Small Business: Information on SBA's Small Business Investment Company
Programs (Fact Sheet, 05/12/95, GAO/RCED-95-146FS).
Pursuant to a congressional request, GAO provided information on small
business investment companies (SBIC) and specialized small business
investment companies (SSBIC), focusing on: (1) trends in the number,
funding, losses, capitalization, size, and liquidation of SBIC and SSBIC
between 1990 and 1994; (2) SBIC and SSBIC investment activities between
1990 and 1994; and (3) the educational background and work experience of
personnel in the Small Business Administration's (SBA) Investment
Division, which manages the SBIC program.
GAO found that: (1) in general, between fiscal years (FY) 1990 and 1994,
the number of SBIC and SSBIC participating in the program declined and
federal funding decreased, while SBIC net losses increased; (2) SBIC and
SSBIC brought more private capital into the programs, while the total
amount of leverage provided to SBIC and SSBIC declined; (3) as of
December 1994, 192 SBIC and SSBIC were in liquidation, with SBA
expecting to recover $443 million of the $790 million of funds owed; (4)
17 SSBIC paid SBA $15.3 million to repurchase preferred stock with a par
value of $43.4 million under the Three Percent Preferred Stock
Repurchase Program; and (5) SBIC and SSBIC provided between $490 million
and $806 million in funding for small businesses between FY 1990 and
1993 and provided $1 billion in funding in FY 1994. GAO also found that:
(1) SBIC have made a greater proportion of equity investments while
SSBIC have primarily provided loans; (2) more than 90 percent of SBA
Investment Division employees have at least a bachelor's degree, most of
which are in the accounting, finance, or business administration fields;
and (3) most Investment Division employees have an average of 11 years
of SBA work experience, and 7.7 years work experience primarily in the
accounting, auditing, banking, and investment fields.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-146FS
TITLE: Small Business: Information on SBA's Small Business
Investment Company Programs
DATE: 05/12/95
SUBJECT: Capital
Small business investment companies
Minority business assistance
Small business assistance
Small business loans
Federal employees
Federal funds
Disadvantaged persons
Investments
IDENTIFIER: SBA Small Business Investment Companies Program
SBA Specialized Small Business Investment Companies Program
SBA Three Percent Preferred Stock Repurchase Program
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Cover
================================================================ COVER
Report to the Chair, Committee on Small Business, House of
Representatives
May 1995
SMALL BUSINESS - INFORMATION ON
SBA'S SMALL BUSINESS INVESTMENT
COMPANY PROGRAMS
GAO/RCED-95-146FS
Small Business
Abbreviations
=============================================================== ABBREV
GAO - General Accounting Office
SBA - Small Business Administration
SBIC - Small Business Investment Company
SSBIC - Specialized Small Business Investment Company
Letter
=============================================================== LETTER
B-261138
May 12, 1995
The Honorable Jan Meyers
Chair, Committee on Small Business
House of Representatives
Dear Madam Chair:
The Small Business Investment Act of 1958 created a program to help
small businesses obtain financing for starting, maintaining, and
expanding operations. Under the program, small business investment
companies (SBIC) provide funding to small businesses through equity
investments (purchasing their stock) and debt (issuing them loans).
In 1972, the Congress amended the act to establish specialized SBICs,
called SSBICs, to fund small businesses that are owned by persons who
are socially or economically disadvantaged. In supporting small
businesses, SBICs and SSBICs use their own private funds and funds
obtained by borrowing at favorable rates with debentures and
participating securities\1 (also called leverage)\2 guaranteed by the
Small Business Administration (SBA) or by selling preferred stock\3
to SBA.
Because of your interest in these programs, you requested that we
provide you with information on (1) the performance of the programs
over the period from 1990 through 1994, including trends in the
number, funding, losses, capitalization, and size of SBICs and SSBICs
and on liquidations of these investment companies, as well as SSBICs'
participation in the Three Percent Preferred Stock Repurchase
Program;\4 (2) SBICs' and SSBICs' investment activities over the
period from 1990 through 1994; and (3) the educational background and
work experience of personnel in SBA's Investment Division, who manage
the program. The information we obtained is summarized below and
presented in detail in sections 1 through 3.
--------------------
\1 Debentures are bonds issued by SBICs and SSBICs. Participating
securities include preferred stock or similar instruments whose terms
make interest payable only when earnings are achieved. Both of these
instruments are generally sold to the public with a guarantee from
the Small Business Administration.
\2 Leverage is defined as financial assistance provided to an SBIC or
SSBIC by SBA either through the purchase or guarantee of debentures
and participating securities or through the purchase of preferred
securities. An SBIC can receive as much as $3 of SBA funding for
every $1 of its private capital. An SSBIC receives as much as $4 for
every $1 of its private capital.
\3 SSBICs can sell nonvoting preferred stock to SBA. SBA purchases
these nonvoting preferred securities directly from the SSBIC, as
opposed to guaranteeing these funds.
\4 Up until November 1989, SBA provided funding to SSBICs, in part,
by purchasing stock carrying a 3-percent annual dividend (generally
referred to as 3-percent preferred stock). The Three Percent
Preferred Stock Repurchase Program, established by the Congress in
1989, allows SSBICs to repurchase preferred stock from SBA at a price
less than par value.
THE PERFORMANCE OF THE
PROGRAM
---------------------------------------------------------- Letter :0.1
In fiscal years 1990 through 1994, the program experienced the
following: (1) the number of SBICs and SSBICs participating in the
program declined from 253 and 130, respectively, in 1990, to 186 and
94, respectively, in 1994; (2) 70 new SBICs and 14 new SSBICs were
licensed; (3) federal obligations ranged between $77 million and $91
million each year through 1993 and increased to $278 million in 1994;
(4) the SBICs' cumulative net losses, as calculated by SBA, increased
from $72 million to $198 million and the SSBICs' net loss increased
from $11 million to $34 million, from fiscal year 1990 to fiscal year
1994; and (5) the amount of private capital brought into the program
each year by SBICs increased from about $1.8 billion in fiscal year
1990 to about $2.7 billion in fiscal year 1994, while private capital
ranged between $187 million and $213 million for SSBICs during the
same period.
As of December 31, 1994, 192 SBICs and SSBICs were in liquidation,
and SBA expects to recover $443 million of the $790 million of
outstanding federal funds owed SBA when these investment companies
are completely liquidated. As of March 31, 1995, 17 SSBICs had paid
SBA $15.3 million to repurchase preferred stock with a par value of
$43.4 million under the Three Percent Preferred Stock Repurchase
Program. These SSBICs also will be forgiven $14.5 million in accrued
dividends owed SBA.
SBICS' AND SSBICS'
INVESTMENT ACTIVITIES
---------------------------------------------------------- Letter :0.2
In fiscal years 1990 through 1994, SBICs' and SSBICs' investment
activities were as follows: (1) the amount of funding provided by
SBICs and SSBICs to small businesses fluctuated between $490 million
and $806 million from fiscal years 1990 to 1993 and increased to $1
billion in fiscal year 1994; (2) SBICs made a greater proportion of
equity investments, and SSBICs primarily provided loans; (3) SBICs
primarily invested in manufacturing, followed by services and by the
transportation, communications, and utilities industry groups; (4)
SSBICs invested primarily in the transportation, communications, and
utilities industry group, followed by retail trade and by the
services industry group; and (5) small businesses in California, New
York, and Texas received the largest amount of financing from SBICs
and SSBICs, businesses in three states received no financing from
SBICs, and businesses in seven states received no financing from
SSBICs.
EDUCATIONAL BACKGROUND AND
WORK EXPERIENCE OF SBA'S
INVESTMENT DIVISION STAFF
---------------------------------------------------------- Letter :0.3
More than 90 percent of the employees in SBA's Investment
Division--who have responsibility for managing the SBIC and SSBIC
programs--have at least a bachelor's degree; most degrees are in the
fields of accounting, finance, and business administration. The
employees have an average of 11 years of work experience at SBA, and
82 percent of them had an average of 7.7 years of work experience
before joining SBA, primarily in the accounting/auditing and
banking/investment fields.
---------------------------------------------------------- Letter :0.4
We conducted our review from January through April 1995 and relied on
existing data from SBA sources, including SBA's data bases on
licensing, capitalization, investments, and liquidations information,
as well as on interviews and documentation gathered from SBA
officials for all information other than that on the Investment
Division staff. To gather that information, SBA asked employees to
complete a survey document about their time with the agency,
educational background, and work experience prior to joining the
agency. We did not verify the accuracy of SBA's data nor conduct
reliability assessments of SBA's data bases.
We discussed the information in this report with SBA's Associate
Administrator for Investments and other Investment Division
officials, who generally agreed with the facts presented. We
incorporated, where appropriate, the officials' suggestions for
clarifying the presentation. The Associate Administrator attributed
most of the changes in the program that are described in sections 1
and 2 to the Small Business Equity Enhancement Act of 1992. He noted
that the act established, among other things, a new participating
security designed to help SBICs and SSBICs make equity investments,
which attracted highly capitalized licensees into the program.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 10 days after the date of this
letter. At that time, we will send copies of the report to
interested congressional committees, the Administrator of SBA, and
other interested parties. We will also make copies available to
others upon request.
Please contact me at (202) 512-7631 if you or your staff have any
questions. Major contributors to this report are listed in appendix
I.
Sincerely yours,
Judy A. England-Joseph
Director, Housing and
Community Development Issues
THE PERFORMANCE OF THE PROGRAMS
============================================================ Chapter 1
This section presents information on the Small Business Investment
Company (SBIC) and Specialized Small Business Investment Company
(SSBIC) programs, including the number of licensees in the programs,
trends in their budget and losses, the capitalization levels of
investment companies, and their size. The section also discusses the
status of SBICs' and SSBICs' liquidations and the Three Percent
Preferred Stock Repurchase Program for SSBICs. To present
information on trends in these programs, we relied on interviews and
documentation from Small Business Administration (SBA) officials and
existing data sources, including SBA's data bases on licensing,
capitalization, and liquidations information, from fiscal years 1990
through 1994.
TRENDS IN THE PROGRAMS
---------------------------------------------------------- Chapter 1:1
Our analysis of the programs shows changes since fiscal year 1990.
For most of the areas we reviewed, the changes occurred between
fiscal years 1993 and 1994. SBA's Associate Administrator for
Investments attributed these changes to the Small Business Equity
Enhancement Act of 1992, which established new participating
securities designed to help SBICs and SSBICs make equity investments.
He explained that the new participating securities, which can include
preferred stock and debentures, make interest payable only when
earnings are achieved. The new securities attracted highly
capitalized investment firms into the programs.
THE NUMBER OF SBICS AND
SSBICS IN THE PROGRAMS SINCE
1990
-------------------------------------------------------- Chapter 1:1.1
The overall number of SBICs and SSBICs actively participating (that
is the investment companies are currently operating as an SBIC or
SSBIC) in the programs declined from fiscal years 1990 through 1993
but leveled off in fiscal year 1994. (See fig. 1.1.) Also, the
number of new licensees entering the programs declined steadily
through 1993; in 1994, a relatively large number of licensees entered
the programs. (See fig. 1.2.)
Figure 1.1: Number of Active
SBICs and SSBICs, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 1.1 shows that the number of active SBICs and SSBICs declined
from 253 and 130, respectively, in fiscal year 1990 to 186 and 94,
respectively, in fiscal year 1994.
Figure 1.2: Number of New
Licensees in the SBIC and SSBIC
Programs, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 1.2 shows that the number of new licensees entering the
program declined steadily from 20 in fiscal year 1990 to 4 in fiscal
year 1993. In fiscal year 1994, 35 new licensees entered the
program. More SBICs than SSBICs were licensed during this period.
Of the 84 new licensees entering the program from fiscal year 1990
through fiscal year 1994, 70 were SBICs and 14 were SSBICs. Also, no
new SSBICs entered the program during fiscal year 1994.
FEDERAL FUNDING AND LOSSES
FOR THE PROGRAMS SINCE 1990
-------------------------------------------------------- Chapter 1:1.2
Federal funding decreased and obligations for the program remained
fairly constant ranging from $77 million to $91 million through
fiscal year 1993. Federal funding and obligations increased in
fiscal year 1994, each going up to $277.9 million. (See fig. 1.3.)
The Associate Administrator for Investments attributed the dramatic
increase in the fiscal year 1994 federal funding to the fact that SBA
asked the Congress for an increase since SBA believed the new
participating security would attract an increased number of new
licensees into the program. Similarly, obligations increased, the
Associate Administrator explained, because a large number of new,
highly capitalized licensees indeed entered the program and requested
increased SBA funding, requiring SBA to in turn, guarantee more
funding.
Figure 1.3: Federal Funding
and Obligations, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
The cumulative net losses, as calculated by SBA, on loans by both
SBICs and SSBICs have risen from $83.2 million in fiscal year 1990 to
$231.3 million in fiscal year 1994. (See figs. 1.4 and 1.5.)
Figure 1.4: Actual Net Losses
for SBIC Loans as Reported by
SBA, Fiscal Years 1990 Through
1994
(See figure in printed
edition.)
Note: Net losses as calculated by SBA are cumulative over the
35-year life of the program. Net losses are cumulative amounts that
SBA charges off from the total leverage less recoveries.
Source: SBA.
Figure 1.4 shows that the net losses, as calculated by SBA, for loans
by SBICs increased from $72.2 million in fiscal year 1990 to about
$197.5 million in fiscal year 1994.
Figure 1.5: Actual Net Losses
for SSBIC Loans as Reported by
SBA, Fiscal Years 1990 Through
1994
(See figure in printed
edition.)
Note: Net losses as calculated by SBA are cumulative over the
35-year life of the program. Net losses are cumulative amounts that
SBA charges off from the total leverage less recoveries.
Source: SBA.
Figure 1.5 shows that the net losses, as calculated by SBA, for loans
by SSBICs increased from $11 million in fiscal year 1990 to $33.8
million in fiscal year 1994.
SBICS' AND SSBICS'
CAPITALIZATION LEVELS
-------------------------------------------------------- Chapter 1:1.3
From fiscal years 1990 through 1994, active SBICs and SSBICs have
brought more private capital into the programs, and the total amount
of leverage provided to these investment companies has declined. The
increase in private capital has come primarily from SBICs rather than
SSBICs. Those that are individually owned and those that are
bank-dominated or bank-associated are bringing in most of the private
capital. Most of the leverage has gone to individually owned SBICs
and SSBICs. (See figs. 1.6 through 1.9.)
Figure 1.6: SBICs' and SSBICs'
Capitalization, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
\a Private capital includes capital from those SBICs and SSBICs that
do not use leverage from SBA. Therefore, the ratio of private
capital to leverage is greater than it would be if those investment
companies were excluded.
\b Figures for fiscal year 1994 do not reflect about $155 million in
commitments made during fiscal year 1994 for drawdown during fiscal
year 1995.
Source: GAO's analysis of data from SBA.
Figure 1.6 shows that the amount of private capital SBICs and SSBICs
are bringing into the program has increased since 1990, going from a
total of about $2 billion in fiscal year 1990 to about $2.9 billion
in fiscal year 1994. While the private capital has increased, the
total amount of leverage SBA is providing to these licensees has
declined, going from about $1.1 billion in fiscal year 1990 to about
$805.5 million in fiscal year 1994.
Figure 1.7: Total Private
Capital for SBICs vs. SSBICs,
Fiscal Years 1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 1.7 shows that the increase in private capital comes primarily
from the active SBICs rather than the SSBICs. The total private
capital for SBICs increased from about $1.8 billion in fiscal year
1990 to $2.7 billion in fiscal year 1994, while the total private
capital for SSBICs varied between $187 million and $213 million over
this period.
Figure 1.8: SBICs' and SSBICs'
Private Capital, by Type of
Ownership, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
\a Bank-dominated ownership groups are groups that are 50-percent or
more owned by a bank or a bank holding company. Bank-associated
ownership groups are groups that are 10-percent to 49-percent owned
by a bank or a bank holding company.
\b Financial organization ownership groups are public and private
financial organizations, excluding banks and bank holding companies.
\c Nonfinancial organization ownership groups are public and private
groups.
\d Individually owned ownership groups are privately held only.
\e '40 Act Company ownership groups are groups licensed under the
Investment Company Act of 1940. These companies are registered with
the Securities Exchange Commission and are required to follow many
regulations prescribed by the Commission.
Source: GAO's analysis of data from SBA.
Figure 1.8 shows that since fiscal year 1990, most of the increase in
private capital came from individually owned, as well as
bank-dominated and bank-associated SBICs and SSBICs. Private capital
from individually owned SBICs and SSBICs ranged from $407 million to
$433 million from fiscal year 1990 through fiscal year 1993 and
increased to $972 million in fiscal year 1994. Capital from those
that are bank-dominated or bank-associated increased by about $144
million from fiscal years 1993 through 1994.
Figure 1.9: SBA's Leverage, by
Type of Ownership, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
Note: Figures for fiscal year 1994 do not reflect about $155 million
in commitments made during fiscal year 1994 for drawdown during
fiscal year 1995.
\a Bank-dominated ownership groups are groups that are 50-percent or
more owned by a bank or a bank holding company. Bank-associated
ownership groups are groups that are 10-percent to 49-percent owned
by a bank or a bank holding company.
\b Financial organization ownership groups are public and private
financial organizations, excluding banks and bank holding companies.
\c Nonfinancial organization ownership groups are public and private
groups.
\d Individually owned ownership groups are privately held only.
\e '40 Act Company ownership groups are groups licensed under the
Investment Company Act of 1940. These companies are registered with
the Securities Exchange Commission and are required to follow many
regulations prescribed by the Commission.
Source: GAO's analysis of data from SBA.
Figure 1.9 shows that since fiscal year 1990, most of the leverage
received by licensees has gone to individually owned SBICs and
SSBICs.
SIZE OF SBICS AND SSBICS IN
THE PROGRAM SINCE 1990
-------------------------------------------------------- Chapter 1:1.4
The number of small SBICs and SSBICs (those with up to $2 million in
capital) in the programs has declined from 116 to 53 from fiscal year
1990 through fiscal year 1994. The number of larger SBICs and SSBICs
(those with more than $10 million) has remained fairly constant
through fiscal year 1993, ranging from 67 to 72, but increased to 91
in fiscal year 1994. (See fig. 1.10.)
Figure 1.10: Number of
Licensees, by Level of
Capitalization, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
LIQUIDATIONS OF SBICS AND
SSBICS
-------------------------------------------------------- Chapter 1:1.5
Analysis of liquidations of SBICs and SSBICs shows that from the
beginning of fiscal year 1967 to December 31, 1994, 584 SBICs and
SSBICs, with leverage of $1.2 billion owed to SBA, had been
transferred to the Investment Division's Office of Liquidations. As
of December 31, 1994, 192 of those SBICs and SSBICs were actively in
the liquidation process, including 118 SBICs and 74 SSBICs, with
leverage of $789.8 million owed SBA. SBA expects to recover $443.4
million from these 192 liquidations. The agency has already incurred
$99 million in losses from these SBICs and SSBICs and has projected
that it will lose an additional $247.4 million after liquidations are
completed. (See table 1.1.)
Of the current 192 liquidations in process, 88 (46 percent of the
total) have been in liquidation fewer than 5 years, and the remaining
104 SBICs and SSBICs (54 percent of the total) have been in
liquidation for 5 years or more. (See table 1.2.)
The number of SBICs and SSBICs entering liquidation has varied since
fiscal year 1990, increasing from 21 to 31 between fiscal year 1990
and fiscal year 1991 and declining since that time to 17 in fiscal
year 1994. In fiscal year 1990 and fiscal year 1991, more SBICs than
SSBICs were entering liquidation. Starting in fiscal year 1992, the
numbers were about equal, with the number of SSBICs entering
liquidation increasing slightly above the number of SBICs in 1993 and
declining slightly below the number of SBICs in fiscal year 1994.
(See fig. 1.11.)
Table 1.1 Liquidations of SBICs and
SSBICs Through December 31, 1994, and
Projected Losses by SBA
(Dollars in millions)
Levera SBA's SBA's
No. of ge actual/ actual/
Stage of SBICs and owed anticipated anticipated
liquidation SSBICs SBA recoveries losses
------------ ---------- ------ ------------ ------------
Completed\a 392 $435.4 $303.2 $132.3
Ongoing\b 192 789.8 443.4 346.4
============================================================
Total 584 $1,225 $746.6 $478.6
.2
------------------------------------------------------------
\a As of September 30, 1994.
\b As of December 31, 1994.
Source: GAO's analysis of data from SBA.
Table 1.2
Number of Years the 192 SBICs and SSBICs
Were in Liquidation as of December 31,
1994
>9-
Under 5-9 15 >15- Over
5 year year 20 20 Tota
years s s years years l
------------------ ------ ---- ---- ------ ------ ----
SBICs 49 41 22 4 3 119
SSBICs 39 21 13 0 0 73
Total 88 62 35 4 3 192
------------------------------------------------------------
Source: GAO's analysis of data from SBA.
Figure 1.11: Number of SBICs
and SSBICs Entering
Liquidation, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
STATUS OF THE THREE PERCENT
PREFERRED STOCK REPURCHASE
PROGRAM
---------------------------------------------------------- Chapter 1:2
The Small Business Investment Act, amended in 1972, created SSBICs,
which provide financing to small businesses that are owned by
socially or economically disadvantaged persons. Up until November
1989, SBA provided leverage to the SSBICs by purchasing stock
carrying a 3-percent annual dividend generally referred to as
3-percent preferred stock. In November 1989, the Congress authorized
SBA to permit SSBICs to repurchase their preferred stock at a price
less than its par value, with the terms and conditions as well as the
price to be determined by SBA.\5 SBA piloted the Three Percent
Preferred Stock Repurchase Program in 1992 and in 1993. During the
pilot, six SSBICs completed a repurchase of their stock. In April
1994, SBA implemented the program to allow all SSBICs to apply for
the repurchase of their 3-percent preferred stock at 35 percent of
par value. Any accrued unpaid dividends due SBA in connection with
that stock will be forgiven at the time of repurchase for financially
distressed SSBICs or allowed to be fully amortized (written off) over
a 5-year period by nondistressed SSBICs under certain conditions.\6
Under the pilot repurchase program, all companies' accrued preferred
stock dividends were forgiven even if they were not financially
distressed. According to SBA's records, as of March 31, 1995, 17
SSBICs had completed their repurchases, including the 6 under the
pilot program, and 9 were awaiting final approval from SBA. Table
1.3 shows the 17 SSBICs that repurchased their preferred stock from
SBA, the repurchase prices, discounted values, and unpaid dividends
forgiven or allowed to be amortized.
Table 1.3
SSBICs that Repurchased Stock
(Dollars in thousands)
Dividend
s
Par Repurcha forgiven
value se price Amount /
paid by paid by discount amortize
Licensee SBA SSBICs ed d
-------------------- -------- -------- -------- --------
Capital Dimensions $10,000 $ 3,572 $ 6,428 $ 2,364
Rutgers Minority 905 314 591 484
Investment
Freshstart Venture 1,520 551 969 82
Capital Corp.
Ibero-American 1,750 625 1,125 382
United Capital 1,000 362 638 47
Investment
Syncom Capital Corp. 3,125 1,083 2,042 1,236
Alliance 2,700 945 1,755 1,309
Future Value 1,000 350 650 227
Lailai 700 245 455 155
Motor Enterprises 2,000 700 1,300 859
Pacific Capital 700 245 455 293
Peterson Finance 1,035 362 673 214
Tower Ventures 3,000 1,050 1,950 1,386
TSG 10,295 3,603 6,692 4,679
Security Financial 500 175 325 0
Transpac Capital 2,000 700 1,300 385
Venture 1,150 403 747 398
Opportunities
============================================================
Total $43,380 $15,285 $28,095 $14,500
------------------------------------------------------------
Source: GAO's analysis of data from SBA.
During the pilot project, SBA resold the stock to six SSBICs at
prices ranging from 34.66 percent of the par value to 36.23 percent
of the par value. Subsequent participants in the program repurchased
stock at 35 percent of the par value. In addition to the $28.1
million discount on the stock repurchase, $14.5 million in
accumulated dividends was forgiven or allowed to be amortized.
--------------------
\5 Par value is the amount SBA paid the SSBIC for the preferred
stock.
\6 Financially distressed SSBICs were defined as those companies
that, as of their fiscal year end preceding the April 1994 notice in
the Federal Register, had undistributed realized losses and a capital
impairment percentage of a least 10.
SBICS' AND SSBICS' INVESTMENT
ACTIVITIES
============================================================ Chapter 2
This section presents information on SBICs' and SSBICs' investment
activities, including trends in the amount of funding and financing
to small businesses, the industries financed, the type of financing
(equity or debt), and the regions and states where SBICs and SSBICs
invested. Data presented in this section are based on interviews and
documentation from SBA officials and from SBA's data bases that
include investment information.
SBICS' AND SSBICS' FUNDING
AND FINANCING TO SMALL
BUSINESSES SINCE 1990
-------------------------------------------------------- Chapter 2:0.1
Between fiscal year 1990 and fiscal year 1993, SBICs' and SSBICs'
total funding to small businesses fluctuated between about $490
million and $806 million; then, in fiscal year 1994, it increased to
about $1 billion. The total number of financings declined from
fiscal year 1990 through fiscal year 1993, then increased in fiscal
year 1994. SBICs generally made larger financial commitments to
small businesses than SSBICs. (See figs. 2.1 and 2.2.)
Figure 2.1: SBICs' and SSBICs'
Funding to Small Businesses,
Fiscal Years 1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 2.2: Number of
Financings by SBICs and SSBICs
to Small Businesses, Fiscal
Years 1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 2.2 shows that the number of financings to small businesses
from SBICs and SSBICs declined from 2,624 in fiscal year 1990 to
1,992 in fiscal year 1993. In fiscal year 1994, the number increased
to 2,348. A comparison of figures 2.1 and 2.2 shows that SBICs
generally made larger financial commitments to small businesses than
SSBICs.
FUNDING BY SBICS AND SSBICS,
BY INDUSTRY, TYPE OF
INVESTMENT, AND GEOGRAPHIC
LOCATION SINCE 1990
-------------------------------------------------------- Chapter 2:0.2
Over the period fiscal year 1990 through fiscal year 1994, most
SBICs' dollars (ranging from 64 to 82 percent over the period) were
invested in a wide array of industries in three broad industry
groups. They invested primarily in manufacturing, followed by
services, and transportation, communications, and utilities.
Similarly, SSBICs invested most dollars (ranging from 79 to 84
percent over the period) in transportation, communications, and
utilities, followed by retail trade and services. (See figs. 2.3
and 2.4.)
Figure 2.3: Industries
Receiving Financing From SBICs,
Fiscal Years 1990 Through 1994
(See figure in printed
edition.)
\a Other major industry groups are (1) agriculture, forestry, and
fishing; (2) mining; (3) construction; (4) wholesale trade; (5)
retail trade; (6) financial, insurance, and real estate; and (7)
unclassifiable establishments.
Source: GAO's analysis of data from SBA.
Figure 2.4: Industries
Receiving Financing From
SSBICs, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
\a Other major industry groups are (1) agriculture, forestry, and
fishing; (2) mining; (3) construction; (4) manufacturing; (5)
wholesale trade; (6) financial, insurance, and real estate; and (7)
unclassifiable establishments.
Source: GAO's analysis of data from SBA.
SBICs have continued to make mostly equity investments, while SSBICs
have continued to make mostly debt investments. (See figs. 2.5 and
2.6.)
Figure 2.5: Types of
Financing--Equity vs. Debt--by
SBICs, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
Note: Investments in equity only as well as debt with equity are
defined by SBA as equity-type investments.
Source: GAO's analysis of data from SBA.
Figure 2.6: Types of
Financing--Equity vs. Debt--by
SSBICs, Fiscal Years 1990
Through 1994
(See figure in printed
edition.)
Note: Investments in equity only as well as debt with equity are
defined by SBA as equity-type investments.
Source: GAO's analysis of data from SBA.
Figure 2.5 shows that SBICs tend to make mostly equity-type
investments. During fiscal year 1990 through fiscal year 1994,
equity-type investments ranged from $309 million (78 percent) to $761
million (90 percent) of SBICs' dollars invested. Figure 2.6 shows
that SSBICs tend to make mostly debt investments. During fiscal year
1990 through fiscal year 1994, debt investments ranged from $75
million (81 percent) to $127 million (84 percent) of SSBICs' dollars
invested.
From fiscal year 1990 through fiscal year 1994, most (65 percent)
SBICs' dollars went to small businesses in states in the
Mid-Atlantic, East North Central, South Atlantic, and Pacific
regions. Most (53 percent) SSBICs' dollars went to small businesses
in states in the Mid-Atlantic region. (See figs. 2.7 and 2.8.)
Small businesses in three states and the Virgin Islands have received
no funding from SBICs, and small businesses in seven states have
received no funding from SSBICs. Small businesses in California,
Texas, and New York received the largest dollar amount from both
SBICs and SSBICs. (See figs. 2.9 and 2.10.)
Figure 2.7: Total Funding From
SBICs by SBA Region, Fiscal
Years 1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 2.7 shows that since fiscal year 1990, funding from SBICs has
been disbursed to all regions and territories, as well as the fact
that small businesses in states in the Mid-Atlantic, East North
Central, South Atlantic, and Pacific regions received most of the
financing dollars.
Figure 2.8: Total Funding From
SSBICs by SBA Region, Fiscal
Years 1990 Through 1994
(See figure in printed
edition.)
Source: GAO's analysis of data from SBA.
Figure 2.8 shows that SSBICs' funding reached all SBA-defined regions
and territories, as well as the fact that the Mid-Atlantic region
received most of the financing dollars.
Figure 2.9: Total Funding From
SBICs by State, Fiscal Years
1990 Through 1994
(See figure in printed
edition.)
Note: Puerto Rico, the
District of Columbia, and the
Virgin Islands are not
reflected on the map. These
areas were, however, included
in our assessment of the data.
(See figure in printed
edition.)
Source: GAO's analysis of data
from SBA.
(See figure in printed
edition.)
Figure 2.9 shows that from fiscal year 1990 through fiscal year 1994,
SBICs provided no funding in Hawaii, North Dakota, and Wyoming.
SBICs also did not provide funding in the Virgin Islands, although
this fact is not shown in figure 2.9. California, Texas, and New
York received the largest amount of funding from SBICs.
Figure 2.10: Total Funding
From SSBICs by State, Fiscal
Years 1990 Through 1994
(See figure in printed
edition.)
Note: Puerto Rico, the
District of Columbia, and the
Virgin Islands are not
reflected on the map. These
areas were, however, included
in our assessment of the data.
(See figure in printed
edition.)
Source: GAO's analysis of data
from SBA.
(See figure in printed
edition.)
Figure 2.10 shows that from fiscal year 1990 through fiscal year
1994, SSBICs provided no funding in seven states (Alaska, Nebraska,
Nevada, North Dakota, South Dakota, Utah, and Vermont). Small
businesses in California, Texas, and New York received the largest
amounts of funding from SSBICs. Small businesses in New York
received 49 percent of the total funding from SSBICs.
EDUCATIONAL BACKGROUND AND WORK
EXPERIENCE OF SBA'S INVESTMENT
DIVISION STAFF
============================================================ Chapter 3
This section presents information on the educational background and
work experience of the personnel in SBA's Investment Division, who
have responsibility for managing the program for SBICs and SSBICs.
As of January 1995, the Investment Division had 89 employees. Our
analysis covered 79 employees. We excluded nine staff members whose
primary duties were clerical and one employee who was on extended
sick leave. Employees were asked by SBA to complete a survey
document that requested information about their time with the agency,
educational background, and work experience prior to joining the
agency. In some cases, we followed up with telephone calls to
clarify or obtain additional information.
The 79 employees, on average have been with SBA for 11 years and have
been in the Investment Division, on average, for 5 years. Of the 79
employees, 52 percent (41 employees) have bachelor's degrees, 33
percent (26 employees) have master's degrees, and 8 percent (6
employees) have doctoral degrees. Table 3.1 presents information on
the employees' fields of study.
Approximately 82 percent of the 79 employees had an average of 7.7
years of prior work experience in related fields before joining SBA.
Table 3.2 shows a breakdown of the employees' work experience by
field.
Table 3.1
Employees' Fields of Study
Field of study in college Number Percent
---------------------------------------- -------- --------
Elementary education 1 1.3
Psychology 1 1.3
Political science 1 1.3
Quantitative analysis 1 1.3
Urban planning 1 1.3
Economics 3 3.8
Law 6 7.6
Business administration 8 10.1
Finance 21 26.6
Accounting 30 38.0
No college degree 6 7.6
============================================================
Total 79 100.0
------------------------------------------------------------
Source: GAO's analysis of data from SBA.
Table 3.1 shows that the majority of the employees' college majors
were in accounting, finance, and business administration.
Table 3.2
Employees' Prior Work Experiences
Field of work Number Percent
---------------------------------------- -------- --------
Economics 1 1.3
Financial management 1 1.3
Personnel 1 1.3
Data systems 2 2.5
Law 3 3.8
Banking/investment 23 29.1
Accounting/auditing 34 43.0
No prior work experience 14 17.7
============================================================
Total 79 100.0
------------------------------------------------------------
Source: GAO's analysis of data from SBA.
Table 3.2 shows that most employees worked in the accounting/auditing
area or in the banking/investment area. Of the 65 employees who had
prior work experience in related fields, 43 percent (28) worked in
the private sector, 32 percent (21) worked for either state or
federal government agencies, while 25 percent (16) worked in both the
private and public sector before joining SBA.
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Dianna Becerra
Erin Bozik
Diane Brooks
Larry Goldsmith
Phillis Riley
Leslie Smith
Jim Wells