H. R. 5225

To amend the Small Business Investment Act of 1958 to establish a Micro-SBIC program, and for other purposes.

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117 HR 5225 IH: Micro-SBIC and Emerging Managers Program Act of 2021

U.S. House of Representatives

2021-09-10

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EN

Pursuant to Title 17 Section 105 of the United States Code, this file is not subject to copyright protection and is in the public domain.

I

117th CONGRESS

1st Session

H. R. 5225

IN THE HOUSE OF REPRESENTATIVES

September 10, 2021

Ms. Houlahan

introduced the following bill; which was referred to the

Committee on Small Business

A BILL

To amend the Small Business Investment Act of 1958 to establish a Micro-SBIC program, and for other purposes.

1.

Short title

This Act may be cited as the

Micro-SBIC and Emerging Managers Program Act of 2021

.

2.

Micro-SBIC license

Part A of title III of the Small Business Investment Act of 1958 (

15 U.S.C. 681 et seq.

) is amended by adding at the end the following new sections:

321.

Micro-SBIC license

(a)

Establishment

The Administrator shall establish a program to issue Micro-SBIC licenses to applicants for the purpose of making investments in and loans to qualified small business concerns.

(b)

Administration

To the extent practicable, the Administrator shall administer the program established under this section in a similar manner to the program established under section 301.

(c)

Applications

An applicant shall submit an application to the Administrator at such time, in such manner, and containing such information as the Administrator may require, including—

(1)

evidence that the applicant holds private capital of not less than $5,000,000; and

(2)

evidence that the management of the applicant has significant business expertise relevant to the applicant’s investment strategy.

(d)

Selection of Micro-SBICs

The Administrator shall select applicants to be granted a license to operate a Micro-SBIC under this section.

(e)

Guidance

The Administrator shall issue guidance that encourages the participation of nontraditional applicants by reducing requirements for applicants. Such guidance—

(1)

may include the requirements established under part 107 of title 13, Code of Federal Regulations; and

(2)

shall allow applicants who have not previously managed an investment company to demonstrate significant business expertise relevant to the applicant’s investment strategy by reliance upon the presence of at least two track record investment committee members or participation in the Emerging Managers Program established under section 322.

(f)

Procedures for issuing licenses

(1)

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 the completion of the application.

(2)

Approval or disapproval

Except as provided in paragraph (3) and within a reasonable time after providing the report under paragraph (1), and in accordance with such requirements as the Administrator may provide, the Administrator shall—

(A)

approve the application and issue the applicant a license to operate as a Micro-SBIC; or

(B)

disapprove the application and notify the applicant in writing of the disapproval, including reasons for the disapproval.

(3)

Provisional approval

(A)

In general

The Administrator may provide provisional approval to an applicant to—

(i)

encourage investment company applicants with an investment mandate from the committed private market capital of the investment company that does not conform to the requirements relating to private capital in subsection (c) at the time of application;

(ii)

allow the applicant to more effectively raise capital commitments from the private market by such provisional approval; and

(iii)

allow the applicant to more precisely request the desired amount of leverage from the Administrator pending the securing of capital from private market investors.

(B)

Limitation

An applicant provided provisional approval under subparagraph (A) shall apply for approval under paragraph (2) not later than 12 months after being granted such provisional approval.

(g)

Maximum leverage

(1)

In general

The maximum amount of outstanding leverage made available to any one Micro-SBIC may not exceed—

(A)

50 percent of the private capital of such Micro-SBIC, not to exceed $25,000,000; or

(B)

in the case of a Micro-SBIC owned by persons that also own a small business investment company licensed under section 301, 100 percent of the private capital of such Micro-SBIC, not to exceed $50,000,000.

(2)

Investments in certain business

(A)

In general

In calculating the outstanding leverage of a Micro-SBIC for purposes of subparagraph (A), the Administrator shall exclude the amount of the costs basis of any investments made in an entity described in subparagraph (B) in an amount not to exceed—

(i)

$25,000,000; or

(ii)

in the case of a Micro-SBIC owned by persons that also own a small business investment company licensed under section 301, $50,000,000.

(B)

Entities

An entity described in this subparagraph is—

(i)

a Special Competitive Opportunity Gap Business (as defined by the Administrator);

(ii)

a small business concern located in a HUBZone;

(iii)

a small business concern located in a community that has been designated as an empowerment zone or an enterprise community under

section 1391

of the Internal Revenue Code of 1986;

(iv)

a small business concern located in a community that has been designated as a promise zone by the Secretary of Housing and Urban Development; or

(v)

a small business concern located in a community that has been designated as a qualified opportunity zone under

section 1400Z–1

of the Internal Revenue Code of 1986.

(3)

Portfolio diversification

The Administrator shall revise section 107.740 of title 13, Code of Federal Regulations, to provide for a higher

overline limit

for a Micro-SBIC compared to other small business investment companies.

(h)

Report

The Administrator shall include in the annual report required under section 10(a) of the Small Business Act a description of—

(1)

the number of applications received under this subsection, including the number of applications received from applicants the management of which is at least majority composed of socially disadvantaged individuals or veterans;

(2)

the number of licenses issued under this section, including the number of such licenses issued to applicants the management of which is at least majority composed of socially disadvantaged individuals or veterans;

(3)

the number of investments made by Micro-SBICs in Special Competitive Opportunity Gap Businesses, disaggregated by the type of Special Competitive Opportunity Gap Business; and

(4)

the number of investments made by Micro-SBICs, disaggregated by debt, debt with equity features, and equity only.

(i)

Definitions

In this section:

(1)

Applicant

The term

applicant

means an incorporated body, a limited liability corporation, or a limited partnership organized and chartered or otherwise existing under State law solely for the purpose of securing a Micro-SBIC license to perform the functions and conduct the activities described under this section.

(2)

Management

The term

management

means a general partner of an applicant or member of the investment committee of the applicant.

(3)

Micro-SBIC

The term

Micro-SBIC

means a company issued a license to operate pursuant to the requirements of this section.

(4)

Micro-SBIC license

The term

Micro-SBIC license

means a license issued to an applicant to operate pursuant to the requirements of this section.

(5)

Socially disadvantaged individual

The term

socially disadvantaged individual

(A)

has the meaning given in section 8(a)(5) of the Small Business Act; and

(B)

includes an individual who is a woman.

(6)

Track record investment committee member

The term

track record investment committee member

means a current or former small business investment company or lower-middle market private equity fund manager with the knowledge, experience, and capability necessary to serve as management for an applicant.

(7)

Veteran

The term

veteran

has the meaning given under section 3(q)(4) of the Small Business Act.

322.

Emerging Managers Program

(a)

Establishment

The Administrator shall establish a program to be known as the

Emerging Managers Program

under which a covered manager may enter into a written agreement approved by the Administrator to provide guidance and assistance to an applicant for a small business investment company license or a Micro-SBIC license that is managed by not less than two individuals who are emerging managers.

(b)

Leverage

Leverage made available to a small business investment company or Micro-SBIC that is managed by at least two individuals who are emerging managers shall not be considered as part of the leverage made available to a covered manager.

(c)

Report

Not later than 5 years after the date of enactment of this Act, the Administrator shall submit to the Committee on Small Business of the House of Representatives and the Committee on Small Business and Entrepreneurship of the Senate a report evaluating the effectiveness of the Emerging Managers Program established under this section, including with respect to increasing the number of applications received by and licenses issued to emerging managers.

(d)

Definitions

In this subsection:

(1)

Covered manager

The term

covered manager

means—

(A)

a manager with substantial experience in operating small business investment companies; and

(B)

as determined by the Administrator, a manager of a private equity fund or venture fund that is not licensed as a small business investment company.

(2)

Emerging manager

The term

emerging manager

means an individual with an investment record of less than 10 years, or with a focus on underserved markets.

.