Small Business Investment Company (SBIC) Program: Oversight Hearing of the SBA
SBIA Comment Letter to:
The Honorable Marco Rubio
The Honorable Marco Rubio
U.S. Senate Committee on Small Business & Entrepreneurship
Dear Chairman Rubio, Ranking Member Cardin, and Members of the Committee:
Thank you for asking questions about the Small Business Investment Company (SBIC) program during the recent oversight hearing of the SBA. When allowed to function, the SBIC program is a powerful catalyst for small business growth and job creation. As a 2017 Library of Congress study revealed, SBIC-backed small businesses created over 3 million new jobs and supported over 6 million more jobs. As the voice of small business investors, we feel it is important to clarify the record of what has been happening with the SBIC program.
Despite strong, pro-small business policies of the broader Trump Administration and the professionalism and dedication of the SBA career staff, for two years there have been serious problems with the management of the SBIC program. Until the day before this hearing, over four months into FY 2019 and through more than one third of the fiscal year, SBA had issued zero SBIC licenses. Less than 24 hours before this oversight hearing, the Office of Investment and Innovation (OIi) finally released the first SBIC licenses of the fiscal year. All three licenses were approved by SBA’s Agency Committee on November 16, 2018, but the leadership of 011 was unable or unwilling to release the SBIC licenses until hours before the Committee’s oversight hearing. Until 2017 releasing licenses would have taken 1 to 2 weeks. SBICs are not allowed to operate until they possess the license.
For the past two years, the SBIC program has suffered from ongoing problems that are clearly seen in the licensing process but are also manifest in nearly all facets of the SBIC Program. Where the 011 leadership has inserted itself into any SBIC processes, each step of those processes has slowed to near paralysis and the outcomes are at best uncertain. As the association representing small business investors, we have been informing the 011 and leadership of the SBA of these emerging problems from very early on, but the problems and the primary cause of these problems persist.
The Chairman asked a good question about SBIC licensing. The SBA Administrator answered honestly with what normally would be the textbook answer of what is supposed to happen. However, it is clear that the information being given to the Administrator, which was then passed on to the Committee in good faith, does not reflect the complete picture. SBIA hopes that this chart will inform the Committee and the leadership of SBA as to what is really happening from the private sector perspective. While it is true that SBIC licensing in FY 2018 increased relative to FY 2017, it is also true FY 17 was one of the worst licensing periods in near I y a decade. Licensing was working well in FY 2017 until the Associate Administrator was appointed to oversee the OIL.
Licensing returned to near average in 2018, but this too is misleading because given the underperformance and backlog of FY 2017 applicants, the number of licenses should have been much higher in FY 2018. To be clear, time to fundraise is not the reason for the slowdown in licensure, particularly for the funds licensed in FY 2019. SBIA agrees with SBA that technology improvements are needed and will improve some of these issues, but technology alone will not fix the primary cause of the problems at the Office of Investment and Innovation.
Licensing is only one area where 011′ s leadership has broken the efficient and successful operation of this small business investing program. The leadership of the 011 has created new uncertainty and delays at every step of the entire SBIC process from pre-licensure to operations to examinations and even to surrendering of licenses. Each of the new delays builds upon the preceding delays. Adding to the delays is the fact that the 011 has numerous critical career director, manager, and chief positions that have been vacant for extremely long periods of time, but there has been no attempt by the leadership of the 011 to post these open positions for replacement. Attached to this letter is a sample of the private sector’s concerns that were submitted to the SBA in the summer of 2018. SBIA has also highlighted these problems in Congressional testimony to the House Small Business Committee with the hope that SBA would address the problem with OIi’s leadership. This small business program needs your oversight to return it to a fully functional resource for small businesses.
We encourage the Committee and the leadership of the SBA to review these concerns and address them as warranted. This is a program regulating over $30 Billion in small business investment capital, and it needs competent leadership. As an industry, small business investors want to be working collaboratively with Congress and the SBA to get more SBICs in underserved areas, more equity-oriented SBICs, more investments in rural areas, more women fund managers, more veteran fund managers, and more small businesses growing. Instead our energy must be spent begging SBA to get the most basic functions of the 011 to work. The SBIA looks forward to working with Congress and the SBA to better serve and empower growing small businesses with an efficient and functional SBIC program.
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 50 years. For more information, visit www.SBIA.org or call (202) 628-5055.