DEVELOPMENT OF THE SMALL BUSINESS INVESTMENT COMPANY PROGRAM*

Abstract

THIS DISSERTATION IS a survey of the provisions for small business investment companies and their operations from January 1, 1959, to September 30, 1960. The formation of small business investment companies was provided for by the Business Investment Act of 1958, which the federal government enacted in response to a growing interest in the financial problems of small business concerns. The act was to supplement, rather than to supplant, the flow of private capital to the small business segment of the nation. To carry out the objectives of the act, the Business Administration was assigned the task of licensing and regulating small business investment companies, and Congress appropriated $250 million to the Administration to be used for relending to the investment companies during the first 2-2 years of the program. The agency was authorized under the act to purchase subordinated debentures from and to make long-term loans to small business investment companies, which in turn would provide equity capital and long-term credit to small business concerns. During the first nine months of 1960, nine amendments to Small Business Administration Rules and Regulations governing the operation of the small business investment companies were made which have resulted in an improved program. One of the changes permits the companies to invest in the equity securities of small business concerns in the form of (1) certificates of stock of any class and (2) debt instruments which contain conversion features, stock-purchase warrants, or options to buy equity securities. By the end of 1959, sixty-one small business investment companies had been licensed, and nine months later the number had increased to 136. During the latter half of 1960, the proposals to form new licensees averaged about twenty-five per month. This increase in the flow of initial capital to small business investment companies was accompanied by numerous successful public issues of stock by them. Ascending public acceptance of the stock was probably influenced by