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SBA New Markets Venture Capital Program
Robert Jay Dilger
Senior Specialist in American National Government
March 10, 2015
Congressional Research Service
7-5700
www.crs.gov
R42565
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SBA New Markets Venture Capital Program
Summary
Authorized by P.L. 106-554, the Consolidated Appropriations Act, 2001 (Appendix H: the New
Markets Venture Capital Program Act of 2000), the New Markets Venture Capital (NMVC)
program is designed to promote economic development and the creation of wealth and job
opportunities in low-income geographic areas by addressing the unmet equity investments needs
of small businesses located in those areas. Modeled on the Small Business Association’s (SBA’s)
Small Business Investment Company (SBIC) program, SBA-selected, privately owned and
managed NMVC companies provide funding and operational training assistance to small
businesses. To do so, they use private capital the NMVC company has raised (called regulatory
capital) and up to 150% of that amount (called leverage) from the sale of SBA-guaranteed 10-
year debentures, or loan obligations, to third parties, subject to the availability of funds. Because
the SBA guarantees the debenture, the SBA is able to obtain favorable interest rates. NMVC
companies are responsible for meeting the terms and conditions set forth in the debenture. At
least 80% of the investments must be in small businesses located in a low-income area.
Specialized Small Business Investment Companies (SSBICs) established under the SBIC
program are also eligible for NMVC operational assistance training grants, which are awarded on
a dollar-to-dollar matching basis. Six NMVC companies are currently participating in the
program.
The NMVC program was appropriated $21.952 million in FY2001 to support up to $150 million
in SBA-guaranteed debentures and $30 million to fund operational assistance training grants for
FY2001 through FY2006. The funds were provided in a lump sum in FY2001 and were to remain
available until expended. In 2003, the unobligated balances of $10.5 million for the NMVC
debenture subsidies and $13.75 million for operational assistance grants were rescinded. The
program continues to operate, with the number and amount of financing declining in recent years
as the program’s initial investments expire and NMVC companies engage only in additional
follow-on financings with the small businesses in their portfolios.
This report examines the NMVC program’s legislative origins and describes the program’s
eligibility and performance requirements for NMVC companies, eligibility requirements for small
businesses seeking financing, and definition of low-income areas. It also reviews regulations
governing the SBA’s financial assistance to NMVC companies and provides program statistics.
The report concludes with an examination of (1) efforts to eliminate the program based on
concerns that it duplicates other SBA programs and is relatively expensive, (2) the rescission of
the program’s unobligated funding in 2003, and (3) congressional efforts to provide the program
additional funds.
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Contents
New Markets Venture Capital Program Overview .......................................................................... 1
Legislative Origins ........................................................................................................................... 2
105th Congress ........................................................................................................................... 2
The Community Development Venture Capital Demonstration Program ........................... 3
106th Congress ........................................................................................................................... 3
SBA’s Low- or Moderate-Income Initiative ........................................................................ 4
The Community Development and Venture Capital Act of 2000 ........................................ 5
The New Markets Venture Capital Program Act of 2000 .................................................... 6
NMVC Company Eligibility and Performance Requirements ........................................................ 6
Eligibility of Small Businesses and Low-Income Geographic Areas .............................................. 8
NMVC Leverage ............................................................................................................................. 9
Operational Assistance Training Grants......................................................................................... 10
Program Statistics .......................................................................................................................... 11
Congressional Issues ...................................................................................................................... 12
Legislative Efforts to Provide Additional NMVC Funding ........................................................... 14
Related SBIC Program Developments .......................................................................................... 16
Concluding Observations ............................................................................................................... 17
Tables
Table 1. New Markets Venture Capital Program Statistics, FY2002-FY2014 ............................... 12
Table A-1. Legislative Efforts to Provide Additional NMVC Funding ......................................... 19
Appendixes
Appendix. Legislative Efforts to Provide Additional Funding for the NMVC Program ............... 19
Contacts
Author Contact Information........................................................................................................... 21
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New Markets Venture Capital Program Overview
The Small Business Administration (SBA) administers several programs to support small
businesses, including loan guaranty programs to enhance small business access to capital; venture
capital programs, including the New Markets Venture Capital (NMVC) program, to foster small
business expansion; programs to increase small business opportunities in federal contracting;
direct loans for businesses, homeowners, and renters to assist their recovery from natural
disasters; and access to entrepreneurial education to assist with business formation and
expansion.1
Authorized by P.L. 106-554, the Consolidated Appropriations Act, 2001 (Appendix H: the New
Markets Venture Capital Program Act of 2000), the NMVC program is designed to
• promote economic development and the creation of wealth and job opportunities
in low-income geographic areas and among individuals living in such areas by
encouraging developmental venture capital investments in smaller enterprises
primarily located in such areas; and
• address the unmet equity investment needs of small enterprises located in low-
income geographic areas.2
Modeled on the SBA’s Small Business Investment Company (SBIC) program, SBA-selected,
privately owned and managed NMVC companies provide funding and operational training
assistance to small businesses. To do so, they use private capital the NMVC company has raised
(called regulatory capital) and up to 150% of that amount (called leverage) from the sale of SBA-
guaranteed 10-year debentures, or loan obligations, to third parties, subject to the availability of
funds.3 Because the SBA guarantees the debenture, the SBA is able obtain favorable interest
rates. NMVC companies are responsible for meeting the terms and conditions set forth in the
debenture. At least 80% of the investments must be in small businesses located in a low-income
area, as defined in the statute.
Specialized Small Business Investment Companies (SSBICs) established under the SBIC
program are also eligible for NMVC operational assistance training grants, which are awarded on
a dollar-to-dollar matching basis. Six NMVC companies are currently participating in the
program.
The NMVC program was appropriated $21.952 million in FY2001 to support up to $150 million
in SBA-guaranteed debentures and up to $30 million for operational assistance training grants for
FY2001 through FY2006.4 The funds were provided in a lump sum in FY2001 and were to
remain available until expended. The SBA subsequently provided $72.0 million in leverage to
1 U.S. Small Business Administration (SBA), “Fiscal Year 2016 Congressional Budget Justification and FY2014
Annual Performance Report,” pp. 3-4, at https://www.sba.gov/sites/default/files/1-
FY%202016%20CBJ%20FY%202014%20APR.PDF.
2 15 U.S.C. §689(a).
3 For further information and analysis concerning the SBA’s Small Business Investment Company program, see CRS
Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger. The SBA is authorized to
issue debentures with a term of up to 15 years. The SBA has opted to limit the term for New Markets Venture Capital
(NMVC) debentures to 10 years.
4 Because the SBA’s NMVC debentures are discounted to guarantee the payment of interest during the first five years
of the debenture, the funding provided was estimated to be sufficient to raise about $100 million in available capital for
investment. Also, the appropriation was for FY2001 through FY2006, but was provided as a lump sum payment in
FY2001.
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NMVC companies in FY2002 and FY2003 ($12.5 million in FY2002 and $59.5 million in
FY2003) and $14.4 million for operational assistance grants ($3.75 million in FY2002 and
$10.65 million in FY2003).5 In 2003, the unobligated balances of $10.5 million for NMVC
debenture subsidies and $13.75 million for operational assistance grants were rescinded.6 The
program continues to operate, with the number and amount of financing declining in recent years
as the program’s initial investments expire and NMVC companies engage only in additional
follow-on financings with the small businesses in their portfolios.
No bills were introduced during the 113th Congress and, to date, none have been introduced
during the 114th Congress concerning the NMVC program. However, more than 30 bills were
introduced in previous Congresses to either expand or amend the program. Many of these bills
would have increased the program’s funding (a list and summary of bills introduced by Congress
to provide the program additional funding appears in the Appendix). For example, during the
112th Congress, H.R. 2872, the Job Creation and Urban Revitalization Act of 2011, would have
provided the NMVC program such subsidy budget authority as may be necessary to guarantee
$75 million of debentures and $15 million for operational assistance training grants for FY2012
through FY2013. The bill was referred to the House Committee on Small Business, but no further
action was taken on it.
This report examines the NMVC program’s legislative origins and describes the program’s
eligibility and performance requirements for NMVC companies, eligibility requirements for small
businesses seeking financing, and definition of low-income areas. It also reviews regulations
governing the SBA’s financial assistance to NMVC companies and provides program statistics.
The report concludes with an examination of (1) efforts to eliminate the program based on
concerns that it duplicates other SBA programs and is relatively expensive, (2) the rescission of
the program’s unobligated funding in 2003, and (3) congressional efforts to provide the program
additional funds.
Legislative Origins
105th Congress
On September 15, 1998, the Senate Committee on Small Business conducted a markup of several
bills pending before the committee, including H.R. 3412, the Small Business Investment
Company Technical Corrections Act of 1998, which the House had passed.7 Senator Christopher
Bond, chair of the Senate Committee on Small Business, proposed an amendment in the nature of
a substitute to H.R. 3412 incorporating the full texts of S. 2372, the Year 2000 Readiness Act,
and S. 2407, the Small Business Programs Restructuring and Reform Act of 1998, as well as
provisions from S. 2448, the Small Business Loan Enhancement Act.8 The committee also
5 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” June 5, 2012.
6 P.L. 108-7, the Consolidated Appropriations Resolution, 2003; and U.S. Congress, Committee of Conference, Making
Further Continuing Appropriations for the Fiscal Year 2003, and for Other Purposes, report to accompany H.J.Res. 2,
108th Cong., 1st sess., February 13, 2003, H.Rept. 108-10 (Washington: GPO, 2003), p. 787.
7 H.R. 3412, the Small Business Investment Company Technical Corrections Act of 1998, was introduced by Rep.
(later Sen.) Jim Talent, chair of the House Committee on Small Business, on March 10, 1998. The bill would have
authorized several technical corrections to the SBA’s Small Business Investment Company (SBIC) program. The
House Committee on Small Business reported the bill on March 17, 1998, and the House passed it (on motion to
suspend the rules and pass the bill, as amended), 407-0, on March 24, 1998.
8 U.S. Congress, Senate Committee on Small Business, Year 2000 Readiness and Small Business Programs
(continued...)
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debated and approved by unanimous voice votes seven amendments to the substitute amendment.
One of the seven approved amendments was a precursor of the NMVC program.
The Community Development Venture Capital Demonstration Program
The amendment, offered by Senator Paul Wellstone, would have authorized a $20 million, four-
year technical assistance program—the Community Development Venture Capital Demonstration
Program—to provide grants, on a matching dollar-to-dollar basis, to experienced community
development venture capital (CDVC) firms that invest in small businesses located in
economically distressed areas, such as inner cities and poor rural counties. The grants would be
used to provide technical expertise and operating assistance to new, emerging, less experienced
CDVC organizations.9 The program’s stated purpose was “to develop and expand a new but
growing field of organizations that use the tools of venture capital to create good jobs, productive
wealth, and entrepreneurial capacity that benefit disadvantaged people and economically
distressed communities.”10 The program’s advocates argued that despite difficulties associated
with making investments in economically distressed areas, some successful CDVCs had produced
“a ‘double bottom line’ of not only financial returns, but also social benefits in the form of good
jobs and healthier communities.”11
On September 15, 1998, the committee reported H.R. 3412, as amended, by a vote of 18-0. On
September 30, 1998, the Senate passed the bill, with an amendment, by unanimous consent. The
House did not act on the bill.
106th Congress
On January 19, 1999, President Bill Clinton announced during his State of the Union Address
support for what was later called the “New Markets Investment Initiative.”12 The proposed
initiative was comprised of several programs, including a New Markets Tax Credit program and a
New Markets Venture Capital program, to encourage economic development in economically
distressed areas.13 President Clinton subsequently drew attention to the initiative by taking three
separate trips to underserved inner city and rural communities, visiting Phoenix, Arizona, and the
Pine Ridge Indian Reservation in South Dakota on July 7, 1999, and Los Angeles, California, and
Anaheim, California, on July 8, 1999 (trip 1); Newark, New Jersey, and Hartford, Connecticut, on
November 4, 1999 (trip 2); and Hermitage, Arkansas, and Chicago, Illinois, on November 5, 1999
(trip 3).14 During his remarks in Chicago, President Clinton announced that he had reached an
(...continued)
Restructuring and Reform Act of 1998, 105th Cong., 2nd sess., September 25, 1998, S.Rept. 105-347 (Washington:
GPO, 1998).
9 Ibid., pp. 18, 23; and Pherabe Kolb, “Senate Small Business Markup: Year 2000 Assistance, Drug-Free Workplace,”
CQ Markup and Vote Coverage, Washington, DC, September 15, 1998, at http://www.cq.com/doc/committees-
COMM159517?print=true.
10 U.S. Congress, Senate Committee on Small Business, Year 2000 Readiness and Small Business Programs
Restructuring and Reform Act of 1998, 105th Cong., 2nd sess., September 25, 1998, S.Rept. 105-347 (Washington:
GPO, 1998), p. 18.
11 Ibid.
12 U.S. President (Clinton), “Address Before a Joint Session of the Congress on the State of the Union,” Weekly
Compilation of Presidential Documents, vol. 35 (January 19, 1999), p. 83.
13 U.S. President (Clinton), “Remarks on the New Markets Initiative,” Weekly Compilation of Presidential Documents,
vol. 35 (May 11, 1999), pp. 860-861.
14 U.S. President (Clinton), “Remarks to the Community at Pine Ridge Indian Reservation, South Dakota,” Weekly
(continued...)
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agreement with House Speaker Dennis Hastert (who was present) to develop a bipartisan
legislative initiative on developing new market investments as a means to revitalize impoverished
communities.15
SBA’s Low- or Moderate-Income Initiative
In a related development, on February 9, 1999, the SBA proposed several incentives to encourage
companies participating in its SBIC program to “expand their investment activity into
economically distressed inner cities and rural areas.”16 After receiving public comments on
several proposed incentives, the SBA issued a final rule on September 30, 1999, implementing
the SBIC low- or moderate-income (LMI) initiative.17
The ongoing LMI initiative is designed to encourage SBICs to invest in small businesses located
in inner cities and rural areas “that have severe shortages of equity capital” because investments
in those areas “often are of a type that will not have the potential for yielding returns that are high
enough to justify the use of participating securities.”18 SBICs that invest in small businesses with
at least 50% of their employees or tangible assets located in a low- or moderate-income area
(LMI zone) or at least 35% of their full-time employees with their primary residence in an LMI
zone are eligible for the incentives.19 For example, unlike regular SBIC debentures that typically
have a 10-year maturity, LMI debentures are available in 2 maturities, 5 years and 10 years, plus
the stub period. The stub period is the time between the debenture’s issuance date and the next
March 1 or September 1. The stub period allows all LMI debentures to have common March 1 or
September 1 maturity dates to simplify administration of the program.
In addition, LMI debentures are issued at a discount so that the proceeds an SBIC receives for the
sale of a debenture are reduced by (1) the debenture’s interest costs for the first five years, plus
the stub period; (2) the SBA’s annual fee for the debenture’s first five years, plus the stub period;
(...continued)
Compilation of Presidential Documents, vol. 35 (July 7, 1999), pp. 1298-1302; U.S. President (Clinton), “Remarks in a
Roundtable Discussion on Small Business Development in Phoenix, Arizona,” Weekly Compilation of Presidential
Documents, vol. 35 (July 7, 1999), pp. 1303-1308; U.S. President (Clinton), “Remarks in a Discussion on Youth
Opportunities in Los Angeles, California,” Weekly Compilation of Presidential Documents, vol. 35 (July 8, 1999), pp.
1318-1321; U.S. President (Clinton), “Remarks to the National Academy Foundation Conference in Anaheim,
California,” Weekly Compilation of Presidential Documents, vol. 35 (July 8, 1999), pp. 1322-1327; U.S. President
(Clinton), “Remarks to the Community in Newark,” Weekly Compilation of Presidential Documents, vol. 35
(November 4, 1999), pp. 2246-2249; U.S. President (Clinton), “Remarks to the North End Community in Hartford,
Connecticut,” Weekly Compilation of Presidential Documents, vol. 35 (November 4, 1999), pp. 2257-2259; The White
House, Office of the Press Secretary, “Remarks by the President to the people of Bradley County: Hermitage Tomato
Cooperative, Hermitage, Arkansas,” November 5, 1999, at http://clinton3.nara.gov/WH/New/New_Markets_Nov/
remarks/1105-1045a.html; and U.S. President (Clinton),” Remarks to the Englewood Community in Chicago, Illinois,”
Weekly Compilation of Presidential Documents, vol. 35 (November 4, 1999), pp. 2271-2275.
15 U.S. President (Clinton),” Remarks to the Englewood Community in Chicago, Illinois,” Weekly Compilation of
Presidential Documents, vol. 35 (November 4, 1999), pp. 2273.
16 SBA, “Small Business Investment Companies,” 64 Federal Register 6256, February 9, 1999.
17 SBA, “Small Business Investment Companies,” 64 Federal Register 52641-52646, September 30, 1999.
18 Ibid., p. 52645.
19 Ibid., pp. 52641-52646. Low- or moderate-income areas (LMI zones) are areas located in a historically underutilized
business zone (HUBZone); an urban empowerment zone or urban enterprise community designated by the Secretary of
the U.S. Department of Housing and Urban Development; a rural empowerment zone or rural enterprise community as
designated by the Secretary of the U.S. Department of Agriculture; an area of low income or moderate income as
recognized by the Federal Financial Institutions Examination Council; or a county with persistent poverty as classified
by the U.S. Department of Agriculture’s Economic Research Service. See 13 CFR §107.50.
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and (3) the SBA’s 2% leverage fee. As a result, these interest costs and fees are effectively
deferred, freeing SBICs from the requirement to make interest payments on LMI debentures or to
pay the SBA’s annual fees on LMI debentures for the first five years of a debenture, plus the stub
period.20
The Community Development and Venture Capital Act of 2000
On September 16, 1999, Senator John Kerry introduced S. 1594, the Community Development
and Venture Capital Act of 2000.21 The bill included several provisions in President Clinton’s
New Markets Investment Initiative. The bill had three main parts: a New Markets Venture Capital
Program, very similar to the present program, to encourage investment in economically distressed
communities; a Community Development Venture Capital Assistance Program to expand the
number of community development venture capital firms and professionals devoted to investing
in economically distressed communities; and BusinessLINC, a mentoring program to link
established, successful businesses with small business owners in economically stagnant or
deteriorating communities to facilitate the development of small businesses in those areas.22
After conducting two hearings and sponsoring a roundtable discussion on the Community
Development and Venture Capital Act of 2000, the Senate Committee on Small Business reported
the bill, as amended, by a vote of 16-1, on July 26, 2000. In the report accompanying the bill,
Senator Christopher Bond, chair of the Senate Committee on Small Business, argued that the
SBIC program had “proven to be an extremely successful public-private sector partnership with
the government” and mentioned the SBA’s LMI initiative as a new means to encourage SBICs to
make investments in LMI zones.23 However, he argued that “as successful as the SBIC program
is, it does not sufficiently reach areas of our country that need economic development the most.”24
He added that although SBICs invested $771 million in LMI zones in 1999, “the vast majority of
those investments were very large and not at all comparable to the type of investments [NMVC]
funds would make.”25 Senator Bond argued that the committee was approving the bill because it
was necessary
to expand the number of smaller investments being made to small businesses in the
poorest areas, low-income geographic areas, and to fill another gap in access to capital
that small businesses face. Investments for NMVC funds typically will range from
$50,000 to $300,000 versus the $300,000 to $5 million range found in the Agency’s
SBIC program.”26
The Senate did not take further action on the bill.
20 SBA, “For SBICs: Background Information on Low or Moderate Income (LMI) Debentures,” at
https://www.sba.gov/content/low-or-moderate-income-lmi-debentures. In FY2014, SBICs made 475 investments in
small businesses located in a LMI zone, totaling $1.0 billion—about 18.8% of the total amount invested. See SBA,
“SBIC Program Licensees Financing to Small Businesses Reported Between October 2013 and September 2014.”
21 The bill’s five original cosponsors were Sens. Jeff Bingaman, Max Cleland, Carl Levin, Paul Sarbanes, and Paul
Wellstone.
22 U.S. Congress, Senate Committee on Small Business, Community Development and Venture Capital Act of 1999,
report to accompany S. 1594, 106th Cong., 2nd sess., August 25, 2000, S.Rept. 106-383 (Washington: GPO, 2000), p. 4.
23 Ibid., p. 3.
24 Ibid.
25 Ibid.
26 Ibid.
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The New Markets Venture Capital Program Act of 2000
On December 14, 2000, Representative (later Senator) Jim Talent, chair of the House Committee
on Small Business, introduced H.R. 5663, the New Markets Venture Capital Program Act of
2000.27 The bill had two parts: the current New Markets Venture Capital Program and
BusinessLINC. The next day, the bill was incorporated by reference in the conference report
accompanying H.R. 4577, the Consolidated Appropriations Act, 2001, which became law (P.L.
106-554) on December 21, 2000.28
On January 22, 2001, the SBA published an interim final rule in the Federal Register to establish
the NMVC program. Comments on the proposed rule were due by March 23, 2001. The SBA also
published a notice in the Federal Register on January 22, 2001, inviting applications from venture
capital firms and SSBICs established under the SBIC program to participate in the program.29 The
SBA published a final rule formally establishing the NMVC program on May 23, 2001.30
NMVC Company Eligibility and
Performance Requirements
P.L. 106-554 specified that venture capital companies interested in participating in the program
must submit
• a detailed application to the SBA that includes, among other items, a business
plan describing how the company intends to make successful developmental
venture capital investments in identified low-income geographic areas, and
• information regarding the community development finance or relevant venture
capital qualifications and general reputation of the company’s management.31
In addition, an NMVC company must
• be a newly formed for-profit entity or a newly formed for-profit subsidiary of an
existing entity;
27 The bill was cosponsored by Rep. Nydia Velázquez.
28 U.S. Congress, Committee of Conference, Making Omnibus Consolidated and Emergency Supplemental
Appropriations for Fiscal Year 2001, report to accompany H.R. 4577, 106th Cong., 2nd sess., December 15, 2000,
H.Rept. 106-1033 (Washington: GPO, 2000), pp. 1041-1054.
29 SBA, “13 CFR Part 108: New Markets Venture Capital Program, Interim Final Rule” 66 Federal Register 7218-
7246, January 22, 2001; and SBA, “New Markets Venture Capital Program; Notice of Funds Availability (NOFA)
Inviting Applications for the New Markets Venture Capital Program,” 66 Federal Register 7247, January 22, 2001.
30 SBA, “New Markets Venture Capital Program: Final Rule,” 66 Federal Register 28601-28632, May 23, 2001.
31 In addition to these two items, a NMVC applicant must also submit a description of how the company intends to
work with community organizations and seek to address the unmet capital needs of the communities served; a proposal
describing how the company intends to use the grant funds provided under this part to give operational assistance to
smaller enterprises financed by the company, including information regarding whether the company intends to use
licensed professionals, when necessary, on the company’s staff or from an outside entity; with respect to binding
commitments to be made to the company under this part, an estimate of the ratio of cash to in-kind contributions; a
description of the criteria to be used to evaluate whether and to what extent the company meets the objectives of the
program established under this part; information regarding the management and financial strength of any parent firm,
affiliated firm, or any other firm essential to the success of the company’s business plan; and such other information as
the administrator may require. See U.S. Congress, Committee of Conference, Making Omnibus Consolidated and
Emergency Supplemental Appropriations for Fiscal Year 2001, report to accompany H.R. 4577, 106th Cong., 2nd sess.,
December 15, 2000, H.Rept. 106-1033 (Washington: GPO, 2000), p. 1044.
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• be organized under state law solely for the purpose of performing the functions
and conducting the activities contemplated under the act;
• be organized either as a corporation, a limited partnership, or a limited liability
company;
• show, to the SBA’s satisfaction, that its current or proposed management team is
qualified and has the knowledge, experience, and capability in community
development finance or relevant venture capital finance necessary for investing
in the types of businesses contemplated by the act; and
• have a primary objective of economic development of low-income areas.32
On January 22, 2001, the SBA solicited applications from venture capital companies and SSBICs
to participate in the NMVC program. The SBA had planned to offer another round of applications
for the program during the first quarter of 2003. However, the second round of applications was
canceled because, as mentioned previously, P.L. 108-7, the Consolidated Appropriations
Resolution, 2003, which became law on February 20, 2003, rescinded the program’s unobligated
funding.33
The SBA received 23 applicants during its initial solicitation from companies interested in
participating in the NMVC program, and it conditionally approved 7 of them.34 Final approval is
subject to the applicant meeting several conditions. For example, applicants are required to raise,
within 18 months of being conditionally approved, at least $5 million in private capital or in
binding capital commitments from one or more investors (other than federal agencies or
departments) that meet criteria established by the administrator (the private funds are called
regulatory capital). Applicants also must have in place binding commitments from sources other
than the SBA that are payable or available over a multiyear period not to exceed 10 years that
amount to not less than 30% of the total amount of regulatory capital and commitments raised
(30% of $5 million = $1.5 million).35 This additional funding is necessary to guarantee the
applicant’s ability to meet the required dollar-to-dollar matching contribution for operational
assistance training grants.36
Six of the seven companies granted conditional approval subsequently met all of the program
requirements (one in April 2002, three in March 2003, one in April 2003, and one in August
2003) and were accepted into the program after signing a formal participation agreement with the
32 13 C.F.R. §108.100; 13 C.F.R. §108.110; and 13 C.F.R. §108.120.
33 P.L. 108-7, the Consolidated Appropriations Resolution, 2003; and U.S. Congress, Committee of Conference,
Making Further Continuing Appropriations for the Fiscal Year 2003, and for Other Purposes, report to accompany
H.J.Res. 2, 108th Cong., 1st sess., February 13, 2003, H.Rept. 108-10 (Washington: GPO, 2003), p.787.
34 The initial application deadline was April 19, 2001, and was later extended twice—first, to May 21, 2001; and
second, to May 29, 2001. See SBA, “New Markets Venture Capital Program; Extension of Application Deadline,” 66
Federal Register 18993, April 12, 2001; and SBA, “New Markets Venture Capital Program; Extension of Application
Deadline,” 66 Federal Register 27721, May 18, 2001.
35 The SBA may accept binding commitments for operational assistance matching resources equal to at least 20% of the
required minimum if the company has a viable plan to raise the balance. In no case, however, will the SBA disburse
grant funds for operational assistance in excess of the amount actually raised, including in-kind contributions. See 13
C.F.R. §108.380.
36 P.L. 106-554 authorized the SBA to provide conditionally approved applicants a period of time, not to exceed two
years, to satisfy all program requirements necessary to participate in the program. The SBA provided applicants 18
months. See SBA, Office of New Markets Venture Capital, “New Markets Venture Capital (MNVC) Program, FAQs:
How much time does a conditionally approved NMVCC have to raise its capital and grant matching resources?” (no
longer available online).
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SBA.37 The six NMVC companies, which continue to participate in the program, initially raised
$48 million in private capital and were subsequently provided $72 million in leverage.38 The
companies are
• Adena Ventures, L.P., Athens, Ohio, approved on April 24, 2002, with targeted
low-income areas in Ohio, West Virginia, and Maryland;
• New Markets Venture Partners, College Park, Maryland, approved on March 5,
2003, with targeted low-income areas in Maryland, Virginia, and the District of
Columbia;
• CEI Community Ventures Fund, LLC, Portland, Maine, approved on March 21,
2003, with targeted low-income areas in Maine, New Hampshire, and Vermont;
• Murex Investments I, L.P., Philadelphia, Pennsylvania, approved on March 31,
2003, with targeted low-income areas in Pennsylvania, New Jersey, and
Delaware;
• Penn Venture Partners, LP, Harrisburg, Pennsylvania, approved on April 23,
2003, with targeted low-income areas in Pennsylvania;
• Southern Appalachian Fund, L.P., London, Kentucky, approved on August 8,
2003, with targeted low-income areas in Kentucky, Tennessee, Georgia,
Alabama, and Mississippi.39
NMVC companies are subject to various reporting requirements. For example, for each fiscal
year, NMVC companies must file an annual financial statement with the SBA that has been
audited by an independent public accountant acceptable to the SBA.40 The annual financial
statement must include an assessment of the social, economic, or community development impact
of each financing; the number of full-time equivalent jobs created as a result of the financing; the
impact on the revenues and profits of the business being financed; and the impact on the taxes
paid by the business being financed and by its employees. The statement must also include a
listing of the number and percentage of the business’s employees that reside in a low-income
area.41 In addition, NMVC companies are required to submit to the SBA a portfolio financing
report for each financing made within 30 days of the closing date.42
Eligibility of Small Businesses and Low-Income
Geographic Areas
NMVC companies are required to provide financial assistance and operational assistance training
only to small businesses as defined under the SBA’s SBIC program. The business must either
37 SBA, Office of New Markets Venture Capital, “New Markets Venture Capital (MNVC) Program,” June 2010, p. 13,
at http://www.slideshare.net/Freddy56/new-markets-venture-capital-nmvc-program; and SBA, “NMVC Companies,” at
https://www.sba.gov/content/nmvc-companies-0.
38 The Community Development Venture Capital Alliance, “The New Markets Venture Capital Program,” Washington,
DC, pp. 6, 18, at http://www.community-wealth.org/_pdfs/articles-publications/cdfis/paper-cdvca.pdf; and SBA, Office
of Congressional and Legislative Affairs, “Correspondence with the author,” June 5, 2012.
39 SBA, “NMVC Companies,” at https://www.sba.gov/content/nmvc-companies-0.
40 13 C.F.R. §108.630.
41 Ibid.
42 13 C.F.R. §108.640.
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meet the SBA’s size standard for the industry in which it is primarily engaged or have a
maximum net worth of no more than $18 million and average after-tax net income for the
preceding two years of not more than $6 million.43 All of the company’s subsidiaries, parent
companies, and affiliates are considered in the size standard determination.44
In addition, at the close of each NMVC company’s fiscal year, at least 80% of the company’s
total financings (in total dollars) and 80% of the total number of concerns in that company’s
portfolio must be small businesses that, at the time of the financing, had their principal offices
located in a low-income area (low-income enterprises).45 NMVC companies that fail to reach
these required percentages at the end of any fiscal year must be in compliance by the end of the
following fiscal year. They are not eligible for additional leverage from the SBA until they reach
the required percentages.46
The act defines a low-income area as any census tract, or equivalent county division as defined by
the Bureau of the Census, that meets any of the following criteria:
• a poverty rate of 20% or more;
• if located in a metropolitan area, at least 50% of its households have an income
that is below 60% of the area median gross income;
• if not located in a metropolitan area, has a median household income that does
not exceed 80% of the statewide median household income;
• is located within a historically underutilized business zone (HUBZone);
• is located in an urban empowerment zone or urban enterprise community as
designated by the Department of Housing and Urban Development; or
• is located in a rural empowerment zone or rural enterprise community as
designated by the Department of Agriculture.
NMVC Leverage
NMVC companies invest funds they have raised themselves, their regulatory capital, in small
businesses. In addition, they can receive up to 150% of that amount from the SBA, subject to the
availability of funds. NMVC companies follow essentially the same process for obtaining SBA
funding as prescribed under the SBIC program. The SBA’s funding, or leverage, comes from the
sale to third parties of 10-year securities (or debentures), which are backed by the full faith and
credit of the United States.47 Because the SBA guarantees the timely payment of the principal and
interest due on the securities, the SBA is able to obtain favorable interest rates. NMVC
companies are responsible for meeting the terms and conditions set forth in the debenture.
43 When the NMVC program started, to be deemed small, a business either had to meet the SBA’s size standard for the
industry in which it was primarily engaged or had to have a maximum net worth of no more than $6 million and
average after-tax net income for the preceding two years of not more than $2 million.
44 13 C.F.R. §121.301(c)(1) and 13 C.F.R. §121.301(c)(2). NMVC companies are not permitted to invest in passive
businesses, real estate businesses, project financings, farm land purchases, the financing of NMVC companies or
SBICs, or projects that will be used substantially for a foreign operation or when more than 49% of the employees or
tangible assets of the small business are located outside of the United States. See 13 C.F.R. §108.720.
45 13 C.F.R. §108.710.
46 Ibid.
47 P.L. 106-554 authorizes the SBA to sell debentures with a maturity of up to 15 years. The SBA has opted to sell
debentures with a maturity of up to 10 years.
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NMVC debentures are deferred-interest debentures issued at a discount (less than face value)
equal to the first five years’ interest to eliminate the need for NMVC companies to make interest
payments during that period. As a result, NMVC companies make no payments on the debenture
for five years from the date of issuance, plus the stub period, which ensures that all NMVC
debentures have common prepayment and maturity dates of either March 1 or September 1.48
NMVC companies make semiannual interest payments on the face amount of the debenture
during years 6 to 10, and they are responsible for paying the debenture’s principal amount when
the debenture reaches its maturity date.
NMVC companies receive leverage from the SBA in a two-step process. First, they submit a
request to the SBA for a conditional commitment to reserve a specific amount of leverage for
future use.49 This request authorizes the SBA to sell the requested debenture amount to a third
party at an interest rate approved by the SBA or to pool the requested debenture amount with
other requests, providing each request with the same maturity date, interest rates, and conditions.
The NMVC companies then apply to the SBA to draw against the SBA’s leverage commitment.
These requests may come at any time during the term of the SBA’s leverage commitment.50
Although the SBA is authorized to pool NMVC debentures, the Federal Home Loan Bank of
Chicago (FHLB) has an agreement with the SBA to purchase all NMVC debentures and hold
them until maturity. The FHLB determines the interest rate on the debentures using a spread over
the FHLB’s cost of funds as determined on each draw date.51
The SBA does not allow NMVC companies to prepay their draws for a period of 12 months (plus
the stub period) after issuance. Prepayments are permitted after that waiting period, but only on
March 1 or September 1 of each year. The cost of prepayment is the present value of the NMVC
debenture on the semiannual date chosen for prepayment.52
After receiving funds, NMVC companies make equity investments in small businesses of their
choice. Equity investments are typically in the form of common or preferred stock and sometimes
in the form of subordinated debt with equity features (as long as the debt is not amortized and
provides for interest payments contingent upon and limited to the extent of earnings) or limited
partnership interests, options, warrants, and similar equity investment instruments.53
Operational Assistance Training Grants
The SBA awards grants to NMVC companies and SSBICs to provide free operational assistance
training to small businesses financed, or expected to be financed, under the program.54 The grants
48 The SBA does not charge a fee for the issuance of debentures by a NMVC company. See 13 C.F.R. §108.1130. In
contrast, the SBA is authorized to charge SBICs a 3% origination fee for each debenture and participating security
issued (1% at commitment and 2% at draw); an annual fee (not to exceed 1.38% for debentures and 1.46% for
participating securities) on the leverage drawn, which is fixed at the time of the leverage commitment; and other
administrative and underwriting fees, which are adjusted annually. See 13 CFR §107.1130; and 13 CFR §107.1210.
49 13 C.F.R. §108.1230; and 13 C.F.R. §108.1240.
50 13 C.F.R. §108.1230.
51 The last NMVC debenture was issued on June 27, 2008, at an interest rate of 5.494%. If a NMVC debenture were
issued in December 2014, the comparable interest rate would have been about 3.4%.
52 13 C.F.R. §108.1610.
53 Subordinated debt (also known as subordinated debenture or junior debt) ranks after other debts should a company
fall into liquidation or bankruptcy. Because subordinated debt is repayable after other debts have been paid, it is
considered to carry a higher level of risk to the lender.
54 The SBA disbursed operational assistance training grants over a 4.5 year period. See SBA, Office of New Markets
(continued...)
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have a dollar-to-dollar matching requirement and cannot be used for general and administrative
expenses, including overhead.55 Matching resources may be in the form of (1) cash; (2) in-kind
contributions; (3) binding commitments for cash or in-kind contributions that are payable or
available over a multiyear period acceptable to the SBA but not to exceed 10 years; or (4) an
annuity, purchased with funds other than regulatory capital, from an insurance company
acceptable to the SBA that may be payable over a multiyear period acceptable to the SBA but not
to exceed 10 years.56
NMVC companies and SSBICs are eligible for an operational assistance training grant award
equal to the amount of matching resources the company has raised, subject to the availability of
funds.57 NMVC companies must use at least 80% of both the grant funds awarded by the SBA
and their matching resources to provide free operational assistance training to small businesses
located in a low-income area. SSBICs must use both the grant funds awarded by the SBA and
their matching resources to provide free operational assistance training to small businesses “in
connection with a low-income investment made by the SSBIC with regulatory capital raised after
September 21, 2000.”58 Operational assistance includes management, marketing, and other
technical assistance training that helps a small business with its development.59
Program Statistics
As shown in Table 1, NMVC companies received operational assistance training grant awards in
FY2002 and FY2003 and started making equity investments in small businesses in FY2002. As
mentioned previously, the six NMVC companies, which continue to participate in the program,
initially raised $48 million in private capital and were subsequently provided $72 million in
leverage.60
From the program’s inception through September 30, 2014, NMVC companies invested nearly
$79.8 million in 71 different small businesses. The program reached its peak, in terms of the
amount of financings, in FY2007, investing nearly $16.3 million in 35 different small businesses
that year. Since then, the amount of financings each year has generally declined—reaching its
lowest amount in FY2012 before increasing somewhat in FY2013 and FY2014—as the
program’s initial investments expire and NMVC companies engage only in additional follow-on
financings with the small businesses in their portfolios.
(...continued)
Venture Capital, “New Markets Venture Capital (MNVC) Program,” June 2010, p. 7, at http://www.slideshare.net/
Freddy56/new-markets-venture-capital-nmvc-program.
55 13 C.F.R. §108.2010; and 13 C.F.R. §108.2030.
56 13 C.F.R. §108.2040.
57 13 C.F.R. §108.2030.
58 13 C.F.R. §108.2010.
59 13 C.F.R. §108.10. Some examples of operational assistance training include writing or assisting in the preparation
of a business plan; legal assistance relating to business formation or reorganization (but not litigation); recruitment of
executives, creation of Internet capability, engineering or other technical services to create or enhance production or
distribution of products or services; creation of marketing materials; creation of customized accounting or information
systems; and active participation in negotiation with financial institutions (debt). See Adena Ventures, L.P.,
“Operational Assistance,” Athens, Ohio, at http://www.adenaventures.com/serviceprograms/opsassist.aspx.
60 The Community Development Venture Capital Alliance, “The New Markets Venture Capital Program,” Washington,
DC, pp. 6, 18, at http://www.community-wealth.org/_pdfs/articles-publications/cdfis/paper-cdvca.pdf; and SBA, Office
of Congressional and Legislative Affairs, “Correspondence with the author,” June 5, 2012.
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Table 1. New Markets Venture Capital Program Statistics, FY2002-FY2014
Operational
Assistance
Training Grant
Amount of NMVC
Number of Small
Awards
Financings
Number of NMVC
Businesses
Fiscal Year
(in millions)
(in millions)
Financings
Financed
2002 $3.75 $0.50
1
1
2003 $10.65 $2.69
6
6
2004 $0.00 $9.67
22
19
2005 $0.00 $8.60
29
22
2006 $0.00 $16.28
56
35
2007 $0.00 $14.02
59
32
2008 $0.00 $13.35
55
36
2009 $0.00 $4.24
37
24
2010 $0.00 $3.42
30
16
2011 $0.00 $2.51
30
18
2012
$0.00
$0.54
12
6
2013 $0.00 $1.881 17
10
2014 $0.00 $2.08
5
4
Total $14.40 $77.29
359
71a
Source: U.S. Small Business Administration (SBA), Congressional Budget Justification, various years; SBA,
Performance and Accountability Report, various years; SBA, Office of Congressional and Legislative Affairs,
“Correspondence with the author,” on November 21, 2013, and December 8, 2014.
a. The total number of small businesses financed is less than the sum of small businesses financed each year
because NMVC companies may make multiple financings into any one of their “portfolio companies” over
the life of the fund.
Congressional Issues
As mentioned previously, the NMVC program has not received any additional funding since
2001. Opposition to the program within Congress began to gain momentum when President
George W. Bush recommended in his FY2002 budget request that the NMVC program be
eliminated, arguing that the program is relatively expensive and duplicative of other federal
programs:61
The Administration supports the objectives of the New Markets Venture Capital
(NMVC) program but believes those objectives can be achieved more efficiently and at a
lower cost through other existing programs. Several vehicles and incentives to direct
investment into economically distressed communities already exist. Communities
targeted by NMVC have access to a wide range of private for-profit and economic
development programs, including the federally supported community development
financial institutions administered through the Department of Treasury. In addition,
SBA’s SBIC program, which has 412 licensed venture capital companies with total
61 SBA, “FY 2002 Budget Request and Performance Plan,” p. 15.
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capital resources amounting to $17.7 billion, is implementing incentives to encourage
investment in economically distressed areas.
The NMVC program is also expensive relative to the impact that it is expected to have.
The total cost of the program in FY2001 is $52 million, not including administrative cost
of running the program. Since the program is expected to generate $150-$200 million of
investment activity, it will yield only $3.00-$4.00 of investment for every taxpayer dollar
spent. In comparison, under the Small Business Investment Company (SBIC) program,
there is no cost associated with the debenture portion of the program.62
Others argued that the NMVC program’s targeted clientele of small businesses located in
economically distressed areas is inherently too risky for government involvement. In their view,
NMVC companies are “designed and chartered to operate (as profit-making firms) in a market
niche that mainstream venture capital firms will not touch.”63
The program’s advocates contended that the NMVC program is necessary precisely because
mainstream venture capital firms generally avoided investments in small businesses located in
economically distressed areas. In their view, the NMVC program is an essential part of a larger
federal effort, which includes tax incentives, to fill a market niche in private-sector venture
capital investments and, in the process, help to revitalize areas experiencing long-term economic
difficulties. They also objected to the Bush Administration’s argument that the program is
duplicative of other federal programs. In their view, the NMVC program is targeted at a clientele
that is not being adequately served by other federal programs.64
The Bush Administration continued to recommend the program’s elimination in each of its
subsequent budget requests. As mentioned previously, during congressional consideration of the
FY2003 budget the unobligated balances of $10.5 million for NMVC debenture subsidies and
$13.75 million for operational assistance training grants were rescinded.65
Since then, more than 30 bills have been introduced to amend the NMVC program, including
bills to
• reduce the amount of capital NMVC companies must raise to become eligible for
operational assistance training grants,
• eliminate the matching requirement for operational assistance training grants,
• create an Office of New Markets Venture Capital within the SBA,
62 U.S. Congress, Senate Committee on Small Business and Entrepreneurship, SBA’s Funding Priorities for Fiscal Year
2002, 107th Cong., 1st sess., May 1, 2002, S.Hrg. 107-237 (Washington: GPO, 2002), p. 45.
63 Timothy Bates, “Government as Venture Capital Catalyst: Pitfalls and Promising Approaches,” Economic
Development Quarterly, vol. 16, no. 49 (2002): 58, at http://www.uk.sagepub.com/chaston/
Chaston%20Web%20readings%20chapters%201-12/Chapter%204%20-%2045%20Bates.pdf.
64 U.S. Congress, Senate Committee on Small Business, The President’s Fiscal Year 2000 Budget Request for the
Small Business Administration, 106th Cong., 1st sess., March 16, 1999, S.Hrg. 106-118 (Washington: GPO, 1999), pp.
125, 126; U.S. Congress, Senate Committee on Small Business and Entrepreneurship, SBA’s Funding Priorities for
Fiscal Year 2002, 107th Cong., 1st sess., May 1, 2001, S.Hrg. 107-237 (Washington: GPO, 2002), pp. 14, 15, 20, 26,
91-93; U.S. Congress, House Committee on Small Business, Small Business Investment Expansion Act of 2007, report
to accompany H.R. 3567, 110th Cong., 1st sess., September 25, 2007, H.Rept. 110-110 (Washington: GPO, 2007), pp. 5,
6; and U.S. Congress, Senate Committee on Small Business and Entrepreneurship, Small Business Venture Capital Act
of 2007’, 110th Cong., 1st sess., October 16, 2007, S.Rept. 110-199 (Washington: GPO, 2007), pp. 5, 6, 9-11.
65 P.L. 108-7, the Consolidated Appropriations Resolution, 2003; and U.S. Congress, Committee of Conference,
Making Further Continuing Appropriations for the Fiscal Year 2003, and for Other Purposes, report to accompany
H.J.Res. 2, 108th Cong., 1st sess., February 13, 2003, H.Rept. 108-10 (Washington: GPO, 2003), p. 787.
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• require the SBA to provide conditionally approved NMVC companies a full two
years to meet all program requirements,
• provide increased financing to small manufacturers, and
• amend the program’s definition for low-income area to correspond with the
definition used by the New Market Tax Credits program (Section 45D(e) of the
Internal Revenue Code of 1986) (26 U.S.C. 45D(e)).
Many of these bills also included provisions to provide the NMVC program additional funding.66
Legislative Efforts to Provide Additional
NMVC Funding
As shown in Table A-1 in the Appendix, during the 108th Congress, two bills were introduced,
one in the House and one in the Senate, to provide the NMVC program “such subsidy budget
authority as may be necessary to guarantee $75 million of debentures” and $15 million for
operational assistance training grants over FY2004 and FY2005.67 Neither bill was enacted.68
During the 109th Congress, an amendment was offered during the House during floor debate on
H.R. 2862, the Science, State, Justice, Commerce, and Related Agencies Appropriations Act,
2006, to provide “$30 million in debenture guarantees and $5 million for operational assistance
grants to fund the creation of a fresh round of New Market Venture Capital companies … paid for
by using funds from the Small Business Administration’s salary and expense account.”69 The
amendment failed by voice vote.70 A bill introduced in the House would have authorized an
expansion of the NMVC program to include the selection of an NMVC company whose primary
objective would be the economic development of small businesses located in Hurricane Katrina-
affected areas. The bill would have authorized “such subsidy budget authority as may be
necessary to guarantee … $50 million of debentures issued by the Gulf Region New Markets
Venture Capital Company … and $10 million for grants to the Gulf Region New Markets Venture
Capital Company.”71 Another House bill would have provided the NMVC program “such subsidy
66 During the 111th Congress, P.L. 111-240, the Small Business Jobs Act of 2010, Section 1115, New Markets Venture
Capital Company Investment Limitations, included the following language: “Except to the extent approved by the
Administrator, a covered New Markets Venture Capital company may not acquire or issue commitments for securities
under this title for any single enterprise in an aggregate amount equal to more than 10 percent of the sum of—‘‘(A) the
regulatory capital of the covered New Markets Venture Capital company; and ‘‘(B) the total amount of leverage
projected in the participation agreement of the covered New Markets Venture Capital.’’
67 H.R. 2802, the Small Business Reauthorization and Manufacturing Revitalization Act of 2003, was introduced by
Rep. Donald Manzullo on July 21, 2003. It would have provided the NMVC program the additional funding over
FY2004 and FY2005. S. 1886, the MADE in America Act, was introduced by Sen. Tom Daschle on behalf of Sen.
John Kerry on November 18, 2003. It would have provided the NMVC program the additional funding over FY2005
and FY2006.
68 H.R. 2802 was reported by the House Committee on Small Business on October 21, 2003, and placed on the Union
Calendar on March 8, 2004. The House took no further action on the bill. S. 1886 was referred to the Senate Committee
on Small Business and Entrepreneurship. No further action took place on the bill.
69 Rep. Gwen Moore, “Consideration of H.R. 2862, the Science, State, Justice, Commerce, and Related Agencies
Appropriations Act, 2006,” House debate, Congressional Record, vol. 151, part 79 (June 15, 2005), p. H4511.
70 Ibid., p. H4512.
71 H.R. 4234, the Small Business Gulf Coast Revitalization Act of 2005, Section 104. Gulf Region New Markets
Venture Capital Company. The bill was introduced by Rep. Nydia Velázquez on November 5, 2005.
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budget authority as may be necessary to guarantee $100 million of debentures and $25 million for
operational assistance training grants for FY2006 through FY2008.”72 Neither bill was enacted.73
During the 110th Congress, four bills were introduced, two in the House and two in the Senate, to
provide the NMVC program additional funding. One of the House bills would have provided the
NMVC program such subsidy budget authority as may be necessary to guarantee $100 million of
debentures and $25 million for operational assistance training grants for FY2007 through
FY2009.74 The other House bill would have provided the NMVC program such subsidy budget
authority as may be necessary to guarantee $30 million of debentures and $5 million for
operational assistance training grants for FY2008 through FY2010.75 The two Senate bills would
have provided the NMVC program $20 million for operational assistance training grants.76 None
of these bills was enacted.
During the 111th Congress, two bills were introduced in the House to provide the NMVC program
additional funding. One of the bills would have provided the NMVC program such subsidy
budget authority as may be necessary to guarantee $100 million of debentures and $25 million for
operational assistance training grants for FY2009 through FY2011.77 The other bill would have
provided the NMVC program such subsidy budget authority as may be necessary to guarantee
$100 million of debentures and $20 million for operational assistance training grants for FY2010
through FY2011.78
72 H.R. 4303, the Securing Equity for the Economic Development of Low Income Areas Act of 2005, was introduced
by Rep. Gwen Moore on November 10, 2005.
73 H.R. 4303 was referred to the House Committee on Small Business. The House took no further action on the bill.
H.R. 4234 was referred to the House Committee on Small Business. The House took no further action on the bill.
74 H.R. 1719, the Securing Equity for the Economic Development of Low Income Areas Act of 2007, was introduced
by Rep.e Gwen Moore on March 27, 2007. The bill was referred to the House Committee on Small Business. The
House took no further action on the bill.
75 H.R. 3567, the Small Business Investment Expansion Act of 2007, was introduced by Rep. Jason Altmire on
September 18, 2007. The bill was referred to the House Committee on Small Business and reported on September 25,
2007. The House passed it on September 27, 2007, by a vote of 325-72. The bill was received in the Senate on
September 28, 2007, and referred to the Senate Committee on Small Business and Entrepreneurship. The Senate took
no further action on the bill.
76 S. 1663, the Securing Equity for the Economic Development of Low Income Areas Act of 2007, was introduced by
Sen. John Kerry on June 19, 2007, and referred to the Senate Committee on Small Business and Entrepreneurship. The
additional funding for operational assistance training grants would have been available from FY2007 through FY2010.
The bill was incorporated into S. 1662, the Small Business Venture Capital Act of 2007, which addressed the SBA’s
SBIC program. That bill, as amended, was reported by the Senate Committee on Small Business and Entrepreneurship
on October 16, 2007. The Senate took no further action on the bill. S. 2920, the SBA Reauthorization and Improvement
Act of 2008, was introduced by Sen. John Kerry on April 24, 2008. The additional funding for operational assistance
training grants would have been available from FY2008 through FY2010. The bill was placed on the Senate Legislative
Calendar under General Orders under Read the First Time on September 24, 2008, and it was placed on the Senate
Legislative Calendar under General Orders under Read the Second Time on September 28, 2008. The Senate took no
further action on the bill.
77 H.R. 1491, the Securing Equity for the Economic Development of Low Income Areas Act of 2009, was introduced
by Rep. Gwen Moore on March 12, 2009, and referred to the House Committee on Small Business. The House took no
further action on the bill.
78 H.R. 3722, the Enhanced New Markets and Expanded Investment in Renewable Energy for Small Manufacturers Act
of 2009, was introduced by Rep. Ann Kirkpatrick on October 6, 2009, and referred to the House Committee on Small
Business. The bill’s provisions were incorporated into H.R. 3854, the Small Business Financing and Investment Act of
2009, which was introduced by Rep. Kurt Schrader on October 20, 2009. That bill was reported by the House
Committee on Small Business on October 26, 2009, and passed by the House, by a vote of 389-32, on October 29,
2009. The bill was received in the Senate and referred to the Senate Committee on Small Business and
Entrepreneurship on November 2, 2009. The Senate took no further action on the bill.
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During the 112th Congress, one bill was introduced to provide additional funding for the NMVC
program. Representative Nydia Velázquez introduced H.R. 2872, the Job Creation and Urban
Revitalization Act of 2011, on September 8, 2011. The bill would have provided the NMVC
program such subsidy budget authority as may be necessary to guarantee $75 million of
debentures and $15 million for operational assistance training grants for FY2012 through
FY2013. The bill was referred to the House Committee on Small Business on September 8, 2011.
No further action was taken on the bill.
As mentioned earlier, no bills were introduced during the 113th Congress concerning the NMVC
program and, to date, none have been introduced during the 114th Congress.
Related SBIC Program Developments
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), included provisions
designed to encourage SBIC investments in low-income areas. The act allowed an SBIC licensed
on or after October 1, 2009, to elect to have a maximum leverage amount of $175 million instead
of $150 million if that SBIC has invested at least 50% of its financings in low-income geographic
areas, as defined under the NMVC program, and certified that at least 50% of its future
investments will be in low-income geographic areas.79 ARRA also increased the maximum
amount of leverage available for two or more licenses under common control to $250 million
from $225 million if these requirements are met.
In addition, on April 7, 2011, the SBA announced a $1 billion impact investment SBIC initiative
(providing up to $150 million in leverage in FY2012 and up to $200 million in leverage per fiscal
year thereafter until the limit is reached).
Under this initiative, SBA-licensed impact investment debenture SBICs are required to invest at
least 50% of their financings, “which target areas of critical national priority including
underserved markets and communities facing barriers to access to credit and capital.”80 To
receive an impact investment, a small business must meet at least one of the following criteria:
• be located in or, at the time of the initial investment, have at least 35% of its full-
time employees residing in an LMI zone as defined in 13 CFR Section 107.5081
or be located in an economically distressed area as defined by Section 3011 of
the Public Works and Economic Development Act of 1965, as amended (an area
with per capita income of 80% or less of the national average or an
unemployment rate that is, for the most recent 24-month period for which data
are available, at least 1% greater than the national average unemployment rate);
or
• be in an industrial sector that the SBA has identified as a national priority
(currently clean energy, education, and advanced manufacturing).
79 13 CFR §107.1150.
80 SBA, “Impact Investment Initiative,” at http://www.sba.gov/content/small-business-investment-company-sbic-
impact-investment-initiative-2. For further analysis and information concerning the SBA’s impact investment initiative
see CRS Report R41456, SBA Small Business Investment Company Program, by Robert Jay Dilger.
81 For the definition of an LMI zone, see footnote 19.
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Initially, an impact investment SBIC could receive up to $80 million in SBA leverage. On June 6,
2013, the SBA announced that it was increasing the maximum leverage available to impact
investment SBICs to $150 million.82
As of December 31, 2014, six impact investment SBICs were licensed (one in 2011, one in 2012,
and four in 2014) and three of them had started to invest capital to small businesses. The three
active impact investment SBICs managed more than $190 million in assets and had investments
in 33 small businesses at the end of calendar year 2014.83
On September 25, 2014, the SBA announced several changes to the impact investment program
designed to “broaden access to the fund.”84 The agency announced that it will continue the
program beyond FY2016. Also, effective October 1, 2014, among other changes, the SBA
eliminated the program’s $200 million collective, per-fiscal-year leverage cap; added advanced
manufacturing to the list of eligible sectors; provided eligibility to businesses that receive Small
Business Innovation Research or Small Business Technology Transfer grants; and permitted,
through December 1, 2014, existing debenture SBICs to apply to opt-into the program if they
meet the program’s requirements.85 Also, subject to the SBA’s approval, impact investment SBICs
may devise a customized definition of an “impact investment” during the licensing process.
Concluding Observations
The NMVC program continues to operate, but the amount and number of its financings remain
lower than anticipated by its original sponsors and below levels desired by its advocates. In recent
years, the amount of SBIC program investments in LMI zones has generally increased—from
$444.5 million in FY2010 (21.1% of total SBIC financing) to $687.1 million in FY2011 (24.3%
of total SBIC financing), declining to $471.5 million in FY2012 (14.6% of total SBIC
financings), then increasing to $605.5 million in FY2013 (17.3% of total SBIC financings) and
$1.0 billion in FY2014 (18.8% of total SBIC financings).86 In addition, the SBA’s LMI and
impact investment initiatives are designed to encourage SBIC investments in LMI areas.
Some argue that the increased levels of SBIC investments in LMI areas in recent years, coupled
with the SBA’s efforts to encourage SBIC investments in such areas, may diminish the need for
the NMVC program. NMVC advocates disagree. In FY2014, SBICs provided 475 financings
totaling $1.0 billion to small businesses located in a LMI income area, an average investment of
82 SBA, “SBA Announces $50 Million Increase Match in its SBIC Early Stage Fund and $70 Million Bump in its
Impact Investment Fund,” June 6, 2013, at https://www.sba.gov/content/sba-announces-50-million-increase-match-its-
sbic-early-stage-fund-and-70-million-bump-its.
83 Ibid., and SBA Office of Congressional and Legislative Affairs, “Correspondence with the author,” October 20,
2014.
84 SBA, “SBA Expands Impact Investment Fund,” September 25, 2014, at https://www.sba.gov/content/sba-expands-
impact-investment-fund.
85 Ibid.
86 SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported Between October 2008 and September
2009”; SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported Between October 2009 and
September 2010”; SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported Between October
2010 and September 2011”; SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported Between
October 2011 and September 2012”; SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported
Between October 2012 and September 2013”; and SBA, “All SBIC Program Licensees: Financing to Small Businesses
Reported Between October 2013 and September 2014”.
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$2.16 million.87 NMVC advocates argue, as Senator Bond did when the NMVC program was
proposed, that the NMVC program targets small businesses seeking much smaller investments.88
The debate over the NMVC program’s future, particularly whether the program should be
provided additional funding, is, in many ways, reflective of broader disagreements about the role
of government, and the SBA, in private enterprise. Some believe the federal government and the
SBA should take an active role in assisting small businesses to access capital—through the
provision of loan guarantees, equity financing, and management training—to further the
economic recovery. In their view, the SBA’s programs fill a market niche by providing loans to
small businesses unable to get credit elsewhere, equity financings to small businesses often
overlooked by private investors, and training for new and aspiring entrepreneurs unable to find
affordable training elsewhere. They assert that increasing funding for the NMVC program will
create jobs by making capital available to entrepreneurs unable to find it in the private
marketplace.
Others worry about the long-term adverse economic effects of the federal deficit. Instead of
supporting increased funding for federal spending programs, they advocate business tax
reduction, reform of financial credit market regulation, and federal fiscal restraint as the best
means to assist small businesses, generate economic growth, and create jobs. They are
particularly interested in achieving greater government efficiency by eliminating federal spending
programs, such as the NMVC program, that they perceive are duplicative of others.
87 SBA, “All SBIC Program Licensees: Financing to Small Businesses Reported Between October 2013 and September
2014.”
88 U.S. Congress, Senate Committee on Small Business, Community Development and Venture Capital Act of 1999,
report to accompany S. 1594, 106th Cong., 2nd sess., August 25, 2000, S.Rept. 106-383 (Washington: GPO, 2000), p. 3.
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Appendix. Legislative Efforts to Provide Additional
Funding for the NMVC Program
Table A-1. Legislative Efforts to Provide Additional NMVC Funding
Funding
Necessary
to Support
Funding for
NMVC
Operational
Debenture
Assistance
Guarantee
Training
Congress
Legislation and Sponsor
of
Grants
Legislative Action
108th
H.R. 2802, the Smal Business
$75 million
$15 million
Introduced on July 21, 2003, and
Reauthorization and
referred to the House
Manufacturing Revitalization Act
Committee on Small Business;
of 2003 (Representative Donald
reported by the House
Manzullo)
Committee on Small Business on
October 21, 2003, and placed on
the Union Calendar on March 8,
2004. No further action.
S. 1886, the MADE in America
$75 million
$15 million
Introduced on November 18,
Act (by Senator Tom Daschle on
2003, and referred to the Senate
behalf of Senator John Kerry)
Committee on Small Business
and Entrepreneurship. No
further action.
109th
H.Amdt. 268, to H.R. 2862, the
$30 million
$5 million
Offered on June 15, 2005. Failed
Science, State, Justice,
by voice vote.
Commerce, and Related
Agencies Appropriations Act,
2006, to provide the NMVC
program $30 million in
debenture guarantees and $5
million for operational assistance
(Representative Gwen Moore)
H.R. 4234, the Smal Business
$50 million
$10 million
Introduced on November 5,
Gulf Coast Revitalization Act of
2005, and referred to the House
2005 (Representative Nydia
Committee on Small Business.
Velázquez)
No further action.
H.R. 4303, the Securing Equity
$100 million
$25 million
Introduced on November 10,
for the Economic Development
2005, and referred to the House
of Low Income Areas Act of
Committee on Small Business.
2005 (Representative Gwen
No further action.
Moore)
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Funding
Necessary
to Support
Funding for
NMVC
Operational
Debenture
Assistance
Guarantee
Training
Congress
Legislation and Sponsor
of
Grants
Legislative Action
110th
H.R. 1719, the Securing Equity
$100 million
$25 million
Introduced on March 27, 2007,
for the Economic Development
and referred to the House
of Low Income Areas Act of
Committee on Small Business.
2007 (Representative Gwen
No further action.
Moore)
H.R. 3567, the Smal Business
$30 million
$5 million
Introduced on September 18,
Investment Expansion Act of
2007, and referred to the House
2007 (Representative Jason
Committee on Small Business;
Altmire)
reported by the House
Committee on Small Business on
September 25, 2007; passed by
the House on September 27,
2007, by a vote of 325-72;
received in the Senate on
September 28, 2007, and
referred to the Senate
Committee on Small Business
and Entrepreneurship. No
further action.
S. 1663, the Securing Equity for
NA
$20 million
Introduced on June 19, 2007, and
the Economic Development of
referred to the Senate
Low Income Areas Act of 2007
Committee on Small Business
(Senator John Kerry)
and Entrepreneurship;
incorporated into S. 1662, the
Smal Business Venture Capital
Act of 2007, which addressed
the Small Business
Administration’s Small Business
Investment Company program;
that bill, as amended, was
reported by the Senate
Committee on Small Business
and Entrepreneurship on
October 16, 2007. No further
action.
S. 2920, the SBA Reauthorization
NA
$20 million
Introduced on April 24, 2008,
and Improvement Act of 2008
and placed on the Senate
(Senator John Kerry)
Legislative Calendar under
General Orders under Read the
First Time on September 24,
2008; placed on the Senate
Legislative Calendar under
General Orders under Read the
Second Time on September 28,
2008. No further action.
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Funding
Necessary
to Support
Funding for
NMVC
Operational
Debenture
Assistance
Guarantee
Training
Congress
Legislation and Sponsor
of
Grants
Legislative Action
111th
H.R. 1491, the Securing Equity
$100 million
$25 million
Introduced on March 12, 2009,
for the Economic Development
and referred to the House
of Low Income Areas Act of
Committee on Small Business.
2009 (Representative Gwen
No further action.
Moore)
H.R. 3722, the Enhanced New
$100 million
$20 million
Introduced on October 6, 2009,
Markets and Expanded
and referred to the House
Investment in Renewable Energy
Committee on Small Business;
for Small Manufacturers Act of
incorporated into H.R. 3854, the
2009 (Representative Ann
Smal Business Financing and
Kirkpatrick)
Investment Act of 2009,
introduced by Representative
Kurt Schrader on October 20,
2009; that bill was reported by
the House Committee on Small
Business on October 26, 2009,
and passed by the House, by a
vote of 389-32, on October 29,
2009; received in the Senate and
referred to the Senate
Committee on Small Business
and Entrepreneurship on
November 2, 2009. No further
action.
112th
H.R. 2872, the Job Creation and
$75 million
$15 million
Introduced on September 8,
Urban Revitalization Act of 2011
2011, and referred to the House
(Representative Nydia
Committee on Small Business.
Velázquez)
No further action.
113th
None as of December 8, 2014
Source: Legislative Information Service database, Congressional Research Service.
Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
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