The Small Business Investment Company Program:
Who Does It Benefit? Is Continued Federal Participation Warranted?
CED-78-45: Published: Mar 3, 1978. Publicly Released: Apr 3, 1978.
- Full Report:
The Small Business Investment Company (SBIC) program was intended to stimulate and supplement the flow of private-equity capital and long-term loans to small businesses (independently operated, generally with assets not exceeding $9 million) for growth, expansion, and modernization. The government makes long-term loans to SBICs which are regulated and licensed by the Small Business Administration (SBA), charging interest at approximately its cost of borrowing, about 7 or 8 percent.
In spite of the government's large financial commitment to the program, only a select group of small businesses is being serviced. As of March 31, 1976, 277 SBICs had outstanding investments of about $569 million and about $467 million in federal loans outstanding. Equity-oriented SBICs consider investments according to risk and growth potential and set rigid investment criteria, while loan-oriented SBICs are primarily concerned with the borrower's ability to repay loans. The following factors restrict the usefulness of the program: it is smaller than it was in its formative years in number of investment companies and annual financings; few businesses get equity-type financing because of the preference of SBICs for larger small businesses with growth potential; such businesses can receive financing from private industry; private companies sometimes financed the same businesses as SBICs, usually with larger investments; much of the equity capital provided has come from bank-dominated SBICs--many of the companies have not used the loan funds; and SBICs often serve the same clientele as those of the SBA's 7(a) business loan program which has better terms for loans.
Matter for Congressional Consideration
Comments: Please call 202/512-6100 for additional information.
Matter: Congress should require the Administrator, SBA, to fully justify the role, if any, that the SBIC program should play in meeting the financing needs of small businesses, including a determination of: size and type of small businesses that are financed by the private venture capital industry and its ability to meet equity-financing needs; whether the SBIC program is the proper vehicle to meet the needs of small businesses; and whether continued funding of loan-oriented SBICs is warranted. (HTW)