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SBIC Bill Could Have $200M Impact on VC Availability

April 18, 2003
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U.S. Senator Olympia Snow (R-Maine) recently introduced a bill to boost the flow of venture capital to small businesses by allowing tax-exempt entities, such as pension funds and university endowment funds, to invest in Small Business Investment Companies (SBIC) without incurring unrelated business taxable income.

S. 855, or the Small Business Investment Company Capital Access Act of 2003, is an approach to inject needed investment money into the economy while providing a stable, diversified and secure investment vehicle for tax-exempt pension and endowment funds. Industry experts believe the bill could boost capital available for SBICs by $200 million in the first year alone, according to the National Association of Small Business Investment Companies.

"Passage of this bill will dramatically increase the amount of investment capital available to America's Main Street — the sector that creates approximately two-thirds of net new jobs," said Snowe, Chair of the Senate Committee on Small Business and Entrepreneurship. Senator Kit Bond (R-Mo.), the Committee's former Chairman, and Senator Chuck Grassley (R-Ia.), Chairman of the Senate Finance Committee, are cosponsoring the bill.

Under current law, nonprofit organizations cannot invest in debt-investment type SBICs without incurring tax liability. As a result, an estimated 60 percent of the private capital potentially available to SBICs is effectively locked out of the marketplace. By removing the barrier currently in the tax code, nonprofit pension and endowment funds could invest their assets in SBICs, which are backed by federal guarantees.

As available private equity has shrunk over the past few years, the SBIC Program has taken on a larger role in providing venture capital to small firms that need investments in the $500,000 to $3 million range. SBICs are government-licensed, government-regulated, privately managed venture capital firms created to invest only in original issue debt or equity securities of U.S. small businesses.

S. 855 is available at http://thomas.loc.gov/.

Iowa