At a time when small-business owners are struggling and legislators are looking for ways to jump-start the economy, a key government program tasked with helping small businesses expand has been hamstrung.
The Small Business Administration’s decades-old program for investing in small-business investment companies, or SBICs as they are known, has missed its target for a second year as it struggles with staffing shortages and red tape, according to sources.
The SBIC program provided $1.92 billion in loan guarantees to SBIC funds in fiscal 2012, which ended Sept. 30. That is slightly better than $1.8 billion in 2011, but still well short of the $3 billion available to the SBIC program.
A top administrator for the SBIC program acknowledges it could plow through more fund applications with a bigger staff.
Just three staffers determined if the 70 applicants for SBIC licenses were qualified investors.
“We have shown we can do a lot more” with additional resources, Sean Greene, the Small Business Administration’s associate administrator for investment, told The Post.
The decades-old program allows Uncle Sam to send capital to startups. The SBIC program has invested some $63 billion in more than 110,000 small businesses since its launch in 1958.
Mike Staebler, a lawyer for Pepper Hamilton, who helps private-equity firms get SBIC licenses, said, “If you think the government has some role in job creation, this is it.”
He added, “It would be truly helpful to add another 10, 15, 20 people” to the SBIC’s current 80 workers.
Typically, the program lets private-equity investors leverage their capital, with the government matching what they raise on a 2-to-1 basis.
So if they raise a maximum of $75 million in private money, the SBIC will lend the applicant $150 million, presently at a 2.25 percent interest rate. This gives them $225 million total to lend and invest in small businesses.
“It’s easy to make 20 to 25 percent returns” with that low cost of capital, said one source who applied for an SBIC license.
Despite the program’s allure, investors tell of a frustrating process to get approved. “The process is painfully slow and overly bureaucratic,” said the source.
Greene said that it takes, on average, 18 months for the 20 to 25 percent who apply and qualify to close an SBIC fund.
While there is a lot of rhetoric centering around helping small-business owners, proponents worry that the SBA will have to do even more with less.
President Obama said this week that he wanted to merge the SBA with the Commerce Department, raising concerns more cuts are in store.
“If there is a one-stop shop, it’s common sense that the biggest companies will get catered to first,” American Small Business League Communications Director Brian Reeder told the Post.
Reeder said President Bush cut the SBA staff in half, and that Obama has increased spending just slightly.
Reeder added that there are 27 million small businesses that fit the SBA definition.