Under Fire: First 8(a) Set Asides, Now Small Business Investment Companies Are Being Attacked

By Reynolds, Rhonda | Black Enterprise, November 1995 | Go to article overview

Under Fire: First 8(a) Set Asides, Now Small Business Investment Companies Are Being Attacked


Reynolds, Rhonda, Black Enterprise


As the Small Business Administration continues to fulfill its federal mandate to streamline all budgets, a telescope has been pointed toward minority business once again. The target this time: The SBA's Specialized Small Business Investment Company (SSBIC) program, which is charged with investing in socially or economically disadvantaged and minority-owned businesses.

SSBICs are privately held firms that receive funds by selling debentures (loans) or preferred stock to the SBA. SSBICs also leverage outside capital and then invest the money in disadvantaged or minority-owned businesses. For every dollar SSBICs invest, the federal government matches up to $4 in loans.

Last year, the SBA called for an in-depth review of 91 SSBICs. Together, these companies hold $194 million in private capital and $276 million in SBA funds.

According to findings officially released this past August, SSBICs invest heavily in firms that have either lost money or gone out of business. The findings also show that SSBICs have more money in cash assets than in investments in minority businesses. Moreover, SSBICs tend to invest heavily in firms with limited job-creation potential.

Wayne State University Professor Timothy Bates, who conducted the study, admits that he crafted the report to provoke a response and stimulate debate. Bates consults with the SBA's SSBIC Advisory Council, made up of 17 leaders in the investment field, small business owners and SSBIC managers.

But minority-business advocates are now scrambling to do damage control and keep the program from being dismantled should the issue come before Congress. They fear the GOP could use the study to fuel ongoing debate over assistance programs targeted at minorities. …

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Under Fire: First 8(a) Set Asides, Now Small Business Investment Companies Are Being Attacked
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