Bill Could Spark Pension Investment in Small Businesses

March 18, 2002 ( - A new bill could spur additional funding for small businesses, while also offering a more attractive investment alternative for pension and endowment funds.

Senator Kit Bond (R-Missouri) has introduced the Small Business Investment Company Capital Access Act of 2002, a bill to boost the flow of venture capital to small businesses by allowing tax-exempt entities, such as pension funds and university endowment funds, to invest in Small Business Investment Companies (SBIC) without incurring unrelated business taxable income (UBTI). 

Current Restrictions

Under current law, non-profit organizations cannot invest in debt-investment type SBICs without incurring tax liability. As a result, 60% of the private capital potentially available to SBICs is effectively locked out of the marketplace, according to Senator Bond. By removing the barrier currently in the tax code, non-profit pension and endowment funds could invest their assets in SBIC debts, which are federally-guaranteed against loss.

Bond, who is Ranking Member of the Senate Committee on Small Business and Entrepreneurship, is cosponsoring the bill with Senator Chuck Grassley (R-Iowa), Ranking Member of the Senate Committee on Finance.

Industry experts believe it could boost capital available for SBICs by $200 million in the first year alone, according the National Association of Small Business Investment Companies (NASBIC).

SBICs are government-licensed, government-regulated, privately-managed venture capital firms created to invest only in original issue debt or equity securities of US small businesses.

Bond said, ‘This is a tailor-made solution to help struggling small firms stay in business, create the new jobs needed to restart the economy and safeguard workers’ retirement funds.’