Just a mirage? Proposed legislation may expand SBIC financing-someday

Entrepreneur, August, 2003 by Stephen Barlas

MANY ENTREPRENEURS LOOKING FOR BANK LOANS have faced a desert-like landscape lately. A bill proposed by Sen. Olympia Snowe (R-ME) would help quench their thirst. The bill nearly made it to passage once, and with strong bipartisan support, it stands a good chance of becoming more than a mirage, once Snow finds another vehicle to attach it to. The Small Business Investment Company (SBIC) loan enhancement bill would increase the flow of capital into Debenture SBICs. The bill alters the tax code so nonprofit organizations like pension plans and university endowment funds can invest in Debenture SBICs, one of the three types of SBICs licensed by the SBA. Debenture SBICs receive guaranteed loans from the SBA and make loans to small businesses for terms of generally one to five years. The money can be used to finance inventories, accounts receivable and pretty much any other business need except real estate.

Under current tax law, investors in Debenture SBICs have to pay taxes on the income they earn from their loans. Snowe's bill would eliminate this requirement. Lee Mercer, president of the National Association of SBICs, believes this would increase the flow of capital into Debenture SBICs by at least $200 million a year in additional private capital.

STEPHEN BARLAS is a freelance business reporter who covers the Washington beat for 15 magazines.