Tax Credits

The Small Business Investment Act of 1958 created a program to help small businesses obtain financing to start or expand their operations. Under the program, small business investment companies fund small businesses by purchasing their stock or issuing them loans. In 1972, Congress amended the act to establish specialized small business investment companies to fund small businesses owned by socially or economically disadvantaged persons. This report updates information presented in a May 1995 GAO report (GAO/RCED-95-146FS) through fiscal year 1996. GAO provides information on (1) the programs' trends for fiscal years 1990 through 1996 in terms of the number, size, funding, and private capitalization of the investment companies; (2) the Small Business Administration's cumulative net program losses through fiscal year 1996 from liquidating investment companies, as well as specialized small business investment companies' participation in the Three Percent Stock Repurchase Program through December 1996; and (3) the investment companies' investment activities during fiscal years 1990 through 1996.

GAO found that data on the SBIC and SSBIC programs for fiscal years 1990 through 1996 show that: (1) while 127 new SBICs and SSBICs were licensed by SBA, the total number participating in the program declined from 383 to 282; (2) the number of larger SBICs and SSBICs, those with more than $10 million in private capital and SBA leverage, increased from about 70 in FY 1993 to 115 by FY 1996; (3) funds obligated by SBA for the SBIC and SSBIC programs ranged from $77 million to over $355 million; and (4) private capital brought into the programs by SBICs and SSBICs increased from about $2 billion in FY 1990 to over $4.5 billion in FY 1996. GAO also found that: (1) as of the end of FY 1996, SBA had incurred about $365 million in losses from liquidating failed SBICs and SSBICs and projected that it would lose an additional $123 million from liquidations ongoing at that time; (2) as of December 1996, SSBICs had paid SBA about $31 million to repurchase stock for which SBA had originally paid about $87 million, and SBA forgave or allowed the SSBICs to write off $22.5 million in dividends owed SBA on that stock; and (3) data on SBICs' and SSBICs' investment activities during fiscal years 1990 through 1996 show that: (a) the amount of funding provided to small businesses each year ranged from about $490 million to about $1.6 billion; (b) SBICs invested primarily in manufacturing firms, while SSBICs invested primarily in transportation, communications, and utilities; and (c) SBICs tended to make mostly equity-type investments, such as purchasing stock, while SSBICs primarily provided loans.