Capital infusion

Entrepreneur, Oct, 2002 by Jennifer Pellet

The tight capital market may soon loosen up a tad--if Sen. Kit Bond (R-MO) can succeed in his recent effort to steer an influx of investment capital into Small Business Investment Companies (SBICs). Under current law, tax-exempt entities such as pension funds and university endowment funds cannot invest in privately owned SBICs--SBA-regulated companies that provide small businesses with long-term loans and equity investments--without incurring a tax liability known as "unrelated business taxable income" (UBTI). But, thanks to the Small Business Investment Company Capital Access Act (S.2022) Bond introduced in the spring, they may soon see a reprieve.

"Tax-exempt entities have expressed interest in investing," says Bond, "but they hear about the UBTI rules and head right out the door."

Axing the UBTI ruling would bring an immediate capital boost, says Bond. "A conservative estimate would be a $200 million increase in the SBICs' investment capital in the first year and $400 million in the second year," says Bond, who plans to push the bill in the next session of Congress.

Although optimistic about the bill's prospects, Bond is reluctant to specify a timeframe for adoption. "The way this body has been functioning, I'm not even going to hazard a guess," he says. "But it's a good idea, and ultimately good ideas usually get adopted sometime."