Rural Capital Access Act Introduced
FOR IMMEDIATE RELEASE
Small Business Investor Alliance
Legislation aims to expand access to capital for rural small businesses
WASHINGTON, D.C. (March 25, 2021) – The Small Business Investor Alliance (SBIA),the leading association for lower middle market private equity funds and investors, is pleased to announce progress on one of our legislative priorities with the introduction of bipartisan legislation by U.S. Sens. John Thune (R-SD), Jeanne Shaheen (D-NH) and Deb Fischer (R-NE) that aims to expand access to capital for rural small businesses. The Rural Capital Access Act would amend the Small Business Investment Act of 1958 to provide access to leverage for rural business investment companies (RBICs).
“There is a real need for patient, more flexible capital for small businesses across America, particularly in rural areas,” said SBIA President Brett Palmer. “Rural small businesses play a critical role in their communities — economic, social and civic. We applaud Sen. Thune, Sen. Shaheen and Sen. Fischer for their leadership on this issue and for working with SBIA to draft a bill that will multiply the investment dollars going to rural small businesses, helping them grow and create much needed jobs in rural America.”
Rural entrepreneurs often need funding options other than conventional loans to support growth and development. The goal of the Rural Business Investment Company (RBIC) licensing program is to fill that need by allowing banks and venture capital partners to help meet the equity capital investment needs in rural communities. These RBICs use the equity raised by their funds to make venture capital investments primarily in smaller rural enterprises.
In an effort to create additional venture capital opportunities for rural businesses and encourage greater participation in the RBIC program, this bill would:
- Provide SBICs with $25 million in bonus leverage – leverage that is exempt from the $175 million statutory cap – for venture capital provided to small businesses located in rural areas.
- Allow the SBA, in consultation with USDA, to commit excess SBIC leverage to RBICs as appropriate since USDA does not currently have the funding to provide leverage to RBICs, and industry believes that this lack of access to leverage is the primary impediment to greater participation in the RBIC program.
- Establish an interagency working group between the SBA and USDA to improve their coordination in administering the SBIC and RBIC programs, as well as develop recommendations to further improve the access to capital in rural areas through these programs, which would include ways to increase the number of licensees.
Existing RBICs have provided funding to over 40 small businesses that employ thousands of workers in rural communities. However, while investment in venture-backed companies in the United States reached $57 billion in almost 4,000 deals in the first half of 2018, only a fraction of those dollars found their way to funds and companies based in rural America. (Source: Georgetown University) Rural small business owners often face different challenges than those in metropolitan areas, including geographic isolation, spotty broadband services, a reluctance among major companies, banks and healthcare providers to serve the area, difficulties in hiring and retaining qualified workers and barriers in accessing capital to build their businesses. This bill recognizes the unique needs and challenges of small businesses in rural communities and will facilitate much needed capital investment.
According to data (Source: The Conversation, Six charts that illustrate the divide between rural and urban America), rural entrepreneurs start businesses at higher rates than their urban counterparts and have higher five-year business survival rates, and these businesses play a particularly vital role in rural America, creating roughly two-thirds of new jobs and supporting the economic and social wellbeing of their communities.
About the Small Business Investor Alliance (SBIA)
The Small Business Investor Alliance (SBIA) is the premier organization of lower middle market private equity funds and investors. SBIA works on behalf of its members as a tireless advocate for policies that promote competitive markets and robust domestic investment for growing small businesses. SBIA has been playing a pivotal role in promoting the growth and vitality of the private equity industry for over 60 years. For more information, visit www.SBIA.org or call (202) 628-5055.