B-149685, MAR. 15, 1965, 44 COMP. GEN. 549

SMALL BUSINESS ADMINISTRATION - LOANS - PARTICIPATION - AUTHORITY ALTHOUGH TWO PROPOSED PROGRAMS BY THE SMALL BUSINESS ADMINISTRATION TO SELL TO PRIVATE FINANCIAL INSTITUTIONS LOANS MADE DIRECTLY TO SMALL BUSINESS INVESTMENT COMPANIES AND TO GUARANTEE LOANS MADE ORIGINALLY BY PRIVATE FINANCIAL INSTITUTIONS TO SMALL BUSINESS INVESTMENT COMPANIES ARE NOT SPECIFICALLY AUTHORIZED THEY ARE WITHIN THE BROAD AUTHORITY PRESCRIBED IN THE SMALL BUSINESS ACT AND THE SMALL BUSINESS INVESTMENT ACT OF 1958, 15 U.S.C. 661, ET SEQ., AND WHILE THE AUTHORITY FOR PARTICIPATION LOANS IN THE AMENDATORY ACT OF FEBRUARY 28, 1964, DOES NOT SPECIFY AUTHORITY FOR THE GUARANTEE OF SUCH LOANS, THE LEGISLATIVE HISTORY CLEARLY SHOWS THAT CONGRESS INTENDED SUCH GUARANTEES AND, THEREFORE, THE PROPOSED PROGRAMS ARE WITHIN THE AUTHORITY OF THE ADMINISTRATION.

TO THE ADMINISTRATOR, SMALL BUSINESS ADMINISTRATION, MARCH 15, 1965:

BY LETTER OF FEBRUARY 9, 1965, YOU REQUESTED OUR OPINION AS TO THE LEGAL PROPRIETY OF INSTITUTING THE FOLLOWING DESCRIBED LENDING PROGRAMS UNDER AUTHORITY OF SUBSECTION 303 (B) OF THE SMALL BUSINESS INVESTMENT ACT OF 1958, 15 U.S.C. 683 (B), AS AMENDED BY PUBLIC LAW 88 273, APPROVED FEBRUARY 28, 1964:

UNDER THE FIRST PROGRAM, THE SMALL BUSINESS ADMINISTRATION INTENDS TO SELL WITH RECOURSE TO PRIVATE FINANCIAL INSTITUTIONS SEC. 303 (B) LOANS ORIGINALLY MADE DIRECTLY BY THE SMALL BUSINESS ADMINISTRATION TO SMALL BUSINESS INVESTMENT COMPANIES. THIS IN EFFECT WOULD BE THE SALE OF LOANS PRESENTLY HELD IN THE SMALL BUSINESS ADMINISTRATION'S PORTFOLIO SUBJECT TO AN SBA GUARANTY. WHEN ORIGINALLY MADE, THESE LOANS HAD A MATURITY OF EITHER 5 OR 6 YEARS; IT IS CONTEMPLATED THAT THEIR REMAINING TERM AT THE TIME OF SALE WILL AVERAGE APPROXIMATELY 2 YEARS.

UNDER THE SECOND PROGRAM, THE SMALL BUSINESS ADMINISTRATION INTENDS TO GUARANTEE LOANS MADE IN THE FIRST INSTANCE BY PRIVATE FINANCIAL INSTITUTIONS TO SMALL BUSINESS INVESTMENT COMPANIES. THE MAXIMUM MATURITY OF THESE LOANS WILL BE 15 YEARS AND IT IS CONTEMPLATED THAT MOST OF THESE LOANS WILL BE AT THIS MAXIMUM TERM. UNDER THIS, AS WELL AS THE FIRST PROGRAM, THE SMALL BUSINESS ADMINISTRATION'S GUARANTY WILL APPLY BOTH TO PRINCIPAL AND INTEREST BUT ONLY IN THE EVENT OF DEFAULT BY THE BORROWING SMALL BUSINESS INVESTMENT COMPANY.

YOU STATE THAT THE UNDERLYING PURPOSE FOR INSTITUTING THESE PROGRAMS IS TO FURTHER THE CONGRESSIONAL MANDATE TO CARRY OUT THE POLICIES OF THE SMALL BUSINESS INVESTMENT PROGRAM IN SUCH MANNER AS TO INSURE THE MAXIMUM PARTICIPATION OF PRIVATE FINANCING SOURCES. SEE 15 U.S.C. 661. SUBSECTION 303 (B), AS AMENDED, READS, IN PERTINENT PART, AS FOLLOWS:

TO ENCOURAGE THE FORMATION AND GROWTH OF SMALL BUSINESS INVESTMENT COMPANIES, THE ADMINISTRATION IS AUTHORIZED (BUT ONLY TO THE EXTENT THAT THE NECESSARY FUNDS ARE NOT AVAILABLE TO THE COMPANY INVOLVED FROM PRIVATE SOURCES ON REASONABLE TERMS) TO LEND FUNDS TO SUCH COMPANIES EITHER DIRECTLY OR BY LOANS MADE OR EFFECTED IN COOPERATION WITH BANKS OR OTHER LENDING INSTITUTIONS THROUGH AGREEMENTS TO PARTICIPATE ON AN IMMEDIATE OR DEFERRED (STANDBY) BASIS. SUCH LOANS SHALL * * * BE SUBJECT TO THE FOLLOWING RESTRICTIONS AND LIMITATIONS:

(1) THE TOTAL AMOUNT OF OBLIGATIONS OF ANY ONE COMPANY WHICH MAY BE PURCHASED AND OUTSTANDING AT ANY ONE TIME BY THE ADMINISTRATION UNDER THIS SUBSECTION (INCLUDING COMMITMENTS TO PURCHASE SUCH OBLIGATIONS) SHALL NOT EXCEED 50 PERCENTUM OF THE PAID-IN CAPITAL AND SURPLUS OF SUCH COMPANY OR $4,000,000, WHICHEVER IS LESS.

AND SUBSECTION 4 (C) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 633 (C) (1958 ED., SUPP. V), PROVIDES THAT:

* * * NOT TO EXCEED AN AGGREGATE OF $341,000,000 SHALL BE OUTSTANDING * * * AT ANY ONE TIME FOR THE EXERCISE OF THE FUNCTIONS OF THE ADMINISTRATION UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958 * * *.

SUBSECTIONS 5 (B) (2) AND 5 (B) (7) OF THE SMALL BUSINESS ACT, AS AMENDED, 15 U.S.C. 634 (B) (2) AND (7), MADE APPLICABLE TO FUNCTIONS UNDER THE SMALL BUSINESS INVESTMENT ACT OF 1958, AS AMENDED, BY SECTION 201 OF THAT ACT, 15 U.S.C. 671, 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 LOAN 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 * * *.

THE CITED AUTHORITIES ARE BROAD AND WE DO NOT KNOW OF ANY REASON WHY THEY MAY NOT BE RELIED UPON AS COVERING THE PROPOSED PROGRAMS. THE ONLY POSSIBLY QUESTIONABLE ASPECT OF THE MATTER FROM A LEGAL STANDPOINT APPEARS TO BE THE ABSENCE OF AUTHORITY IN SPECIFIC TERMS TO GUARANTEE LOANS. HOWEVER, THE LEGISLATIVE HISTORY OF PUBLIC LAW 88-273 LEAVES NO ROOM FOR DOUBT THAT AUTHORITY TO GUARANTEE LOANS WAS INTENDED BY THE CONGRESS. COMMENTS OF THE SENATE COMMITTEE ON BANKING AND CURRENCY--- IN CONNECTION WITH THE PROVISIONS ULTIMATELY ENACTED AS PART OF PUBLIC LAW 88-273 TO GRANT SPECIFIC AUTHORITY TO ENTER INTO PARTICIPATING AGREEMENTS WITH LENDING INSTITUTIONS--- AT PAGE 4 OF S.REPT. NO. 639, DATED NOVEMBER 8, 1963, CLEARLY REACH THIS POINT:

SECTION 3 OF THE BILL ALSO WOULD AMEND SECTION 303 (B) OF THE ACT TO PROVIDE SBA WITH EXPRESS AUTHORITY TO LEND FUNDS TO SBIC'S IN COOPERATION WITH BANKS OR OTHER LENDING INSTITUTIONS THROUGH AGREEMENTS TO PARTICIPATE ON AN IMMEDIATE OR DEFERRED BASIS. SECTION 303 (B) DOES NOT NOW EXPLICITLY AUTHORIZE SBIC'S TO MAKE PARTICIPATION LOANS WITH BANKS AND OTHER LENDING INSTITUTIONS. HOWEVER, THE COMPTROLLER GENERAL HAS RULED (COMP. GEN. OP. 149685) THAT SBA HAS IMPLIED AUTHORITY TO ENTER INTO PARTICIPATION AGREEMENTS UNDER THE ACT. UNDER THIS RULING SBA HAS DEVELOPED WHAT IS CALLED A STANDBY AGREEMENT, WHICH IS NOW BEING USED.

THE COMMITTEE RECOMMENDS THAT SPECIFIC AUTHORITY BE GIVEN TO SBA BY THIS BILL TO MAKE PARTICIPATION LOANS WITH BANKS OR OTHER LENDING INSTITUTIONS UNDER THEIR PRESENT STANDBY PLAN OR UNDER OTHER PLANS, SUCH AS GUARANTEES, WHICH SBA MAY DEVELOP CONSISTENT WITH SOUND LENDING POLICIES IN ORDER TO ENCOURAGE BANKS AND OTHER LENDING INSTITUTIONS TO PARTICIPATE TO A GREATER EXTENT IN THE FINANCING OF SBIC-S. SEE ALSO H.REPT. NO. 1084, DATED DECEMBER 20, 1963, AT PAGES 4 AND 5, FOR SIMILAR COMMENTS ON THE PART OF THE HOUSE COMMITTEE ON BANKING AND CURRENCY.

ACCORDINGLY, YOU ARE ADVISED THAT THE PROPOSED PROGRAMS ARE WITHIN YOUR AUTHORITY TO INSTITUTE SUBJECT, OF COURSE, TO RESERVATIONS AGAINST THE APPLICABLE MONETARY LIMITATIONS.