Democratic Sen. Ben Cardin explained to InsideSources why a bill he recently introduced will help increase investment in small businesses.
The Small Business Administration (SBA) is a federal agency that supports entrepreneurs and small businesses. The agency offers loan guarantees to banks lending to small businesses, and it also provides financing to licensed investment funds of up to $150 million for debt and equity investments in companies. The Small Business Investment Opportunity Act would raise that debt limit to $175 million.
Senators Cardin, Jim Risch, and John Kennedy introduced the bill March 8 with the intent of boosting capital access for small businesses. The SBA doesn’t provide capital directly to businesses, but instead partners with professionally-managed investment funds known as Small Business Investment Companies (SBIC).
“The Small Business Investment Company program has a proven track record of steering vital capital to groundbreaking and promising ventures,” Sen. Cardin said in a statement to InsideSources. “In fact, some of the economy’s most iconic and successful brands – Apple, Tesla, Whole Foods, FedEx, and Costco – received early investment capital from SBICs.”
SBICs are privately-owned companies that invest in qualifying small businesses. The SBA licenses SBICs while providing them with guarantees on their leverage via a debt security called a debenture, capped at $150 million, of up to two times their committed capital. SBICs are also required to pay fees intended to offset estimated subsidy cost for the program.
“This model – privately-owned and managed investment funds that leverage their own capital and funds borrowed by an SBA guaranty – has deployed more than $67 billion and helped capitalize more than 166,000 small businesses,” Cardin said. “In the past five years, the program has channeled $21 billion to 6,400 American small businesses across a range of industries.”
Sen. Cardin currently serves as the ranking member of the Senate Small Business and Entrepreneurship Committee. He has sponsored and supported numerous piece of legislation intended to help small businesses – and believes that increasing the cap will help boost investment.
“Unlocking startup capital for innovative small businesses with high-growth potential is a top priority for me on the Small Business Committee, especially in Maryland where we have a thriving entrepreneur and innovation sector,” Cardin said. “Our bipartisan legislation will maximize the amount of funding an SBIC can direct to the transformative small businesses that hire our workers, drive innovation, and help America maintain its global competitive edge.”
The Small Business Investment Act established the program when it was passed in 1958. It is designed to facilitate the flow of long-term capital to small businesses across the country.
