Defense Conversion:

Capital Conditions Have Improved for Small and Medium-Sized Firms

NSIAD-94-224: Published: Jul 21, 1994. Publicly Released: Jul 27, 1994.

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Pursuant to a congressional request, GAO provided information on small and medium-sized businesses' access to capital for defense conversion activities, focusing on: (1) the availability of capital; and (2) federal and nonfederal initiatives to improve access to capital for these firms.

GAO found that: (1) although the decline in investments affected the availability of capital, access to capital for small and medium-sized firms has since improved; (2) overall business investments declined during the early 1990's because of the recession and changes in bank regulation which constrained the supply of financing; (3) a number of federal and nonfederal initiatives are underway to address the capital needs of small and medium-sized businesses; (4) the Small Business Administration has expanded its guaranteed lending authority and is taking steps to simplify its loan processes; (5) Congress is considering legislation that would help small and medium-sized businesses obtain financing; (6) a number of states have established loan or venture capital funds to assist local businesses and promote local economic development; (7) small and medium-sized defense firms attempting to convert to commercial production lack sufficient business plans and have difficulties in making timely and accurate pricing decisions; and (8) a guaranteed loan program would not address the challenges faced by these firms in identifying commercial markets.

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