Bill Battle Can restructuring save a program that helps entrepreneurs but hurts the budget?

A Senior House Republican is leading efforts to replace an SBAVC program that has spilled copious red ink since the dotcom boomwent bust. The Small Business Investment Company (SBIC)Participating Securities (PS) program made speculative, mostlyequity investments in entrepreneurial startups with little accessto VC funds, either because of their locations (outside SiliconValley, Boston and a few other places) or their business types(non-IT, nonsoftware, etc.). The supposedly self-supporting programhas lost about $2.7 billion since the tech bubble burst.

The Bush administration wants to drop the program entirely. ButRep. Don Manzullo (R-IL), chairman of the House Small BusinessCommittee, is trying to restructure it instead. He introduced theSBIC Participating Debenture Act of 2005 (H.R. 3429) in July. Itwould convert the PS program into a Participating Debentures (PD)program. SBICs would have to repay the SBA out of their revenue forthe interest payments the SBA makes on their behalf toinstitutional investors, who buy debentures.

Lee Mercer, president of the National Association of SmallBusiness Investment Companies, says the bill assures that a new PDprogram would be self-supporting. But the Bush administrationthinks the bill has some weaknesses. Jaime A. Guzmán-Fournier,associate administrator for the SBA's Office of Investment,says the PS program may have too many structural problems to risktrying to resuscitate it.

How do entrepreneurs feel about it? Mark A. Redding, CEO ofBanner Services Corp., a metal products manufacturer with 60employees in Carol Stream, Illinois, says he could not havepurchased the then-failing company in 2003 without equity from thePS program. He says, "Now, a viable small business, formerlyin decline, is regenerating itself after 44 years inbusiness."