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Washington, D.C.— Today, the House Small Business Committee, under Chairwoman Nydia Velázquez (D-NY), conducted a two-panel hearing into allegations of mismanagement and delays within the Small Business Administration’s (SBA) Small Business Investment Company (SBIC) program. The SBIC program provides debt and equity financing to high-risk small businesses without access to capital from traditional means. 

“The specific goal of the SBIC program is to fill the gap between the availability of venture capital and the needs of ‘high-growth potential’ small businesses in startup and early-stage situations,” said Chairwoman Velázquez. “It achieves this purpose by partnering private and public investments in early stage and start-up businesses. We need to look no further than companies like Apple, Tesla, and FedEx. They have all achieved what we hope for every small business – extraordinary growth and success. And, they each received early-stage financing from SBICs.”

Since its founding in 1958, the SBIC program has been an important tool used by the SBA to increase access to capital for small businesses. Under the program, the SBA partners with privately-owned and managed SBICs licensed by the agency to provide financing to small businesses with high-growth potential. From its inception until the end of 2018, SBICs have invested approximately $97.6 billion through nearly 181,185 investments to small businesses. 

In recent years, the program has been hounded by allegations of administrative inefficiency and mismanagement. Industry stakeholders have reported of severely delayed timelines, leading prospective SBIC funds to abandon the program and look for alternative opportunities to deploy capital to small firms.  The Office of Investment and Innovation (OII), a division of the SBA that handles licensing for SBIC, has also been purported to be critically understaffed with numerous high-level positions left vacant for extended periods. In addition to issues with the management of the program, SBIC has historically struggled to attract and license women-led and minority-led funds. In FY18, SBICs made only 4.8% of all financings to minority-owned and controlled small businesses.  

During the first panel, members probed SBA Associate Administrator of the OII Joe Shepard on the current state of the program and efforts to improve it. The second panel gave small business owners and representatives from the small private equity industry the chance to testify on their experience in the program.

“Small business investors have wasted significant time over the past two years trying to get OII [Office of Investment and Innovation] leadership to simply execute the law in good faith,” said Brett Palmer, President of the Small Business Investor Alliance. “This wasted time and effort should otherwise have been spent finding more small businesses with growth potential and then helping them grow to their full potential.”

“Small businesses continue to struggle to find the financing and capital they need to grow, especially in a timely and efficient manner,” said John Paglia, Professor of Finance and Senior Associate Dean at Pepperdine Graziadio Business School. “The SBIC program is in a position to further address funding challenges cited by ‘worthy’ small businesses in need of financing and capital to continue to grow, hire and retain employees, and to promote economic growth.”

“For over 22 years, members of our firm have managed SBICs and witnessed the program’s success,” said Ronda Penn, CFO of Plexus Capital in Raleigh, NC. “Access to capital is one of the most important issues for small businesses nationwide, and for decades, this program has helped fill that void in a perpetually underserved area of the financial markets.”

“If we intend to continue enhancing access to affordable capital for small businesses, it is clear we must take a hard look at the SBIC program, especially the way it is currently being administered,” said Chairwoman Velázquez. “We owe it to the entrepreneurs, as well as to the taxpayers at large, to ensure these federally-backed finance programs are being as efficiently run as possible.”

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