The House Small Business Subcommittee on Investigations, Oversight and Regulations, under the chairmanship of Rep. David Schweikert (R-AZ), today held a hearing to review if the Small Business Administration’s (SBA) Small Business Investment Company (SBIC) program is meeting the capital needs of small business owners and entrepreneurs while reducing risk to taxpayers. As the program has grown in size, participating investment funds have experienced problems with a burdensome and complicated application process, slow response time from SBA, an inconsistent and outdated Standard Operating Procedures (SOP) that don’t reflect today’s capital markets, and unclear licensing process guidelines.
"The SBIC Program was designed to fill a funding gap that persists to this day for small businesses," Chairman Schweikert said. "As the program grows in both size and dollars, it is necessary for us to guarantee that it continues to fulfill its mission. A program designed to support the success of the private sector should be doing only that."
The SBIC program is a public-private partnership, created by Congress in 1958, to supplement and boost the availability of private equity capital available to small businesses. The SBA operates the program through the issuance of licenses to privately managed investment funds denominated as SBICs. Once licensed, investment funds can combine capital issued through SBA with private capital to form a pool for making both debt and equity investments in small businesses. All investment decisions are made by the individual SBIC.
Key investment companies in the industry support improvements with SBA's management of the program. Small Business Investor Alliance President Brett Pamler wrote to Chairman Schweikert and Ranking Member Yvette Clarke today that, “The Standard Operating Procedures that guide the operations of the program are overdue for modernization. The SOP does not reflect the real policies and procedures that are in place. Both the SBA and the SBICs would benefit from a SOP that reflects the reality of what the SBA is doing and is going to do.”
Palmer continued, “In addition to the technology improvements previously mentioned, the licensing process should have more transparency and fairness to applicants. Some of the general problems that are brought to the attention of the SBIA include: duplication of processes; unwritten rules or non-public standards and processes; lack of consistency; and lack of clarity on standards. All of these concerns have seen improvement over the past several years. However, many, if not most, of these continuing issues are caused by the structure of the Agency Committee.”
Materials for the hearing are posted on the House Small Business Committee’s website HERE.
Steven Brown, President of Trinity Capital Investment in Chandler, AZ said, “On behalf of all SBIC’s, we applaud the efforts of the agency and its employees, while encouraging continued improvements and efficiencies as referenced herein that can streamline the process of licensing and the communication with its candidates and licensees, without lowering the important and high standard that had been set by the Agency to award an SBIC License.”
Philip Alexander, CEO of Brandmuscle in Cleveland, OH said, “At no expense to the taxpayer, the SBAs SBIC program fills a void by providing access to capital, especially mezzanine structured debt, for fueling the growth of small businesses where alternative funding is not available in the private sector. On behalf of the U.S. Chamber of Commerce’s small business membership, and myself, I strongly recommend that you retain, enhance and strengthen this critical source of capital for small businesses.”