Compliance June 3, 2003

Bill Could Spark Pension Investment in Small Businesses

March 18, 2002 (PLANSPONSOR.com) - A new bill could spur additional funding for small businesses, while also offering a more attractive investment alternative for pension and endowment funds.
Reported by

Senator Kit Bond (R-Missouri) has introduced the Small Business Investment Company Capital Access Act of 2002, a bill to boost the flow of venture capital to small businesses by allowing tax-exempt entities, such as pension funds and university endowment funds, to invest in Small Business Investment Companies (SBIC) without incurring unrelated business taxable income (UBTI). 

Current Restrictions

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Under current law, non-profit organizations cannot invest in debt-investment type SBICs without incurring tax liability. As a result, 60% of the private capital potentially available to SBICs is effectively locked out of the marketplace, according to Senator Bond. By removing the barrier currently in the tax code, non-profit pension and endowment funds could invest their assets in SBIC debts, which are federally-guaranteed against loss.

Bond, who is Ranking Member of the Senate Committee on Small Business and Entrepreneurship, is cosponsoring the bill with Senator Chuck Grassley (R-Iowa), Ranking Member of the Senate Committee on Finance.

Industry experts believe it could boost capital available for SBICs by $200 million in the first year alone, according the National Association of Small Business Investment Companies (NASBIC).

SBICs are government-licensed, government-regulated, privately-managed venture capital firms created to invest only in original issue debt or equity securities of US small businesses.

Bond said, ‘This is a tailor-made solution to help struggling small firms stay in business, create the new jobs needed to restart the economy and safeguard workers’ retirement funds.’

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