Robert Jay Dilger Senior Specialist in American National
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 Price: $29.95
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