregoing, and the District of Columbia, as well
as individuals.
(3)
“qualified contract” means a lease, sublease, loan agreement,
installment sales contract, or similar instrument, entered into between a small business
concern and any person.
(b)
The Administration may, whenever it determines that small business
concerns are or are likely to be at an operational or financing disadvantage with other
business concerns with respect to the planning, design, or installation of pollution control
facilities, or the obtaining of financing therefor (including financing by means of revenue
bonds issued by States, political subdivisions thereof, or other public bodies), guarantee the
payment of rentals or other amounts due under qualified contracts. Any such guarantee may
be made or effected either directly or in cooperation with any qualified surety company or
other qualified company through a participation agreement with such company. The
foregoing powers shall be subject, however, to the following restrictions and limitations:

“Pollution
control
facilities.”

“Person.”

“Qualified
contract.”

Guarantees.

(1)
Notwithstanding any other law, rule, or regulation or fiscal policy to
the contrary, the guarantee authorized in the case of pollution control facilities or property
shall be issued 141 when such property is acquired by the use of proceeds from industrial
revenue bonds which provide the holders interest which is exempt from Federal income
tax, 142 and the Administration is expressly prohibited from denying such guarantee due to the
property being so acquired.
(2)
Any such guarantee shall be for the full amount of payments due under
such qualified contract and shall be a full faith and credit obligation of the United States.
(3)
No guarantee shall be issued by the Administration unless the
Administration determines that there exists a reasonable expectation that the small business
concern in behalf of which the guarantee is issued will perform the covenants and conditions
of the qualified contract.

141

“Shall be issued” substituted for “may be issued” by § 115(1) of P.L. 98-473, approved Oct. 12, 1984 (98 Stat. 1967).

142

Clause following footnote signal added by P.L. 98-473, supra.

86

(Rev. 15)

§ 404(c) to
§ 404(f)

SMALL BUSINESS INVESTMENT ACT OF 1958

(c)
The Administration shall fix a uniform annual fee for any guarantee issued
under this section which shall be payable at such time and under such conditions as may be
prescribed by the Administrator. The fee shall be set at an amount which the Administration
deems reasonable and necessary and shall be subject to periodic review in order that the
lowest fee that experience under the program shows to be justified will be placed into effect.
In no case shall such amount 143 be less than 1 per centum or more than 3-1/2 per centum per
annum of the minimum annual guaranteed rental payable under any qualified contract
guaranteed under this section. The Administration may also fix such uniform fees for the
processing of applications for guarantees under this section as the Administrator determines
are reasonable and necessary to pay the administrative expenses that are incurred in
connection therewith.

Fees.

(d)
In connection with the guarantee of rentals under any qualified contract
pursuant to authority conferred by this section, the Administrator may require, in order to
minimize the financial risk assumed under such guarantee -(1)
that the lessee pay an amount, not to exceed one-fourth of the average
annual payments for which a guarantee is issued under this section, which shall be held in
escrow and shall be available (A) to meet rental charges accruing in any month for which the
lessee is in default, or (B) if no default occurs during the term of the qualified contract, for
application (with accrued interest) toward final payments of rental charges under the
qualified contract;
(2)
that upon occurrence of a default under the qualified contract, the
lessor shall, as a condition precedent to enforcing any claim under the qualified contract
guarantee, utilize the entire period, for which there are funds available in escrow for payment
of rentals, in reasonable diligent efforts to eliminate or minimize losses, by releasing the
property covered by the qualified contract to another qualified lessee, and no claim shall be
made or paid under the guarantee until such effort has been made and such escrow funds
have been exhausted;
(3)
that any guarantor of the qualified contract will become a successor of
the lessor for the purpose of collecting from a lessee in default rentals which are in arrears
and with respect to which the lessor has received payment under a guarantee made pursuant
to this section; and
(4)
such other provisions, not inconsistent with the purposes of this
section as the Administrator may in his discretion require.
(e)
Any guarantee issued under this section may be assigned with the permission
of the Administration by the person to whom the payments under qualified contracts are due.
(f)

Section 402 shall apply to the administration of this section.

143

Fee bracketed between one and 3-1/2% (instead of prior ceiling of 3-1/2%) by § 115(3) of P.L. 98-473, approved Oct. 12,
1984 (98 Stat. 1837 at 1967).

87

(Rev. 15)

§ 405 to
§ 410(4)

SMALL BUSINESS INVESTMENT ACT OF 1958

Sec. 405. 144

FUND

There is hereby created within the Treasury a separate fund for guarantees which
shall be available to the Administrator without fiscal year limitations as a revolving fund for
the purpose of section 404. All amounts received by the Administrator, including any
moneys, property, or assets derived by him from his operations in connection with section
404 shall be deposited in the fund. All expenses and payments, excluding administrative
expenses, pursuant to operations of the Administrator under section 404 shall be paid from
the fund. Moneys in the fund not needed for the payment of current operating expenses or
for the payment of claims arising under this part may be invested in bonds or other
obligations of, or bonds or other obligations guaranteed as to principal and interest by, the
United States; except that moneys provided as capital for the fund shall not be so invested. 145

Pollution
control
revolving fund.
15 USC 694-2.

PART B -- SURETY BOND GUARANTEES 146
Sec. 410.

DEFINITIONS

15 USC 694a.

As used in this part—
(1)
the term “bid bond” means a bond conditioned upon the bidder on a
contract entering into the contract, if he receives the award thereof, and furnishing the
prescribed payment bond and performance bond.

“Bid
bond.”

(2)
the term “payment bond” means a bond conditioned upon the payment
by the principal of money to persons under contract with him.

“Payment
bond.”

(3)
the term “performance bond” means a bond conditioned upon the
completion by the principal of a contract in accordance with its terms.

“Performance
bond.”

(4)
the term “surety” means the person who, (A) under the terms of a bid
bond, undertakes to pay a sum of money to the obligee in the event the principal breaches the
conditions of the bond, (B) under the terms of a performance bond, undertakes to incur the
cost of fulfilling the terms of a contract in the event the principal breaches the conditions of
the contract, (C) under the terms of a payment bond, undertakes to make payment to all
persons supplying labor and material in the prosecution of the work provided for in the
contract if the principal fails to make prompt payment, or (D) is an agent, independent agent,

“Surety”.

144

Sec. 405 rewritten by § 104 of P.L. 95-89, approved Aug. 4, 1977, effective Oct. 1, 1977 (91 Stat. 553). The authorization
language was transferred to § 20 of the Small Business Act; SBA is no longer required to pay interest to the Treasury on
appropriated funds to be used to pay claims under this program and the authority to invest idle funds was ended.
145

Last sentence added by § 112 of P.L. 96-302, approved July 2, 1980 (94 Stat. 833).

146

Part B added by § 911(a)(4) of P.L. 91-609, the Housing and Urban Development Act of 1970, approved Dec. 31, l970 (84
Stat. 1812).

88

(Rev. 15)

§ 410(5) to
§ 411

SMALL BUSINESS INVESTMENT ACT OF 1958
underwriter, or any other company or individual empowered to act on behalf of such
person. 147

(5)
the term “obligee” means (A) in the case of a bid bond, the person
requesting bids for the performance of a contract, or (B) in the case of a payment bond or
performance bond, the person who has contracted with a principal for the completion of the
contract and to whom the obligation of the surety runs in the event of a breach by the
principal of the conditions of a payment bond or performance bond.

“Obligee.”

(6)
the term “principal” means (A) in the case of a bid bond, a person
bidding for the award of a contract, or (B) the person primarily liable to complete a contract
for the obligee, or to make payments to other persons in respect of such contract, and for
whose performance of his obligation the surety is bound under the terms of a payment or
performance bond. A principal may be a prime contractor or a subcontractor.

“Principal.”

(7)
the term “prime contractor” means the person with whom the obligee
has contracted to perform the contract.
(8)
the term “subcontractor” means a person who has contracted with a
prime contractor or with another subcontractor to perform a contract.
(9) 148 Notwithstanding any other provision of law or any rule, regulation, or
order of the Administration, for purposes of sections 410, 411, and 412 the term “small
business concern” means a business concern that meets the size standard for the primary
industry in which such business concern, and the affiliates of such business concern, is
engaged, as determined by the Administrator in accordance with the North American
Industry Classification System.
Sec. 411. 149
147

AUTHORITY OF THE ADMINISTRATION

“Prime
contractor.”
“Subcontractor.”

“Small
business
concern.”

15 USC 694b.

Sec. 410(4)(D) added by § 110 of P.L. 95-507, approved Oct. 24, 1978 (92 Stat. 1757).

148

New subsection 410(9) added by § 1695(c) of P.L. 112-239, approved Jan. 3, 2013 (126 Stat. 2090). The same provision
was added by § 508(c) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 158). Section 508(f) of that law provides: “The
amendments made by this section shall remain in effect until September 30, 2010.”
149
Sec. 411(a) substantially rewritten by § 202 of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 3007). For prior text, see §
111 of P.L. 95-507, approved Oct. 24, 1978 (92 Stat. 1758). Sec. 12079 of P.L. 110-234, enacted May 22 , 2008 (122 Stat.
1406) provides:

SMALL BUSINESS BONDING THRESHOLD.
(a) IN GENERAL.—Except as provided in subsection (b), and notwithstanding any other provision of law, for any
procurement related to a major disaster, the Administrator may, upon such terms and conditions as the Administrator
may prescribe, guarantee and enter into commitments to guarantee any surety against loss resulting from a breach of
the terms of a bid bond, payment bond, performance bond, or bonds ancillary thereto, by a principal on any total
work order or contract amount at the time of bond execution that does not exceed $5,000,000.
(b) INCREASE OF AMOUNT.—Upon request of the head of any Federal agency other than the Administration
involved in reconstruction efforts in response to a major disaster, the Administrator may guarantee and enter into a

89

(Rev. 15)

§ 411(a)(1)(A) to
§ 411(a)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958

(a)
(1)
(A)
The Administration may, upon such terms and conditions as it
may prescribe, guarantee and enter into commitments to guarantee any surety against loss
resulting from a breach of the terms of a bid bond, payment bond, performance bond, or
bonds ancillary thereto, by a principal on any total work order or contract amount at the time
of bond execution that does not exceed $6,500,000, as adjusted for inflation in accordance
with section 1908 of title 41, United States Code. 150
(B) 151 The Administrator may guarantee a surety under subparagraph
(A) for a total work order or contract amount that does not exceed $10,000,000, if a
contracting officer of a Federal agency certifies that such a guarantee is necessary.
(2)
The terms and conditions of said guarantees and commitments may
vary from surety to surety on the basis of the Administration's experience with the particular
surety.
(3) 152 The Administration may authorize any surety, without further
Administration approval, to issue, monitor, and service such bonds subject to the
Administration's guarantee.

Preferred
surety bond
guarantee
program.

commitment to guarantee any security [sic; should probably read “surety”] against loss under subsection (a) on any
total work order or contract amount at the time of bond execution that does not exceed $10,000,000.
(c) LIMITATION ON USE OF OTHER FUNDS.—The Administrator may carry out this section only with amounts
appropriated in advance specifically to carry out this section.
The same language was enacted again in P.L. 110-246, June 18, 2008 (122 Stat. 2178).
150

“$1,250,000” inserted in lieu of “$1,000,000” per § 18014 of P.L. 99-272, approved April 7, 1986 (100 Stat. 370).
“$2,000,000” inserted instead of “$1,250,000” by § 805(a)(1) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-705).
Phrase “contract up to” replaced by language beginning “total work order” by § 203(a) of P.L. 108-447, approved Dec. 8, 2004
(118 Stat. 2809-657). Amount changed from “$2,000,000 to $5,000,000 by § 508(a)(2) of P.L. 111-5, approved Feb. 17, 2009
(123 Stat. 158). Subsection 508(f) of P.L. 111-5 provides: “The amendments made by this section shall remain in effect until
September 30, 2010. Amount changed to “$6,500,000” and inflation adjustment added by § 1695(a)(2) of P.L. 112-239,
approved Jan. 3, 2013 (126 Stat. 2089).
151

Paragraph 411(a)(1) renumbered as 411(a)(1)(A) and new paragraph 411(a)(1)(B) added by § 1695(a)(3) of P.L. 112-239,
approved Jan. 3, 2013 (126 Stat. 2090). The same change was made by § 508(a) of P.L. 111-5, approved Feb. 17, 2009 (123
Stat. 158). Subsection 508(f) of P.L. 111-5 provides: “The amendments made by this section shall remain in effect until
September 30, 2010.”
152

Section 207 of P.L. 100-590 (102 Stat. 3009) provided for an expiration date of September 30, 1991 “or the last day of the
third full fiscal year after the date of enactment of this Act, whichever is later,” for paragraph 411(a)(3). Expiration date of this
paragraph changed to September 30, 1994, by § 216(a) of P.L. 101-574, approved Nov. 15, 1990 (104 Stat. 2823). Expiration
date changed to Sept. 30, 1995, by § 302 of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4188). Expiration date changed to
Sept. 30, 1997, by § 7 of P.L. 104-36, approved Oct. 12, 1995 (109 Stat. 297). Expiration date changed to Sept. 30, 2000, by §
503 of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2624). Changed again to Sept. 30, 2003, by § 805(b) of P.L. 106-554,
approved Dec. 21, 2000 (114 Stat. 2763A-706). Section 207 of P.L. 100-590 was repealed by § 204(c) of P.L. 108-447,
approved Dec. 8, 2004 (118 Stat. 2809-658). [Section 206 of P.L. 100-590, approved Nov. 3, 1988, as amended by § 216(b) of
P.L. 101-574, requires the Comptroller General of the U.S. to report on the success of this provision not later than March 1,
1994, and cover the period Oct. 1, 1990, through Sept. 30, 1993.]

90

(Rev. 15)

§ 411(a)(4) to
§ 411(b)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(4)

No such guarantee may be issued, unless—
(A)

the person who would be principal under the bond is a small

business concern;
(B)
the bond is required in order for such person to bid on a
contract, or to serve as a prime contractor or subcontractor thereon;
(C)
such person is not able to obtain such bond on reasonable terms
and conditions without a guarantee under this section; and
(D)
there is a reasonable expectation that such principal will
perform the covenants and conditions of the contract with respect to which such bond is
required, and the terms and conditions of such bond are reasonable in the light of the risks
involved and the extent of the surety's participation.
The Administration shall promptly act upon an application
(5) 153 (A)
from a surety to participate in the Preferred Surety Bond Guarantee Program, authorized by
paragraph (3), in accordance with criteria and procedures established in regulations pursuant
to subsection (d).
(B)
The Administration is authorized to reduce the allotment of
bond guarantee authority or terminate the participation of a surety in the Preferred Surety
Program [sic] Guarantee Program based on the rate of participation of such surety during the
4 most recent fiscal year quarters compared to the median rate of participation by the other
sureties in the program.
(b)
Subject to the provisions of this section, in connection with the issuance by
the Administration of a guarantee to a surety as provided by subsection (a), the
Administration may agree to indemnify such surety against a loss sustained by such surety in
avoiding or attempting to avoid a breach of the terms of a bond guaranteed by the
Administration pursuant to subsection (a): Provided, however—

Indemnification.

(1)
prior to making any payment under this subsection, the Administration
shall first determine that a breach of the terms of such bond was imminent;
(2) 154 a surety must obtain approval from the Administration prior to making
any payments pursuant to this subsection unless the surety is participating under the authority
of subsection (a)(3); and
153
Paragraph 411(a)(5) added by § 206(a) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-738). Section 206(b) of P.L.
104-208 provides that “[t]he amendments made by subsection (a) shall apply with respect to applications received (or pending
substantive evaluation) on or after October 1, 1995.”
154

Section 411(b)(2) was rewritten by § 203(a) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 3008), which deleted existing
paragraph 411(b)(3), inserted new paragraph (2), and renumbered existing paragraph (2) as paragraph (3). For prior version, see
§ 111 of P.L. 95-507, approved Oct. 24, 1978 (92 Stat. 1758).

91

(Rev. 15)

§ 411(b)(3) to
§ 411(c)(4)

SMALL BUSINESS INVESTMENT ACT OF 1958

(3)
no payment by the Administration pursuant to this subsection shall
exceed 10 per centum of the contract price unless the Administrator determines that a greater
payment should be made as a result of a finding by the Administrator that the surety's loss
sustained in avoiding or attempting to avoid such breach was necessary and reasonable.
In no event shall the Administration pay a surety pursuant to this subsection an amount
exceeding the guaranteed share of the bond available to such surety pursuant to subsection
(a). 155

Limitation.

(c) 156 Any guarantee or agreement to indemnify under this section shall obligate the
Administration to pay to the surety a sum—
(1)
not to exceed 90 157 per centum of the loss incurred and paid by a
surety authorized to issue bonds subject to the Administration's guarantee under subsection
(a)(3);
(2)
not to exceed 90 per centum of the loss incurred and paid in the case of
a surety requiring the Administration's specific approval for the issuance of such bond, but in
no event may the Administration make any duplicate payment pursuant to subsection (b) or
any other subsection;
(3)
equal to 90 per centum of the loss incurred and paid in the case of a
surety requiring the Administration's specific approval for the issuance of a bond, if—
(A)
the total amount of the contract at the time of execution of the
bond or bonds is $100,000 or less, or
(B)
the bond was issued to a small business concern owned and
controlled by socially and economically disadvantaged individuals as defined by section 8(d)
of the Small Business Act or to a qualified HUBZone small business concern (as defined in
section 3(p) of the Small Business Act 158; or
(4)
155

determined pursuant to subsection (b), if applicable.

Last sentence in § 411(b) added by § 203(a)(5) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 3008).

156

Sec. 411(c) rewritten by section 203(b) of P.L. 100-590. For prior version, see § 115 of P.L. 96-302, approved July 2, 1980
(94 Stat. 833). Section 5(a) of P.L. 100-442, the Indian Financing Act of 1988, approved Sept. 22, 1988 (102 Stat. 1764)
authorizes the Secretary of the Interior to provide a supplemental surety bond guarantee not to exceed 20% of any loss for any
Indian individual or economic enterprise eligible for a surety guarantee under § 411 of the Small Business Investment Act. For
text of P.L. 100-442, see the Related Provisions of Law section of this Handbook.
157
Percentage changed from 70 to 90 by § 874(b) of P.L. 114-92, approved Nov. 25, 2015 (129 Stat. 941). Section 874(c) of
that law provides: “The amendments made by this section shall take effect 1 year after the date of the enactment of this Act.”
158

Reference to “qualified HUBZone small business concern” added by § 604(d) of P.L. 105-135, approved Dec. 2, 1997
(111 Stat. 2633).

92

(Rev. 15)

§ 411(d) to
§ 411(g)(3)

SMALL BUSINESS INVESTMENT ACT OF 1958

(d)
The Administration may establish and periodically review regulations for
participating sureties which shall require such sureties to meet Administration standards for
underwriting, claim practices, and loss ratios.
(e) 159 REIMBURSEMENT OF SURETY; CONDITIONS.—Pursuant to any such
guarantee or agreement, the Administration shall reimburse the surety, as provided in
subsection (c) of this section, except that the Administration shall be relieved of all liability
(in whole or in part within the discretion of the Administration) if—

Regulations.

SBA not liable
if--

(1)
the surety obtained such guarantee or agreement, or applied for such
reimbursement, by fraud or material misrepresentation,
(2)
the total contract amount at the time of execution of the bond or bonds
exceeds $6,500,000,
(3) the surety has breached a material term or condition of such guarantee
agreement, or
(4)
the surety has substantially violated the regulations promulgated by the
Administration pursuant to subsection (d).
(f)
The Administration may, upon such terms and conditions as it may prescribe,
adopt a procedure for reimbursing a surety for its paid losses billed each month, based upon
prior monthly payments to such surety, with subsequent adjustments after such disbursement.
(g) 160 (1)
Each participating surety shall make reports to the Administration at
such times and in such form as the Administration may require.

Reports to
SBA.

(2)
The Administration may at all reasonable times audit, in the offices of
a participating surety, all documents, files, books, records, and other material relevant to the
Administration's guarantee, commitments to guarantee, or agreements to indemnify any
surety pursuant to this section.
(3)
Each surety participating under the authority of paragraph (3) of
subsection (a) shall be audited at least once every three years 161 by examiners selected and
approved by the Administration.

Audit of
surety.

159

Paragraphs 411(e)(3) and (4) added by § 203(c) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 3008). “$1,250,000”
inserted in lieu of “$1,000,000” per § 18014 of P.L. 99-272, approved April 7, 1986 (100 Stat. 370). “$2,000,000” inserted in
lieu of “$1,250,000” per § 805(a)(2) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-705). Subsection 411(e)
rewritten by § 508(b)(1) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 158). Subsection 508(f) of P.L. 111-5 provides:
“The amendments made by this section shall remain in effect until September 30, 2010.” The same language was added
permanently by § 1695(b)(1) of P.L. 112-239, approved Jan. 3, 2013 (126 Stat. 2090).
160

161

Paragraphs (1) and (3) of section 411(g) added by § 204 of P.L. 100-590, supra.
Audit frequency changed from each year to every three years by § 202(b) of P.L. 108-447, approved Dec. 8, 2004 (118

93

(Rev. 15)

§ 411(h) to
§ 412(a)

SMALL BUSINESS INVESTMENT ACT OF 1958

(h)
The Administration shall administer this Part on a prudent and economically
justifiable basis 162and establish such fee or fees for small business concerns and premium or
premiums for sureties as it deems reasonable and necessary, to be payable at such time and
under such conditions as may be determined by the Administration.
(i)

Fees.

The provisions of section 402 shall apply in the administration of this section.

(j) 163 For bonds made or executed with the prior approval of the Administration, the
Administration shall not deny liability to a surety based upon material information that was
provided as part of the guarantee application.
(k) 164 [deleted]
Sec. 412. 165

FUND

(a)
There is hereby created within the Treasury a separate fund for guarantees
which shall be available to the Administrator without fiscal year limitation as a revolving
fund for the purposes of this part. All amounts received by the Administrator, including any
moneys, property, or assets derived by him from his operations in connection with this part,
shall be deposited in the fund. All expenses and payments, excluding administrative
expenses, pursuant to operations of the Administrator under this part shall be paid from the
fund. 166

15 USC 695.
Surety bond
guarantee
fund.

Stat. 2809-658).
162
The phrase “administer this program on a prudent and economically justifiable basis” added to the original § 411 by § 11(a) of
P.L. 93-386, the Small Business Amendments of 1974, approved Aug. 23, 1974 (88 Stat. 742). Subsection (h), formerly (c),
entirely rewritten by said section, to distinguish between fees payable by small concerns, and premiums paid by sureties, and to
eliminate several sentences.
163

New subsection 411(j) added by § 1695(b)(2) of P.L. 112-239, approved Jan. 3, 2013 (126 Stat. 2090). The same
language was added as subsection 411(k) by § 508(b)(2) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 158). Section
508(f) of P.L. 111-5 provides: “The amendments made by this section shall remain in effect until September 30, 2010.”
164

New subsection 411(k) added by § 508(b)(2) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 158). There is no 411(j).
Section 508(f) of P.L. 111-5 provides: “The amendments made by this section shall remain in effect until September 30,
2010.” Text of subsection 411(k), as added by P.L. 111-5 follows:
(k) For bonds made or executed with the prior approval of the Administration, the Administration shall not deny
liability to a surety based upon material information that was provided as part of the guaranty application.
165

Sec. 412, added by § 6(a)(4) of P.L. 93-386, the Small Business Amendments of 1974, approved Aug. 23, 1974 (88 Stat. 742),
was rewritten by § 105 of P.L. 95-89, approved Aug. 4, 1977, effective Oct. 1, 1977 (91 Stat. 553). The authorization language
was transferred to § 20 of the Small Business Act; SBA is no longer required to pay interest to the Treasury on appropriated
funds to be used to pay claims under this program and the authority to invest idle funds was modified.
166

Last sentence, repealed by § 111 of P.L. 96-302, approved July 2, 1980 (94 Stat. 833), authorized investment of funds not
needed for operating expenses or claims payments to be invested in U.S. bonds and U.S. guaranteed obligations, except for
moneys provided as capital. See § 6(a) of P.L. 93-386, approved Aug. 23, 1974 (88 Stat. 742).

94

(Rev. 15)

§ 412(b) to
§ 501(d)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958
(b) 167 Such sums as may be appropriated to the Fund to carry out the programs
authorized by this part shall be without fiscal year limitation.
TITLE V -- LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
Sec. 501.

STATE DEVELOPMENT COMPANIES.

15 USC 695.

(a) 168 The Congress hereby finds and declares that the purpose of this title is to
foster economic development and to create or preserve job opportunities in both urban and
rural areas by providing long-term financing for small business concerns through the
development company program authorized by this title.

State
development
companies.

(b)
The Administration is authorized to make loans to State development
companies to assist in carrying out the purposes of this Act. Any funds advanced under this
subsection shall be in exchange for obligations of the development company which bear
interest at such rate, and contain such other terms, as the Administration may fix, and funds
may be so advanced without regard to the use and investment by the development company
of funds secured by it from other sources.
(c)
The total amount of obligations purchased and outstanding at any one time by
the Administration under this section from any one State development company shall not
exceed the total amount borrowed by it from all other sources. Funds advanced to a State
development company under this section shall be treated on an equal basis with those funds
borrowed by such company after the date of the enactment of this Act, regardless of source,
which have the highest priority, except when this requirement is waived by the
Administrator.
(d) 169 In order to qualify for assistance under this title, the development company
must demonstrate that the project to be funded is directed toward at least one of the following
economic development objectives-(1)
the creation of job opportunities within two years of the completion of
the project or the preservation or retention of jobs attributable to the project;
(2)
improving the economy of the locality, such as stimulating other
business development in the community, bringing new income into the area, or assisting the
community in diversifying and stabilizing its economy; or

167

Existing § 412 redesignated (a) and subsection 412(b) added by § 208 of P.L. 100-590, approved Nov. 3, 1988 (102 Stat.
3009).
168
Subsections 501(a) and (b) redesignated as 501(b) and (c), respectively, and new subsection 501(a) added by § 115(a) of P.L.
100-590, approved Nov. 3, 1988 (102 Stat. 2997). Section 115(b)(1) added the heading “State development companies.”
Subsection 501(a) rewritten by § 214(a) of P.L. 101-574, approved Nov. 15, 1990 (104 Stat. 2821).
169

New subsection 501(d) added by § 214(b) of P.L. 101-574, approved Nov. 15, 1990 (104 Stat. 2821).

95

(Rev. 15)

§ 501(d)(3) to
§ 501(d)(3)(L)

SMALL BUSINESS INVESTMENT ACT OF 1958
(3)

the achievement of one or more of the following public policy goals:
(A)

business district revitalization,

(B)

expansion of exports,

(C)
business development, 170
(D)

expansion of minority business development or women-owned

rural development,

(E) 171 expansion of small business concerns owned and controlled by
veterans, as defined in section 3(q) of the Small Business Act (15 U.S.C. 632(q)), especially [15 USC 632(q)].
service-disabled veterans, as defined in such section 3(q).
(F)
enhanced economic competition, including the advancement of
technology, plant retooling, conversion to robotics, or competition with imports,
(G)
defense related industries,

changes necessitated by Federal budget cutbacks, including

(H)
business restructuring arising from Federally mandated
standards or policies affecting the environment or the safety and health of employees,
(I) 172 reduction of energy consumption by at least 10 percent,
(J)
increased use of sustainable design, including designs that
reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce
buildings that reduce the use of non-renewable resources and minimize environmental
impact,
(K)
plant, equipment and process upgrades of renewable energy
sources such as the small-scale production of energy for individual buildings or communities
consumption, commonly known as micropower, or renewable fuels producers including
biodiesel and ethanol producers, or
(L) 173 reduction of rates of unemployment in labor surplus areas, as
such areas are determined by the Secretary of Labor.
170

Reference to women-owned business development added by § 302 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat
2763).
171
Subparagraphs 501(d)(3)(E) – (G) renumbered as (F) –(H), respectively, and new subparagraph 501(d)(3)(E) added by §
405 of P.L. 106-50, approved August 17, 1999 (113 Stat. 246).
172

New subparagraphs (I) through (K) added by § 1204(a) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat. 1772).

173

New subparagraph (L) added by § 1132(3) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2514).

96

(Rev. 15)

§ 501(e)(1) to
§ 501(e)(6)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

In subparagraphs (J) and (K), terms have the meanings given those terms under the
Leadership in Energy and environmental design (LEED) standard for green building
certification, as determined by the Administrator. 174
If eligibility is based upon the criteria set forth in paragraph (2) or (3), the project need not
meet the job creation or job preservation criteria developed by the Administration if the
overall portfolio of the development company meets or exceeds such job creation or retention
criteria.
(e) 175 (1)
A project meets the objective set forth in subsection (d)(1) if the
project creates or retains one job for every $65,000 176 guaranteed by the Administration,
except that the amount is $100,000 in the case of a project of a small manufacturer.
(2)
Paragraph (1) does not apply to a project for which eligibility is based
on the objectives set forth in paragraph (2) or (3) of subsection (d), if the development
company’s portfolio of outstanding debentures creates or retains one job for every $65,000 177
guaranteed by the Administration.
(3)
For projects in Alaska, Hawaii, State-designated enterprise zones,
empowerment zones and enterprise communities, labor surplus areas, as determined by the
Secretary of Labor, and for other areas designated by the Administrator, the development
company’s portfolio may average not more than $75,000 per job created or retained.
(4)
Loans for projects of small manufacturers shall be excluded from
calculations under paragraph (2) or (3).
(5)
Under regulations prescribed by the Administrator, the Administrator
may waive, on a case-by-case basis or by regulation, any requirement of this subsection
(other than paragraph (4)). With respect to any waiver the Administrator is prohibited from
adopting a dollar amount that is lower than the amounts set forth in paragraphs (1), (2), and
(3).
(6)
As used in this subsection, the term “small manufacturer” means a
small business concern—

“Small
manufacturer.”

(A)
the primary business of which is classified in sector 31, 32, or
33 of the North American Industrial Classification System; and
174

Freestanding language after subparagraph (K) added by § 1204(a)(4) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat.
1772).
175

New subsection 501(e) added by § 105 of P.L. 108-447, approved Dec. 8, 2004 (118 Stat. 2809-636).

176

Amount changed from “$50,000” to “$65,000” by § 504(b) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 156).

177

Amount changed from “$50,000” to “$65,000” by § 504(b) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 156).

97

(Rev. 15)

§ 501(e)(6)(B) to
§ 502(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)

all of the production facilities of which are located in the

United States.
Sec. 502.
LOANS FOR PLANT ACQUISITION, CONSTRUCTION, CONVERSION,
AND EXPANSION 178

15 USC 696.

The Administration may, in addition to its authority under section 501, make loans
for plant acquisition, 179 construction, conversion or expansion, including the acquisition of
land, to State and local development companies, and such loans may be made or effected
either directly or in cooperation with banks or other lending institutions through agreements
to participate on an immediate or deferred basis: Provided, however, That the foregoing
powers shall be subject to the following restrictions and limitations:
(1) 180 USE OF PROCEEDS.—The proceeds of any such loan shall be used
solely by the borrower to assist 1 or more identifiable small business concerns and for a
sound business purpose approved by the Administration.
(2) 181 MAXIMUM AMOUNT.—
178

179

Heading for § 502 added by § 116(b) of P.L. 100-590.
The word “acquisition” added by § 108(a) of P.L. 94-305, approved June 4, 1976 (90 Stat. 663).

180

Former para. (1) and (5) repealed and former para. (2), (3), and (4) renumbered as para (1), (2), and (3), respectively, by §
1909 of P.L. 97-35, approved Aug. 13, 1981 (95 Stat. 357). Effective date is Oct. 1, 1981 per § 1918 of P.L. 97-35. Former
para. 1 required loans to be “so secured as reasonably to assure repayment” and limited loan guarantees to 90%. Former para. 5
limited loans to 25 years plus construction period, and an additional 10 years if needed for orderly liquidation. For full text see §
502 of P.L. 85-699, approved Aug. 21, 1958 (72 Stat. 697). Paragraph 502(1) was rewritten by § 221(1) of P.L. 105-135,
approved Dec. 2, 1997 (111 Stat. 2603). Text of former paragraph 502(1) is reprinted below:
The proceeds of any such loan shall be used solely by such borrower to assist an identifiable small-business concern
and for a sound business purpose approved by the Administration.
181

Paragraph 502(2) rewritten by § 104 of P.L. 108-447, approved Dec. 8, 2004 (118 Stat. 2809-636). The text of former
paragraph 502(2) and its history are set out below:
Loans made by the Administration under this section shall be limited to $1,000,000 for each such identifiable
small-business concern, except loans meeting the criteria specified in section 501(d)(3) shall be limited to
$1,300,000 for each such identifiable small business concern.
This limitation was raised from “$500,000” to “$750,000” by § 8007(b) of P.L. 100-418, approved August 23, 1988 (102 Stat.
1561). The limitation was raised from “$750,000” to “$1,000,000” by § 303 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat.
2763A-684). Section 8007(c) of P.L. 100-418 provides that:
The Administrator of the Small Business Administration shall report to the Committees on Small Business of the
House of Representatives and the Senate within 6 months after the date of enactment of this title as to the viability of
creating cooperative Federal-State guarantee programs, particularly for purposes of export financing, to encourage
States to coinsure Federal loans, thus permitting the Federal Government to reduce its exposure.
Exception for 501(d)(3) added by § 214(c) of P.L. 101-574, approved Nov. 15, 1990 (104 Stat. 2822). Limitation was changed
from “$1,000,000” to $1,300,000” by § 303 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-684).

98

(Rev. 15)

§ 502(2)(A) to
§ 502(3)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
IN GENERAL.—Loans made by the Administration under this
section shall be limited to—
(i)
$5,000,000 182 for each small business concern if the
loan proceeds will not be directed toward a goal or project described in clause (ii), (iii), (iv),
or (v) 183;
(ii)
$5,000,000 184 for each small business concern if the
loan proceeds will be directed toward 1 or more of the public policy goals described under
section 501(d)(3);
(iii)

$5,500,000 185 for each project of a small manufacturer;

(iv) 186 $5,500,000 for each project that reduces the borrower’s
energy consumption by at least 10 percent; and
(v)
$5,500,000 187 for each project that generates renewable
energy or renewable fuels, such as biodiesel or ethanol production.
(B)
DEFINITION.—As used in this paragraph, the term “small
manufacturer” means a small business concern—

“Small
manufacturer.”

(i)
the primary business of which is classified in sector 31,
32, or 33 of the North American Industrial Classification System; and
(ii)

all of the production facilities of which are located in

the United States.
Criteria for
assistance.

(3) 188 CRITERIA FOR ASSISTANCE.—
182

Amount changed from $1,500,000 by § 1112(1) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).

183

Phrase “subparagraph (B) or (C)” replaced with current language by § 1122(c) of P.L. 111-240, approved Sept. 27, 2010
(124 Stat. 2512).
184

Amount changed from $2,000,000 by § 1112(2) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).

185

Amount changed from $4,000,000 by § 1112(3) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).

186

New clauses (iv) and (v) added by § 1204(b) of P.L. 110-140, approved Dec. 19, 2007 (121 Stat. 1773). Amount changed
from $4,000,000 by § 1112(4) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).
187

Amount changed from $4,000,000 by § 1112(5) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2508).

188
Subsection 502(3) rewritten by § 202(a) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-734). Text of former
subsection 502(3) is reprinted below:

Any development company assisted under this section must meet criteria established by the Administration, including
the extent of participation to be required or amount of paid-in capital to be used in each instance as is determined to be

99

(Rev. 15)

§ 502(3)(A) to
§ 502(3)(B)(ii)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
IN GENERAL.—Any development company assisted under
this section or section 503 of this title must meet the criteria established by the
Administration, including the extent of participation to be required or amount of paid-in
capital to be used in each instance as is determined to be reasonable by the Administration.
(B)

COMMUNITY INJECTION FUNDS.—

Community
injection
funds.

(i)
SOURCES OF FUNDS.—Community injection funds
may be derived, in whole or in part, from—
(I)

State or local governments;

(II)

banks or other financial institutions;

(III)

foundations or other not-for-profit institutions;

or
(IV) the small business concern (or its owners,
stockholders, or affiliates) receiving assistance through a body authorized by this title.
(ii) 189 FUNDING FROM INSTITUTIONS.—Not less than 50
percent of the total cost of any project financed pursuant to clauses (i), (ii), or (iii) of
reasonable by the Administration. Community injection funds may be derived, in whole or in part, from -(A) State or local governments;
(B) banks or other financial institutions;
(C) foundations or other not-for-profit institutions; or
(D) a small business concern (or its owners, stockholders, or affiliates) receiving assistance through bodies authorized
under this title.
189

Section 503 of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 153) provides:
SEC. 503. ESTABLISHMENT OF SBA SECONDARY MARKET GUARANTEE AUTHORITY.
(a) PURPOSE.—The purpose of this section is to provide the Administrator with the authority to establish the SBA
Secondary market Guarantee Authority within the SBA to provide a Federal guarantee for pools of first lien 504
loans that are to be sold to third-party investors.
(b) DEFINITIONS.—For purposes of this section:(1) The term “Administrator” means the Administrator of the
Small Business Administration.
(2) The term “first lien position 504 loan” means the first mortgage position, non-federally guaranteed loans made
by private sector lenders made under title V of the Small Business Investment Act.
(c) ESTABLISHMENT OF AUTHORITY.—
(1) ORGANIZATION.—
(A) The Administrator shall establish a Secondary Market Guarantee Authority within the Small Business
Administration.

100

(Rev. 15)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B) The Administrator shall appoint a Director of the Authority who shall report to the Administrator.
(C) The Administrator is authorized to hire such personnel as are necessary to operate the Authority and may
contract such operations of the Authority as necessary to qualified third party companies or individuals.
(D) The Administrator is authorized to contract with private sector fiduciary and custom dial [sic; should probably
read “custodial”] agents as necessary to operate the Authority.
(2) GUARANTEE PROCESS.—
(A) The Administrator shall establish, by rule, a process in which private sector entities may apply to the
Administration for a Federal guarantee on pools of first lien position 504 loans that are to be sold to third-party
investors.
(B) The Administrator is authorized to contract with private sector fiduciary and custom dial [sic; should probably
read “custodial”] agents as necessary to operate the Authority.
(3) RESPONSIBILITIES.—
(A) The Administrator shall establish, by rule, a process in which private sector entities may apply to the SBA for a
Federal guarantee on pools of first lien position 504 loans that are to be sold to third-party investors.
(B) The rule under this section shall provide for a process for the Administrator to consider and make decisions
regarding whether to extend a Federal guarantee referred to in clause (i). Such rule shall also provide that:
(i) The seller of the pools purchasing a guarantee under this section retains not less than 5 percent of the dollar
amount of the pools to be sold to third-party investors.
(ii) The Administrator shall charge fees, upfront or annual, at a specified percentage of the loan amount that is at
such a rate that the cost of the program under the Federal Credit Reform Act of 1990 (title V of the Congressional
Budget and Impoundment Control Act of 1974; 2 U.S.C. 661) shall be equal to zero.
(iii) The Administrator may guarantee not more than $3,000,000,000 of pools under this authority.
(C) The Administrator shall establish documents, legal covenants, and other required documentation to protect the
interests of the United States.
(D) The Administrator shall establish a process to receive and disburse funds to entities under the authority
established in this section.
(d) LIMITATIONS.—
(1) The Administrator shall ensure that entities purchasing a guarantee under this section are using such guarantee
for the purpose of selling 504 first lien position pools to third-party investors.
(2) If the Administrator finds that any such guarantee was used for a purpose other than that specified in paragraph
(1), the Administrator shall—
(A) prohibit the purchaser of the guarantee or its affiliates (within the meaning of the regulations under 13 CFR
121.103) from using the authority of this section in the future; and
(B) take any other actions the Administrator, in consultation with the Attorney General of the United States deems
appropriate.

101

(Rev. 15)

§ 502(3)(C) to
§ 502(3)(C)(iv)

SMALL BUSINESS INVESTMENT ACT OF 1958

subparagraph (C) shall come from the institutions described in subclauses (I), (II), and (III)
of clause (i).
(C)
FUNDING FROM A SMALL BUSINESS CONCERN.—The
small business concern (or its owners, stockholders, or affiliates) receiving assistance
through a body authorized by this title shall provide—
(i)
at least 15 percent of the total cost of the project
financed, if the small business concern has been in operation for a period of 2 years or less;
(ii)
at least 15 percent of the total cost of the project
financed if the project involves the construction of a limited or single purpose building or
structure;
(iii) at least 20 percent of the total cost of the project
financed if the project involves both of the conditions set forth in clauses (i) and (ii); or
(iv)
at least 10 percent of the total cost of the project
financed, in all other circumstances, at the discretion of the development company.

(e) OVERSIGHT.—The Administrator shall submit a report to Congress not later than the third business day of
each month setting forth each of the following:
(1) The aggregate amount of guarantees extended under this section during the preceding month.
(2) The aggregate amount of guarantees outstanding.
(3) Defaults and payments on defaults made under this section.
(4) The identity of each purchaser of a guarantee found by the Administrator to have misused guarantees under this
section.
(5) Any other information the Administrator deems necessary to fully inform Congress of undue risk to the United
States associated with the issuance of guarantees under this section.
(f) DURATION OF PROGRAM.—The authority of this section shall terminate on the date 2 years after the date of
enactment of this section.
(g) FUNDING.—Such sums as necessary are authorized to be appropriated to carry out the provisions of this
section.
(h) BUDGET TREATMENT.—Nothing in this section shall be construed to exempt any activity of the
Administrator under this section from the Federal Credit Reform Act of 1990 (title V of the Congressional Budget
and Impoundment Control Act of 1974; 2 U.S.C. 661 and following).
(i) EMERGENCY RULEMAKING AUTHORITY.—The Administrator shall issue regulations under
this section within 15 days after the date of enactment of this section. The notice requirements of
section 553(b) of title 5, United States Code shall not apply to the promulgation of such regulations.

102

(Rev. 15)

§ 502(3)(D) to
§ 502(6)

SMALL BUSINESS INVESTMENT ACT OF 1958
(D) 190 SELLER FINANCING.—Seller-provided financing may be
used to meet the requirements of subparagraph (B), if the seller subordinates the interest of
the seller in the property to the debenture guaranteed by the Administration.
(E)

COLLATERALIZATION.—

(i)
IN GENERAL.—The collateral provided by the small
business concern shall generally include a subordinate lien position on the property being
financed under this title, and is only 1 of the factors to be evaluated in the credit
determination. Additional collateral shall be required only if the Administration determines,
on a case by case basis, that additional security is necessary to protect the interest of the
Government.
(ii) 191 APPRAISALS.—With respect to commercial real
property provided by the small business concern as collateral, an appraisal of the property by
a State licensed or certified appraiser—
(I)
shall be required by the Administration before
disbursement of the loan if the estimated value of that property is more than $250,000; or
(II)
may be required by the Administration or the
lender before disbursement of the loan if the estimated value of that property is $250,000 or
less, and such appraisal is necessary for appropriate evaluation of creditworthiness.
(4) 192 If the project is to construct a new facility, up to 33 per centum of the
total project may be leased, if reasonable projections of growth demonstrate that the assisted
small business concern will need additional space within three years and will fully utilize
such additional space within ten years.
(5) 193 LIMITATION ON LEASING.—In addition to any portion of the
project permitted to be leased under paragraph (4), not to exceed 20 percent of the project
may be leased by the assisted small business to 1 or more other tenants, if the assisted small
business occupies permanently and uses not less than a total of 60 percent of the space in the
project after the execution of any leases authorized under this section.
(6) 194 OWNERSHIP REQUIREMENTS.—Ownership requirements to
determine the eligibility of a small business concern that applies for assistance under any

Community
property.

190

Subparagraphs 502(3)(D) and (E) were added by § 221(2) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2603).

191

Clause 502(3)(E)(ii) added by § 208 (b)(2) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-683).

192

Section 502(4) added by § 116(a) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2998).

193

Paragraph 502(5) added by § 221(3) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2604).

194

New paragraph 502(6) added by § 802(b) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-702).

103

(Rev. 15)

§ 502(7) to
§ 502(7)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958
credit program under this title shall be determined without regard to any ownership interest
of a spouse arising solely from the application of the community property laws of a State for
purposes of determining marital interests.
(7) 195 PERMISSIBLE DEBT REFINANCING.—
(A)
IN GENERAL.—Any financing approved under this title may
include a limited amount of debt refinancing.
(B)
EXPANSIONS.—If the project involves expansion of a small
business concern, any amount of existing indebtedness that does not exceed 50 percent of the
project cost of the expansion may be refinanced and added to the expansion cost, if—
(i)
the proceeds of the indebtedness were used to acquire
land, including a building situated thereon, to construct a building thereon, or to purchase
equipment;
(ii)

the existing indebtedness is collateralized by fixed

(iii)

the existing indebtedness was incurred for the benefit of

assets;

the small business concern;
(iv)
the financing under this title will be used only for
refinancing existing indebtedness or costs relating to the project financed under this title;
(v)
the financing under this title will provide a substantial
benefit to the borrower when prepayment penalties, financing fees, and other financing costs
are accounted for;
(vi)
the borrower has been current on all payments due on
the existing debt for not less than 1 year preceding the date of refinancing; and
(vii) the financing under section 504 will provide better
terms or rate of interest than the existing indebtedness at the time of refinancing.
(C) 196 REFINANCING NOT INVOLVING EXPANSIONS.—
195

New paragraph 502(7) added by § 504(a) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 155).

196

New subparagraph 502(7)(C) added by § 1122(a) of P.L. 111-240, approved Sept. 27, 2010 (124 Stat. 2510). Section
1122(b) of that law provides that: “Effective 2 years after the date of enactment of this Act, section 502(7) of the Small
Business Investment Act of 1958 (15 U.S.C. 696(7)) is amended by striking subparagraph (C).”. Section 521(a), Title V,
Division E of P.L. 114-113, approved Dec. 18, 2015 ( Stat. ) provides: “Subparagraph (C) of section 502(7) of the Small
Business Investment Act of 1958 as in effect on September 25, 2012, shall be in effect in any fiscal year during which the
cost to the Federal Government of making guarantees under such subparagraph (C) and section 503 of the Small Business
Act of 1958 is zero.” Paragraph 521(a)(2) of P.L. 114-113 provides: “unless, upon application by a development company
and after determining that the refinance loan is needed for good cause, the Administrator of the Small Business

104

(Rev. 15)

§ 502(7)(C)(i) to
§ 502(7)(C)(ii)(I)

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)

DEFINITIONS.—In this subparagraph—

(I)
the term “borrower” means a small business
concern that submits an application to a development company for financing under this
subparagraph;

“Borrower.”

(II)
the term “eligible fixed asset” means tangible
property relating to which the Administrator may provide financing under this section; and

“Eligible fixed
asset.”

(III)

the term “qualified debt” means indebtedness—
(aa)

“Qualified
debt.”

that—

(AA) was incurred not less than 2 years
before the date of the application for assistance under this subparagraph;
(BB) is a commercial loan;
(CC) is not subject to a guarantee by a
Federal agency;
(DD) the proceeds of which were used
to acquire an eligible fixed asset;
(EE)

was incurred for the benefit of

(FF)

is collateralized by eligible fixed

the small business concern; and

assets; and
(bb) for which the borrower has been current
on all payments for not less than 1 year before the date of the application.
(ii)
AUTHORITY.—A project that does not involve the
expansion of a small business concern may include the refinancing of qualified debt if—
(I)
the amount of the financing is not more than 90
percent of the value of the collateral for the financing, except that, if the appraised value of
the eligible fixed assets serving as collateral for the financing is less than the amount equal to
125 percent of the amount of the financing, the borrower may provide additional cash or
other collateral to eliminate any deficiency;
Administration waives this paragraph, a development company shall limit its financings under section 502 of the Small
Business Investment Act of 1958 (15 U.S.C. 696) so that, during any fiscal year, new financings under such subparagraph
(C) shall not exceed 50 percent of the dollars loaned under title V of the Small Business Investment Act of 1958 (15
U.S.C. 695 et seq.) during the previous fiscal year”.

105

(Rev. 15)

§ 502(7)(C)(ii)(II) to
§ 502(7)(C)(iv)(I)(aa)

SMALL BUSINESS INVESTMENT ACT OF 1958

(II)
the borrower has been in operation for all of the
2-year period ending on the date of the loan; and
(III) for a financing for which the Administrator
determines there will be an additional cost attributable to the refinancing of the qualified
debt, the borrower agrees to pay a fee in an amount equal to the anticipated additional cost.
(iii)

FINANCING FOR BUSINESS EXPENSES.—

(I)
FINANCING FOR BUSINESS EXPENSES.—
The Administrator may provide financing to a borrower that receives financing that includes
a refinancing of qualified debt under clause (ii), in addition to the refinancing under clause
(ii), to be used solely for the payment of business expenses.
(II)
APPLICATION FOR FINANCING.—An
application for financing under subclause (I) shall include—
(aa)
which the additional financing is requested; and
(bb)

a specific description of the expenses for

an itemization of the amount of each

expense.
(III) CONDITION ON ADDITIONAL
FINANCING.—A borrower may not use any part of the financing under this clause for nonbusiness purposes.
(iv)

LOANS BASED ON JOBS.—
(I)

JOB CREATION AND RETENTION

GOALS.—
(aa) IN GENERAL.—The Administrator
may provide financing under this subparagraph for a borrower that meets the job creation and
retention 197 goals under subsection (d) or (e) of section 501.
(bb) 198
197

Section 521(a)(3) of Title V, Division E, P.L. 114-113, approved Dec. 18, 2015 ( Stat. ) added the phrase “and retention.”

198

Subclause 502(7)(C)(iv)(I)(bb) and (II) no longer in effect per § 521(a)(1) of Title V, Division E, P.L. 114-113, approved
Dec. 18, 2015 ( Stat. ). Text of former subclause(iv)(I)(bb) and (iv)(II) is reprinted below:
(bb) ALTERNATE JOB RETENTION GOAL.—The Administrator may provide financing under this subparagraph
to a borrower that does not meet the goals described in item (aa) in an amount that is not more than the product
obtained by multiplying the number of employees of the borrower by $65,000.

106

(Rev. 15)

§ 502(7)(C)(v) to
§ 503(a)(4)

SMALL BUSINESS INVESTMENT ACT OF 1958

(v)
NONDELEGATION.—Notwithstanding section
508(e), the Administrator may not permit a premier certified lender to approve or disapprove
an application for assistance under this subparagraph.
(vi)
TOTAL AMOUNT OF LOANS.—The Administrator
may provide not more than a total of $7,500,000,000 of financing under this subparagraph
for each fiscal year.
Sec. 503. 199

DEVELOPMENT COMPANY DEBENTURES

(a)
(1)
Except as provided in subsection (b), the Administration may
guarantee the timely payment of all principal and interest as scheduled on any debenture
issued by any qualified State or local development company.

15 USC 697.
Development
company
debentures,
guarantee
by SBA.

(2)
Such guarantees may be made on such terms and conditions as the
Administration may by regulation determine to be appropriate: Provided, That the
Administration shall not decline to issue such guarantee when the ownership interests of the
small business concern and the ownership interests of the property to be financed with the
proceeds of a loan made pursuant to subsection (b)(1) are not identical because one or more
of the following classes of relatives have an ownership interest in either the small business
concern or the property: father, mother, son, daughter, wife, husband, brother, or sister:
Provided further, That the Administrator or his designee has determined on a case-by-case
basis that such ownership interest, such guarantee, and the proceeds of such loan, will
substantially benefit the small business concern. 200
(3)
The full faith and credit of the United States is pledged to the payment
of all amounts guaranteed under this subsection.
(4)
Any debenture issued by any State or local development company with
respect to which a guarantee is made under this subsection, may be subordinated by the

(II) NUMBER OF EMPLOYEES.—For purposes of subclause (I), the number of employees of a borrower is equal
to the sum of—
(aa) the number of full-time employees of the borrower on the date on which the borrower applies for a loan under
this subparagraph; and
(bb) the product obtained by multiplying—
(AA) the number of part-time employees of the borrower on the date on which the borrower applies for a loan under
this subparagraph; by
(BB) the quotient obtained by dividing the average number of hours each part-time employee of the borrower works
each week by 40.
199

New sec. 503 added by § 113 of P.L. 96-302, approved July 2, l980 (94 Stat. 833).

200

Provisos added by section 114 of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2997).

107

(Rev. 15)

§ 503(b) to
§ 503(b)(7)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

Administration to any other debenture, promissory note, or other debt or obligation of such
company. 201
(b)
unless—

No guarantee may be made with respect to any debenture under subsection (a)

Terms and
conditions of
guarantee.

(1)
such debenture is issued for the purpose of making one or more loans
to small business concerns, the proceeds of which shall be used by such concern for the
purposes set forth in section 502;
(2)
necessary funds for making such loans are not available to such
company from private sources on reasonable terms;
(3)
the interest rate on such debentures is not less than the rate of interest
determined by the Secretary of the Treasury for purposes of section 303(b);
(4)
the aggregate amount of such debenture does not exceed the amount of
loans to be made from the proceeds of such debenture (other than any excess attributable to
the administrative costs of such loans);
(5)
the amount of any loan to be made from such proceeds does not
exceed an amount equal to 50 percent of the cost of the project with respect to which such
loan is made; and
(6)

the Administration approves each loan to be made from such proceeds.

(7) 202 with respect to each loan made from the proceeds of such debenture,
the Administration-(A) 203 assesses and collects a fee, which shall be payable by the
borrower, in an amount established annually by the Administration, which amount shall not
exceed 204 [of]—
201

P.L. 98-8, Emergency Jobs Appropriations, 1983, approved March 24, 1983 (97 Stat. 13), provided for fiscal year 1983 in
part:
. . . the Administration may not decline to participate in a project under section 503 of the Small Business Investment
Company (sic) Act of 1958 because other sources of financing for the project include or are collateralized by
obligations described in section 103(b) of the Internal Revenue Code of 1954: And provided further, That loans made
with the proceeds of debentures guaranteed under section 503 of said Act shall be subordinated to (such) obligations . .
..
202
Paragraph 503(b)(7) added by § 6 of P.L. 104-36, approved Oct. 12, 1995 (109 Stat. 297). The amount of the fee was
changed from 0.125 percent per year of the outstanding balance of the loan and clause (ii) was added by § 202(b) of P.L. 104208, approved Sept. 30, 1996 (110 Stat. 3009-735). For information on applicability of this amendment, see footnote to §
7(a)(2) of the Small Business Act.
203

Subparagraph 503(b)(7)(A) was rewritten by § 222(1) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2604). Text of
former subparagraph (A) is reprinted below:

108

(Rev. 15)

§ 503(b)(7)(A)(i) to
§ 503(c)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)

the lesser [of]
(I)

0.9375 percent per year of the outstanding

balance of the loan; and
(II)
the minimum amount necessary to reduce the
cost (as defined in section 502 of the Federal Credit Reform Act of 1990) to the
Administration of purchasing and guaranteeing debentures under this Act to zero; and

[2 USC 661a].

(ii) 205 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
(B)
uses the proceeds of such fee to offset the cost (as such term is
defined in section 502 of the Federal Credit Reform Act of 1990) to the Administration of
making guarantees under subsection (a).
The purpose of this subsection is to facilitate the orderly and necessary
(c) 206 (1)
flow of long-term loans from certified development companies to small business concerns.
(2)
Notwithstanding the provisions of the constitution or laws of any State
limiting the rate or amount of interest which may be charged, taken, received, or reserved,
the maximum legal rate of interest on any commercial loan which funds any portion of the
cost of the project financed pursuant to this section or section 504 which is not funded by a
debenture guaranteed under this section shall be a rate which is established by the
Administrator of the Small Business Administration under the authority of this section.

Interest
rates.

(A) assesses and collects a fee, which shall be payable by the borrower, in an amount equal to the lesser of:
(i) 0.9375 percent per year of the outstanding balance of the loan; or
(ii) such percentage per year of the outstanding balance of the loan as the Administrator may determine to be
necessary to reduce 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 under this Act to an amount that, taking into
consideration any available appropriated funds, would permit the Administration to purchase or guarantee
$2,000,000,000 of debentures in fiscal year 1997;
204

Section 6(b)(1)(B) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 971), deleted the phrase “not exceed the lesser” and
inserted “not exceed”.
205

Clause 503(b)(7)(A)(ii) added by § 6(b)(1)(C) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 971).

206
Subsections 503(c) and (d) redesignated as 503(d) and (e), respectively, and new subsection 503(c) added by § 112(c)(1) of
P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2996). Section 112(c)(2) of P.L. 100-590 provides that new subsection 503(c)
shall be repealed on October 1, 1990. Section 3 of P.L. 101-515, approved Nov. 5, 1990 (104 Stat. 2140), extends the period to
Oct. 1, 1994. Section 213(2) of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4185), repealed the sunset provision, thereby
making the subsection permanent.

109

(Rev. 15)

§ 503(c)(3) to
§ 503(d)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958
(3)
The Administrator is authorized and directed to establish and publish
quarterly a maximum legal interest rate for any commercial loan which funds any portion of
the cost of the project financed pursuant to this section or section 504 which is not funded by
a debenture guaranteed under this section.
(d)

207

Charges for
Administration
expenses.

CHARGES FOR ADMINISTRATION EXPENSES.—

(1)
LEVEL OF CHARGES.—The Administration may impose an
additional charge for administrative expenses with respect to each debenture for which
payment of principal and interest is guaranteed under subsection (a).
(2) 208 PARTICIPATION FEE.—The Administration shall collect a one-time
Participation
fee in an amount equal to 50 basis points on the total participation in any project of any
fee.
institution described in subclause (I), (II), or (III) of section 502(3)(B)(i). Such fee shall be
imposed only when the participation of the institution will occupy a senior credit position to
that of the development company. All proceeds of the fee shall be used to offset the cost (as
that term is defined in section 502 of the Credit Reform Act of 1990) to the Administration of
making guarantees under subsection (a).

207
Subsection 503(d) rewritten by § 202(c) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-735). Text of former §
503(d) is reprinted below:

The Administration may impose an additional charge for administrative expenses with respect to each debenture for
which payment of principal and interest is guaranteed under subsection (a).
208

Section 501(b) of P.L. 111-5, approved Feb. 17, 2009 (123 Stat. 151), provides:
(b) TEMPORARY FEE ELIMINATION FOR THE 504 LOAN PROGRAM.—
(1) IN GENERAL.—Until September 30, 2010, and to the extent the cost of such elimination in fees is offset by
appropriations, with respect to each project or loan guaranteed by the Administrator pursuant to title V of the Small
Business Investment Act of 1958 (15 U.S.C. 695 et seq.) for which an application is approved or pending approval on
or after the date of enactment of this Act—
(A) the Administrator shall, in lieu of the fee otherwise applicable under section 503(d)(2) of the Small Business
Investment Act of 1958 (15 U.S.C. 697(d)(2)), collect no fee;
(B) a development company shall, in lieu of the processing fee under section 120.971(a)(1) of title 13, Code of Federal
Regulations (relating to fees paid by borrowers), or any successor thereto, collect no fee.
(2) REIMBURSEMENT FOR WAIVED FEES.—
(A) IN GENERAL.—To the extent that the cost of such payments is offset by appropriations, the Administrator shall
reimburse each development company that does not collect a processing fee pursuant to paragraph (1)(B).
(B) AMOUNT.—The payment to a development company under subparagraph (A) shall be in an amount equal to 1.5
percent of the net debenture proceeds for which the development company does not collect a processing fee pursuant to
paragraph (1)(B).

110

(Rev. 15)

§ 503(d)(3) to
§ 503(f)

SMALL BUSINESS INVESTMENT ACT OF 1958
(3)
DEVELOPMENT COMPANY FEE.—The Administration shall
collect annually from each development company a fee of 0.125 percent of the outstanding
principal balance of any guaranteed debenture authorized by the Administration after
September 30, 1996. Such fee shall be derived from the servicing fees collected by the
development company pursuant to regulation, and shall not be derived from any additional
fees imposed on small business concerns. All proceeds of the fee shall be used to offset the
cost (as that term is defined in section 502 of the Credit Reform Act of 1990) to the
Administration of making guarantees under subsection (a).
(e)
(1)
For purposes of this section, the term “qualified State or local
development company” means any State or local development company which, as
determined by the Administration, has—
(A)

Development
company fee.

[2 USC 661a].

“Qualified
State or local
development
company.”

a full-time professional staff;

(B)
professional management ability (including adequate
accounting, legal, and business-servicing abilities); and
(C)
a board of directors, or membership, which meets on a regular
basis to make management decisions for such company, including decisions relating to the
making and servicing of loans by such company.
(2) 209 A company in a rural area shall be deemed to have satisfied the
requirements of a full-time professional staff and professional management ability if it
contracts with another certified development company which has such staff and management
ability and which is located in the same general area to provide such services.
(3) 210 Notwithstanding any other provision of law, qualified State or local
development companies shall be authorized to prepare applications for deferred participation
loans under Section 7(a) of the Small Business Act, to service such loans and to charge a
reasonable fee for servicing such loans.
(f)
EFFECTIVE DATE.—The fees authorized by subsections (b) and (d) shall
apply to financings approved by the Administration on or after October 1, 1996. 211
209
Section 503(e) renumbered para. 1 by § 117(a)(1) and (2), and § 503(e)(2) added by § 117(a)(2) of P.L. 100-590, approved
Nov. 3, 1988 (102 Stat. 2998).
210

New paragraph 503(e)(3) added by § 8 of P.L. 101-515, approved Nov. 5, 1990 (104 Stat. 2144).

211

Subsection 503(f) added by subsection 202(d) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-735). Sunset date
changed from 1997 to 2000 by § 222(2) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2604). Date changed again from
2000 to Oct. 1, 2003 by § 304 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-684). Section 116 of P.L. 108-84,
approved Sept. 30, 2003 (117 Stat. 1044) provides that this section “shall be applied by substituting the date specified in
section 107(c) [Oct. 31, 2003] of this joint resolution.” Section 1(a) of P.L. 108-172, approved Dec. 6, 2003 (117 Stat.
2065), provides for the temporary extension of all SBA programs, authority, or provisions until March 15, 2004. Section
613 of P.L. 108-199, approved Jan. 23, 2004, substitutes “March 15, 2004” for the last date appearing in § 503(f). The date
was extended to May 21, 2004, by § 2 of P.L. 108-205, approved March 15, 2004 (118 Stat. 553). The date was further
extended to October 1, 2004, by § 2 of P.L. 108-217, approved April 5, 2004 (118 Stat. 591). The sunset date was deleted

111

(Rev. 15)

§ 503(g) to
§ 503(i)

SMALL BUSINESS INVESTMENT ACT OF 1958

Calculation of
(g) 212 CALCULATION OF SUBSIDY RATE.—All fees, interest, and profits
subsidy rate.
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
[2 USC 661a].
Administration of purchasing and guaranteeing debentures under this Act.
Required actions
upon default.

(h) 213 REQUIRED ACTIONS UPON DEFAULT.—
(1)
INITIAL ACTIONS.—Not later than the 45th day after the date on
which a payment on a loan funded through a debenture guaranteed under this section is due
and not received, the Administration shall—
(A)

take all necessary steps to bring such a loan current; or

(B)

implement a formal written deferral agreement.

(2)
PURCHASE OR ACCELERATION OF DEBENTURE.—Not later
than the 65th day after the date on which a payment on a loan described in paragraph (1) is
due and not received, and absent a formal written deferral agreement, the administration [sic]
shall take all necessary steps to purchase or accelerate the debenture.
(3)
PREPAYMENT PENALTIES.—With respect to the portion of any
project derived from funds set forth in section 502(3), the Administration—

Prepayment
penalties.

(A)
shall negotiate the elimination of any prepayment penalties or
late fees on defaulted loans made prior to September 30, 1996;
(B)
shall not pay any prepayment penalty or late fee on the default
based purchase of loans issued after September 30, 1996; and
(C)
for any project financed after September 30, 1996, shall not
pay any default interest rate higher than the interest rate on the note prior to the date of
default.
(i) 214 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.

2-year
waiver of
fees.

by § 204 of P.L. 108-447, approved Dec. 8, 2004 (118 Stat. 2809-658).
212

Subsection 503(g) added by subsection 202(e) of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-735).

213

Subsection 503(h) added by § 203 of P.L. 104-208, approved Sept. 30, 1996 (110 Stat. 3009-736).

214

New subsection 503(i) added by § 6(b)(2) of P.L. 107-100, approved Dec. 21, 2001 (115 Stat. 971). Section 6 of the
same law also provides:

112

(Rev. 15)

§ 504 to
§ 505

SMALL BUSINESS INVESTMENT ACT OF 1958

Sec. 504. 215

Sale of
debentures.
15 USC 697a.

PRIVATE DEBENTURE SALES

(a)
Notwithstanding any other law, rule, or regulation, the Administration shall
sell to investors, either publicly or by private placement, debentures pursuant to section 503
of this title as follows—
(1)
Of the program levels otherwise authorized by law for fiscal year
1986, an amount not to exceed $200,000,000;
(2)
Of the program levels otherwise authorized by law for fiscal years
1987 and 1988, an amount not to exceed $425,000,000.
(3) 216 All of the program levels authorized for fiscal year 1989 and
subsequent fiscal years.
(b)
Nothing in any provision of law shall be construed to authorize the Federal
Financing Bank to acquire—
(1)
any obligation the payment of principal or interest on which at any
time has been guaranteed in whole or in part under section 503 of this title and which is being
sold pursuant to the provisions of the program authorized in this section;
(2)
paragraph (1); or

any obligation which is an interest in any obligation described in

(3)
any obligation which is secured by, or substantially all of the value of
which is attributable to, any obligation described in paragraph (1) or (2).
Sec. 505. 217

POOLING OF DEBENTURES

15 USC 697b.

(c) BUDGETARY TREATMENT OF LOANS AND FINANCINGS.—. . . financings made under title V of the
Small Business Investment Act of 1958 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.
215
Section 504 was rewritten and in subsection 504(b) “this title” substituted for “Small Business Investment Act of 1958” by §
112(a) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2996), which provided a permanent extension of the pilot program
established by § 18008(a) of P.L. 99-272, approved April 7, 1986 (100 Stat. 366).
216

Section 2(b) of P.L. 100-72, approved July 11, 1987 (101 Stat. 477), changed authorization in 504(a)(2) from $295,000,000 to
current amount. Section 2(c) of P.L. 100-72 added new subsection 504(a)(3).

113

(Rev. 15)

§ 505(a) to
§ 505(e)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

Pooling of
(a)
The Administration is authorized to issue trust certificates representing
debentures.
ownership of all or a fractional part of debentures issued by State or local development
companies and guaranteed by the Administration under this Act: Provided, That such trust
certificates shall be based on and backed by a trust or pool approved by the Administration
and composed solely of guaranteed debentures.

(b)
The Administration is authorized, upon such terms and conditions as are
deemed appropriate, to guarantee the timely payment of the principal of and interest on trust
certificates issued by the Administration or its agent for purposes of this section. Such
guarantee shall be limited to the extent of principal and interest on the guaranteed debentures
which compose the trust or pool. In the event that a debenture in such trust or pool is
prepaid, either voluntarily or in the event of default, the guarantee of timely payment of
principal and interest on the trust certificates shall be reduced in proportion to the amount of
principal and interest such prepaid debenture represents in the trust or pool. Interest on
prepaid or defaulted debentures shall accrue and be guaranteed by the Administration only
through the date of payment on the guarantee. During the term of the trust certificate, it may
be called for redemption due to prepayment or default of all debentures constituting the pool.
(c)
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 of such trust certificates
issued by the Administration or its agent pursuant to this section.
(d)
The Administration shall not collect any fee for any guarantee under this
section: Provided, That nothing herein shall preclude any agent of the Administration from
collecting a fee approved by the Administration for the functions described in subsection
(f)(2) of this section.
(e)
(1)
In the event the Administration pays a claim under a guarantee issued
under this section, it shall be subrogated fully to the rights satisfied by such payment.

217

Section 505 added by § 18008(c) of P.L. 99-272, approved April 7, 1986 (100 Stat. 367). Title changed from “Authority for
issuance of trust certificates” by section 111(d)(2) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2995). Section 111(d)(1)
of P.L. 100-590 corrected typographical error, from “all of a” to “all or a” in second line of § 505(a).

Section 18008(d) of P.L. 99-272 provides:
(1) Notwithstanding any law, rule, or regulation, within 60 days after the date of enactment of this Act, the Small
Business Administration shall develop and promulgate final rules and regulations to implement the central registration
provisions provided for in section 505(f)(1) of the Small Business Investment Act, and shall contract with an agent for
an initial period of not to exceed two years to carry out the functions provided for in section 505(f)(2) of such Act.
(2) Notwithstanding any law, rule or regulation, within 60 days after the date of enactment of this Act, the Small
Business Administration also shall consult with representatives of appropriate Federal and State agencies and officials,
the securities industry, financial institutions and lenders, and small business persons, and shall develop and promulgate
final rules and regulations to implement sections 504 and 505 of the Small Business Investment Act.

114

(Rev. 15)

§ 505(e)(2) to
§ 506

SMALL BUSINESS INVESTMENT ACT OF 1958

(2)
No State or local law, and no Federal law, shall preclude or limit the
exercise by the Administration of its ownership rights in the debentures constituting the trust
or pool against which the trust certificates are issued.
(f)

(1) 218 The Administration shall—

(A)
pursuant to this section;

provide for a central registration of all trust certificates sold

(B)
contract with an agent to carry out on behalf of the
Administration the central registration functions of this section and the issuance of trust
certificates to facilitate poolings; such agent shall provide a fidelity bond or insurance in such
amounts as the Administration determines to be necessary to fully protect the interests of the
Government;
(C)
prior to any sale, require the seller to disclose to a purchaser of
a trust certificate issued pursuant to this section, information on the terms, conditions, and
yield of such instrument; and
(D)
have the authority to regulate brokers and dealers in trust
certificates sold pursuant to this section.
(2)
Nothing in this subsection shall prohibit the utilization of a book-entry
or other electronic form of registration for trust certificates.
Sec. 506. 219

RESTRICTIONS ON DEVELOPMENT COMPANY ASSISTANCE

15 USC 697c.

218

Paragraphs 505(f)(1) - (4) renumbered 505(f)(1)(A) - (D), respectively, and paragraph (2) added by § 205(c) of P.L. 104-208,
approved Sept. 30, 1996 (110 Stat. 3009-738). The following language was deleted from new paragraph 505(f)(1)(A):
such central registration shall include with respect to each sale, identification of each development company; the
interest rate paid by the development company; commissions, fees, or discounts paid to brokers and dealers in trust
certificates; identification of each purchaser of the trust certificate; the price paid by the purchaser for the trust
certificate; the interest rate paid on the trust certificate; the fees of any agent for carrying out the functions described
in paragraph (2); and such other information as the Administration deems appropriate;
219

Section 506 added by § 117(b) of P.L. 100-590, approved Nov. 3, 1988 (102 Stat. 2998). Section 117(c) of P.L. 100-590
provides that:
Not later than one hundred and eighty days after the effective date of this Act, the Small Business Administration shall
report to the Small Business Committees of the Senate and the House of Representatives on the amount and nature of
all financial assistance or income being received by certified development companies from sources other than the Small
Business Administration or those being assisted by the programs authorized in title V of the Small Business Investment
Act of 1958. The report shall include any conditions or restrictions imposed on the development companies due to
such financial assistance, a comparison of all sources of income which comprise the development companies' budgets,
an analysis of the financial impact of various sources of financial assistance, and the feasibility of restricting assistance
received from the Federal Government solely to Small Business Administration funding.

115

(Rev. 15)

§ 507 to
§ 507(b)(4)

SMALL BUSINESS INVESTMENT ACT OF 1958

Notwithstanding any other provisions of law: (1) on or after May 1, 1991, no
development company may accept funding from any source, including but not limited to any
department or agency of the United States Government, if such funding includes any
conditions, priorities or restrictions upon the types of small businesses to which they may
provide financial assistance under this title or if it includes any conditions or imposes any
requirements, directly or indirectly, upon any recipient of assistance under this title; and (2)
before such date, no department or agency of the United States Government which provides
funding to any development company shall impose any condition, priority or restriction upon
the type of small business which receives financing under this title nor shall it include any
condition or impose any requirement, directly or indirectly upon any recipient of assistance
under this title: Provided, That the foregoing shall not affect any such conditions, priorities
or restrictions if the department or agency also provides all of the financial assistance to be
delivered by the development company to the small business and such conditions, priorities
or restrictions are limited solely to the financial assistance so provided.
Sec. 507. 220

Restrictions on
development
company
assistance.

15 USC 697d.
Accredited
Lenders Program.

ACCREDITED LENDERS PROGRAM

(a)
ESTABLISHMENT.—The Administration is authorized to establish an
Accredited Lenders Program for qualified State and local development companies that meet
the requirements of subsection (b).
(b)
REQUIREMENTS.—The Administration may designate a qualified State or
local development company as an accredited lender if such company—
(1)
has been an active participant in the Development Company Program
authorized by sections 502, 503, and 504 for not less than the preceding 12 months;
(2)
has well-trained, qualified personnel who are knowledgeable in the
Administration's lending policies and procedures for such Development Company Program;
(3)
has the ability to process, close, and service financing for plant and
equipment under such Development Company Program;
(4)
has a loss rate on the company's debentures that is reasonable and
acceptable to the Administration;

220

Section 507 added by § 212(a) of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4183). Section 212(b) requires that the
Administration promulgate final regulations implementing the section within 120 days of the enactment. Section 212(c) requires
that:
Not later than 1 year after the effective date of regulations promulgated under subsection (b), and biennially thereafter,
the Administration shall report to the Committees on Small Business of the Senate and the House of Representatives on
the implementation of this section. Such report shall include data on the number of development companies designated
as accredited lenders, their debenture guarantee volume, their loss rates, the average processing time on their guarantee
applications, and such other information as the Administration deems appropriate.

116

(Rev. 15)

§ 507(b)(5) to
§ 508(b)

SMALL BUSINESS INVESTMENT ACT OF 1958
(5)
has a history of submitting to the Administration complete and
accurate debenture guaranty application packages; and
(6)
has demonstrated the ability to serve small business credit needs for
plant and equipment through the Development Company Program.
(c)
EXPEDITED PROCESSING OF LOAN APPLICATIONS.—The
Administration shall develop an expedited procedure for processing a loan application or
servicing action submitted by a qualified State or local development company that has been
designated as an accredited lender in accordance with subsection (b).
(d)

SUSPENSION OR REVOCATION OF DESIGNATION.—

(1)
IN GENERAL.—The designation of a qualified State or local
development company as an accredited lender may be suspended or revoked if the
Administration determines that—
(A)
the development company has not continued to meet the
criteria for eligibility under subsection (b); or
(B)
the development company has failed to adhere to the
Administration's rules and regulations or is violating any other applicable provision of law.
(2)
EFFECT.—A suspension or revocation under paragraph (1) shall not
affect any outstanding debenture guarantee.
(e)
DEFINITION.—For purposes of this section, the term “qualified State or
local development company” has the same meaning as in section 503(e).

“Qualified State
or local
development
company.”

Sec. 508. 221

15 USC 697e.

PREMIER CERTIFIED LENDERS PROGRAM

(a) 222 ESTABLISHMENT.—The Administration may establish a Premier Certified
Lenders Program for 223 certified development companies that meet the requirements of
subsection (b).
(b)

Premier
Certified
Lenders
Program.

REQUIREMENTS.—

221

Section 508 added by § 217(a) of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4185). Section 217(b) of P.L. 103-403
provides for the repeal of § 508 effective October 1, 1997. The program was extended through October 1, 2000, by § 223(c) of
P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2606). Section 217(b) of P.L. 103-403, the sunset provision for the PCLP
program, was repealed by § 305 of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-685).
222
The phrase “On a pilot program basis” was deleted by § 306(1) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat.
2763A-685).
223

Phrase “not more than 15” was deleted by § 223(a)(1) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2604).

117

(Rev. 15)

§ 508(b)(1) to
§ 508(b)(2)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
APPLICATION.—To be eligible to participate in the Premier
Certified Lenders Program established under subsection (a), a certified development
company shall prepare and submit to the Administration an application at such time, in such
manner, and containing such information as the Administration may require.
(2)
DESIGNATION.—The Administration may designate a certified
development company as a premier certified lender 224
(A)
if the company is an active certified development company in
good standing and has been an active participant in the accredited lenders program during the
entire 12-month period preceding the date on which the company submits an application
under paragraph (1), except that the Administration may waive this requirement if the
company is qualified to participate in the accredited lenders program;
(B)

if the company has a history of—

(i)
submitting to the Administration adequately analyzed
debenture guarantee application packages; and
(ii)

of properly closing section 504 loans and servicing its

loan portfolio;
(C)
if the company agrees to assume and to reimburse the
Administration for 10 percent of any loss sustained by the Administration as a result of
default by the company in the payment of principal or interest on a debenture issued by such
company and guaranteed by the Administration under this section (15 percent in the case of
any such loss attributable to a debenture issued by the company during any period for which
an election is in effect under subsection (c)(7) for such company) 225; and

224

Subparagraphs 508(b)(2)(A) and (B) were rewritten by § 223(a)(2)(ii) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat.
2604). Former subparagraphs (A) and (B) (with introductory language from the end of paragraph 508(b)(2)) are reprinted
below:
if such company—
(A) has been an active participant in the accredited lenders program during the 12-month period preceding the date
on which the company submits an application under paragraph (1), except that, prior to January 1, 1996, the
Administration may waive this requirement if the company is qualified to participate in the accredited lenders
program;
(B) has a history of submitting to the Administration adequately analyzed debenture guarantee application
packages; and
225

Parenthetical added by § 3(b) of P.L. 108-232, approved May 28, 2004 (118 Stat. 652).

118

(Rev. 15)

§ 508(b)(2)(D) to
§ 508(c)

SMALL BUSINESS INVESTMENT ACT OF 1958

(D) 226 the Administrator determines, with respect to the company, that
the loss reserve established in accordance with subsection (c) 227 is sufficient for the company
to meet its obligations to protect the Federal Government from risk of loss.
(3) 228 APPLICABILITY OF CRITERIA AFTER DESIGNATION.—The
Administrator may revoke the designation of a certified development company as a premier
certified lender under this section at any time, if the Administrator determines that the
certified development company does not meet any requirement described in subparagraphs
(A) through (D) of paragraph (2).
(c) 229 LOSS RESERVE.—
226

Subparagraph 508(b)(2)(D) added by § 223(a)(2)(A)(iv) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2605).

227

Reference to subsection (c) changed from “(c)(2)” by § 3(c)(1) of P.L. 108-232, approved May 28, 2004 (118 Stat.
652).
228

Paragraph 508(b)(3) added by § 223(a)(2)(B) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2605).
Subsection 508(c) rewritten by § 223(a)(3) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2605). Text of former
subsection 508(c) is reprinted below:
229

LOSS RESERVE.—
(1) ESTABLISHMENT.—A company designated as a premier certified lender shall establish a loss reserve for
financings approved pursuant to this section.
(2) AMOUNT.—The amount of the loss reserve shall be based upon the greater of—
(A) the historic loss rate on debentures issued by such company; or
(B) 10 percent of the amount of the company's exposure as determined under subsection (b)(2)(C).
(3) ASSETS.—The loss reserve shall be comprised of segregated assets of the company which shall be securitized
in favor of the Administration.
(4) CONTRIBUTIONS.—The company shall make contributions to the loss reserve in the following amounts and
at the following intervals:
(A) 50 percent when a debenture is closed.
(B) 25 percent not later than 1 year after a debenture is closed.
(C) 25 percent not later than 2 years after a debenture is closed.
Subsection 3(d) of P.L. 108-232, approved May 28, 2004 (118 Stat. 652) provides:
(d) STUDY AND REPORT.—
(1) IN GENERAL.—The Administrator shall enter into a contract with a Federal agency experienced in community
development lending and financial regulation or with a member of the Federal Financial Institutions Examinations
Council to study and prepare a report regarding—
(A) the extent to which statutory requirements have caused overcapitalization in the loss reserves maintained by

119

(Rev. 15)

§ 508(c)(1) to
§ 508(c)(4)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
ESTABLISHMENT.—A company designated as a premier certified
lender shall establish a loss reserve for financing approved pursuant to this section.
(2)
AMOUNT.—The amount of each loss reserve established under
paragraph (1) shall be 10 percent of the amount of the company’s exposure, as determined
under subsection (b)(2)(C).
(3)
comprised of—

ASSETS.—Each loss reserve established under paragraph (1) shall be

(A)
segregated funds on deposit in an account or accounts with a
federally insured depository institution or institutions selected by the company, subject to a
collateral assignment in favor of, and in a format acceptable to, the Administration;
(B)
irrevocable letter or letters of credit, with a collateral
assignment in favor of, and a commercially reasonable format acceptable to, the
Administration; or
(C)

any combination of the assets described in subparagraphs (A)

and (B).
(4)
CONTRIBUTIONS.—The company shall make contributions to the
loss reserve, either cash or letters of credit as provided above, in the following amounts and
at the following intervals:
(A)

50 percent when a debenture is closed.

(B)

25 percent additional not later than 1 year after a debenture is

(C)

25 percent additional not later than 2 years after a debenture is

closed.

closed.

certified development companies participating in the Premier Certified Lenders Program established under section
508 of the Small Business Investment Act of 1958 (15 U.S.C. 697e); and
(B) alternatives for establishing and maintaining loss reserves that are sufficient to protect the Federal Government
from the risk of loss associated with loans guaranteed under such Program.
(2) TRANSMISSION OF REPORT.—The report described in paragraph (1) shall be transmitted to the Committee
on Small Business of the House of Representatives and the Committee on Small Business and Entrepreneurship of
the Senate not later than 90 days after the enactment of this Act.
(3) LIMITATION.—The amount of the contract described in paragraph (1) shall not exceed $75,000.

120

(Rev. 15)

§ 508(c)(5) to
§ 508(c)(7)(B)(ii)(I)

SMALL BUSINESS INVESTMENT ACT OF 1958
(5)
REPLENISHMENT.—If a loss has been sustained by the
Administration, any portion of the loss reserve, and other funds provided by the premier
company as necessary, may be used to reimburse the Administration for the premier
company’s 230 share of the loss as provided in subsection (b)(2)(C). If the company utilizes
the reserve, within 30 days it shall replace an equivalent amount of funds.
(6)

DISBURSEMENTS.—

(A)
IN GENERAL.—The Administration shall allow the certified
development company to withdraw from the loss reserve amounts attributable to any
debenture that has been repaid.
(B) 231 TEMPORARY REDUCTION BASED ON OUTSTANDING
BALANCE.—Notwithstanding subparagraph (A), during the 2-year period beginning on the
date that is 90 days after the date of the enactment of this subparagraph, the Administration
shall allow the certified development company to withdraw from the loss reserve such
amounts as are in excess of 1 percent of the aggregate outstanding balances of debentures to
which such loss reserve relates. The preceding sentence shall not apply with respect to any
debenture before 100 percent of the contribution described in paragraph (4) with respect to
such debenture has been made.
Alternative
loss reserve.

(7) 232 ALTERNATIVE LOSS RESERVE.—
(A)
ELECTION.—With respect to any eligible calendar quarter,
any qualified high loss reserve PCL may elect to have the requirements of this paragraph
apply in lieu of the requirements of paragraphs (2) and (4) for such quarter.
(B)

CONTRIBUTIONS.—

(i)
ORDINARY RULES INAPPLICABLE.—Except as
provided under clause (ii) and paragraph (5), a qualified high loss reserve PCL that makes the
election described in subparagraph (A) with respect to a calendar quarter shall not be
required to make contributions to its loss reserve during such quarter.
(ii)
BASED ON LOSS.—A qualified high loss reserve PCL
that makes the election described in subparagraph (A) with respect to any calendar quarter
shall, before the last day of such quarter, make such contributions to its loss reserve as are
necessary to ensure that the amount of the loss reserve of the PCL is—
(I)

not less than $100,000; and

230

The phrase “10 percent” deleted by § 3(c)(2) of P.L. 108-232, approved May 28, 2004 (118 Stat. 652).

231

New subparagraph 508(c)(6)(B) added by § 2(2) of P.L. 108-232, approved May 28, 2004 (118 Stat. 649).

232

New paragraphs 508(c)(7) and (8) added by § 3(a) of P.L. 108-232, approved May 28, 2004 (118 Stat. 649).

121

(Rev. 15)

§ 508(c)(7)(B)(ii)(II) to
§ 508(c)(7)(E)

SMALL BUSINESS INVESTMENT ACT OF 1958

(II)
sufficient, as determined by a qualified
independent auditor, for the PCL to meet its obligations to protect the Federal Government
from risk of loss.
(iii) CERTIFICATION.—Before the end of any calendar
quarter for which an election is in effect under subparagraph (A), the head of the PCL shall
submit to the Administrator a certification that the loss reserve of the PCL is sufficient to
meet such PCL’s obligation to protect the Federal Government from risk of loss. Such
certification shall be in such form and submitted in such manner as the Administrator may
require and shall be signed by the head of such PCL and the auditor making the
determination under clause (ii)(II).
(C)

DISBURSEMENTS.—

(i)
ORDINARY RULE INAPPLICABLE.—Paragraph (6)
shall not apply respect to any qualified high loss reserve PCL for any calendar quarter for
which an election is in effect under subparagraph (A).
(ii)
EXCESS FUNDS.—At the end of each calendar
quarter for which an election is in effect under subparagraph (A), the Administration shall
allow the qualified high loss reserve PCL to withdraw from its loss reserve the excess of—
(I)

the amount of the loss reserve, over

(II)
the greater of $100,000 or the amount which is
determined under subparagraph (B)(ii) to be sufficient to meet the PCL’s obligation to
protect the Federal Government from risk of loss.
(D)
RECONTRIBUTION.—If the requirements of this paragraph
apply to a qualified high loss reserve PCL for any calendar quarter and cease to apply to such
PCL for any subsequent calendar quarter, such PCL shall make a contribution to its loss
reserve in such amount as the Administrator may determine provided that such amount does
not exceed the amount which would result in the total amount in the loss reserve being equal
to the amount which would have been in such loss reserve had this paragraph never applied
to such PCL. The Administrator may require that such payment be made as a single payment
or as a series of payments.
(E)
RISK MANAGEMENT.—If a qualified high loss reserve PCL
fails to meet the requirement of subparagraph (F)(iii) during any period for which an election
is in effect under subparagraph (A) and such failure continues for 180 days, the requirements
of paragraphs (2), (4), and (6) shall apply to such PCL as of the end of such 180-day period
and such PCL shall make the contribution to its loss reserve described in subparagraph (D).
The Administrator may waive the requirements of this subparagraph.

122

(Rev. 15)

§ 508(c)(7)(F) to
§ 508(c)(7)(I)

SMALL BUSINESS INVESTMENT ACT OF 1958

(F)
QUALIFIED HIGH LOSS RESERVE PCL—The term
“qualified high loss reserve PCL” means, with respect to any calendar year, any premier
certified lender designated by the Administrator as a qualified high loss reserve PCL for such
year. The Administrator shall not designate a company under the preceding sentence unless
the Administrator determines that—
(i)

“Qualified
high loss
reserve
PCL.”

the amount of the loss reserve of the company is not

less than $100,000;
(ii)
the company has established and is utilizing an
appropriate and effective process for analyzing the risk of loss associated with its portfolio of
PCLP loans and for grading each PCLP loan made by the company on the basis of the risk of
loss associated with such loan; and
(iii) the company meets or exceeds 4 or more of the
specified risk management benchmarks as of the most recent assessment by the
Administration or the Administration has issued a waiver with respect to the requirement of
this clause.
(G)
SPECIFIED RISK MANAGEMENT BENCHMARKS.—For “Specified risk
purposes of this paragraph, the term “specified risk management benchmarks” means the
management
benchmarks.”
following rates, as determined by the Administrator:
(i)

Currency rate.

(ii)

Delinquency rate.

(iii)

Default rate.

(iv)

Liquidation rate.

(v)

Loss rate.

(H)
QUALIFIED INDEPENDENT AUDITOR.—For purpose of
this paragraph, the term “qualified independent auditor” means any auditor who—
(i)

is compensated by the qualified high loss reserve PCL;

(ii)

is independent of such PCL; and

(iii)

has been approved by the Administrator during the

“Qualified
independent
auditor.”

preceding year.
(I)
PCLP LOAN.—For purposes of this paragraph, the term
“PCLP loan” means any loan guaranteed under this section.

123

(Rev. 15)

“PCLP loan.”

§ 508(c)(7)(J) to
§ 508(c)(8)(C)

SMALL BUSINESS INVESTMENT ACT OF 1958

(J)
ELIGIBLE CALENDAR QUARTER.—For purposes of this
paragraph, the term “eligible calendar quarter” means—

“Eligible
calendar quarter.”

(i)
the first calendar quarter that begins after the end of the
90-day period beginning with the date of the enactment of this paragraph; and
(ii)

the 7 succeeding calendar quarters.

(K)
CALENDAR QUARTER.—For purposes of this paragraph,
the term “calendar quarter” means—
(i)

the period which begins on January 1 and ends on

(ii)

the period which begins on April 1 and ends on June 30

“Calendar
quarter.”

March 31 of each year;

of each year;
(iii)
September 30 of each year; and
(iv)

the period which begins on July 1 and ends on

the period which begins on October 1 and ends on

December 31 of each year.
(L)
REGULATIONS.—Not later than 45 days after the date of the
enactment of this paragraph, the Administrator shall publish in the Federal Register and
transmit to the Congress regulations to carry out this paragraph. Such regulations shall
include provisions relating to—
(i)

Regulations.

the approval of auditors under subparagraph (H); and

(ii)
the designation of qualified high loss reserve PCLs
under subparagraph (F), including the determination of whether a process for analyzing risk
of loss is appropriate and effective for purposes of subparagraph (F)(ii).
(8)

Bureau of
PCLP
Oversight.

BUREAU OF PCLP OVERSIGHT.—

(A)
ESTABLISHMENT.—There is hereby established in the Small
Business Administration a bureau to be known as the Bureau of PCLP Oversight.
(B)
PURPOSE.—The Bureau of PCLP Oversight shall carry out
such functions of the Administration under this subsection as the Administrator may
designate.
(C)
enactment of this act—

DEADLINE.—Not later than 90 days after the date of the

124

(Rev. 15)

§ 508(c)(8)(C)(i) to
§ 508(e)(2)

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)
the Administrator shall ensure that the Bureau of PCLP
Oversight is prepared to carry out any functions designated under subparagraph (B), and
(ii)
the Office of the Inspector General of the
Administration shall report to the Congress on the preparedness of the Bureau of PCLP
Oversight to carry out such functions.
(d) 233 SALE OF CERTAIN DEFAULTED LOANS.—
(1)
NOTICE.—If, upon default in repayment, the Administration acquires
a loan guaranteed under this section and identifies such loan for inclusion in a bulk asset sale
of defaulted or repurchased loans or other financings, it shall give prior notice thereof to any
certified development company which has a contingent liability under this section. The
notice shall be given to the company as soon as possible after the financing is identified, but
not less than 90 days before the date the Administration first makes any records on such
financing available for examination by prospective purchasers prior to its offering in a
package of loans for bulk sale.
(2)
LIMITATIONS.—The Administration shall not offer any loan
described in paragraph (1) as part of a bulk sale unless it—
(A)
provides prospective purchasers with the opportunity to
examine the Administration’s records with respect to such loan; and
(B)
(e)

provides the notice required by paragraph (1).

LOAN APPROVAL AUTHORITY.—

(1)
IN GENERAL.—Notwithstanding section 503(b)(6), and subject to
such terms and conditions as the Administration may establish, the Administration may
permit a company designated as a premier certified lender under this section 234 to approve,
authorize, close, service, foreclose, litigate (except that the Administration may monitor the
conduct of any such litigation to which a premier certified lender is a party), and liquidate
loans that are funded with the proceeds of a debenture issued by such company and may
authorize the guarantee of such debenture.
(2)
SCOPE OF REVIEW.—The approval of a loan by a premier certified
lender shall be subject to final approval as to eligibility of any guarantee by the
Administration pursuant to section 503(a), but such final approval shall not include review of

233
Former subsections 508(d) – (i) renumbered (e) – (j) and new subsection 508(d) added by § 306 of P.L. 106-554,
approved Dec. 21, 2000 (114 Stat. 2763A-685).
234

Phrase “to approve loans” deleted and language before “that are funded” added by § 223(a)(4) of P.L. 105-135, approved
Dec. 2, 1997 (111 Stat. 2605).

125

(Rev. 15)

§ 508(f) to
§ 508(i)

SMALL BUSINESS INVESTMENT ACT OF 1958
decisions by the lender involving creditworthiness, loan closing, or compliance with legal
requirements imposed by law or regulation.
(f)
REVIEW.—After the issuance and sale of debentures under this section, the
Administration, at intervals of not greater than 12 months, shall review the financings made
by each premier certified lender. The review shall include the lender's credit decisions and
general compliance with the eligibility requirements for each financing approved under the
program authorized under this section. The Administration shall consider the findings of the
review in carrying out its responsibilities under subsection (g), but such review shall not
affect any outstanding debenture guarantee.
(g)
SUSPENSION OR REVOCATION.—The designation of a certified 235
development company as a premier certified lender may be suspended or revoked if the
Administration determines that the company—
(1)

has not continued to meet the criteria for eligibility under subsection

(2)

has not established or maintained the loss reserve required under

(3)

is failing to adhere to the Administration's rules and regulations; or

(4)

is violating any other applicable provision of law.

(b);

subsection (c);

(h)
EFFECT OF SUSPENSION OR REVOCATION.—A suspension or
revocation under subsection (g) shall not affect any outstanding debenture guarantee.
(i) 236 PROGRAM GOALS.—Each certified development company participating in
the program under this section shall establish a goal of processing a minimum of not less than
50 percent of the loan applications for assistance under section 504 pursuant to the program
authorized under this section.

235

“State or local” replaced by “certified” by § 223(a)(5) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat. 2606).

236

Subsection 508(h)(redesignated as subsection 508(i)), which required the promulgation of regulations within 180 days
after the date of the enactment of the section, was rewritten by § 223(a)(7) of P.L. 105-135, approved Dec. 2, 1997 (111 Stat.
2606). Subsection 223(b) of P.L. 105-135 provides:
(b) REGULATIONS.—The Administrator shall—
(1) not later than 150 days after the date of enactment of this Act, promulgate regulations to carry out the
amendments made by subsection (a); and
(2) not later than 180 days after the date of enactment of this Act, issue program guidelines and fully implement the
amendments made by subsection (a).

126

(Rev. 15)

§ 508(j) to
§ 509(a)

SMALL BUSINESS INVESTMENT ACT OF 1958
(j)
REPORT.—Not later than 1 year after the date of enactment of this Act, and
annually thereafter, the Administration shall report to the Committees on Small Business of
the Senate and the House of Representatives on the implementation of this section. Each
report shall include—
(1)
certified lenders;
(2)

Report to
Congressional
committees.

the number of certified development companies designated as premier

the debenture guarantee volume of such companies;

(3)
a comparison of the loss rate for premier certified lenders to the loss
rate for accredited and other lenders, specifically comparing default rates and recovery rates
on liquidations; and
(4)
Sec. 509 237
(a)

such other information as the Administration deems appropriate.

PREPAYMENT OF DEVELOPMENT COMPANY DEBENTURES.

15 USC 697f.

IN GENERAL.—

Prepayment of
development
company
237
Section 509 added by § 503 of P.L. 103-403, approved Oct. 22, 1994 (108 Stat. 4199). Section 502, entitled “Intention
of
debentures.
Congress,” provides:
(a) IN GENERAL.—The Small Business Administration shall fully utilize the $30,000,000 appropriated in Public
Law 103-317 to reduce, in accordance with this title and the amendments made by this title, prepayment penalties
imposed in connection with debentures issued under-(1) section 303 or 503 of the Small Business Investment Act of 1958, which have been purchased by the Federal
Financing Bank; and
(2) title III to companies operating under section 301(d) of such Act, which have been purchased by the Small
Business Administration.
(b) EQUAL OPPORTUNITY.—In order to provide an equal opportunity to participate in the program authorized
under this title, the Small Business Administration shall afford each borrower or issuer of a debenture subject to this
title, not less than 45 days to elect to participate and to provide an earnest money deposit. The Administration shall
subsequently allow a period of not less than 4 months, during which those borrowers or issuers that elect to participate
shall be allowed to complete the prepayment process.
(c) RESTRICTIONS ON PARTICIPATION.—In no event shall the Small Business Administration-(1) allow any borrower or issuer to participate in the program if the borrower or issuer fails to-(A) make a timely election and provide the deposit on a timely basis; or
(B) complete the prepayment process within the required time; or
(2) allow any borrower or issuer to participate in the program at a percentage rate other than the rate finally determined
to be applicable to all other borrowers or issuers with similar terms of years.

127

(Rev. 15)

§ 509(a)(1) to
§ 509(a)(2)(B)(ii)(I)

SMALL BUSINESS INVESTMENT ACT OF 1958

(1)
PREPAYMENT AUTHORIZED.—Subject to the requirements set
forth in subsection (b), an issuer of a debenture purchased by the Federal Financing Bank and
guaranteed by the Administration under this Act may, at the election of the borrower (in the
case of a loan under section 503) or the issuer (in the case of a small business investment
company) and with the approval of the Administration, prepay such debenture in accordance
with the provisions of this section. 238
(2)

PROCEDURE.—
(A)

IN GENERAL.—In making a prepayment under paragraph

(1)—
(i)
the borrower (in the case of a loan under section 503) or
the issuer (in the case of a small business investment company) shall pay to the Federal
Financing Bank an amount that is equal to the sum of the unpaid principal balance due on the
debenture as of the date of the prepayment (plus accrued interest at the coupon rate on the
debenture) and the amount of the repurchase premium described in subparagraph (B); and
(ii)
the Administration shall pay to the Federal Financing
Bank the difference between the repurchase premium paid by the borrower under this
subsection and the repurchase premium that the Federal Financing Bank would otherwise
have received.
(B)

REPURCHASE PREMIUM.—

(i)
IN GENERAL.—For purposes of subparagraph (A)(i),
the repurchase premium is the amount equal to the product of—
(I)
the unpaid principal balance due on the
debenture on the date of the prepayment; and
(II)
accordance [with] clauses (ii) and (iii).

the applicable percentage rate, as determined in

(ii)
APPLICABLE PERCENTAGE RATE.—For purposes
of clause (i)(II), the applicable percentage rate means—
(I)

with respect to a 10-year term loan, 8.5 percent;

238

The following sentence was deleted from paragraph 509(a)(1) by § 208 (h)(1)(H)(i) of P.L. 104-208, approved Sept. 30, 1996
(110 Stat. 3009-747):
A small business investment company operating under the authority of section 301(d) that has issued a debenture that
was purchased by and is held by the Administration, may, under the same terms and conditions, prepay such debenture,
and the penalty as provided in this section, and shall thereafter be immediately eligible to apply for additional
assistance from the Administration.

128

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§ 509(a)(2)(B)(ii)(II) to
§ 509(d)(1)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958
(II)

with respect to a 15-year term loan, 9.5 percent;

(III)

with respect to a 20-year term loan, 10.5

(IV)

with respect to a 25-year term loan, 11.5

percent; and

percent.
(iii) ADJUSTMENTS TO APPLICABLE PERCENTAGE
RATE.—The percentage rates described in clause (ii) shall be increased or decreased by the
Administration by a factor not to exceed one-third, if the same factor is applied in each case
and if the Administration determines that an adjustment is necessary, based on the number of
borrowers having given notice of their intent to participate, in order to make the program
(including the amounts appropriated for this purpose under Public Law 103-317) result in no
substantial net gain or loss of revenue to the Federal Financing Bank or to the
Administration. Amounts collected in excess of the amount necessary to ensure revenue
neutrality shall be refunded to the borrowers.
(b)
REQUIREMENTS.—For purposes of subsection (a), the requirements of this
subsection are that—
(1)
the debenture is outstanding and neither the loan that secures the
debenture, if any, nor the debenture is in default on the date on which the prepayment is
made;
(2)
State, local, or personal funds, or the proceeds of a refinancing in
accordance with subsection (d) of this section under the programs authorized by this title, are
used to prepay or roll over the debenture; and
(3)
with respect to a debenture issued under section 503, the issuer
certifies that the benefits, net of fees and expenses authorized herein, associated with
prepayment of the debenture are entirely passed through to the borrower.
(c)
NO PREPAYMENT FEES OR PENALTIES.—No fees or penalties other
than those specified in this section may be imposed on the issuer, the borrower, the
Administration, or any fund or account administered by the Administration as the result of a
prepayment under this section.
(d)

REFINANCING LIMITATIONS.—

(1)
IN GENERAL.—The refinancing of a debenture under sections 504
and 505, in accordance with subsection (b)(2)—
(A)
shall not exceed the amount necessary to prepay existing
debentures, including all costs associated with the refinancing and any applicable prepayment
penalty or repurchase premium; and

129

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§ 509(d)(1)(B) to
§ 509(e)(1)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)
except as provided in paragraphs (2) and (3), shall be subject to
the provisions of sections 504 and 505 and the rules and regulations promulgated thereunder,
including rules and regulations governing payment of authorized expenses, commissions,
fees, and discounts to brokers and dealers in trust certificates issued pursuant to section 505.
(2)
JOB CREATION.—An applicant for refinancing under section 504 of
a loan made pursuant to section 503 shall not be required to demonstrate that a requisite
number of jobs will be created with the proceeds of a refinancing.
(3)
LOAN PROCESSING FEE.—To cover the cost of loan packaging,
processing, and other administrative functions, a development company that provides
refinancing under subsection (b)(2) may impose a one-time loan processing fee, not to
exceed 0.5 percent of the principal amount of the loan.
(4)
NEW DEBENTURES.—Issuers of debentures under title III may
issue new debentures in accordance with such title in order to prepay existing debentures as
authorized in this section.
(5)

PRELIMINARY NOTICE.—

(A)
IN GENERAL.—The Administration shall use certified mail
and other reasonable means to notify each eligible borrower of the prepayment program
provided in this title. Each preliminary notice shall specify the range and dollar amount of
repurchase premiums which could be required of that borrower in order to participate in the
program. In carrying out this program, the Administration shall provide a period of not less
than 45 days following the receipt of such notice by the borrower during which the borrower
must notify the Administration of the borrower's intent to participate in the program. The
Administration shall require that a borrower who gives notice of its intent to participate to
make an earnest money deposit of $1,000 which shall not be refundable but which shall be
credited toward the final repurchase premium.
(B)
DEFINITION.—For purposes of this paragraph, the term
“borrower,” in the case of a small business investment company or a specialized small
business investment company, means “issuer.”

“Borrower.”

(6)
FINAL NOTICE.—Based upon the response to the preliminary notice
under paragraph (5), the Administration shall make a final computation of the necessary
prepayment premiums and shall notify each qualified respondent of the results of such
computation. Each qualified respondent shall be afforded not less than 4 months to complete
the prepayment.
(e)

DEFINITIONS.—For purposes of this section—
“Issuer.”

(1)

the term “issuer” means—

130

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§ 509(e)(a)(A) to
§ 510(b)(1)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(A)
the qualified State or local development company that issued a
debenture pursuant to section 503, which has been purchased by the Federal Financing Bank;
and
(B)
section 301

239

a small business investment company licensed pursuant to

; or

(2)
the term “borrower” means a small business concern whose loan
secures a debenture issued pursuant to section 503.

“Borrower.”

(f)
REGULATIONS.—Not later than 30 days after the date of enactment of this
section, the Administration shall promulgate such regulations as may be necessary to carry
out this section.
(g)
AUTHORIZATION.—There are authorized to be appropriated $30,000,000
to carry out the provisions of the Small Business Prepayment Penalty Relief Act of 1994.
Sec. 510. 240

FORECLOSURE AND LIQUIDATION OF LOANS.

(a)
DELEGATION OF AUTHORITY.—In accordance with this section, the
Administration shall delegate to any qualified State or local development company (as
defined in section 503(e)) that meets the eligibility requirements of subsection (b)(1) the
authority to foreclose and liquidate, or to otherwise treat in accordance with this section,
defaulted loans in its portfolio that are funded with the proceeds of debentures guaranteed by
the Administration under section 503.
(b)

Delegation of
foreclosure and
liquidation
authority.
15 USC 697g.

ELIGIBILITY FOR DELEGATION.—

(1)
REQUIREMENTS.—A qualified State or local development company
shall be eligible for a delegation of authority under subsection (a) if—
(A)

Eligibility
requirements.

the company—

239
Reference to “subsection (c) or (d) of section 301” changed to “section 301” by § 208(h)(1)(H)(ii) of P.L. 104-208, approved
Sept. 30, 1996 (110 Stat. 3009-747).
240

New § 510 added by § 307(a) of P.L. 106-554, approved Dec. 21, 2000 (114 Stat. 2763A-685). Section 307(b) of P.L.
106-554 provides:
(1) IN GENERAL.—Not later than 150 days after the date of enactment of this Act, the Administration shall issue
such regulations as may be necessary to carry out section 510 of the Small Business Investment Act of 1958, as
added by subsection (a) of this section.
(2) TERMINATION OF PILOT PROGRAM.—Beginning on the date on which final regulations are issued under
paragraph (1), section 204 of the Small Business Programs Improvement Act of 1996 (15 U.S.C. 695 note) shall
cease to have effect.

131

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§ 510(b)(1)(A)(i) to
§ 510(c)(1)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)
has participated in the loan liquidation pilot program
established by the Small Business Programs Improvement Act of 1996 (15 U.S.C. 695 note),
as in effect on the day before promulgation of final regulations by the Administration
implementing this section;
(ii)
Program under section 508; or

is participating in the Premier Certified Lenders

(iii) during the 3 fiscal years immediately prior to seeking
such a delegation, has made an average of not less than 10 loans per year that are funded with
the proceeds of debentures guaranteed under section 503; and
(B)

the company—
(i)

has one or more employees—

(I)
with not less than 2 years of substantive,
decision-making experience in administering the liquidation and workout of problem loans
secured in a manner substantially similar to loans funded with the proceeds of debentures
guaranteed under section 503; and
(II)
who have completed a training program on loan
liquidation developed by the Administration in conjunction with qualified State and local
development companies that meet the requirements of this paragraph; or
(ii)
submits to the Administration documentation
demonstrating that the company has contracted with a qualified third-party to perform any
liquidation activities and secures the approval of the contract by the Administration with
respect to the qualifications of the contractor and the terms and conditions of liquidation
activities.
(2)
CONFIRMATION.—On request the Administration shall examine the
qualifications of any company described in subsection (a) to determine if such company is
eligible for the delegation of authority under this section. If the Administration determines
that a company is not eligible, the Administration shall provide the company with the reasons
for such ineligibility.
(c)

Scope of
delegated
authority.

SCOPE OF DELEGATED AUTHORITY.—

(1)
IN GENERAL.—Each qualified State or local development company
to which the Administration delegates authority under section (a) may with respect to any
loan described in subsection (a)—
(A)
perform all liquidation and foreclosure functions, including the
purchase in accordance with this subsection of any other indebtedness secured by the
property securing the loan, in a reasonable and sound manner according to commercially

132

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Liquidation
authority.

§ 510(c)(1)(B) to
§ 510(c)(2)(A)(iii)

SMALL BUSINESS INVESTMENT ACT OF 1958

accepted practices, pursuant to a liquidation plan approved in advance by the Administration
under paragraph (2)(A);
(B)
litigate any matter relating to the performance of the functions
described in subparagraph (A), except that the Administration may—
(i)

Litigation
authority.

defend or bring any claim if—

(I)
the outcome of the litigation may adversely
affect the Administration’s management of the loan program established under section 502;
or
(II)
the Administration is entitled to legal remedies
not available to a qualified State or local development company and such remedies will
benefit either the Administration or the qualified State or local development company; or
(ii)

oversee the conduct of any such litigation; and

(C)
take other appropriate actions to mitigate loan losses in lieu of
total liquidation or foreclosures, including the restructuring of a loan in accordance with
prudent loan servicing practices and pursuant to a workout plan approved in advance by the
Administration under paragraph (2)(C).
(2)

Mitigation
authority.

ADMINISTRATION APPROVAL.—
(A)

Liquidation
plan.

LIQUIDATION PLAN.—

(i)
IN GENERAL.—Before carrying out functions
described in paragraph (1)(A), a qualified State or local development company shall submit
to the Administration a proposed liquidation plan.
(ii)

ADMINISTRATION ACTION ON PLAN.—

(I)
TIMING.—Not later than 15 business days after
a liquidation plan is received by the Administration under clause (i), the Administration shall
approve or reject the plan.
(II)
NOTICE OF NO DECISION.—With respect to
any plan that cannot be approved or denied within the 15-day period required by subclause
(I), the Administration shall within such period provide in accordance with subparagraph (E)
notice to the company that submitted the plan.
(iii) ROUTINE ACTIONS.—In carrying out functions
described in paragraph (1)(A), a qualified State or local development company may
undertake routine actions not addressed in a liquidation plan without obtaining additional
approval from the Administration.

133

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§ 510(c)(2)(B)(ii)(II) to
§ 510(c)(2)(D)(iii)

SMALL BUSINESS INVESTMENT ACT OF 1958

(B)

PURCHASE OF INDEBTEDNESS.—

Purchase of
indebtedness.

(i)
IN GENERAL.—In carrying out functions described in
paragraph (1)(A), a qualified State or local development company shall submit to the
Administration a request for written approval before committing the Administration to the
purchase of any other indebtedness secured by the property securing a defaulted loan.
(ii)

ADMINISTRATION ACTION ON REQUEST.—

(I)
TIMING.—Not later than 15 business days after
receiving a request under clause (i), the Administration shall approve or deny the request.
(II)
NOTICE OF NO DECISION.—With respect to
any request that cannot be approved or denied within the 15-day period required by subclause
(I), the Administration shall within such period provide in accordance with subparagraph (E)
notice to the company that submitted the request.
(C)

Workout
plan.

WORKOUT PLAN.—

(i)
IN GENERAL.—In carrying out functions described in
paragraph (1)(C), a qualified State or local development company shall submit to the
Administration a proposed workout plan.
(ii)

ADMINISTRATION ACTION ON PLAN.—

(I)
TIMING.—Not later than 15 business days after
a workout plan is received by the Administration under clause (i), the Administration shall
approve or reject the plan.
(II)
NOTICE OF NO DECISION.—With respect to
any workout plan that cannot be approved or denied within the 15-day period required by
subclause (I), the Administration shall within such period provide in accordance with
subparagraph (E) notice to the company that submitted the plan.
(D)
COMPROMISE OF INDEBTEDNESS.—In carrying out
functions described in paragraph (1)(A), a qualified State or local development company
may—
(i)
consider an offer made by an obligor to compromise the
debt for less than the full amount owing; and
(ii)
pursuant to such an offer, release any obligor or other
party contingently liable, if the company secures the written approval of the Administration.

134

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Compromise
of
indebtedness.

§ 510(c)(2)(E) to
§ 510(e)(2)(A)

SMALL BUSINESS INVESTMENT ACT OF 1958

(E)
CONTENTS OF NOTICE OF NO DECISION.—Any notice
provided by the Administration under subparagraph (A)(ii)(II), (B)(ii)(II), or (C)(ii)(II)—
(i)

Notice of no
decision.

shall be in writing;

(ii)
shall state the specific reason for the Administration’s
inability to act on a plan or request;
(iii) shall include an estimate of the additional time required
by the Administration to act on the plan or request; and
(iv)
if the Administration cannot act because insufficient
information or documentation was provided by the company submitting the plan or request,
shall specify the nature of such additional information or documentation.
(3)
CONFLICT OF INTEREST.—In carrying out functions described in
paragraph (1), a qualified State or local development company shall take no action that
would result in an actual or apparent conflict of interest between the company (or any
employee of the company) and any third party lender, associate of a third party lender, or any
other person participating in a liquidation, foreclosure, or loss mitigation action.
(d)
SUSPENSION OR REVOCATION OF AUTHORITY.—The Administration
may revoke or suspend a delegation of authority under this section to any qualified State or
local development company, if the Administration determines that the company—
(1)

Suspension or
revocation of
authority.

does not meet the requirements of subsection (b)(1);

(2)
has violated any applicable rule or regulation of the Administration or
any other applicable law; or
(3)
fails to comply with any reporting requirement that may be established
by the Administration relating to carrying out functions described in paragraph (1).
(e)

REPORT.—

(1)
IN GENERAL.—Based on information provided by qualified State
and local development companies and the Administration, the Administration shall annually
submit to the Committees on Small Business of the House of Representatives and of the
Senate a report on the results of delegation of authority under this section.
(2)
CONTENTS.—Each report submitted under paragraph (1) shall
include the following information:
(A)
With respect to each loan foreclosed or liquidated by a
qualified State or local development company under this section, or for which losses were
otherwise mitigated by the company pursuant to a workout plan under this section—

135

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Report to
Congress.

§ 510(e)(2)(A)(1) to
TITLE VII

SMALL BUSINESS INVESTMENT ACT OF 1958

(i)

the total cost of the project financed with the loan;

(ii)

the total original dollar amount guaranteed by the

Administration;
(iii) the total dollar amount of the loan at the time of
liquidation, foreclosure, or mitigation of loss;
(iv)
the total dollar losses resulting from the liquidation,
foreclosure, or mitigation of loss; and
(v)
the total recoveries resulting from the liquidation,
foreclosure, or mitigation of loss, both as a percentage of the amount guaranteed and the total
cost of the project financed.
(B)
With respect to each qualified State or local development
company to which authority is delegated under this section, the totals of each of the amounts
described in clauses (i) through (v) of subparagraph (A).
(C)
With respect to all loans subject to foreclosure, liquidation, or
mitigation under this section, the totals of each of the amounts described in clauses (i)
through (v) of subparagraph (A).
(D)

A comparison between—

(i)
the information provided under subparagraph (C) with
respect to the 12-month period preceding the date on which the report is submitted; and
(ii)
the same information with respect to loans foreclosed
and liquidated, or otherwise treated, by the Administration during the same period.
(E)
The number of times that the Administration has failed to
approve or reject a liquidation plan in accordance with subparagraph (A)(i), a workout plan
in accordance with subparagraph (C)(i), or to approve or deny a request for purchase of
indebtedness under subparagraph (B)(i), including specific information regarding the reasons
for the Administration’s failure and any delays that resulted.
TITLE VI—CHANGES IN FEDERAL RESERVE AUTHORITY
[Omitted as no longer current.]
TITLE VII—CRIMINAL PENALTIES
(This title amends the U.S. Code to include certain actions by persons affiliated with
or dealing with SBICs as Federal crimes. The provisions have been amended from time to

136

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TITLE VII

SMALL BUSINESS INVESTMENT ACT OF 1958
time to include various agencies. The pertinent parts of the affected sections, 18 U.S.C. 212,
213, 215, 657, 1006 and 1014, are set out below for information purposes only).
Offer of loan or gratuity to financial institution examiner. 241

18 USC § 212.

(a)
In general.—Except as provided in subsection (b), whoever, being an officer,
director, or employee of a financial institution, makes or grants any loan or gratuity to any
examiner or assistant examiner who examines or has authority to examine such bank, branch,
agency, organization, corporation, association, or institution—
(1)
shall be fined under this title, imprisoned not more than 1 year, or
both; and
(2)

may be fined a further sum equal to the money so loaned or gratuity

given.
(b)
Regulations.—A Federal financial institution regulatory agency may prescribe
regulations establishing additional limitations on the application for and receipt of credit
under this section and on the application and receipt of residential mortgage loans under this
section, after consulting with each other Federal financial institution regulatory agency.
(c)

Definitions.—In this section:
(1)

Examiner.—The term “examiner” means any person—

(A)
appointed by a Federal financial institution regulatory agency
or pursuant to the laws of any State to examine a financial institution; or
(B)
any financial institutions.

elected under the law of any State to conduct examinations of

(2)
Federal financial institution agency.—The term “Federal financial
institution agency” means—
***
(H)

the Small Business Administration.

(3)
Financial institution.—The term “financial institution” does not
include a credit union, a Federal Reserve Bank, a Federal home loan bank, or a depository
institution holding company.
(4)
Loan.—The term “loan” does not include any credit card account
established under an open end consumer credit plan or a loan secured by residential real
property that is the principal residence of the examiner, if—

241

18 USC 212 completely rewritten by § 2(a) of P.L. 108-198, approved Dec. 19, 2003 (117 Stat. 2899).

137

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TITLE VII

SMALL BUSINESS INVESTMENT ACT OF 1958
(A)
the applicant satisfies any financial requirements for the credit
card account or residential real property loan that are generally applicable to all applicants for
the same type of credit card account or residential real property loan;
(B)
the terms and conditions applicable with respect to such
account or residential real property loan, and any credit extended to the examiner under such
account or residential real property loan, are no more favorable generally to the examiner that
the terms and conditions that are generally applicable to credit card accounts or residential
real property loans offered by the same financial institution to other borrowers or cardholders
in comparable circumstances under open end consumer credit plans or for residential real
property loans; and
(C)
with respect to residential real property loans, the loan is with
respect to the primary residence of the applicant.
18 USC § 213. 242

Acceptance of a loan or gratuity by financial institution examiner.

(a) In general.—Whoever, being an examiner or assistant examiner, accepts a loan
or gratuity from any bank, branch, agency, organization, corporation, association, or
institution examined by the examiner or from any person connected with it, shall—
(1)

be fined under this title, imprisoned not more than one year, or both;

(2)

may be fined a further sum equal to the money so loaned or gratuity

(3)

shall be disqualified from holding office as an examiner.

given; and

(b)
Definitions.—In this section, the terms “examiner”, “Federal financial
institution regulatory agency”, “financial institution”, and “loan” have the same meanings as
in section 212.
18 USC § 215. 243
(a)

Receipt of commissions or gifts for procuring loans.

Whoever—

(1)
corruptly gives, offers, or promises anything of value to any person,
with intent to influence or reward an officer, director, employee, agent, or attorney of a
financial institution in connection with any business or transaction of such institution; or

242
Former 18 USC 218 was redesignated to be current 18 USC 213 by § 1(d) of P.L. 87-849, approved Oct. 23, 1962 (76 Stat.
1125). 18 USC 213 was rewritten by § 2(a) of P.L. 108-198, approved Dec. 19, 2003 (117 Stat. 2899)
243

18 USC 215 substantially rewritten by § 1107 of P.L. 98-473, approved Oct. 12, 1984 (98 Stat. 2145).

138

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TITLE VII

SMALL BUSINESS INVESTMENT ACT OF 1958
(2)
as an officer, director, employee, agent, or attorney of a financial
institution, corruptly solicits or demands for the benefit of any person, or corruptly accepts or
agrees to accept anything of value from any person, intending to be influenced or rewarded in
connection with any business or transaction of such institution;
shall be fined not more than $1,000,000 or three times the value of the thing given, offered
promised, solicited, demanded, accepted, or agreed to be accepted, whichever is greater, or
imprisoned not more than 30 years, or both, but if the value of the thing given, offered,
promised, solicited, demanded, accepted, or agreed to be accepted does not exceed $1000, 244
shall be fined under this title 245 or imprisoned not more than one year, or both.
(b) 246 [Transferred].
(c)
This section shall not apply to bona fide salary, wages, fees, or other
compensation paid, or expenses paid or reimbursed, in the usual course of business.
(d)
Federal agencies with responsibility for regulating a financial institution shall
jointly establish such guidelines as are appropriate to assist an officer, director, employee,
agent or attorney of a financial institution to comply with this section. Such agencies shall
make such guidelines available to the public.
18 USC § 657.

Lending, credit and insurance institutions.

Whoever, being an officer, agent or employee of or connected in any capacity with . .
. any small business investment company, and whoever, being a receiver of any such
institution, or agent or employee of the receiver, embezzles, abstracts, purloins or willfully
misapplies any moneys, funds, credits, securities or other things of value belonging to such
institution, or pledged or otherwise intrusted [sic] to its care, shall be fined not more than
$1,000,000 or imprisoned not more than 30 years, or both; but if the amount or value
embezzled, abstracted, purloined or misapplied does not exceed $100, he shall be fined not
more than $1,000 or imprisoned not more than one year or both.
18 USC § 1006.

Federal credit institution entries, reports and transactions.

Whoever, being an officer, agent or employee of or connected in any capacity with . .
. any small business investment company, with intent to defraud any such institution or any
other company, body politic or corporate, or any individual, or to deceive any officer,
auditor, examiner or agent of any such institution or of department or agency of the United
States, makes any false entry in any book, report or statement of or to any such institution, or
244

Amount changed from $100 by § 606(a) of P.L. 104-294, approved Oct. 11, 1996 (110 Stat. 3511).

245
Section 330016(1)(H) of P.L. 103-322, approved Sept. 13, 1994 (108 Stat. 2147) replaced “not more than $1,000” with
“under this title.”
246

Subsection (b)(6), which defined the term “financial institution” as including a small business investment company, was
transferred to 18 USC § 20 by § 962(e)(1) of P.L. 101-73, approved Aug. 9, 1989 (103 Stat. 503).

139

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TITLE VII

SMALL BUSINESS INVESTMENT ACT OF 1958
without being duly authorized, draws any order or bill of exchange, makes any acceptance, or
issues, puts forth or assigns any note, debenture, bond or other obligation, or draft, bill of
exchange, mortgage, judgment, or decree, or, with intent to defraud the United States or any
agency thereof, or any corporation, institution, or association referred to in this section,
participates or shares in or receives directly or indirectly any money, profit, property, or
benefits through any transaction, loan, commission, contract, or any other act of any such
corporation, institution, or association, shall be fined not more than $1,000,000 or imprisoned
not more than 30 247 years, or both.
18 USC § 1014.
insurance.

Loan and credit applications generally; renewals and discounts; crop

Whoever knowingly makes any false statement or report, or willfully overvalues any
land, property or security, for the purpose of influencing in any way the action of . . . a small
business investment company . . . upon any application, advance, discount purchase,
purchase agreement, repurchase agreement, commitment, or loan, or any change or extension
of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release,
or substitution of security therefor, shall be fined not more than $1,000,000 or imprisoned not
more than 30 years, or both.

247

Term of imprisonment changed from 20 years by § 2504(e) of P.L. 101-647, approved Nov. 29, 1990 (104 Stat. 4861).

140

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