What This Bill Does
This bill creates a new type of investment company license called a MicroCap small business investment company. The bill allows the Small Business Administration to approve up to 10 of these licenses per year for companies whose managers don't have all the usual investment experience requirements but have other types of business success.
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Who It Affects
- Companies that want to become small business investment companies (investment firms that provide money to small businesses)
- Fund managers and investment committees at these companies
- Businesses in low-income communities, opportunity zones, research and development, manufacturing, rural areas and underserved communities that could receive investment
- The Small Business Administration (the federal agency that oversees small business programs)
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Key Provisions
- The Small Business Administration can issue up to 10 MicroCap licenses per year for applicants whose managers have documented business success or industry knowledge instead of traditional investment track record experience (Sec. 2(a)(5)(A))
- Companies must invest at least 25 percent of their money in low-income communities, opportunity zones, research and development businesses, manufacturers, underserved-community-owned businesses, or rural areas (Sec. 2(a)(5)(A)(iii))
- The agency must process applications within 60 days, make a final decision within 90 days, and provide rejected applicants a written explanation and a chance to reapply within 30 days (Sec. 2(a)(5)(C))
- These companies can receive leverage (borrowed money) of no more than $25,000,000 and only up to 100 percent of their own private capital (Sec. 2(a)(5)(D))
- Each company must have at least 2 independent board members from previously licensed investment companies who must approve all investments, but these members cannot receive management fees (Sec. 2(a)(5)(E))
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What Changes
If this bill passes, companies with successful business managers but limited investment experience could obtain licenses to operate investment funds. These companies would face faster approval timelines than typical investment companies but must focus their investments in specific communities and industries like rural areas, low-income neighborhoods, and manufacturing businesses.
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Important Definitions
- "Low-income communities" means communities as defined in section 45D(e) of the Internal Revenue Code of 1986 (Sec. 2(a)(5)(A)(i))
- "Qualified opportunity zone" means a community designated as such under section 1400Z-1 of the Internal Revenue Code of 1986 (Sec. 2(a)(5)(A)(ii))
- "Rural areas" means areas as defined by the Bureau of the Census (Sec. 2(a)(5)(A)(vi))
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Effective Date
Not specified in bill text
II
118TH CONGRESS
1ST SESSION
S. 1157
To establish a MicroCap small business investment company designation,
and for other purposes.
IN THE SENATE OF THE UNITED STATES
MARCH 30, 2023
Mr. HICKENLOOPER (for himself, Mr. RISCH, and Ms. CORTEZ MASTO) intro-
duced the following bill; which was read twice and referred to the Com-
mittee on Small Business and Entrepreneurship
A BILL
To establish a MicroCap small business investment company
designation, and for other purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘MicroCap Small Busi-
4
ness Investing Act of 2023’’.
5
SEC. 2. MICROCAP SMALL BUSINESS INVESTMENT COM-
6
PANY DESIGNATION.
7
(a) IN GENERAL.—Title III of the Small Business
8
Investment Act of 1958 (15 U.S.C. 681 et seq.) is amend-
9
ed—
10
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•S 1157 IS
(1) in section 301(c) (15 U.S.C. 681(c)), by
1
adding at the end the following:
2
‘‘(5) MICROCAP SMALL BUSINESS INVESTMENT
3
COMPANY LICENSE.—
4
‘‘(A) IN GENERAL.—Notwithstanding any
5
other provision of law, the Administrator may
6
approve an application and issue not more than
7
10 licenses annually under this subsection with
8
respect to any applicant—
9
‘‘(i) that would otherwise be issued a
10
license under this subsection, except that
11
the management of the applicant does not
12
satisfy
the
qualification
requirements
13
under paragraph (3)(A)(ii) to the extent
14
that such requirements relate to invest-
15
ment experience and track record, includ-
16
ing any such requirements further set
17
forth in section 107.305 of title 13, Code
18
of Federal Regulations, or any successor
19
regulation;
20
‘‘(ii) for which the fund managers
21
have—
22
‘‘(I) a documented record of suc-
23
cessful business experience;
24
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3
•S 1157 IS
‘‘(II) a record of business man-
1
agement success; or
2
‘‘(III) knowledge in the par-
3
ticular industry or business in which
4
the investment strategy is being pur-
5
sued; and
6
‘‘(iii) that, in addition to any other re-
7
quirement applicable to the applicant
8
under this title or the rules issued to carry
9
out
this
title
(including
section
10
121.301(c)(2) of title 13, Code of Federal
11
Regulations, or any successor regulation),
12
will make not less than 25 percent of its
13
investments in—
14
‘‘(I) low-income communities, as
15
that term is defined in section 45D(e)
16
of the Internal Revenue Code of 1986;
17
‘‘(II) a community that has been
18
designated as a qualified opportunity
19
zone under section 1400Z–1 of the In-
20
ternal Revenue Code of 1986;
21
‘‘(III) businesses primarily en-
22
gaged in research and development;
23
‘‘(IV) manufacturers;
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•S 1157 IS
‘‘(V) businesses primarily owned
1
or controlled by individuals in under-
2
served communities before receiving
3
capital from the applicant; and
4
‘‘(VI) rural areas, as that term is
5
defined by the Bureau of the Census.
6
‘‘(B) PRIORITY; STREAMLINED PROCESS.—
7
With respect to an application for a license pur-
8
suant to this paragraph, the Administrator
9
shall—
10
‘‘(i) give priority to an applicant for
11
such a license that is located in an under-
12
licensed State; and
13
‘‘(ii) establish a streamlined process
14
for applicants submitting such an applica-
15
tion.
16
‘‘(C) TIMING
FOR
ISSUANCE
OF
LI-
17
CENSE.—Notwithstanding paragraph (2), with
18
respect to an application for a license submitted
19
to the Administrator pursuant to this para-
20
graph, the Administrator shall—
21
‘‘(i) not later than 60 days after the
22
date on which the application is submitted
23
to the Administrator, process and provide
24
complete feedback with respect to any pre-
25
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•S 1157 IS
license application requirements applicable
1
to the applicant;
2
‘‘(ii) not restrict the submission of
3
any application materials; and
4
‘‘(iii) not later than 90 days after the
5
date on which the application is submitted
6
to the Administrator—
7
‘‘(I) approve the application and
8
issue a license for such operation to
9
the applicant, if the requirements for
10
the license are satisfied; or
11
‘‘(II) based upon facts in the
12
record—
13
‘‘(aa) disapprove the appli-
14
cation; and
15
‘‘(bb) provide the applicant
16
with—
17
‘‘(AA) a clear, written
18
explanation of the reason for
19
the disapproval; and
20
‘‘(BB) a chance to rem-
21
edy any issues with the ap-
22
plication and immediately
23
reapply, with technical as-
24
sistance provided as needed
25
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•S 1157 IS
and a new determination
1
made by the Administrator
2
not later than 30 days after
3
the date on which the appli-
4
cant re-submits the applica-
5
tion.
6
‘‘(D) LEVERAGE.—A company licensed
7
pursuant to this paragraph shall—
8
‘‘(i) not be eligible to receive leverage
9
in
an
amount
that
is
more
than
10
$25,000,000; and
11
‘‘(ii) access leverage in an amount
12
that is not more than 100 percent of the
13
private capital of the applicant.
14
‘‘(E) INVESTMENT COMMITTEE.—
15
‘‘(i) IN GENERAL.—Each company li-
16
censed pursuant to this paragraph shall
17
have not fewer than 2 independent mem-
18
bers on the investment committee of the
19
company in a manner that complies with
20
the following requirements:
21
‘‘(I) The independent members of
22
the investment committee are or have
23
been licensed managers of small busi-
24
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•S 1157 IS
ness investment companies within the
1
preceding 10-year period.
2
‘‘(II) No small business invest-
3
ment company described in subclause
4
(I) may be adversely affected by the
5
relationship of the independent mem-
6
bers of the investment committee with
7
the company licensed pursuant to this
8
paragraph.
9
‘‘(III) The independent members
10
of the investment committee are re-
11
quired to approve each investment
12
made by the company.
13
‘‘(IV) The independent members
14
of the investment committee shall not
15
be paid a management fee, but may
16
receive paid expenses and a portion of
17
any carried interest.
18
‘‘(ii) LEVERAGE LIMITS.—Any lever-
19
age associated with a company licensed
20
pursuant to this paragraph shall not be
21
counted toward the leverage limits of the
22
independent members of the investment
23
committee of the company under this
24
title.’’; and
25
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•S 1157 IS
(2) in section 303(d) (15 U.S.C. 683(d)), by in-
1
serting ‘‘(or, with respect to a company licensed
2
under section 301(c)(5), 50 percent)’’ after ‘‘25 per-
3
cent’’.
4
(b) SBA REQUIREMENTS.—
5
(1) DEFINITIONS.—In this subsection—
6
(A) the term ‘‘Administrator’’ means the
7
Administrator of the Small Business Adminis-
8
tration; and
9
(B) the term ‘‘covered company’’ means an
10
entity that is licensed to operate as a small
11
business investment company pursuant to para-
12
graph (5) of section 301(c) of the Small Busi-
13
ness Investment Act of 1958 (15 U.S.C.
14
681(c)), as added by subsection (a).
15
(2) RULES.—Not later than 90 days after the
16
date of enactment of this Act, the Administrator
17
shall issue rules to carry out this section and the
18
amendments made by this section.
19
(3) ANNUAL REPORT.—Not later than 1 year
20
after the date of enactment of this Act, and annually
21
thereafter, the Administrator shall publicly publish a
22
report that details, for the year covered by the re-
23
port—
24
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•S 1157 IS
(A) the number of covered companies li-
1
censed by the Administrator;
2
(B) the industries in which covered compa-
3
nies have invested;
4
(C) the geographic locations of covered
5
companies; and
6
(D) the aggregate performance of covered
7
companies.
8
Æ
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