Small Business: Update of Information on SBA's Small Business Investment
Company Programs (Letter Report, 02/21/97, GAO/RCED-97-55).

Pursuant to a congressional request, GAO updated through fiscal year
(FY) 1996 selected information presented in its May 1995 report on the
performance of the Small Business Administration's (SBA) Small Business
Investment Company programs, focusing on: (1) the programs' trends for
fiscal years 1990 through 1996 in terms of the number, size, funding,
and private capitalization of small business investment companies
(SBICs) and specialized small business investment companies (SSBICs);
(2) SBA's cumulative net program losses through FY 1996 from liquidating
SBICs and SSBICs, and SSBICs' participation in the Three Percent
Preferred Stock Repurchase Program through December 1996; and (3) SBICs'
and SSBICs' 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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-97-55
     TITLE:  Small Business: Update of Information on SBA's Small 
             Business Investment Company Programs
      DATE:  02/21/97
   SUBJECT:  Small business assistance
             Small business loans
             Small business investment companies
             Capital
             Stocks (securities)
             Investments
             Losses
IDENTIFIER:  SBA Small Business Investment Companies Program
             SBA Three Percent Preferred Stock Repurchase Program
             SBA Specialized Small Business Investment Companies Program
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Small Business, U.S.  Senate

February 1997

SMALL BUSINESS - UPDATE OF
INFORMATION ON SBA'S SMALL
BUSINESS INVESTMENT COMPANY
PROGRAMS

GAO/RCED-97-55

Update of SBIC Program Information

(385655)


Abbreviations
=============================================================== ABBREV

  SBA - Small Business Administration
  SBIC - Small Business Investment Company
  SSBIC - Specialized Small Business Investment Company

Letter
=============================================================== LETTER


B-275983

February 21, 1997

The Honorable Christopher S.  Bond
Chairman, Committee on Small Business
United States Senate

Dear Mr.  Chairman: 

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 the stock of small businesses) and debt
(making loans to small businesses).  In 1972, the Congress amended
the act to establish Specialized SBICs, called SSBICs, to provide
funding to small businesses owned by socially or economically
disadvantaged individuals.\1 In addition to using their own private
capital to support small businesses, SBICs and SSBICs can also obtain
funds by issuing debentures or participating securities,\2 which the
Small Business Administration (SBA) pools and sells to the public. 
The principal and interest on both of these instruments are
guaranteed by SBA.  In addition, SSBICs could also receive funds by
selling nonvoting preferred stock to SBA.  Until November 1989,
SSBICs could sell to SBA stock carrying a 3-percent annual dividend
(generally referred to as 3-percent preferred stock), and until
October 1995, they could also sell stock to SBA carrying a 4-percent
annual dividend.\3 SBA refers to the financial assistance that SBICs
and SSBICs receive as "leverage."\4

In May 1995, we reported on the performance of the programs and
investment activities for fiscal years 1990 through 1994.\5 Because
of your interest in the SBIC and SSBIC programs, you requested that
we update through fiscal year 1996 selected information presented in
that report.  As agreed with your office, this report provides
information on (1) the programs' trends for fiscal years 1990 through
1996 in terms of the number, size, funding, and private
capitalization of SBICs and SSBICs; (2) SBA's cumulative net program
losses through fiscal year 1996 from liquidating SBICs and SSBICs,\6
and SSBICs' participation in the Three Percent Preferred Stock
Repurchase Program through December 1996;\7 and (3) SBICs' and
SSBICs' investment activities during fiscal years 1990 through 1996. 


--------------------
\1 The Small Business Programs Improvement Act of 1996 amended the
Small Business Investment Act of 1958 and provided that, effective
October 1, 1996, no new SSBICs may be established. 

\2 A debenture is an unsecured debt instrument issued by the SBIC or
SSBIC that requires periodic interest payments and the repayment of
the principal when the debenture matures, which is generally in 5 or
10 years.  The participating security is an instrument that allows
SBA to invest in SBICs and SSBICs as a limited partner and to share
in their profits and allows the SBICs and SSBICs to defer payments to
SBA until they are generating profits. 

\3 The Congress has not provided funds to SBA to purchase 4-percent
stock since fiscal year 1995. 

\4 The Small Business Investment Act, as amended, provides that an
SBIC can receive up to $3 of SBA funding for every $1 of private
capital; an SSBIC, up to $4 for every $1 of private capital. 

\5 That report, Small Business:  Information on SBA's Small Business
Investment Company Programs (GAO/RCED-95-146FS, May 1995), also
provided information on the educational background and experience of
the SBA staff responsible for the programs. 

\6 SBA Standard Operating Procedure 50 53 prescribes the policies and
procedures used by SBA for liquidating the assets of SBICs and SSBICs
that are in unacceptable financial condition to recover the
government's investment. 

\7 The Three Percent Preferred Stock Repurchase Program, authorized
by the Congress in November 1989 and established by SBA in April
1994, allows SSBICs to repurchase their 3-percent preferred stock
from SBA at a price less than par value. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

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 fiscal year 1993 to 115 by fiscal year 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
fiscal year 1990 to over $4.5 billion in fiscal year 1996.  (See app. 
I.)

As of the end of fiscal year 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.  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.  (See app.  I.)

Data on SBICs' and SSBICs' investment activities during fiscal years
1990 through 1996 show that (1) the amount of funding provided to
small businesses each year ranged from about $490 million to about
$1.6 billion; (2) SBICs invested primarily in manufacturing firms,
while SSBICs invested primarily in transportation, communications,
and utilities; and (3) SBICs tended to make mostly equity-type
investments, such as purchasing stock, while SSBICs primarily
provided loans.  (See app.  II.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :2

We obtained comments on a draft of this report from SBA officials,
including the Associate Administrator for Investment, who noted that
the information contained in the report was accurate.  The Associate
Administrator noted that the updated statistics in the report
demonstrated a steep decline in the numbers of licensees entering
liquidation and a dramatic increase in the amount of long-term debt
and equity capital provided to small businesses.  He attributed this
to changes to the program resulting from SBA's implementation of the
Small Business Equity Enhancement Act of 1992.  SBA officials also
provided suggestions for clarifying the report, which we incorporated
where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To respond to your request, we relied on existing data from SBA on
SBICs' and SSBICs' licensing, capitalization, investments, and
liquidations and on SSBICs' participation in the Three Percent
Preferred Stock Repurchase Program.  We discussed the data with
officials of SBA's Investment Division, the office responsible for
the SBIC and SSBIC programs.  We did not verify the accuracy of SBA's
data nor conduct reliability assessments of SBA's databases.  We
conducted our review from August 1996 through January 1997 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :3.1

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 7 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.  Major contributors to this report include
Assistant Director Erin Bozik and Evaluators Sally Moino, Rick Smith,
and Stan Ritchick.  Please call me at (202) 512-7631 if you or your
staff have any questions. 

Sincerely yours,

Lawrence J.  Dyckman
Associate Director, Housing and
 Community Development Issues


THE SBIC AND SSBIC PROGRAMS
=========================================================== Appendix I

This appendix presents information on the Small Business Investment
Company (SBIC) and Specialized Small Business Investment Company
(SSBIC) programs, including the number of SBICs and SSBICs that the
Small Business Administration (SBA) has licensed to participate in
the programs, their size, trends in SBA's budget for the SBIC and
SSBIC programs, and the capitalization levels of investment
companies, for fiscal years 1990 through 1996.  The appendix also
discusses (1) SBIC and SSBIC liquidations and losses to SBA from the
liquidations through fiscal year 1996 and (2) the status of the Three
Percent Preferred Stock Repurchase Program for SSBICs. 


   THE NUMBER OF SBICS AND SSBICS
   IN THE PROGRAMS SINCE 1990
--------------------------------------------------------- Appendix I:1

The number of SBICs and SSBICs actively participating (that is,
investment companies that are operating as SBICs or SSBICs) in the
programs declined from 383 firms in fiscal year 1990 to 282 in fiscal
year 1996.  As figure I.1 shows, the overall number of SBICs and
SSBICs declined from fiscal years 1990 through 1993 but leveled off
in fiscal year 1994.  Also, the number of new SBICs and SSBICs
licensed by SBA declined steadily from fiscal years 1990 through
1993.  From fiscal year 1994 through fiscal year 1996, a relatively
large number of new SBICs were licensed.  No new SSBICs were licensed
in fiscal years 1994 or 1995, and two new SSBICs were licensed in
fiscal year 1996.  (See fig.  I.2.)

   Figure I.1:  Number of Active
   SBICs and SSBICs, Fiscal Years
   1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 

Figure I.1 shows that the number of active SBICs declined from 253 in
fiscal year 1990 to 194 in fiscal year 1996.  SSBICs also declined
from 130 in fiscal year 1990 to 88 in fiscal year 1996. 

   Figure I.2:  Number of New
   Licensees in the SBIC and SSBIC
   Programs, Fiscal Years 1990
   Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 

For fiscal years 1990 through 1996, 127 new licensees entered the
programs--111 new SBICs and 16 new SSBICs.  As figure I.2 shows, the
number of new licensees entering the programs declined steadily from
20 in fiscal year 1990 to 4 in fiscal year 1993.  In fiscal year
1994, 35 new licensees entered the programs, 21 entered in fiscal
year 1995, and 22 entered in fiscal year 1996.  More SBICs than
SSBICs were licensed during this period.  Also, no new SSBICs entered
the program during fiscal years 1994 or 1995, and two entered in
fiscal year 1996. 


   SIZE OF SBICS AND SSBICS IN THE
   PROGRAMS SINCE 1990
--------------------------------------------------------- Appendix I:2

The number of small SBICs and SSBICs (those with up to $2 million in
private capital and SBA leverage) in the programs declined from 116
to 37 from fiscal year 1990 through fiscal year 1996.  The number of
larger SBICs and SSBICs (those with more than $10 million) remained
fairly constant through fiscal year 1993, ranging from 67 to 72, but
increased to 91 in fiscal year 1994, and to 115 by fiscal year 1996. 
(See fig.  I.3.)

   Figure I.3:  Number of
   Licensees, by Level of
   Capitalization, Fiscal Years
   1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 


   FEDERAL FUNDING FOR SBIC AND
   SSBIC PROGRAMS SINCE 1990
--------------------------------------------------------- Appendix I:3

The program level authorized by the Congress each year for the SBIC
and SSBIC programs (federal funding) decreased from $326.4 million in
fiscal year 1990 to $106 million in fiscal year 1993; at the same
time, the amount of program authority used by SBA (program
obligations) remained fairly constant, ranging from $77 million to
$91 million.  In fiscal year 1994, federal funding increased by 162
percent, and obligations increased by 220 percent, each going up to
$277.9 million.  Federal funding continued to increase to $376.4
million in fiscal year 1996.  Program obligations increased to over
$355 million in fiscal year 1995 and decreased to $346.4 million in
fiscal year 1996.  (See fig.  I.4.) As noted in our May 1995 report,
the Associate Administrator for Investment attributed the dramatic
increase in the fiscal year 1994 federal funding to the fact that SBA
asked the Congress for an increase because SBA believed that the new
participating security would attract an increased number of new
licensees into the programs.  Similarly, obligations increased, the
Associate Administrator explained, because a large number of new,
highly capitalized licensees entered the programs and requested
significant SBA funding, requiring SBA to, in turn, guarantee more
funding. 

   Figure I.4:  Federal Funding
   and Obligations, Fiscal Years
   1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 


   SBICS' AND SSBICS'
   CAPITALIZATION LEVELS
--------------------------------------------------------- Appendix I:4

In fiscal years 1990 through 1996, the private capital of active
SBICs and SSBICs increased by 125 percent, from approximately $2
billion in fiscal year 1990 to $4.52 billion in fiscal year 1996. 
The total amount of leverage provided to these investment companies
increased from $1.1 billion in fiscal year 1990 to $1.4 billion in
fiscal year 1996.  The increase in private capital has come primarily
from SBICs rather than SSBICs.  Those that are bank-dominated or
bank-associated\8 are bringing in most of the private capital,
followed by those that are individually owned.\9 Most of the leverage
has gone to individually owned SBICs and SSBICs.  (See figs.  I.5
through I.8.)

   Figure I.5:  SBICs' and SSBICs'
   Capitalization, Fiscal Years
   1990 Through 1996

   (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. 

Source:  GAO's analysis of data from SBA. 

Figure I.5 shows that the amount of private capital that SBICs and
SSBICs are bringing into the programs has increased, rising from a
total of about $2 billion in fiscal year 1990 to about $4.52 billion
in fiscal year 1996.  While the private capital has increased
substantially, the total amount of leverage that SBA provided to
these licensees increased from about $1.1 billion in fiscal year 1990
to about $1.4 billion in fiscal year 1996. 

   Figure I.6:  Total Private
   Capital for SBICs versus
   SSBICs, Fiscal Years 1990
   Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 

Figure I.6 shows that the increase in private capital comes primarily
from SBICs rather than SSBICs.  The total private capital for SBICs
increased from about $1.8 billion in fiscal year 1990 to $4.3 billion
in fiscal year 1996, while the total private capital for SSBICs
varied between $187 million and $220 million over this period. 

   Figure I.7:  SBICs' and SSBICs'
   Private Capital, by Type of
   Ownership, Fiscal Years 1990
   Through 1996

   (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 I.7 shows that since fiscal year 1990, most of the increase in
private capital came from bank-dominated and bank-associated, as well
as individually owned, 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 by fiscal
year 1996 increased to almost $1.1 billion.  Capital from those that
are bank-dominated or bank-associated increased by about $1.5 billion
from fiscal year 1993 through fiscal year 1996. 

   Figure I.8:  SBA's Leverage, by
   Type of Ownership, Fiscal Years
   1990 Through 1996

   (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 I.8 shows that since fiscal year 1990, most of the leverage
received by licensees has gone to individually owned SBICs and
SSBICs. 


--------------------
\8 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. 

\9 Individually owned ownership groups are privately held only. 


   LIQUIDATIONS OF SBICS AND
   SSBICS
--------------------------------------------------------- Appendix I:5

The cumulative net program losses incurred by SBA from liquidating
failed SBICs and SSBICs increased from $83.2 million in fiscal year
1990 to $364.6 million in fiscal year 1996.  (See figs.  I.9 and
I.10.)

   Figure I.9:  SBA's Cumulative
   Net Program Losses From
   Liquidating Failed SBICs, as
   Reported by SBA, Fiscal Years
   1990 Through 1996

   (See figure in printed
   edition.)

Note:  Net losses as calculated by SBA are cumulative over the life
of the program. 

Source:  SBA. 

Figure I.9 shows that the cumulative net losses incurred by SBA from
liquidating failed SBICs increased from $72.2 million in fiscal year
1990 to $303.4 million in fiscal year 1996. 

   Figure I.10:  SBA's Cumulative
   Net Program Losses From
   Liquidating Failed SSBICs, as
   Reported by SBA, Fiscal Years
   1990 Through 1996

   (See figure in printed
   edition.)

Note:  Net losses as calculated by SBA are cumulative over the life
of the program. 

Source:  SBA. 

Figure I.10 shows that the cumulative net losses incurred by SBA from
liquidating failed SSBICs increased from $11 million in fiscal year
1990 to $61.2 million in fiscal year 1996. 

An analysis of SBA's liquidations from December 1966, when SBA began
to compile data on liquidations, through September 30, 1996, shows
that 593 SBICs and SSBICs had been transferred to the SBA Investment
Division's Office of Liquidations.  The amount of leverage originally
owed to SBA by these firms totaled about $1.2 billion.  As of
September 30, 1996, 160 of the SBICs and SSBICs were still in
liquidation.  The amount of leverage originally owed by these firms
totaled $577.6 million.  As of September 30, 1996, SBA had incurred
$364.6 million in losses from the liquidations of SBICs and SSBICs
and projected that it would lose an additional $122.7 million after
the ongoing liquidations are completed.  (See table I.1.)

Of the 160 SBICs and SSBICs in liquidation as of September 30, 1996,
57 (36 percent of the total) had been in liquidation fewer than 5
years, and the remaining 103 SBICs and SSBICs (64 percent of the
total) had been in liquidation for 5 years or more.  (See table I.2.)



                               Table I.1
                
                Liquidations of SBICs and SSBICs Through
                September 30, 1996, and Projected Losses
                                 by SBA

                         (Dollars in millions)

                                                     SBA's
                                                   actual/       SBA's
                            No. of    Leverage  anticipate     actual/
                         SBICs and  originally           d  anticipate
Stage of liquidation        SSBICs    owed SBA  recoveries    d losses
----------------------  ----------  ----------  ----------  ----------
Completed                      433      $621.5      $366.1      $255.4
Ongoing                        160       577.6       345.7     231.9\a
======================================================================
Total                          593    $1,199.1      $711.8      $487.3
----------------------------------------------------------------------
\a Includes actual losses of $109.2 million and potential losses of
$122.7 million. 

Source:  SBA. 



                               Table I.2
                
                Number of years the 160 SBICs and SSBICs
                Were in Liquidation as of September 30,
                                  1996

             Under 5       5-9     >9-15    >15-20   Over 20
               years     years     years     years     years     Total
----------  --------  --------  --------  --------  --------  --------
SBICs             25        36        28         3         2        94
SSBICs            32        14        17         3         0        66
======================================================================
Total             57        50        45         6         2       160
----------------------------------------------------------------------
Source:  SBA. 

From fiscal year 1990 through fiscal year 1996, a total of 127 SBICs
and SSBICs entered liquidation.  The numbers varied each year,
increasing from 21 to 31 from fiscal years 1990 to 1991 and declining
since that time to 2 in fiscal year 1996.  In fiscal years 1990 and
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 fiscal year 1993 and declining slightly below the number of
SBICs in fiscal year 1994.  In fiscal year 1995, four SBICs and three
SSBICs entered liquidation, while in fiscal year 1996, two SSBICs and
no SBICs entered liquidation.  (See fig.  I.11.)

   Figure I.11:  Number of SBICs
   and SSBICs Entering
   Liquidation, Fiscal Years 1990
   Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 


   STATUS OF THE THREE PERCENT
   PREFERRED STOCK REPURCHASE
   PROGRAM
--------------------------------------------------------- Appendix I:6

As previously stated, the 1972 amendments to the Small Business
Investment Act 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 terminated SBA's further purchase of 3-percent preferred
stock and 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.\10 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
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 were to be forgiven at the time of
repurchase for financially distressed SSBICs or allowed to be
amortized (written off) over a 5-year period by nondistressed SSBICs
as an incentive for the SSBICs to remain active in the program.\11
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 December 23, 1996, 36 SSBICs had
repurchased their preferred stock from SBA, while 28 other SSBICs
still had outstanding preferred stock totaling approximately $50.7
million.  Of the 28 SSBICs, 12 had submitted applications to SBA to
repurchase their stock, 6 had received applications but had not yet
submitted them to SBA, and 10 had not requested applications from
SBA.  Table I.3 shows the 36 SSBICs that repurchased their preferred
stock from SBA, the repurchase prices, discounted values, and unpaid
dividends forgiven or allowed to be amortized by SBA. 



                                        Table I.3
                         
                         SSBICs that Repurchased 3-Percent Stock
                                         From SBA

                                  (Dollars in thousands)

                                                                             Total amount
                                                                               discounted
                                                                                      and
                        Par value    Repurchase                   Dividends     dividends
                          paid by    price paid        Amount     forgiven/     forgiven/
SSBIC                         SBA     by SSBICs    discounted     amortized     amortized
-------------------  ------------  ------------  ------------  ------------  ------------
Alabama Capital            $1,550          $543        $1,007           $73        $1,080
Alliance Enterprise         2,700           945         1,755         1,355         3,110
Ally Finance                  950           323           627           323           950
Asian American                500           175           325           205           530
Astar Capital               2,040           714         1,326           377         1,703
Calsafe Capital             1,010           354           656           172           828
Capital Dimensions         10,000         3,572         6,428         2,364         8,792
Capital Investment            950           333           617           425         1,042
 & Management
 Company
Dearborn Capital            1,500           525           975           500         1,475
 Corporation
East Coast Capital          1,000           350           650           137           787
Elk Funding                 5,473         1,915         3,558           513         4,071
Equal Opportunity           1,600           560         1,040           792         1,832
 Finance
Exim Capital                1,300           455           845           490         1,335
Fair Capital Corp.            500           175           325           169           494
Freshstart Venture          1,520           551           969            82         1,051
 Capital Corp.
Future Value                1,000           350           650           227           877
Ibero-American              1,750           625         1,125           382         1,507
Lailai                        700           245           455           155           610
Medallion Funding           9,234         3,232         6,002             0         6,002
 Corp.
Mesbic Ventures             5,450         1,908         3,542         1,895         5,437
Minority Broadcast          1,000           350           650           241           891
Motor Enterprises           2,000           700         1,300           859         2,159
Pacific Capital               700           245           455           293           748
Peterson Finance            1,035           362           673           214           887
Pierre Funding              2,371           830         1,541             6         1,547
Rutgers Minority              905           314           591           484         1,075
 Investment
Security Financial            500           175           325            20           345
Situation Ventures          2,000           700         1,300           757         2,057
Syncom Capital              3,125         1,083         2,042         1,236         3,278
 Corp.
Tower Ventures              3,000         1,050         1,950         1,386         3,336
Transpac Capital            2,000           700         1,300           388         1,688
Transportation              3,383         1,184         2,199           231         2,430
 Capital
TSG                        10,295         3,603         6,692         4,679        11,371
United Capital              1,000           362           638            47           685
 Investment
United Oriental             2,000           700         1,300           613         1,913
 Capital
Venture                     1,150           403           747           398         1,145
 Opportunities
=========================================================================================
Total                     $87,191       $30,611       $56,580       $22,488       $79,068
-----------------------------------------------------------------------------------------
Source:  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.  As table I.3 shows, the
discount given by SBA on the stock repurchased by the 36 SSBICs and
the accumulated dividends that SBA forgave or allowed the SSBICs to
amortize totaled over $79 million, and ranged from a low of $345,000
for Security Financial to a high of nearly $11.4 million for TSG. 


--------------------
\10 Par value is the amount that SBA paid the SSBIC for the preferred
stock. 

\11 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 at least 10.  Capital impairment, as defined
by SBA for the repurchase program, is the ratio of cumulative actual
losses (from operations and investment transactions) and unrealized
losses (from decreases in the value of securities) to the capital
invested in the SSBIC. 


SBICS' AND SSBICS' INVESTMENT
ACTIVITIES
========================================================== Appendix II

This appendix presents information on SBICs' and SSBICs' investment
activities, including trends in the amount of funding and financing
to small businesses, the industries financed, and the type of
financing (equity or debt). 


   SBICS' AND SSBICS' FUNDING AND
   FINANCING TO SMALL BUSINESSES
   SINCE 1990
-------------------------------------------------------- Appendix II:1

Between fiscal years 1990 and 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,
and by fiscal year 1996, to $1.6 billion.  The total number of
financings declined from fiscal year 1990 through fiscal year 1993,
then increased in fiscal year 1994 and decreased in fiscal years 1995
and 1996.  SBICs generally made larger financial commitments to small
businesses than SSBICs.  (See figs.  II.1 and II.2.)

   Figure II.1:  SBICs' and
   SSBICs' Funding to Small
   Businesses, Fiscal Years 1990
   Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 

   Figure II.2:  Number of
   Financings by SBICs and SSBICs
   to Small Businesses, Fiscal
   Years 1990 Through 1996

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from SBA. 

Figure II.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 of
financings increased to 2,348 but declined through fiscal year 1996
to 2,107.  A comparison of figures II.1 and II.2 shows that SBICs
generally made larger financial commitments to small businesses than
SSBICs. 


   FUNDING BY SBICS AND SSBICS, BY
   INDUSTRY AND TYPE OF
   INVESTMENT, SINCE 1990
-------------------------------------------------------- Appendix II:2

During fiscal years 1990 through 1996, most SBICs' dollars (ranging
from 64 percent to 82 percent over the period) were invested in a
wide array of industries in three broad industry groups.  SBICs
invested primarily in manufacturing, followed by services,
transportation, communications, and utilities.  Similarly, SSBICs
invested most dollars (ranging from 79 to 88 percent over the period)
in transportation, communications, and utilities, followed by retail
trade and by services.  (See figs.  II.3 and II.4.)

   Figure II.3:  Industries
   Receiving Financing From SBICs,
   Fiscal Years 1990 Through 1996

   (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 II.4:  Industries
   Receiving Financing From
   SSBICs, Fiscal Years 1990
   Through 1996

   (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 (purchasing
securities of small businesses) while SSBICs have continued to make
debt investments (providing loans to small businesses).  (See figs. 
II.5 and II.6.)

   Figure II.5:  Types of
   Financing--Equity versus
   Debt--by SBICs, Fiscal Years
   1990 Through 1996

   (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 II.5 shows that SBICs tend to make mostly equity-type
investments, which SBA defines to include equity only as well as debt
with equity.  During fiscal year 1990 through fiscal year 1996,
equity-type investments ranged from $309 million (78 percent) to $1.4
billion (93.2 percent) of SBICs' dollars invested. 

   Figure II.6:  Types of
   Financing--Equity versus
   Debt--by SSBICs, Fiscal Years
   1990 Through 1996

   (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 II.6 shows that SSBICs tend to make mostly debt investments. 
During fiscal year 1990 through fiscal year 1996, debt investments
ranged from $75 million (81 percent) to $136 million (89 percent) of
SSBICs' dollars invested. 


*** End of document. ***