Recovery Act Changes to SBIC Program Mean Increased Funding Available for Small Businesses

Effective today, small businesses that would otherwise have difficulty securing private equity or venture capital may find funding easier to get as a result of changes made as part of the American Recovery and Reinvestment Act to the U.S. Small Business Administration’s Small Business Investment Company program.

"The Recovery Act expands SBA’s venture capital program to increase the pool of investment funding available to the Small Business Investment Companies licensed by SBA," said SBA Administrator Karen G. Mills. "We believe those companies will be better equipped by these changes to help sustain and grow small businesses for their next important growth steps."

SBICs are privately owned and managed venture capital firms which are licensed and regulated by SBA. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses. There are approximately 338 SBICs, with $17.4 billion in capital under management.

The changes made as part of the Recovery Act are:

* The Recovery Act makes SBICs eligible for greater SBA guaranteed funding, and requires SBICs to invest 25 percent of their investment dollars into "smaller" businesses. Also, the amount of funding an SBIC may invest in a single small business is set at 10 percent of an SBIC’s total capital, rather than the previous limit of 20 percent of an SBIC’s private capital only. This translates to an effective 50 percent increase in funding available to a single business by an SBIC.

* Maximum SBA funding levels to SBICs will increase up to three times the private capital raised by the SBIC -- up to a maximum of $150 million for single SBICs, or up to $225 million for multiple SBICs that are under common control.

* The cap for all licensees was set at $137.1 million before the Recovery Act.

* These limits are even higher for SBICs that are licensed after Oct. 1, 2009, which certify that at least 50 percent of their investments will be made in small businesses located in low-income areas -- up to $175 million for single licensees, and up to $250 million for jointly controlled multiple licensees.

* Changes made to the SBIC program under the Recovery Act are permanent.

Industry associations have commended SBA for these changes, and SBA continues to encourage new SBICs to apply for licensing and actively participate in the program.

The SBIC program was created to stimulate the growth of America’s small businesses by supplementing the long-term debt and private-equity capital available to them. Since the SBIC program’s formation in 1958, it has invested approximately $56 billion in more than 106,000 small businesses in the United States through April 2009.

For more information about the SBA’s Investment Division and SBIC program, go to http://www.sba.gov/INV; e-mail sbic@sba.gov; or, call 1-800-U-ASK-SBA.

SOURCES: Recovery.gov, U.S. Small Business Administration
____________________

Save 20% Off QuickBooks Pro Small Business Accounting Software + Free Shipping.

Committee Seeks to Strengthen Key Initiatives for Sustained Economic Development

In many underserved neighborhoods, small businesses are an important engine of growth and revitalization, bringing much needed jobs and commerce. Oftentimes, the individuals wishing to start these businesses have difficulty securing adequate finances, leaving their aspirations stalled in the planning phase.

Today, the House Committee on Small Business examined two key initiatives that support economic revitalization in some of these disadvantaged communities: 1] the Microloan Program, and 2] the Program for Investment in Micro-Enterprise [PRIME] -- both of which fall under the purview of the Small Business Administration [SBA].

"There are many budding entrepreneurs who strive to open their own business, but due to a lack of experience or limited credit history, cannot secure capital," said Nydia M. Velázquez, committee chairwoman. "The microloan and PRIME programs have been instrumental in turning their dreams into reality."

Since its inception in 1994, the microloan program has provided credit to more than 700,000 small firms -- many headed by women, minorities and others who are facing challenges getting their ventures off the ground. These businesses have helped bring economic growth to areas where it is desperately needed, creating or retaining about 10,000 jobs in 2006, according to the SBA.

With a default rate of less than two percent, these investments have not only increased prosperity, but have done so while maintaining a better repayment record than traditional loans made by commercial lenders.

"These programs have been vital in moving people not just from welfare to work, but from welfare to business ownership -- an amazing accomplishment," Chairwoman Velázquez noted.

Despite this record of success, the Bush administration has proposed to eliminate the microloan program each year for the past four years. In its latest budget request, it has recommended increasing the cost of the loans for the borrowers, and to completely eliminate PRIME. At the hearing, members rejected these proposals and outlined ways to strengthen the current programs, making capital more affordable for borrowers.

Currently, microloan recipients cannot use their repayment history to improve their credit score. Building a strong credit history is a challenge for many business owners. By changing the current system, borrowers could improve their credit records, thus increasing the stability of their business and their ability to obtain future funding.

The committee also proposed reducing costs and providing greater flexibility, allowing lenders to better meet the needs of their clients. In striving for these goals, members seek to make loans more accessible for the next generation of entrepreneurs.

"For many aspiring business owners, a microloan is their only option, and we simply cannot allow these entrepreneurs to be left behind," Chairwoman Velázquez said. "The answer is simple: these programs must be permitted to continue, and any proposal to diminish them must be firmly rejected."

GoodBiz113's take: SBA's microloan and PRIME programs need to be sustained in order to help ensure that future businesses can thrive in underserved areas. Further, we'd like to see the changes proposed by Velázquez's committee embraced by her colleagues and the White House, and implemented ASAP.

Sources: PBS [file photo], U.S. House Small Business Committee
____________________

Applying for a loan? Save time. Let Business Plan Pro lead you through every step of creating your business plan.