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Small businesses need support, in the form of capital to fund their growth and expansion. But in the years following the financial crisis of 2008-2009 and the worst economic downturn since the Great Depression, securing those much-needed funds has become extremely difficult. Most large financial institutions are more comfortable providing capital to other large businesses, rather than small ones.
That’s where small business investors come to the rescue – middle market funds and investors that provide capital that allow small businesses to grow. Many of these small businesses are family-owned and need not only capital, but also an experienced partner to help them reach the next level of growth. Our organization, the Small Business Investor Alliance (the Alliance), formerly known as National Association of Small Business Investment Companies (NASBIC), represents these investors and is one of the oldest continually operating organizations of small business investors in the world.
NASBIC was formed immediately after the passage of the Small Business Investment Act of 1958, and since then our organization has played a pivotal role in promoting the growth and vitality of the private equity industry and small businesses for more than half a century. Historically, our role has been to facilitate the Small Business Investment Company (SBIC) program — a successful public-private partnership with the U.S. Small Business Administration (SBA) that is one of the programs within the federal government that pays for itself.
The SBIC program enhances the capacity of small business investors to help small U.S. businesses meet their requirements for growth and operating capital not available through banks or other private capital sources. Small companies often require investments in the critical $250,000 to $5 million range in the form of either subordinated loans not made by banks, or equity investments not generally available from non-SBIC private equity firms. SBICs fill that gap — supporting the growth of thousands of small businesses each year at zero cost to the taxpayer.
The small business capital drought is real, but the markets are adjusting and with good public policy, investment will be increasing. We are seeing growth potential for small business investing. To expedite pro-growth policies and access to capital, we recently expanded our mission and our membership under our new name, the Small Business Investor Alliance. We are now welcoming non-SBIC private equity funds and limited partners into our membership, and expanding the support provided to those investing in the lower middle market. Small business investors are ready to tell their story, championing growth and entrepreneurialism.
Since 1958, our members have provided nearly $60 billion in long-term debt and equity growth capital to more than 107,000 small U.S. companies, financing that supports jobs and job growth. For example, in the fiscal year 2011, SBICs invested $2.57 billion in more than 1,285 companies, which helped create or retain more than 56,013 jobs.
These investments have helped generate some incredible success stories. Many of the biggest employers in the American economy received the early capital they needed to grow from our member funds. Companies such as Apple, Intel, Federal Express, Staples, Costco, Whole Foods, and Callaway Golf, to name a few. These companies, and the others who have benefitted from SBIC investments, are now part of the collective bedrock of our economy and employ hundreds of thousands of people.
Often, the benefits of investing in innovative and dynamic small businesses go beyond the financial statistics, such as the charitable donations and humanitarian works done by many of the companies supported by our members. During the 2011 State of the Union address, President Obama honored an SBIC-backed small business, a drilling company called Center Rock, Inc. of Berlin, Pennsylvania, for its role in the October 2010 rescue of 33 Chilean miners trapped underground for 69 days in a collapsed mine.
Founded in 1998 by a young entrepreneur, Center Rock received a $4 million investment in 2005 from Gemini Investors, enabling the company to expand. Over the next three years, the company’s revenues quadrupled and its workforce tripled. When the Chilean mine crisis occurred, Center Rock’s innovative drilling technology bore through 2,300 feet of rock to reach the miners. The custom-designed drill bit that was an integral part of the rescue was manufactured in a facility partially financed by Gemini Investors.
In short, critical funding from a middle market private equity fund enabled a small American business to play a key role on the world stage, by saving the lives of 33 men and touching the lives of so many more. That type of return on investment is truly priceless.
Despite the nation’s current economic woes, this country was founded on the spirit of entrepreneurship and I am confident that American ingenuity will fuel our future economic growth. The Alliance is proud to invest in American success stories, working to ensure that capital is available to small business entrepreneurs trying to build upon a good idea and hard work. The American Dream is still alive and well, and as the past 50 years have taught us, the ability of small businesses to help the economy recover, expand and prosper cannot be underestimated.
Brett Palmer is the president of the Small Business Investor Alliance.
The views expressed by contributors are their own and not the view of The Hill