Tuesday, January 8, 2013
Robert Jay Dilger
Senior Specialist in American National Government
The Small Business Administration’s (SBA’s) Small Business Investment Company (SBIC) Program is designed to enhance small business access to venture capital by stimulating and supplementing “the flow of private equity capital and long term loan funds which small business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC program’s primary objective.
At the end of FY2012, there were 301 privately owned and managed SBA-licensed SBICs providing small businesses private capital the SBIC has raised (called regulatory capital) and funds the SBIC borrows at favorable rates (called leverage) because the SBA guarantees the debenture (loan obligation). SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. Some SBICs specialize in a particular field or industry, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e., startup, expansion, or turnaround) and geographic area.
The SBA is authorized to provide up to $3 billion in leverage to SBICs annually. The SBIC program has invested or committed about $18.2 billion in small businesses, with the SBA’s share of capital at risk about $8.8 billion. In FY2012, the SBA committed to guarantee $1.9 billion in SBIC small business investments, and SBICs invested another $1.3 billion from private capital, for a total of more than $3.2 billion in financing for 1,094 small businesses.
Some Members of Congress and the Obama Administration argue that the program should be expanded as a means to stimulate economic activity, create jobs, and assist in the national economic recovery. For example, S. 3442, the SUCCESS Act of 2012, and S. 3572, the Restoring Tax and Regulatory Certainty to Small Businesses Act of 2012, would increase the program’s authorization to $4 billion from $3 billion, increase the program’s family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common control) to $350 million from $225 million, and annually adjust the maximum outstanding leverage amount available to both individual SBICs and SBICs under common control to account for inflation. Also, H.R. 6504, the Small Business Investment Company Modernization Act of 2012, was passed by the House on December 18, 2012. It would increase the program’s family of funds limit to $350 million from $225 million.
Others worry that an expanded SBIC program could result in loses and increase the federal deficit. In their view, the best means to assist small business, promote economic growth, and create jobs is to reduce business taxes and exercise federal fiscal restraint.
Some Members have also proposed that the program target additional assistance to startup and early stage small businesses, which are generally viewed as relatively risky investments but also as having a relatively high potential for job creation. As part of the Obama Administration’s Startup America Initiative, the SBA has established a $1 billion early stage debenture SBIC initiative. Early stage debenture SBICs are required to invest at least 50% of their investments in early stage small businesses, defined as small businesses that have never achieved positive cash flow from operations in any fiscal year.
Date of Report: December 27, 2012
Number of Pages: 41
Order Number: R41456
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