SBA Commits $2 Billion to Matching Small Business Capital

The White House says the Small Business Administration (SBA) will commit $2 billion in matching funds to private sector investment over the next five years in promising high-growth companies.  The new funding is part of a White House small business initiative announced today that includes a proposal to make permanent a capital gains tax credit in the compromise tax cut bill passed last year.

The $2 billion in matching funds for small businesses has two parts:

– Early-Stage Innovation Fund ($1 billion): Venture capital funds have reduced their support of early stage investments, which hits hard science and technology-based companies with little prospect for positive cash flow until highly complex products are developed. The Early Stage Innovation Fund aims to fill this gap, providing a 1-to-1 match to private capital raised by seed and early stage funds.

– Impact Investment Fund ($1 billion): SBA will commit $1 billion to funds that invest growth capital in companies located in underserved communities, such as economically distressed areas, as well as those companies in emerging sectors such as clean energy.  SBA will provide up to a 2-to-1 match to private capital raised by these funds.

The White House says SBA has the authority, infrastructure, and funding in SBA’s Small Business Investment Company program to undertake these matching funds. SBA-guaranteed bonds will match private capital raised by these privately-owned and managed investment funds, which SBA hopes will accelerate capital support for startups and high-growth firms.

The Obama administration will propose in the next (FY 2012) budget that a capital gains tax credit provision in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 passed during the lame-duck session in December, be made permanent. The provision provides a 100-percent exclusion from tax for capital gains realized on the sale of certain small business stock held for more than five years.  The amount of gain eligible for the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock. This provision applies to qualified small business stock issued after December 31, 2010, and before January 1, 2012.

Photo: borman818/Flickr

*     *     *