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Minimum Private Capital Required To Form Small Business Investment Company

B-197439 Published: Jun 03, 1981. Publicly Released: Jun 03, 1981.
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Highlights

GAO responded to an inquiry as to whether, in light of a GAO decision, the minimum private capital required to form a small business investment company (SBIC), or a minority enterprise small business investment company (MESBIC), can be satisfied in part from block grant funds. Block grant funds cannot be included in the minimum private capital required in the formation of an SBIC or MESBIC. In the case in question, the block grant funds involved are grants for community development made by the Department of Housing and Urban Development (HUD). In a previous decision, GAO held that such funds invested in already formed MESBIC's may be considered private for the purposes of Small Business Administration (SBA) leveraging. The MESBIC's there involved proposed to use SBA funds leveraged against HUD grant funds they held; however, their initial capital requirements had to be satisfied with funds from the private market. The Small Business Act requires SBIC's and MESBIC's to have a minimum amount of private capital. Although the block grant money in question comes from a private source, and not directly from the Federal Government, SBA does not consider the money private for the purpose of meeting minimum capital requirements. No provision of law permits block grant funds to be considered private for purposes of meeting minimum capital requirements. HUD regulations provide that entities such as the requesting development corporation may provide block grant funds for capitalization of a MESBIC which is required to qualify for assistance under other Federal programs. An SBA interpretation of the law was not unreasonable or inconsistent with the Act. GAO concluded that the minimum private capital required to form an SBIC or MESBIC cannot be satisfied with HUD block grants for community development.

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Block grantsCapitalCommunity development programsFederal fundsMinority business assistanceSmall business assistanceSmall business investment companiesGrant programsSmall businessCommunity development