B-149685, NOV. 16, 1965, 45 COMP. GEN. 253

SMALL BUSINESS ADMINISTRATION - LOANS - PARTICIPATION - AUTHORITY THE SALE OF LOANS ORIGINALLY MADE BY THE SMALL BUSINESS ADMINISTRATION UNDER SECTION 303 (B) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, 15 U.S.C. 683 (B), TO PRIVATE FINANCIAL INSTITUTIONS, SUBJECT TO THE GUARANTY OF THE SMALL BUSINESS ADMINISTRATION, IS AUTHORIZED FOR LOANS HAVING TERMS UP TO 15 YEARS, AS WELL AS THOSE THAT MATURE IN 5 OR 6 YEARS AND WHICH WERE APPROVED IN 44 COMP. GEN. 549, AND ALTHOUGH MARKETING THE LOANS THROUGH PRIVATE BROKERAGE CONCERNS IS WITHIN THE SCOPE OF THE AUTHORITY PROVIDED IN 15 U.S.C. 671 FOR THE ADMINISTRATION OF THE LOAN PROGRAM, THE COST OF THE BROKERAGE SERVICES MAY NOT BE PAID FROM THE PROCEEDS OF THE LOAN SALES, THE COMPENSATION TO THE AGENTS ACTING AS BROKERS FOR THE SALE OF THE LOANS CONSTITUTING AN ADMINISTRATIVE EXPENSE, WHICH ABSENT STATUTORY AUTHORITY TO THE CONTRARY, IS CHARGEABLE TO THE APPROPRIATION LIMITATIONS PRESCRIBED IN THE 1966 FISCAL YEAR APPROPRIATION FOR THE SMALL BUSINESS ADMINISTRATION.

TO THE EXECUTIVE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, NOVEMBER 16, 1965:

BY LETTER OF OCTOBER 19, 1965, YOU REQUESTED OUR OPINION AS TO WHETHER CERTAIN LOAN ACTIVITIES CONTEMPLATED BY YOUR AGENCY ARE LEGALLY AUTHORIZED.

IN OUR LETTER OF MARCH 15, 1965, 44 COMP. GEN. 549, TO THE FORMER ADMINISTRATOR OF THE SMALL BUSINESS ADMINISTRATION, WE CONCLUDED THAT THE SALE WITH RECOURSE TO PRIVATE FINANCIAL INSTITUTIONS OF LOANS ORIGINALLY MADE DIRECTLY BY SBA TO SMALL BUSINESS INVESTMENT COMPANIES UNDER SUBSECTION 303 (B) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, 15 U.S.C. 683 (B), IS AUTHORIZED. IT WAS UNDERSTOOD AT THAT TIME THAT THE LOANS INVOLVED ORIGINALLY HAD A MATURITY OF EITHER 5 OR 6 YEARS BUT THAT AT TIME OF SALE THEIR REMAINING TERMS WOULD AVERAGE APPROXIMATELY 2 YEARS.

YOU POINT OUT THAT AS EXPERIENCE HAS BEEN GAINED WITH THIS LOAN GUARANTY PROGRAM, IT HAS BEEN FOUND DESIRABLE TO EXTEND ITS COPE TO COVER LOANS HAVING TERMS OF UP TO 15 YEARS. AND IN THE CASE OF THESE LONGER TERM LOANS, IT IS ALSO DEEMED DESIRABLE THAT THEY BE SOLD TO PRIVATE FINANCIAL INSTITUTIONS THROUGH THE AGENCY OF A PRIVATE BROKERAGE CONCERN WHICH WOULD BE COMPENSATED FOR ITS SERVICES BY MEANS OF A SALES COMMISSION OUT OF THE SALES PROCEEDS. THIS COMMISSION IS EXPECTED TO BE ONE-QUARTER OF ONE PERCENT OF THE UNPAID BALANCE OF THE LOANS SO MARKETED.

WE AGREE FOR THE REASONS SET FORTH IN OUR DECISION OF MARCH 15, 1965, THAT YOU ARE AUTHORIZED TO SELL SUBSECTION 303 (B) LOANS HAVING 15 YEAR MATURITIES TO PRIVATE FINANCIAL INSTITUTIONS SUBJECT TO SBA GUARANTY. WHILE THE LOANS CONSIDERED IN THAT DECISION WERE OF SHORTER MATURITIES, THE LOAN PERIODS INVOLVED WERE NOT MATERIAL TO THE CONCLUSIONS REACHED.

WITH RESPECT TO THE QUESTION WHETHER THE SELLING OF THESE LOANS THROUGH THE FACILITIES OF A PRIVATE BROKERAGE CONCERN AND PAYMENT OF A SALES COMMISSION ARE AUTHORIZED, THE PROVISIONS OF SUBSECTION 5 (B) (2) AND SUBSECTION 5 (B) (7) OF THE SMALL BUSINESS ACT, 15 U.S.C. 634 (B) (2), 634 (B) (7), RELIED UPON IN OUR PRIOR DECISION, ARE AGAIN APPLICABLE. THESE PROVISIONS, MADE APPLICABLE TO FUNCTIONS UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958 BY SECTION 201 THEREOF, 15 U.S.C. 671, GIVE TO THE ADMINISTRATOR OF SBA BROAD AUTHORITY NOT ONLY AS TO THE POWER TO SELL LOANS BUT ALSO AS TO THE TERMS AND METHODS BY WHICH SUCH SALES MAY BE EFFECTED. THEY AUTHORIZE THE ADMINISTRATOR TO:

* * * ASSIGN OR SELL AT PUBLIC OR PRIVATE SALE, OR OTHERWISE DISPOSE OF FOR CASH OR CREDIT, IN HIS DISCRETION AND UPON SUCH TERMS AND CONDITIONS AND FOR SUCH CONSIDERATION AS THE ADMINISTRATOR SHALL DETERMINE TO BE REASONABLE, ANY EVIDENCE OF DEBT, CONTRACT, CLAIM, PERSONAL PROPERTY, OR SECURITY ASSIGNED TO OR HELD BY HIM IN CONNECTION WITH THE PAYMENT OF LOANS GRANTED UNDER THIS CHAPTER * * *.

* * * TAKE ANY AND ALL ACTIONS * * * DETERMINED BY HIM TO BE NECESSARY OR DESIRABLE IN MAKING, SERVICING, COMPROMISING, MODIFYING, LIQUIDATING, OR OTHERWISE DEALING WITH OR REALIZING ON LOANS * * *.

IN LIGHT OF THE CITED AUTHORITIES AND OF THE APPARENT ADMINISTRATIVE DETERMINATION THAT THE SALE OF SUBSECTION 303 (B) LOANS THROUGH THE MEDIUM OF AN AGENT OR BROKER WITH REASONABLE COMPENSATION TO BE PAID HIM FOR HIS SERVICES IS SUBSTANTIALLY MORE ECONOMICAL, FEASIBLE, NECESSARY, OR DESIRABLE BY REASON OF UNUSUAL CIRCUMSTANCES THAN TO HAVE THE SERVICES INVOLVED PERFORMED BY GOVERNMENT PERSONNEL, YOU ARE ADVISED THAT WE PERCEIVE OF NO OBJECTION TO THE PROPOSED PROGRAM. COMPARE 43 COMP. GEN. 390 WHEREIN THE MATTER OF PERFORMING PERSONAL SERVICES BY PRIVATE CONTRACT V. GOVERNMENT PERSONNEL WAS CONSIDERED. NOR DOES THERE APPEAR TO BE ANY REASON TO QUESTION THE SAMPLE DIRECT LOAN NOTE, AGREEMENT FOR DIRECT LOAN NOTE, AGENCY AGREEMENT, AND AGREEMENT OF GUARANTY ENCLOSED WITH YOUR LETTER FOR USE IN OUR CONSIDERATION OF THE MATTER.

BUT WHILE WE ARE OF THE OPINION THAT THE PROPOSED PROGRAM IS AUTHORIZED WE CANNOT AGREE WITH THE CONCLUSION EXPRESSED IN YOUR LETTER THAT COMPENSATION FOR THE BROKERAGE SERVICES INVOLVED MAY PROPERLY BE PAID FROM THE PROCEEDS OF THE LOAN SALES THEREUNDER. TITLE V OF THE DEPARTMENTS OF STATE, JUSTICE, AND COMMERCE, THE JUDICIARY, AND RELATED AGENCIES APPROPRIATION ACT, 1966, PROVIDES, IN PERTINENT PART, UNDER THE HEADING SMALL BUSINESS ADMINISTRATION AT 79 STAT. 641:

FOR NECESSARY EXPENSES, NOT OTHERWISE PROVIDED FOR, OF THE SMALL BUSINESS ADMINISTRATION * * * $7,065,000, AND IN ADDITION THERE MAY BE TRANSFERRED TO THIS APPROPRIATION * * * NOT TO EXCEED $35,000,000 FROM THE REVOLVING FUND, SMALL BUSINESS ADMINISTRATION, FOR ADMINISTRATIVE EXPENSES IN CONNECTION WITH ACTIVITIES FINANCED UNDER SAID FUND * * *.

COMPENSATION TO THE AGENTS WHO WOULD BE ACTING AS BROKERS FOR THE LOANS SOLD CLEARLY CONSTITUTES AN ITEM OF ADMINISTRATIVE EXPENSE IN CONNECTION WITH THE MARKETING OF SUCH LOANS. IN THE ABSENCE OF STATUTORY AUTHORITY TO EFFECT COMPENSATION FOR BROKERAGE SERVICES OUT OF LOAN SALE PROCEEDS--- AND WE ARE AWARE OF NONE--- THE BROKERS' FEES PAID MUST BE CHARGED AGAINST THE APPROPRIATION LIMITATIONS CITED. IN REACHING THIS CONCLUSION WE ARE NOT UNMINDFUL OF THE PROVISIONS OF SECTION 1 OF THE ACT OF JUNE 8, 1896, AS AMENDED, 31 U.S.C. 489, WHICH AUTHORIZE THE EXPENSES OF SALE TO BE PAID "* * * FROM THE PROCEEDS OF SALES OF OLD MATERIAL, CONDEMNED STORES, SUPPLIES, OR OTHER PUBLIC PROPERTY OF ANY KIND * * *.' HOWEVER, IT DOES NOT APPEAR REASONABLE TO EQUATE THE CIRCUMSTANCES SURROUNDING THE SALE OF FULLY GUARANTEED LOANS IN THE COURSE OF ADMINISTERING THE VERY PROGRAM FUNCTIONS FOR WHICH YOU ARE RESPONSIBLE TO THOSE CONTEMPLATED BY SECTION 489 WHICH RELATE MORE TO THE DISPOSITION OF ASSETS FOR WHICH THE GOVERNMENT NO LONGER HAS A NEED.