To create a business and sustain momentum (and add jobs), entrepreneurs need access to financing. To grow a venture takes capital leverage, either on a personal or market level. Yet as the economy rocks and rolls, traditional lenders are sometimes less than eager to extend a line of credit or take a risk.
The U.S. House of Representatives this week passed the “Small Business Lending Fund (SBLF) Act,” H.R. 5297, by a vote of 241 to 182. The legislation will aid small businesses in securing capital through new community bank incentives, support for state lending initiatives and by opening venture capital markets to small businesses
“As our most prolific job creators, small businesses will be central to the recovery of the U.S. economy,” said Rep. Nydia M. Velázquez, chairwoman of the House Committee on Small Business. “However, for entrepreneurs to expand and create jobs, they need access to financing.”
The goal for the measure approved is to make credit and equity capital available for small firms.
While the legislation would establish a new $30 billion lending fund for community banks, which proponents say would provide $300 billion in lending to entrepreneurs, key changes were made during debate of the bill to ensure Main Street businesses benefit from the legislation.
Rep. Glenn Nye (D-VA) authored safeguards in the bill that will require banks to substantially boost their small business lending to qualify for funds. To further assist small firms, language prepared by Rep. Kurt Schrader (D-OR) would establish a new borrower assistance program, providing additional funds to small businesses who take out loans. The funds can be used at the entrepreneur’s discretion to reduce their interest rates, defer their loan or cover monthly payments.
With the capital markets evolving, small businesses are increasingly looking beyond debt financing to equity capital to meet their financing needs.
While entrepreneurs have traditionally used assets like real estate to secure loans, more and more business owners today seek financing based on strengths like their scientific expertise, research technologies, and potential for commercialization. For these firms, investment capital is a better financing solution.
To account for these economic changes, the legislation contains provisions aimed at reinvigorating investment in start-ups.
By establishing a new Small Business Early Stage Investment program, funds from the SBA will be paired with private capital to invest in small start-ups.