Should Banks and Savings Institutions Be Able to Invest More Money in Small Businesses? (H.R. 4256)

What is H.R. 4256?

(Updated January 17, 2022)

This bill would increase the amount that certain banks and savings institutions may invest in Small Business Investment Companies to up to 15 percent of their capital and surplus, subject to the appropriate federal banking agency’s approval. Currently, SBICs can’t take capital investments from banks that have over five percent of their capital and surplus investment in SBICs.

Argument in favor

Small Business Investment Companies (SBICs) provide a good return to investors while giving small businesses access to the capital they need to grow. This is a win-win and should be given greater support by allowing banks and savings institutions to invest more of their capital and surplus into these instruments.

Argument opposed

All investments, no matter what they are, carry a degree of risk. Allowing banks and savings institutions to put too much of their capital and surplus into any one type of investment increases risk in the market, and could expose banking consumers to greater risk, as well.

Impact

Small businesses; investors; banks; savings institutions; federal banking agencies; and SBICs.

Cost of H.R. 4256

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Judy Chu (D-CA) reintroduced this bill to support small businesses by giving them more access to capital:

“Small businesses are the backbone of our economy, accounting for two out of every three new jobs. And so, as part of our commitment to creating opportunities and growing our economy, it’s our responsibility to help more small businesses succeed. But I know, from talking to entrepreneurs in my district and around the country, that one of the greatest challenges to success is access to capital. That is what this bill will address, by letting banks or federal savings associations invest up to 15% of their holdings into SBICs. That will mean more entrepreneurs will be able to access the capital they need to grow their business and hire more workers.”

The Small Business Investor Alliance (SBIA), the leading association of lower middle market private equity funds and investors, supported this bill’s passage in the 115th Congress. SBIA President Brett Palmer said:

“Capital access is a challenge felt by small businesses nationwide. The SBIC program supports small businesses and entrepreneurs so they can do what they do best — create jobs and grow the American economy.”

This bill’s predecessors passed the House during the 116th Congress on a bipartisan 403-2 vote, and during the 115th Congress on a voice vote, although neither received a vote in the Senate.

Of Note: SBICs are highly regulated private investment funds that invest exclusively in domestic small businesses. They play a significant role in providing capital to small businesses — in fiscal year 2013 alone, they invested $3.5 billion in financing dollars to small businesses. From the program’s inception through December 2015, SBICs deployed $80.5 billion into approximately 172,800 financings. However, they do carry a degree of risk, as they often provide financing that’s more aggressive than banks could provide.

Media:

• Sponsoring Rep. Judy Chu (D-CA) Press Release (115th Congress)

• Small Business Alliance (SBIA) Press Release (In Favor - Previous Congress)

• Commerce Street Capital, LLC Press Release (In Favor - Previous Congress)

• Small Business & Entrepreneur Council (SBE Council) Letter (In Favor - Previous Congress)

• Commerce Street Capital SBIC Overview (Context - Previous Congress)