Sherman, Huizenga, Garbarino, and Bynum Re-Introduce the Bipartisan Access to Small Business Investor Capital Act

Washington, DC – Today, Congressman Brad Sherman (D-CA) along with Congressman Bill Huizenga (R-MI), Congressman Andrew Garbarino (R-NY), and Congresswoman Janelle Bynum (D-OR) re-introduced the bipartisan Access to Small Business Investor Capital Act, which makes a narrow technical correction to a federal securities rule that has had major unintended consequences over the last two decades.

In 1980, Congress created Business Development Companies (BDCs) to facilitate capital formation into small and medium sized businesses. BDCs provide investment and management assistance to growing businesses across the country and are required to invest at least 70 percent of their assets in small businesses.

Business development companies have stepped up to provide capital for smaller businesses. Yet an SEC rule drafted in 2006 has prevented business development companies from securing additional capital to invest in American businesses. The SEC rule requires funds who invest in business development companies to disclose management fees and other expenses of a BDC as well as “acquired fund fees and expenses.” This requirement led to a miscalculation. BDCs typically have higher operating expenses than passive investment funds, like index funds, because they devote substantial resources to sourcing, evaluating, and managing investments in American small businesses. However, these expenses are already reflected in a BDC’s management fees, expenses and market price. When the SEC required funds investing in BDCs to disclose BDC expenses again, it resulted in double counting, overstating the BDC’s expenses and giving investors a misleading view of the actual costs they bear. This miscalculation led funds to stop investing in BDCs thereby reducing the capital available for BDCs to invest in small businesses.

The Access to Small Business Investor Capital Act corrects this unintended consequence while maintaining existing disclosures by making a minor correction allowing funds to omit a BDC’s “acquired fund fees and expenses” while still continuing to disclose the BDCs management fees and other expenses. This will give investors an accurate picture of a BDC’s expenses and allow BDCs to compete for capital to then invest in small businesses. 

“The most important thing that our financial institutions and capital markets do is provide capital for businesses, particularly small, medium-sized, and growing businesses,” said Congressman Sherman. “Business development companies play a vital role in supporting small businesses, and I'm proud to work with a bipartisan group of Members to remove an unnecessary barrier that limits their ability to deliver more capital to American small businesses.”

“Business Development Companies (BDCs) provide critical capital to small and mid-sized businesses, allowing them to thrive and grow. Fixing the acquired fund fees and expenses rule will result in more loans and increased lending volume,” said Rep. Bill Huizenga. “Too often Americans are negatively impacted by the unintended consequences from bureaucrats in Washington. By making this long overdue technical correction to a federal securities rule, we can resolve one of these consequences. I am happy to co-lead this bipartisan effort and look forward to seeing it ultimately signed into law.”

Rep. Garbarino said: “Business Development Companies have long played a critical role in providing capital to small and mid-sized businesses, but a burdensome change in regulation has limited their ability to invest in American entrepreneurs. The Access to Small Business Investor Capital Act removes an unnecessary hurdle, ensuring small businesses have the access to capital they need to expand, create jobs, and drive innovation.”

"I've said over and over that I'll work with anyone to lower costs, create jobs, and make life better for Oregonians," said Rep. Bynum. "By removing an unnecessary obstacle for small businesses, this bipartisan bill does all three."

To view this bill, Click Here.

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