Please ensure Javascript is enabled for purposes of website accessibility

A fuller picture of the Small Business Investment Company program

Joseph Haskins Jr., chairman, president and CEO of Harbor Bank of Maryland, speaks during a panel on small business lending on Tuesday in Baltimore as Stacey R. Wittelsberger, senior vice president at Patriot Capital, Robert M. Stewart, general partner and co-founder of Spring Capital Partners, and Ken Jones, a general partner at Philadelphia-based Boathouse Capital, listen. (Adam Bednar/The Daily Record)

Joseph Haskins Jr., chairman, president and CEO of Harbor Bank of Maryland, speaks during a panel on small business lending on Tuesday in Baltimore as Stacey R. Wittelsberger, senior vice president at Patriot Capital, Robert M. Stewart, general partner and co-founder of Spring Capital Partners, and Ken Jones, a general partner at Philadelphia-based Boathouse Capital, listen. (Adam Bednar/The Daily Record)

Vast segments of the financial markets have become largely inaccessible to minority-owned small businesses in Baltimore. However, The Daily Record’s coverage of the program hosted by Mayor Pugh missed several key points. Throughout the day, there were a number of issues raised as causes, only one (and not necessarily the most important) of which is unintended consequences of regulations governing the Small Business Investment Company program.

Nonetheless, regarding potential regulatory improvements to the SBIC program, more important elements should be noted.

The SBIC program, chartered by Congress in 1958, aims to facilitate the flow of long-term capital to America’s small businesses. Applicants to become an SBIC are required to raise a minimum of $5 million in private capital, with most SBICs encouraged to raise significantly larger amounts amidst incentives to fund larger investments (more than $2 million). The SBIC executives in attendance confirmed this, and noted that their investment criteria require investments greater than $2 million.

U.S. Census data reveals that 68 percent of black-owned, 67 percent of Hispanic-owned, and 62 percent of all small businesses nationwide employ five or fewer employees. The program highlighted the need for regulatory flexibility to encourage SBICs to target smaller investments more commensurate with the vast number of small businesses, especially those in underserved markets like Baltimore.

It also is important to note how few financial institutions operate in underserved markets, including Baltimore. Following the 2008 financial crisis, a large number of regional and local banks were closed, raising the importance of minority-depository institutions and community development financial institutions, like the Harbor Bank of Maryland, which was represented at the event by president and CEO Joseph Haskins. Despite evident need for additional capital sources, SBICs are not permitted to invest in CDFIs under SBA §107.720 in which “relenders” or “reinvestors” are not permitted to receive SBIC financing. Other experts from the Casey Foundation addressed the need for increasing the capacity of CDFIs as trusted lenders in underserved markets.

The Milken Institute, a nonprofit, nonpartisan think tank, is actively engaged in this effort. Our Center for Financial Markets promotes financial-market understanding and works to expand access to capital, strengthen and deepen financial markets, and develop innovative financial solutions to global challenges.

Through the public-private initiative, the Partnership for Lending in Underserved Markets (PLUM), we will continue to focus on Maryland and developing actionable solutions to address long-standing structural problems that inhibit minority-owned small businesses from accessing capital and growing their operations.

Aron Betru

Managing Director

Milken Institute Center for Financial Markets