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In passing the Jumpstart Our Business Startups (JOBS) Act in 2012, Congress took an important, bipartisan step toward easing the regulatory burden on small businesses seeking access to capital markets.
But many small companies still cannot access the capital they need to grow their businesses and create jobs. The stifling regulatory environment has restricted traditional financing options for these companies and, for the first time since the U.S. Census Bureau began keeping such data, the number of smaller companies has actually declined over the last five years.
The constraints on traditional financing make the expansion of alternative capital sources, such as business development companies (BDCs) more important for smaller companies.
“BDCs are closed end investment funds that have a statutory mandate to invest much of their capital in small and medium sized-businesses. As new regulations have caused banks and other lenders to pull back from the small and mid-size lending market, BDCs have played an increasingly important role in our economy,” said Subcommittee Chairman Scott Garrett (R-NJ).
For example, BDCs have recently invested in small and medium-sized companies focused on disease treatment and prevention, education, information technology security, agriculture, and construction.
Key Takeaways from the Hearing:
- Congress and the SEC must do more to reform the current regulatory regime which shuts small companies out of the U.S. capital markets, making it difficult for them to grow and create jobs.
- BDCs need a modernized regulatory regime, which will allow for increased investments in U.S. small and middle-market businesses.
- Funding from BDCs has become more important for small businesses as the regulatory regime grows and banks and traditional financing options for small businesses shrinks.
Topline Quotes from Witnesses:
“Key aspects of this draft legislation would allow BDCs to further increase capital flows to America’s small and medium-size companies, spurring economic growth and job creation while maintaining the BDCs’ position in the marketplace as a highly-regulated, transparent investment vehicle.” - Michael Gerber, Executive Vice President, Franklin Square Holdings
"We believe that the time is right to modernize regulations governing BDCs and pass legislation which would allow BDCs to increase capital flows to America’s small and medium size companies, spur economic growth and create jobs. It is clear that banks have left this space and will not return." - Michael Arougheti, Co-Chairman of the Board of Directors, Ares Capital Corporation
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