Effect of GAO Decision on Minority Enterprise Small Business Investment Companies

GAO was asked about the effect of a GAO decision on existing minority enterprise small business investment companies (MESBIC's). The decision held that, with some exceptions, the Small Business Administration (SBA) did not have the authority to leverage federal money invested in MESBIC's. It was asked how to deal with existing MESBIC's that might be threatened with ruin as a result of the decision and suggested that GAO allow funds to be leveraged for existing MESBIC's. GAO cannot authorize SBA to leverage federal money except where it is permitted by statute. GAO would not object to SBA honoring any formal commitments it made prior to the decision or where funds were provided to MESBIC's as leverage against federal funds prior to the decision. The law does not compel SBA to provide leveraging even where a company has eligible money. SBA has refused to provide leveraging to eligible companies because of credit or other problems. An investment company should not rely on SBA leveraging until SBA has made a commitment to provide the leveraging funds.