Small Business Investment Companies

SMALL BUSINESS ADMINISTRATION

13 CFR Part 107

Small Business Investment Companies

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: This final rule modifies the examination fees charged to small

business investment companies (SBICs). The revised fee schedule

eliminates the disproportionate burden on certain classes of licensees

(particularly those with the largest amount of total assets) and

results in fee assessments that more closely reflect the level of

effort and time associated with the examination process.

DATES: This final rule is effective April 30, 1997.

FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, Investment Division,

at (202) 205-7583.

SUPPLEMENTARY INFORMATION: On January 31, 1996, the Small Business

Administration (SBA) published final regulations which, among other

things, increased the examination fees charged to SBICs. See 61 FR

3177. Fees continued to be assessed based on total assets of the

licensee, but at higher rates. The new fee schedule was designed to

produce total revenue sufficient to cover the current direct costs to

SBA of conducting examinations. In response to concerns raised by a

number of SBICs, SBA proposed on February 11, 1997 to modify the

examination fee schedule. See 62 FR 6147. This proposed rule is hereby

adopted in final form.

The proposed rule was intended to respond to concerns that the

existing fee schedule resulted in unreasonably high examination fees

for the group of SBICs with the largest amount of total assets. Many of

the largest SBICs are bank-owned and do not use federal leverage funds,

so that fees computed on the basis of total assets do not appropriately

reflect the level of effort and risk associated with the examination

process. Similarly, larger SBICs which are not bank-owned and do rely

on federal funds to supplement private capital have been required to

pay fees that substantially exceed the amount they pay for financial

audits, which are generally more extensive than the compliance

examinations performed by SBA.

To address these concerns, SBA proposed to revise Sec. 107.692 by

establishing ``base fees'' for examinations. The base fee increases as

a licensee's total assets increase, but is capped at $14,000. The base

fee would be adjusted upward in circumstances where the Agency incurs

additional cost or burdens in the process because of circumstances

solely related to the licensee to be examined. Similarly, the base fee

would be adjusted downward where circumstances solely related to the

licensee to be examined are such that the Agency's level of effort and

time are minimized.

SBA received two comments on the proposed rule, both of which were

generally supportive. One commenter agreed with the concept of capping

the base fee, but suggested a $10,000 cap instead of the proposed

$14,000. The commenter considered the lower fee to be more in line with

rates charged by independent auditors. The other comment dealt with the

proposed adjustments to the base fee, suggesting that SBA consider

additional discounts for those licensees which do not use SBA leverage

and those with only a limited number of investments which SBA must

review. The commenter also suggested elimination of the 5 percent

additional charge for licensees organized as partnerships or limited

liability companies. The commenter stated that these changes would

further the goal of tying SBIC examination fees to the level of effort

and resources expended by SBA in performing the examinations.

SBA believes that the proposed maximum base fee of $14,000 is

reasonable relative to the size of the SBICs which will be required to

pay it (those with total assets greater than $60,000,000). The $14,000

base represents a significantly reduced rate for most of these larger

SBICs. For these reasons, SBA has not adopted this suggested change.

SBA generally supports the concept of linking fees to the risk and

complexity of the examination. However, the Agency believes that the

introduction of additional criteria for discounts would result in an

overly complex fee structure. SBA also believes that the additional

charge for partnerships is justified because of the complexity of most

partnership agreements and the need to perform certain examination

procedures at the level of the general partner as well as the SBIC

itself.

SBA is making one editorial change to the table in Sec. 107.692(d),

so that the language concerning records kept in multiple locations is

the same in that paragraph as in Sec. 107.692(c)(5). In all other

respects, the rule is adopted as proposed.

Compliance With Executive Orders, 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork

Reduction Act (44 U.S.C. Ch. 35)

SBA certifies that this final rule will not be a significant

regulatory action for purposes of Executive Order 12866 because it will

not have an annual effect on the economy of more than $100 million, and

that it will not have a significant economic impact on a substantial

number of small entities within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq. The purpose of the rule is to

modify the existing regulatory guidance related to SBIC examination

fees. The rule will provide for more reasonable and equitable

examination fees. The revised fee structure will more properly reflect

the level of effort and Agency resources expended to conduct an

examination, will encourage continued compliance with program

regulations, and will continue to allow for efficient and effective

program administration.

The regulation will have some economic effect. The base fee for

examinations will continue to be based on total assets of a licensee

and, for the most part, at the rates previously prescribed. However, no

licensee will have a base fee greater than $14,000. The regulation will

provide for

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discounts of the base examination fee for: (1) Licensees with no

outstanding regulatory violations at the time of the examination and no

violations noted as a result of the most recent prior examination; and

(2) licensees that are cooperative with SBA examination personnel by

being fully responsive to the letter of notification of examination.

Similarly, the regulation will provide increases to the base

examination fee for a licensee that: (1) Is organized as a partnership

or limited liability company; (2) is authorized to issue Participating

Securities; and/or (3) maintains its records/files in multiple

locations.

The largest licensees, those with total assets exceeding $60

million, will realize substantial fee decreases. The examination base

fee of all licensees potentially could be increased or decreased.

Therefore, all licensees with total assets below $60 million may

experience a 5% to 25% increase or a 10% to 25% decrease in the cost of

an annual examination. The economic impact in either case is

inconsequential given the total number of licensees and the base fees

applicable to the majority of the licensees. Further, even assuming the

maximum increases provided for in the proposed regulations, most

licensees with total assets greater than $60 million will realize

significant examination fee reductions.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this final rule contains no new reporting or

recordkeeping requirements that have not already been approved by the

Office of Management and Budget.

For purposes of Executive Order 12612, SBA certifies that this rule

does not have any federalism implications warranting the preparation of

a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, in accordance with the standards

set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 107

Investment companies, Loan programs--business, Reporting and

recordkeeping requirements, Small businesses.

For the reasons set forth above, SBA hereby amends part 107 of

title 13 of the Code of Federal Regulations as follows:

PART 107--SMALL BUSINESS INVESTMENT COMPANIES

1. The authority citation for part 107 continues to read as

follows:

Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g

and 687m, Pub. L. 104-208.

2. Section 107.692 is revised to read as follows:

Sec. 107.692 Examination fees.

(a) General. SBA will assess fees for examinations in accordance

with this Sec. 107.692. Unless SBA determines otherwise on a case by

case basis, SBA will not assess fees for special examinations to obtain

specific information.

(b) Base fee. A base fee will be assessed based on your total

assets (at cost) as of the date of your latest certified financial

statement or a more recent interim statement requested by and submitted

to SBA in connection with the examination. The base fee table is as

follows:

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Total assets of licensee Base fee Plus, percent of assets

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$0 to $1,500,000.................... $3,500 +0%

$1,500,001 to $5,000,000............ 3,700 +.065% of the amount over $1,500,000

$5,000,001 to $10,000,000........... 6,000 +.02% of the amount over $5,000,000

$10,000,001 to $15,000,000.......... 7,000 +.01% of the amount over $10,000,000

$15,000,001 to $25,000,000.......... 7,700 +.015% of the amount over $15,000,000

$25,000,001 to $50,000,000.......... 9,200 +.015% of the amount over $25,000,000

$50,000,001 to $60,000,000.......... 13,000 +.01% of the amount over $50,000,000

$60,000,001 and above............... 14,000 +0%

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(c) Adjustments to base fee. Your base fee, as determined by the

table in paragraph (b) of this section, will be adjusted (increased or

decreased) based on the following criteria:

(1) If you have no outstanding regulatory violations at the time of

the commencement of the examination and SBA did not identify any

violations as a result of the most recent prior examination, you will

receive a 15% discount on your base fee;

(2) If you were fully responsive to the letter of notification of

examination (that is, you provided all requested documents and

information within the time period stipulated in the notification

letter in a complete and accurate manner, and you prepared and had

available all information requested by the examiner for on-site

review), you will receive a 10% discount on your base fee;

(3) If you are organized as a partnership or limited liability

company, you will pay an additional charge equal to 5% of your base

fee;

(4) If you are a Licensee authorized to issue Participating

Securities, you will pay an additional charge equal to 10% of your base

fee; and

(5) If you maintain your records/files in multiple locations (as

permitted under Sec. 107.600(b)), you will pay an additional charge

equal to 10% of your base fee.

(d) Fee discounts and additions table. The following table

summarizes the discounts and additions noted in paragraph (c) of this

section:

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Amount of Amount of

discount--% Addition--%

Examination fee discounts of base Examination fee additions of base

examination examination

fee fee

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No prior violations........................... 15 Partnership or limited liability 5

company.

Responsiveness................................ 10 Participating Security Licensee....... 10

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Records/files at multiple locations... 10

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(e) Delay fee. If, in the judgement of SBA, the time required to

complete your examination is delayed due to your lack of cooperation or

the condition of your records, SBA may assess an additional fee of up

to $500 per day.

Dated: April 17, 1997.

Aida Alvarez,

Administrator.

[FR Doc. 97-11109 Filed 4-29-97; 8:45 am]

BILLING CODE 8025-01-P