A federal program launched 50 years ago to help small businesses obtain financing has been tapped by some of the nation’s wealthiest investors.
The Small Business Investment Company program, managed by the SBA, provides federally guaranteed loans to investment firms, which leverage the funds with their own money to invest in other companies.
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In recent years, SBIC loans have gone to companies owned by Texas oilmen Lee Bass and Sid Bass, California real estate tycoon Fred Sands and New York hedge fund manager Raymond Harbert.
- The Bass brothers (tied at No. 134 on Forbes list of richest Americans) are investors in the private equity firm Forrest Binkley & Brown, a recipient of SBIC funds.
- Sands is the founder of Fred Sands Realtors, which merged with Coldwell Banker in 2000. He then founded Vintage Capital Group, an investment company that includes an investment arm that has received SBIC money.
- Harbert is founder and chairman of Harbert Management Corporation. An affiliated company, Harbert Mezzanine Partners II, has obtained SBIC funding. Another subsidiary is an investor in the New York Times.
According to the National Association of SBICs, the SBIC program has provided $55 billion in financing to more than 106,000 companies. The trade group reports that the SBICs fill a needed gap, providing financing that isn’t available through banks or other equity firms.
Rather than using tax dollars to fund loans, the SBA pools debentures and sells them to private investors as government-guaranteed certificates. The agency reports that at the end of 2008, it had more than $7.3 billion invested in 348 funds, plus another $1.3 billion in “oustanding commitments.”
Yet the idea has been troubled from its inception. The General Accounting Office questioned the need for the funding in a 1978 review. Twenty years later, another GAO study described a program plagued by defaults and bankruptcies.
Reporting on the program in recent years has been sparse. (Go to the SBIC page on the SBA web site and you can read about financial performance through 2004.) The GAO has not issued public oversight reports on SBICs during the Bush administration.
The Muckety SBIC page shows companies receiving investment from 2005 through 2008.
Given the current financial crisis, it’s likely that the some of these companies – and the federal government – will suffer serious losses.
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1 Comments
#1. TACOM 01.15.2009
Who in hell is overseeing this SBIC outfit? Why are millionaires continuing to get rich off the taxpayers? Is there anyone at all minding the store?
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