To amend the Small Business Investment Act of 1958 to permit prepayment of debentures issued by State and local development companies.

Amends the Small Business Investment Act of 1958 to permit a qualified State or local development company that issues a debenture purchased by the Federal Financing Bank (Bank) and guaranteed by the Small Business Administration (SBA), at the election of the small business borrower whose loan secures such debenture, to prepay the debenture by payment to the Bank of the unpaid principal balance, accrued interest, and any prepayment penalties. Provides that in the case of prepayment of a debenture under this Act in which a new debenture is issued by a qualified State or local development company and guaranteed by the SBA, the guarantee of the original debenture shall transfer to the new debenture, but shall not be treated as new credit authority. Requires the full faith and credit of the United States to be pledged to the payment of all guaranteed debenture amounts. Permits the issuer to require the borrower to pay certain optional fees with respect to such prepayment. Provides that if a borrower defaults on a loan securing a debenture guaranteed by the SBA, the SBA's guarantee shall be extinguished by payment to the Bank of the remaining principal balance plus accrued interest at the coupon rate on the debenture.