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Supporters hope the bill, which would raise standards for banks to invest in investment funds backed by the Small Business Administration, will prove its appeal a third time.
The Main Street Investment Act would allow banks to invest up to 15% of their capital in SBA-registered small business investment companies, significantly higher than the current standard of 5%, which has remained unchanged for more than 60 years. Exceeds.
The bill, sponsored by seven-term California Democrat Judy Chu, has passed the House three times in the past five years, each time with an overwhelming majority, including a 2023 That includes a 411-13 vote in May. It didn’t go so well in the Senate. Sen. Todd Young (R-Ind.) introduced a counterproposal to House Thieu’s version in July 2021, but it never passed the Senate Banking Committee.
Young reintroduced the bill last month with co-sponsors Sens. Tammy Duckworth (D-Ill.) and Jim Risch (R-Idaho). It is currently pending before the Banking Committee.
“The Small Business Investment Company Program has provided critical assistance to countless Hoosier small businesses,” Young said in a press release. “I am proud to reintroduce this bipartisan bill to encourage further investment.”
By all appearances, the bill has broad support among lawmakers of both parties, bankers, industry groups representing SBICs, and investors themselves. The question is whether Young, Duckworth and Risch can muster enough support to cross the finish line in the Senate.
“I hope we can get through it,” Chu said in an interview Thursday. “That makes a lot of sense.”
While the SBA’s other major programs, 7(a) and 504, both support lending, the Small Business Investment Company program supports equity investments by participating funds, many of which are bank-owned or That’s what we support. The Volcker Rule generally restricts banks’ proprietary trading and investments in private equity funds, but made an exception for SBICs. Banking regulations allow a bank to invest up to 15% of its capital in his SBIC. The problem lies in the language of the Small Business Investment Act of 1958, enacted 65 years ago, which limits banks’ participation in SBICs to 5% of their capital.
A bank’s investments in an SBIC are also presumed eligible for Community Reinvestment Act financing as long as the SBIC is located in or operates within the bank’s assessment area.
“There are problems with banks,” Chu said. “The 1958 law has never been updated. This needs to be fixed.”
Ting Sheng
Despite a long-standing 5% cap, SBICs remain a popular investment option for banks. In fact, dozens of the 303 existing SME investment companies are owned by banks, and many other funds benefit from bank support. The Main Street Investment Act would greatly increase access to funds seeking cash to invest in small and medium-sized businesses by tripling banks’ investment standards to 15% of their capital.
“This simple legislation will give small businesses access to capital for growth and advancement,” Faraz Abbasi, managing director of Centerfield Capital, an Indianapolis-based SBIC, said in a press release. , which will create employment opportunities.”
“Removing barriers to small businesses seeking growth capital is simply good public policy,” said Washington, D.C.-based Small Business, a trade group that represents private equity funds focused on small businesses. Investor Alliance CEO Brett Palmer said when the Senate bill was introduced. . In a letter to the House Small Business Committee, Palmer called the bill “a simple and modest improvement.”
The SBA typically does not comment on pending legislation, a spokesperson said.
Under the SBIC program, the SBA provides participating SBICs with a pool of low-cost funds, which the participating SBICs leverage with private sector contributions. In fiscal year 2023, which ended Oct. 31, SBIC invested a record $8.1 billion in 1,208 small businesses, according to the SBA. This total was up from $7.8 billion invested in 1,217 small and medium-sized businesses in fiscal year 2022. The program had a total financing limit of $5 billion in fiscal year 2023. The Biden administration aims to increase funding by $1 billion to $6 billion in 2024, and has budgeted for an additional $1 billion increase. Expenditure plan for fiscal year 2025.
SBA Administrator Isabel Casillas Guzman said in a press release last week that the fiscal year 2025 increase “will significantly expand the availability of patient capital and equity investments across the United States.”
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