Small Business Investment Company Reform Act of 1996

Small Business Investment Company Reform Act of 1996 - Amends the Small Business Investment Act of 1958 to revise and add definitions.

(Sec. 3) Includes as a small business investment company (SBIC) a limited liability company organized and operated in accordance with a State statute approved by the Small Business Administration (SBA).

Requires each SBIC license applicant to apply to the SBA Administrator. Requires the Administrator to provide a status report to such applicant within 90 days and to act on such application within a reasonable time. Specifies matters to be considered. Provides application approval procedures for certain applicants with private capital of not less than $3 million.

Repeals a provision authorizing the organization and chartering of SBICs formed to provide financing to socially or economically disadvantaged persons.

(Sec. 4) Increases the private capital requirement of SBICs to: (1) $5 million; or (2) $10 million, for applicants seeking authority to issue participating securities to be purchased or guaranteed by the SBA (with an exception in special circumstances and for good cause). Requires the Administrator to determine the adequacy of the private capital of each licensee. Authorizes the Administrator to exempt from the private capital requirements licensees: (1) with private capital of not less than $2.5 million; (2) that certify that at least 50 percent of financing will be provided to smaller enterprises; and (3) that have a record of profitable operations and that have not committed any serious or continuing violations of Federal or State law, and that such action would not create an unreasonable risk of default or loss for the U.S. Government. Prohibits any licensee with less than $2.5 million in private capital from receiving additional leverage from the SBA. Directs the Administrator to ensure that the management of each SBIC licensee is sufficiently diversified from and unaffiliated with licensee ownership.

(Sec. 5) Requires the Administrator to: (1) prohibit a licensee having outstanding leverage (debentures or securities guaranteed by the SBA) from incurring third party debt that creates or contributes to an unreasonable risk of default or loss for the Government; and (2) permit such licensees to incur third party debt only on established terms and conditions. Directs the Administrator: (1) to require each licensee, as a condition of approval of an application for leverage, to certify that not less than 20 percent of its financing will be provided to smaller enterprises; and (2) before approving such applications, to determine to what extent the applicant's private capital has been impaired. Provides, with respect to SBIC debentures or securities purchased and guaranteed by the SBA, for: (1) a revised equity investment requirement; (2) a leverage fee; and (3) calculation of the appropriate subsidy rate.

(Sec. 7) Allows qualified private sector entities to assist the Investment Division of the SBA in the examination of SBICs. Requires each SBIC licensee to submit semiannual valuations of its loans and investments, except that licensees with no outstanding leverage shall submit such valuations annually. Requires a licensee to notify the Administrator quarterly of material adverse changes in its loans, investments, or operations. Provides independent certification and audit requirements for SBICs. Requires valuation criteria to be established or approved by the Administrator.

(Sec. 8) Directs the Administrator to submit to the congressional small business committees a detailed plan to expedite the orderly liquidation of all licensee assets in liquidation, including those held in receivership or trust by the SBA. Requires the Comptroller General to report to such committees on the activities and expenditures of the receiver's agents employed by or under contract with the Investment Division of the SBA.

(Sec. 9) Repeals a provision authorizing the issuer of preferred stock purchased by the SBA to redeem or repurchase such stock for an amount less than the stock's par value.