Statement of the Hon. Sharice Davids on A Review of the SBIC Program
Washington, October 27, 2021
Small businesses are the backbone of the American economy. They employ nearly half the private workforce, and drive development through groundbreaking innovations. However, for entrepreneurs to positively impact our communities, they must have the capital necessary to start and run their businesses.
Congress has long realized that funding on reasonable terms can be hard to come by for small firms. So, in 1958, Congress created the SBIC program at SBA, which enhances small business access to patient capital. Under the SBIC program, SBA partners with and licenses private institutions to provide financing to small, high-growth companies.
Since its inception, the SBIC program has provided over $100 billion in capital to entrepreneurs across the country. These funds have helped transform small firms into powerhouse job creators. Early-stage small businesses that received SBIC investments include Apple, Costco, FedEx, and Intel.
In FY 2020, SBICs made 2,533 financings to 1,063 small businesses with an average financing amount of just under $2 million. These funds helped entrepreneurs acquire new companies, refinance debt, conduct R&D, purchase equipment, and generally operate their enterprise. The SBA has made progress in addressing the slow rate of licensing approvals for new SBICs that has been a frustrating feature of the program in years past.
In fact, last year SBA licensed 26 new SBICs, up from 18. And in 2021, the Office of Investment and Innovation licensed 32 new SBICs, exceeding the total new licensees from the previous fiscal year.
Despite these successes, there are long-standing issues with the program that the committee must continue to address. One such problem is the lack of diversity, both among investors and portfolio companies.
In 2007, SBA acknowledged that women and minorities participated in the program at low rates.
Today, the diversity numbers haven’t budged. For example, in 2020, SBICs only made around 5% of their total financing to minority-owned small businesses. The numbers were even worse for businesses owned by women and veterans. After nearly 15 years of poor diversity metrics, we must get serious about increasing participation for women and minorities in the program.
So today, I look forward to discussing ways that this committee can further improve the SBIC program. I also look forward to learning from our witnesses, who have extensive experience within his sector.