Small Business Investment Companies

SMALL BUSINESS ADMINISTRATION

13 CFR Part 107

Small Business Investment Companies

AGENCY: Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: In response to concerns expressed by a number of small

business investment companies (SBICs), SBA is proposing to modify the

examination fees charged to SBICs. SBA believes that the current fee

schedule places a disproportionate burden on certain classes of

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

and, in some cases, results in fee assessments that exceed reasonable

charges based on the level of effort and time associated with the

examination process.

DATES: Comments must be submitted on or before March 13, 1997.

ADDRESSES: Written comments should be addressed to Don A. Christensen,

Associate Administrator for Investment, U.S. Small Business

Administration, 409 3rd Street, SW., Suite 6300, Washington, DC 20416.

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

[[Page 6148]]

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.

Since the effective date and implementation of this regulation

(March 1, 1996), SBA has received a number of comments regarding the

impact of the new fee schedule on licensees in certain asset size

groups. In particular, bank-owned SBICs argue that they are required to

bear an unfair portion of the overall fees. In this regard, they note

that they generally have no federal funds at risk. However, because

fees are based on total assets and they generally have the largest

amount of total assets, they are required to pay fees at levels which

far exceed 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 argue that the fees

greatly exceed the amount they pay for financial audits and are not

representative of the level of effort and time attributable to the

process.

Because of these comments, the SBA has re-assessed its examination

fee schedule and its impact on the various classes of licensees. Based

on its reassessment, the SBA has concluded that the current fee

schedule places a disproportionate burden on certain classes of

licensees and, in some cases, results in fee assessments that exceed

reasonable charges based on the level of effort and time associated

with the examination process.

To remedy this situation, the SBA is proposing revisions to

Sec. 107.692 to establish fees that are more reasonable in relation to

the level of effort and resources expended by the Agency. The proposed

fee schedule would establish ``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. In SBA's view, these adjustments are

incentives for the licensees to adhere to program regulations and will

serve to further enhance the safety and soundness of the SBIC program.

The new fee schedule would apply to examinations beginning after the

effective date of a final rule.

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 proposed rule would not be a significant

regulatory action for purposes of Executive Order 12866 because it

would not have an annual effect on the economy of more than $100

million, and that it would 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

proposed rule is to modify the existing regulatory guidance related to

SBIC examination fees. The proposed regulations would provide for more

reasonable and equitable examination fees. The proposed fee structure

would more properly reflect the level of effort and Agency resources

expended to conduct an examination, would encourage continued

compliance with program regulations, and would continue to allow for

efficient and effective program administration.

The proposed regulations would have some economic effect. The base

fee for examinations would continue to be based on total assets of a

licensee and, for the most part, at the rates prescribed in current

regulations. However, no licensee would have a base fee greater than

$14,000. The proposed regulations would provide for discounts of the

base examination fee for (1) licensees that had no outstanding

regulatory violations at the time of the examination and there were 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 proposed regulations would 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, would 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 would realize

significant examination fee reductions.

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

certifies that this proposed rule, if adopted in final form, would

contain 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

would 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 proposes to amend 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 is revised 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 co........ 5

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

........... Financing Records at Multiple Locations.... 10

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(e) Delay fee. If, in the judgment 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: February 4, 1997.

Philip Lader,

Administrator.

[FR Doc. 97-3280 Filed 2-10-97; 8:45 am]

BILLING CODE 8025-01-P