Small Business:

SBA's Preferred Stock Repurchase Program

RCED-95-249FS: Published: Aug 18, 1995. Publicly Released: Sep 18, 1995.

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Pursuant to a congressional request, GAO provided information on individual specialized small business investment companies (SSBIC) participating in the Small Business Administration's (SBA) preferred stock repurchase program as of May 31, 1995, focusing on the: (1) repurchase price paid, unpaid dividends forgiven or amortized, and the method used to finance the repurchase; (2) company's private capital, SBA financing, and capital impairment at the time of the stock repurchase; and (3) company's investments in small businesses over the last 5 years and the value of the investment portfolio at the time of the company's most recent report to SBA.

GAO found that: (1) 21 SSBIC paid SBA $17.7 million to buy back their preferred stock which SBA had purchased for $50.3 million; (2) SBA forgave or amortized $15.3 million in accrued unpaid dividends, which ranged from $6,000 to about $4.7 million per company; (3) 19 of the 21 SSBIC paid cash for their stock repurchases, 1 SSBIC used a note to pay for the stock, and 1 used a combination of cash and a SBA note for the repurchase; (4) the 19 SSBIC raised their cash from various sources; (5) the private capital of all 21 SSBIC increased from the date of licensing to the time of the stock repurchase and ranged from $536,000 to a little over $8 million; (6) SBA financing of SSBIC at the time of the repurchase ranged from $700,000 to $10 million, but 7 SSBIC eliminated their outstanding SBA financing after the repurchase; (7) 7 SSBIC received additional SBA financing after the repurchase and 7 SSBIC had a capital impairment greater than 10 percent at the the time of repurchase; (8) from fiscal year (FY) 1990 through FY 1994, the 21 SSBIC provided 1,242 financings to small businesses totalling $116 million; (9) 9 SSBIC had fewer than 10 new financings in each of the 5 years; and (10) as of March 31, 1995, the 21 SSBIC reported a total investment portfolio valued at $117 million which covered investments in approximately 830 small businesses.

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