By Rep. Steve Stivers (R-Ohio), Opinion Contributor for The Hill | December 13, 2017
As tax reform continues to make its way through the legislative process, it is easy to lose focus on all the other legislative developments in Congress. This is understandable, considering that we have a once-in-a-generation opportunity to finally fix our nation’s broken tax code.
Small and mid-sized businesses play a significant role in the growth of the economy, and tax relief will help them create jobs and reinvest in their companies. However, while tax reform is significant, we still have more work to do.
Alongside tax reform, another significant piece of legislation is making its way through Congress that, if passed, would help provide vital capital to small businesses, startups, and entrepreneurs looking to grow and expand their operations.
Earlier this month, the House Financial Services Committee overwhelmingly voted to advance The Small Business Credit Availability Act. This bipartisan bill would ease regulations on Business Development Companies (BDCs), the job-creating engines that provide access to capital and management expertise for American small and medium-sized businesses.
Congress created Business Development Companies in 1980 to facilitate capital formation, which is still a significant hurdle today for many smaller businesses. With over 29 million small businesses in the nation accounting for two out of every three new private sector jobs, the ability for them to access capital is crucial to our overall economic growth.
BDCs invest at least 70 percent of their total assets in eligible portfolio companies, which are active small and mid-sized businesses. This includes ordinary main street businesses and local chains. Moreover, BDCs tend to invest in businesses located in flyover states – communities and cities in middle-America which are often overlooked by larger institutions for investment opportunities. In other words, BDCs give businesses outside the business and startup hubs of New York and California a shot to grow, create jobs, and improve local economies.
Currently, BDCs have over $80 billion in outstanding loans in these businesses. This financing helps them expand and create jobs, providing much needed growth to local economies and communities across the country. In addition to providing access to capital for small- and middle-market companies, BDCs also allow individual investors access to highly-regulated investment opportunities that were once available to only wealthy individuals and institutional investors.
BDCs invest in a wide range of industries and sectors across America, including manufacturing, health-care technology and services, energy companies, aerospace, IT companies, web technology and cloud-based computing companies, educational services, consumer products, food companies, and others. These growing companies rely on BDCs for financing to purchase supplies, equipment, and operating facilities.
The BDC industry is growing rapidly, which is why we need modernizations to how BDCs are regulated so even more businesses have this opportunity. The Small Business Credit Availability Act would make these modernizations. For example, this bill would allow a modest increase to the asset coverage ratio governing BDCs. BDCs are currently limited to a 1:1 debt-to-equity ratio as opposed to other financial vehicles that are often leveraged at a 9:1 ratio or higher. This change also allows BDCs to reduce the risk in their portfolios without compromising responsible investor protections.
As the tax reform effort nears the finish line, this significant bill, with all its support, is quietly making its way through the legislative process. This capital access solution would complement the tax reform legislation, providing another significant source of economic growth that will benefit America’s businesses and jobseekers.
Stivers represents Ohio’s 15th District and is a member of the Financial Services Committee.