WASHINGTON – U.S. Senate Committee on Small Business & Entrepreneurship Chair Ben Cardin (D-Md.) and U.S. Senator Jim Risch (R-Idaho) today introduced the SBIC Working Group Act of 2021—legislation to make the U.S. Small Business Administration’s (SBA’s) Small Business Investment Company (SBIC) Program more equitable.
An SBIC is a privately owned and managed investment fund that is licensed and regulated by the SBA. The fund uses its own capital, in addition to funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses.
The bill would create a working group that consists of representatives from SBA, industry experts, academics, and existing SBIC funds with diverse management teams and/or investments in companies owned by underrepresented individuals. The bill would direct the working group to produce a report for Congress with policy recommendations for increasing gender, racial, and geographic diversity in SBIC.
“The traditional venture capital industry is doing an inadequate job of directing capital to minority and women founders, as well as startups located outside of Boston, Silicon Valley and New York City,” Cardin said. “I am proud to introduce this bipartisan bill with Senator Risch to create a working group of experts and stakeholders who will provide recommendations to Congress on how to increase gender, racial, and geographic diversity in SBIC.”
“The Small Business Investment Company program has been an incredibly helpful resource for start-up businesses to grow and has helped establish some of America’s most well-known enterprises,” said Risch. “I believe the SBIC Working Group Act will help bolster the success of the program by providing stakeholder input on how to enhance the program’s licensing and financing.”
The SBIC program, which was created by Congress in 1958, provides financing to small businesses that have high growth potential, but need long-term capital to scale. In the past 63 years, SBIC has invested more than $100 billion in tens of thousands of small businesses, including many that grew into well-known companies such as Intel, FedEx, Apple and Build-a-Bear.
There are geographical, gender and racial gaps in the traditional venture capital market, which is concentrated in urban centers in Massachusetts, California and New York—with less than 1 percent of all venture capital invested in businesses in rural communities, around 2 percent invested in women-owned businesses and only 1 percent invested in Black- and Hispanic-owned businesses.
While SBIC is better at reaching underserved communities than the venture capital industry, a recent report found that of 1,063 SBIC investment last year, only 5 percent of the companies were owned by women, veterans, or minorities, and only 20 percent were located and low- and moderate-income areas.
Specifically, the recommendations to Congress will include:
- ways to increase the number of applicants to become small business investment companies, and management teams or companies located in—
- low-income communities;
- a community that has been designated as a qualified opportunity zone under section 1400Z–1 of the Internal Revenue Code of 1986;
- underserved communities;
- rural areas; and
- underfinanced States;
- incentives for SBICs to diversify investments, and invest in socially and economically disadvantaged small business concerns, veteran small business concerns and women-owned small business concern; and
- benchmarks and metrics of success.