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B-149685 1 (1976-10-19)

handle is hein.gao/gaobaddwb0001 and id is 1 raw text is: i a ~ THE COMPTROLLER GENERAL D3ECISIHN 4.OP THE LNITM3 STATES p,& WASHINGTON. 0. 0, R0540 0 C C:) O FILE:: B149685 DATE; OCT191976 MATTER OF: Vonuura aspital - Section 303(b) of the Snal Businvau wastuent Act DIGEST: Invectments (iocluding certain longeterm loans) by awall buoinesa investment company (SIC) to nmall buaincas concerns which othervise meot tho require- rents of 15 U.S.C. 5 683(b) (Supp. IV, 1974) and implameting regulations, do not lose their charactor as ventura capital even thouah thei SlG-lender reserven right to approve or dioaprove future borrow- Ings of amll businous concern from other potertial lending institutiorw. Tin; dtcivion to the Adminiotrator of th& Snall Duinosa Adtini tration (SA) i it rnaponse to hin requeot for our concurren'e in tDA'c; interppetation of the torn Aventure capital as that LteT appears in nectiot# 303() of thei &mall Buiness Invettdnt Act, ao a 'ded, 15U C. 6 603(b) (Supp. IV, 1974), awl in thi irmplucentir.g regulationw, 13 C.V.R. I 107.02(b) (1975). DA his deternined that ftuds lonmed by owall buninceo investneat compnniea (SflICu) to a umall. businans concern undar an agrerment wequiiring the bor,-ower to obtain the S6131'a approval boforo borrowing noncey from any other institutional lender can qualify as venture capital under tho defLnition, notuithstnding the definitional requirement tint venture cnpital financing be subordiuate to any uub- soquent borrow;r.ngn by the awall busincan concern, The question io iheLher wo roa that then two requirementa are conistent. According to the material aubmittod to us by SBA, a qunation about the validity of this dotermination w a first raised in an internld SA noLiorandum addrasod to its Gonoral Counsol. The internal nomorandurn pointo out that if an SDIC haa the right to dinapprove any additional borrowing by a toncern to ihich it hn furnished equity capital, it could defeat thi requirement that its on loan be aubordinated by simply rufusing to pernit the concern to borrow from anyone aloe. $BA'o rdministrator, however, has concludad that an inveotmont $o not dioqualified from serving no the bania of third-dollar loverage by the requiretient of the londo's approval for nubsoquent loans from other institutional lenders, as long as ouch investment doen not, in fact, become senior to other borrowings of tbo amall concern from other institutional londers. We concur with S1A'o position for the oasono discuosed bolow. t . *U* *

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