Decent Proposals
The latest on SBIC investments, independent contractors and contract bundling.
Entrepreneurs should keep their eyes on three issues making
headlines in Washington.
Congress is expected to pass a bill that gives new flexibility
to Small Business Investment Companies (SBICs), which combine their
funds with federally backed loans to make investments in and loans
to small businesses.
The bill (H.R. 68) makes several changes to the current law. The
House approved H.R. 68 on February 2, and the Senate will probably
have passed it by the time you read this.
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Two provisions are worth highlighting. Currently, SBICs that
agree to buy stock in a small business can't fork over the
capital until the fourth quarter of their fiscal year, which is
when they receive 50 percent of their funds--known as
leverage--from the SBA. H.R. 68 allows the SBA to distribute
leverage evenly throughout the year so small businesses can receive
the SBIC investment more promptly. A second provision lets an SBIC
reduce the interest rate on a loan made to a company in exchange
for stock options in that company.
Another small-business bill may encounter some difficulties.
Sen. Christopher Bond (R-MO) introduced a bill (S.344) aimed at
forcing the IRS to be more reasonable in how it defines independent
contractors. The bill sets up two alternatives to the IRS'
current 20-factor test, which makes it difficult to legally claim a
contractor is independent (and not an employee). Either of the
proposed alternatives could be used to prove that someone is an
independent contractor.
Regarding the SBA reauthorization bill that passed in 1997, the
SBA is currently writing rules to define the bill's
anti-contract-bundling language. The proposed rules would be used
by the Defense Department, NASA and other big-project agencies to
determine when and to what extent they must break up big contracts
so small businesses can have a chance to win all or part of them
during competitive bidding. The rules will also dictate when the
SBA can protest new contract awards where small-business bidders
have been unfairly ignored.
Felix Martinez of the American Consulting Engineers Council was
a staffer on the House Small Business Committee during hearings on
the SBA reauthorization. He says much of what's in the proposed
rules is positive, but is concerned the SBA will use the rules to
break up large contracts that were consolidated years ago with the
intention of including small businesses. "They need to pick
and choose their fights," he says. "They should go after
contracts that are being unfairly bundled for the first time right
now."
Stephen Barlas is a freelance business reporter who covers
the Washington beat for 15 magazines.
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