Sat, Oct 21, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

SBICs See Continued Support From Congress

Monday, August 26, 2013

By: Bailey McCann, Private Equity Strategies

As a public-private partnership administered by the U.S. Small Business Administration (SBA), the Small Business Investment Company (SBIC) program has provided more than $58bn in funding to more than 100,000 small businesses in the U.S. SBICs have also become an attractive investment vehicle for today’s private equity and alternative capital providers. Now, Congress is calling on trade groups and industry professionals to suggest ways that the program can be improved.

At the end of July, the House Small Business Subcommittee on Investigations, Oversight, and Regulations, held a hearing to gather suggestions on the program, which currently has bipartisan and bicameral support. Steven Brown, Managing Partner of Trinity Capital Fund II of Phoenix, Arizona, testified before the Subcommittee that recent SBIC reforms have attracted more private sector investment and allowed SBICs to operate closer to the speed of business to back thousands of successful entrepreneurs. “Trinity Capital is an example of how an SBIC Fund can provide critical capital to businesses that will now continue to grow long after the SBIC has exited the investment.”

The Small Business Investor Alliance (SBIA) also testified in the hearing and offered a number of suggestions including maintaining high licensing standards, modernizing SBA information technology systems; addressing drafting errors in Dodd-Frank; and modernizing the program’s Standard Operating Procedures.

“The areas that need to be improved the committee largely agreed with, there is broad consensus that small businesses are struggling to access capital,” says SBIA President Brett Palmer in an interview with Private Equity Strategies. “We’re looking to raise the limits businesses can take out, that’s been introduced in both houses, and has been marked up in the Senate, so we hope that will move forward when Congress reconvenes.”

The program itself is capped at $3bn per year, at the hearing SBIA pushed for that cap to be increased to $4bn. “There is market demand to scale up the program and we want to keep that going,” he says.

SBIA is also working with business development companies (BDCs) and congress to get regulatory and legislative relief for raising and providing capital to the lower middle market. This segment of the business landscape has been hardest hit by tightening liquidity in the capital markets.

Palmer notes that there may also be a growing opportunity set for larger BDCs and private equity firms in the lower middle market as demand for all types of credit and capital continues to rise. “As community banks get squeezed out through regulation, there is, really a great opportunity for private equity in lower middle market because the demand isn’t going to go down.”

Regulation changes

SBICs also need to keep an eye on regulation Palmer says. Failure to engage earlier on has resulted in provisions in Dodd-Frank and at the Consumer Financial Protection Bureau that are less than ideal for small businesses. “If people don’t engage and learn Washington they can get hurt in ways they never expected,” he says.

Indeed some new changes are on the horizon for September 1 of this year. The Small Business Administration (SBA) has changed how procedures to prepay pooled debentures will work. Until now, SBICs have had the option of prepaying pooled debentures either by ACH debit with funds collected from the SBIC’s designated bank account, or by wire transfer directly to the Bank of New York Mellon. Under the new terms notice of prepayment must be given five days in advance. Additionally, principal payments may no longer be made through ACH debit, only semi-annual interest payments can be handled by ACH.

Further changes may be on tap when Congress resumes later this year. Wisconsin Senator Tammy Baldwin is working on a measure that would expand the cap to $4bn and may also include additional provisions to encourage startups. The Senator says the measure would be paid for already through fees paid into the SBA.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad