B-152012, AUG. 6, 1963, 43 COMP. GEN. 138

B-152012: Aug 6, 1963

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YOU HAVE REQUESTED OUR OPINION WHETHER A SMALL BUSINESS INVESTMENT COMPANY ORGANIZED UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958. ARE TO PROVIDE CAPITAL FOR SMALL BUSINESS CONCERNS BY PURCHASING THE EQUITY SECURITIES OF AND MAKING LONG-TERM LOANS TO SUCH CONCERNS. IT IS YOUR POSITION THAT THE SMALL BUSINESS INVESTMENT COMPANIES MAY PROPERLY BE REGARDED AS FINANCING INSTITUTIONS. IS ONE WHICH DEALS IN MONEY AS DISTINGUISHED FROM OTHER COMMODITIES AS THE PRIMARY FUNCTION OF ITS BUSINESS ACTIVITY. 40 COMP. - WHICH AS A PRIMARY FUNCTION IS REGULARLY ENGAGED IN THE FINANCING BUSINESS MAY BE REGARDED AS A FINANCING INSTITUTION. 20 COMP. ARE MERELY INCIDENTAL OR SUBSIDIARY TO ANOTHER END. IS NOT A FINANCING INSTITUTION. 22 COMP.

B-152012, AUG. 6, 1963, 43 COMP. GEN. 138

CLAIMS - ASSIGNMENTS - CONTRACTS - VALIDITY OF ASSIGNMENTS - PERMISSIBLE ASSIGNEES A SMALL BUSINESS INVESTMENT COMPANY ORGANIZED UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958, 15 U.S.C. 661, WHICH HAS AS ITS CHIEF PURPOSE THE FINANCING OR CAPITALIZATION OF SMALL CONCERNS EITHER THROUGH EQUITY SECURITY PURCHASES OR LONG-TERM LOANS MAY BE REGARDED AS "FINANCING INSTITUTION" WITHIN THE MEANING OF THAT TERM IN THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, SO THAT A SMALL BUSINESS INVESTMENT COMPANY MAY QUALIFY AS AN ASSIGNEE FOR MONEYS DUE OR TO BECOME DUE GOVERNMENT UNDER CONTRACTS.

TO THE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, AUGUST 6, 1963:

BY LETTER OF JULY 8, 1963, WITH ENCLOSURE, YOU HAVE REQUESTED OUR OPINION WHETHER A SMALL BUSINESS INVESTMENT COMPANY ORGANIZED UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, 15 U.S.C. 661 NOTE, MAY BE REGARDED AS A FINANCING INSTITUTION WHICH WOULD QUALIFY AS A PROPER ASSIGNEE WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203.

YOU POINT OUT THAT THE TWO CHIEF FUNCTIONS OF SUCH AN INVESTMENT COMPANY UNDER THE TERMS OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, AND 13 C.F.R. 107, ARE TO PROVIDE CAPITAL FOR SMALL BUSINESS CONCERNS BY PURCHASING THE EQUITY SECURITIES OF AND MAKING LONG-TERM LOANS TO SUCH CONCERNS. IN ADDITION, AN INVESTMENT COMPANY WOULD FURNISH CONSULTING AND ADVISORY SERVICES TO SMALL BUSINESS FIRMS ON A FEE BASIS.

YOU EXPECT THAT SMALL BUSINESS INVESTMENT COMPANIES MAY MAKE LONG TERM LOANS TO SMALL BUSINESSES PERFORMING GOVERNMENT CONTRACTS. COLLATERAL FOR SUCH LOANS MAY WELL INCLUDE THE ASSIGNMENT OF MONEYS DUE OR TO BECOME DUE UNDER THE GOVERNMENT CONTRACTS.

THE ASSIGNMENT OF CLAIMS ACT PROVIDES, IN SUBSTANCE, THAT MONEYS DUE OR TO BECOME DUE FROM THE UNITED STATES UNDER A CONTRACT PROVIDING FOR PAYMENT OF $1,000 OR MORE MAY BE ASSIGNED TO A "BANK, TRUST COMPANY, OR OTHER FINANCING INSTITUTION.' THUS, THE ENFORCEABILITY OF SUCH AN ASSIGNMENT AGAINST THE UNITED STATES DEPENDS IN LARGE MEASURE UPON WHETHER THE ASSIGNEE QUALIFIES UNDER ONE OF THESE CATEGORIES. IT IS YOUR POSITION THAT THE SMALL BUSINESS INVESTMENT COMPANIES MAY PROPERLY BE REGARDED AS FINANCING INSTITUTIONS.

A FINANCING INSTITUTION, WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT, IS ONE WHICH DEALS IN MONEY AS DISTINGUISHED FROM OTHER COMMODITIES AS THE PRIMARY FUNCTION OF ITS BUSINESS ACTIVITY. 40 COMP. GEN. 174. FIRM--- BE IT A CORPORATION, A PARTNERSHIP OR A SOLE PROPRIETORSHIP--- WHICH AS A PRIMARY FUNCTION IS REGULARLY ENGAGED IN THE FINANCING BUSINESS MAY BE REGARDED AS A FINANCING INSTITUTION. 20 COMP. GEN. 415, 417. HOWEVER, A FIRM WHOSE CREDIT EXTENSION AND LENDING OPERATIONS, ALTHOUGH CARRIED ON REGULARLY, ARE MERELY INCIDENTAL OR SUBSIDIARY TO ANOTHER END, IN THE LIGHT OF THE FIRM'S OVERALL OPERATIONS, MORE IMPORTANT PURPOSE, IS NOT A FINANCING INSTITUTION. 22 COMP. GEN. 44; 21 ID. 120. FINALLY, A FIRM HAVING AS A MAIN PURPOSE THE FINANCING OF SMALL AND UNDERCAPITALIZED BUSINESSES, EITHER THROUGH LOANS OR DIRECT PURCHASE AND RESALE, HAS BEEN REGARDED AS A FINANCING INSTITUTION. 31 COMP. GEN. 90.

IT IS OUR UNDERSTANDING THAT A SMALL BUSINESS INVESTMENT COMPANY ORGANIZED AND OPERATING PURSUANT TO THE ABOVE-CITED LAW AND REGULATIONS WOULD HAVE AS ITS CHIEF PURPOSE THE FINANCING OR CAPITALIZING OF SMALL CONCERNS EITHER THROUGH EQUITY SECURITY PURCHASES OR LONG-TERM LOANS. VIEW OF THE FOREGOING, WE CONCLUDE THAT SUCH AN INVESTMENT COMPANY MAY BE REGARDED AS A FINANCING INSTITUTION WITHIN THE MEANING OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED.

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