Written testimony of Ben Geis — Chair of the Board, Small Business Investor Alliance (SBIA), May 14, 2025

Summary

Written testimony of Ben Geis, Chair of the Board of the Small Business Investor Alliance (SBIA), for a U.S. Senate Committee on Small Business and Entrepreneurship hearing on May 14, 2025 entitled Financing America's Manufacturing and Industrial Boom. The testimony describes SBIA, how small business investing works, and the Small Business Investment Company (SBIC) program. It states that SBICs have made over 198,000 investments totaling nearly $140 billion since inception and that FY2024 capital commitments were nearly $47 billion. It describes SBIC leverage limits, including a $350 million family-of-funds maximum, Accrual and Reinvestor SBICs, and the SBIC Critical Technologies Initiative with the Department of Defense. The 11-page document also covers access to capital and policy recommendations, with an appendix charting the SBIC licensing lifecycle.

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                    Written testimony of
    Ben Geis, Managing Directory, Eagle Private Capital &
  Chair of the Board, Small Business Investor Alliance (SBIA)

                          for the
U.S. Senate Committee on Small Business and Entrepreneurship
                      hearing entitled

  “Financing America’s Manufacturing and Industrial Boom”

        428A Russell Senate Office Building at 2:30PM




                        May 14, 2025




                           Page 1 of 11
The Small Business Investor Alliance

SBIA was formed in 1958 to represent Small Business Investment Companies, the original American
venture capital and private equity funds. As the small business investing market grew more complex, so
did SBIA. SBIA now includes Small Business Investment Companies (SBICs), Rural Business Investment
Companies (RBICs), Business Development Companies (BDCs), conventional private equity funds, private
debt funds and other funds investing in American private small businesses. We also represent the
institutional investors (e.g. community banks, university endowments, pension funds) who invest into
these small private funds. Our association’s purpose is to represent the entire lower middle market
investing ecosystem, both General Partner and Limited Partner. As such, our public policy goals are
balanced and focused on maintaining a robust, healthy, and competitive market for investing in American
businesses.

Private Capital Markets, Private Equity, and Venture Capital 101

The American capital markets are the envy of the world. Our capital markets are one of our greatest
advantages in the highly competitive global economy. Our public markets are well known, with stock
prices of very large businesses readily available and often at the top of the news. In contrast, private
equity, private credit, and venture capital are far less understood, but arguably of equal or greater
importance because they empower entrepreneurs to unleash innovation and growth. Private capital
markets are critically important to small businesses in scaling up and becoming regionally, nationally, and
globally competitive.

Private equity is a very broad category of capital providers who are commonly misunderstood and often
misrepresented. The truth is, investing by private equity is a powerful force for good. Private equity is a
driver of job creation, innovation, and expanding prosperity to the people and places that are not yet fully
benefiting from our system of free enterprise. The profits from private equity fund the retirement security
of millions of pensioners and provide the scholarship money used to provide educational access to a new
generation of college students. These private equity investments are commonly made in areas of the
country that are otherwise passed over or passed by. Most of our member funds are located in Little Rock,
Indianapolis, Buffalo, Omaha, Kansas City, and many other places that far from Wall Street or Silicon
Valley. Regardless of investing style, private equity investors in small and medium-sized businesses make
money by helping the businesses grow and succeed. The idea that private equity funds make money by
having businesses fail is just not true.

How Small Business Investing Works

To put it in the simplest of terms, private equity and venture funds are investment vehicles that pool
capital (largely from institutional investors like pensions and endowments) and then invest in businesses
that are not publicly traded to help them grow.




                                               Page 2 of 11
Private equity helps business grow by not only providing critical, patient capital that conventional banks
cannot, but also by helping the smaller business learn how to grow and make big leaps forward that they
otherwise would not have been able to achieve on their own. The only way to be a successful private
equity fund in the lower and middle market is to find smaller businesses and help them grow into bigger,
better businesses.

Small Business Investment Companies (SBICs)

SBICs are an American success story and example of a successful federal public policy that aligns the power
of private markets with the public interest of job creation and economic growth. Congress declared in its
original authorizing legislation that the SBIC program should “stimulate and supplement the flow of
private equity capital and long-term loan funds which small business concerns need for the sound
financing of their business operations” while also stimulating the national economy and job growth.1

SBICs operate in what is commonly called “the lower middle market.” The small businesses that compose
the lower middle market are employer firms, typically with $5-$150 million in annual revenues. Not every
lower middle market business will be eligible for SBIC investment, they still must meet the size standards
set by Congress and the SBA for the program. SBICs typically invest in businesses just entering the lower
end of the middle market and in small businesses with growth potential to enter the middle middle market
($150-$500 million revenue/annually). Very few of these growing companies want to become publicly-
traded companies and very few will ever have an IPO.




1 Small Business Investment Act of 1958, Pub. L. 85-699 (Aug. 21, 1958). 15 U.S.C. 661.



                                                         Page 3 of 11
                                                arge


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                                      Small Business


SBICs invest exclusively in domestic small businesses, creating jobs and empowering U.S. small businesses
to compete in our economy. Companies that in their early stages received SBIC investments and have
subsequently grown into icons of American industry include Federal Express, Apple, Intel, and Callaway
Golf. While these are recognized companies globally, many more small businesses backed by SBICs have
grown from smaller businesses into robust, sustainable mid-sized businesses.




                                              Page 4 of 11
Small businesses that are experiencing a generational transfer warrant special mention because private
equity, and SBICs in particular, play a critical role in successfully managing these changes. Most small
businesses are “lifestyle businesses” that provide a fulfilling career and support a family, but the business
will end when the owner ceases working. But there are also a large number of businesses that are meant
to continue on past their founder’s time and many of these founders are aging. There are hundreds of
thousands of successful businesses, commonly small businesses, that were founded by baby boomers or
post-baby boomers, whose owners need to retire and whose business still has its brightest days ahead. In
many of these businesses the founder/owner does not have a child who is willing or able to take over this
business. Without a buyer, often a private equity fund or a management team backed by a private equity
fund, many of these otherwise successful small businesses will simply shut down – harming their
employees, the economy, and their communities.

When these businesses facing generational transfer are sold to an SBIC or private equity fund these
businesses grow. The new owners are investing for the longer term –in new equipment, new technologies,
new products, and new employees. These businesses innovate like a startup but do so with the critical
advantage of a proven business model. It is common for the family or founder of the business to retain a
minority ownership stake in the business and therefore participate in the ongoing success of the now
growing business. The failure rate of these investments is low and the growth rate (both profit and
employment) is high.

Impact of SBICs

SBICs are a critical part of the small business capital markets. SBICs investments are overwhelmingly the
first institutional capital to ever be deployed into the small business they are backing. Further, once SBIC
capital is invested into a small business then the small business is often able to access more conventional
bank capital. SBICs are only able to make a profit by successfully growing small businesses.

Since inception, all SBICs have made over 198,000 investments in U.S. small businesses totaling nearly
$140 billion.2 These investments are in real companies with real staying power and real growth potential.

In FY2024, the capital committed to U.S. small businesses from licensed SBIC funds was nearly $47 billion,
a record level over 50 percent higher than five years ago.3 Nearly one in four investments, moreover,
were made in underserved small businesses.4 During 2024, the SBIC program had 318 active funds5.

Last week, SBA announced it has granted at least 49 green light approvals to SBICs so far in FY2025.6 At
least 27 new SBIC licenses have been issued, and we are only about halfway through the year. To put that
in perspective, the Agency issued just 26 licenses in all of FY2023.


2
    Small Business Administration, March 2025 Offering Circular for Trust Certificates.
3 Small Business Administration, Small Business Investment Company (SBIC) Program Overview Report for FY2024 (last visited

March 11, 2025)
4 The Office of Investment and Innovation reports financing information based on data collected on the SBA Form 1031. The

term "Underserved" and represents women-owned, minority-owned, and veteran-owned small businesses or small businesses
who are located in a low-to-moderate (LMI) income area.
5 Id.
6
 With Green Light Approval, SBIC Applicants are approved to proceed with raising private capital necessary for
Final SBIC License approval. Receiving Green Light Approval is an important milestone, and pending no material
adverse changes following this approval, sufficient private capital being raised, and submission of Final License
Application and fees, Green Light Approved Applicants proceed to receive an SBIC License.

                                                       Page 5 of 11
7


Supporting Small Domestic Manufacturers and the Industrial Base

Manufacturing plays a critical role in the US economy. The sector employs nearly 16 million people and
directly accounts for over ten percent of total GDP.8 Adding in the indirect impact of supply chain sourcing
around the country, this jumps to over 17 percent.9 As such, manufacturing is an ecosystem that needs
capital, a prepared workforce, working supply chains, and transportation and logistics. The United States
has most of these, but all require improvements and good public policy. With technology having
transformed every sector of our industrial base over the past 50 years, good public policies should aim to
support manufacturing broadly, not just focus on “advanced manufacturing”. Manufacturing is a web of
interconnected industries that all play an important role in our economic ecosystem.

SBICs currently make approximately 20 percent of all investments in the manufacturing sector. While
some of the policies needed to promote manufacturing need improvements from the states and local
governments (zoning, etc.), there are things this Committee can do to boost investment in small domestic
manufacturers via the SBIC program. The Investing in All of America Act, discussed in more detail below,
would unloc “bonus” leverage for investing in manufacturers, businesses in low-income and rural areas,
and technologies critical to our national defense.




7 Jobs are a sum of findings from
                                ibrary of Congress report entitled “ easuring the Role of the SBIC Program in Small Business
Job Creation” from 1995-2014 and data from SBA SBIC annual reports 2014-2024.
8
  National Institute of Standards and Technology, Annual Report on the U.S. Manufacturing Economy: 2024, Annual
Report on the U.S. Manufacturing Economy: 2024
9
  Id.

                                                       Page 6 of 11
SBIC Structure

Most SBICs are levered (debenture) funds, which means those funds are authorized to borrow money
from a federally authorized credit facility using the Federal Home Loan Bank system. It is critical to note
that unlike other SBA programs, the investments made by the SBICs have zero investor guarantee. All
private capital can be lost with a bad investment – the private sector is fully exposed to risk with the SBA
leverage protected by the private capital. Access to this SBA/Federal leverage permits individual SBICs to
multiply paid-in private capital up to two times capital or $175 million, whichever is less. Almost all SBIC
Funds have a finite term, with an investing period of 5 years and then a harvesting period of another 5
years. As such, SBICs commonly have several SBIC funds that are in different parts of their
investing/harvesting life cycles (investing, harvesting, and then forming their next fund). The maximum
leverage for an SBIC family of funds (a group that holds multiple SBIC licenses) is currently $350 million.
Leverage is provided at a zero-subsidy rate, with no annual appropriations necessary to fund up to $6
billion a year (FY25 Continuing Resolution), which is eventually paid back in full to the SBA with interest
and fees. (See Appendix for the typical lifecycle of a traditional SBIC).

Accrual Debentures and Reinvestor SBICs

SBA has relatively new additional tools to fill more types of capital access gaps in the market: Accrual
and Reinvestor SBICs. Accrual SBICs are leveraged funds but interest accrues and is paid back by the SBIC
at the end of the 10-year debenture period to better align with the cash flows of long-term, equity-
oriented funds. Equity investments allow small businesses to retain their liquid capital for both growth
and working capital. Reinvestor SBICs are a subset of Accrual SBICs for the express purpose of
reinvesting in a portfolio of smaller investment funds to increase the geographic reach of the SBIC
program. Reinvestor SBICs are in a category commonly referred to in the investing industry as “funds-of-
funds”. Reinvestor funds are a market-driven developmental league to provide more capital to a next
generation of emerging small business investors.

SBIC Critical Technologies Initiative

The SBIC Critical Technologies Initiative is a partnership between SBA and the Department of Defense
(DOD) to increase investments in a broad range of small businesses that operate in critical national
security industries and supply chains. These small businesses are not necessarily government contractors,
but are in key industries we need to develop domestically. SBA and DOD have identified gaps in the credit
markets for high-tech startups and small businesses that could produce the technology needed for future
national security efforts.




                                               Page 7 of 11
State of Small Business Access to Capital

For small businesses, access to capital is a distinguishing feature that often determines success or failure.
It is noteworthy that access to capital often is the single highest concern for growing small businesses. It
is much more difficult for smaller businesses to access long term patient capital than it is for medium-
sized or larger businesses.

Traditionally, community and regional banks generally help finance businesses that have assets to borrow
against. Even when banks can provide capital, they generally cannot provide equity or many of the flexible
types of capital that growing small businesses need. Unfortunately, smaller and more rural businesses
have even more difficultly accessing traditional sources of capital, particularly if there is any equity in the
transaction. Also, many small businesses do not have adequate assets to access the amount of bank loans
that they need. Smaller businesses are seen as too risky for most banks and larger financial institutions.
Equity and subordinated debt provided by SBICs, RBICs, and other PE/VC funds enable small businesses
to access bank loans that otherwise would be unavailable.

Additionally, smaller businesses need hands-on help to manage growth while some need help to navigate
changes in the competitive landscape. Some family-owned small businesses need help to transfer
ownership when the original founders are ready to retire but want to maintain the business as a going
concern. This is the kind of help that SBIC funds can provide.




                                                Page 8 of 11
SBIA Policy Recommendations

While the SBIC program has shown record growth over the past 15 years, there are policies this committee
can consider to expand access to capital in unserved geographies, ensure the SBICs remain on par with
rising inflation, and provide the Office of Investment and Innovation with the resources necessary to
administer the program.

SBIA strongly supports the Investing in All of America Act

SBIA strongly urges Congress to consider and pass the Investing in All of America Act, to increase access
to capital through the SBIC program. This bipartisan legislation was led in the Senate by Sens. John
Hickenlooper (CO) and Roger Marshall (KS) last congress and has been reintroduced in the House by Reps.
Dan Meuser (PA) and Hilary Scholten (MI). The bill will encourage private capital investments in the parts
of America that are often overlooked, including small manufacturers.

Last Congress, meaningful improvements were made to the bill, including an adjustment to how college
and university investments are treated which will unlock significant new investment into SBICs to the
benefit of both students and small businesses. That bill passed the House unanimously last year.

This year’s version of the bill ma es one additional, and very important, improvement to ma e
investments in small manufacturers eligible for bonus leverage. Expanding access to capital for U.S.
manufacturers is a top priority for many Senators on this committee, and we believe the new Investing in
All of America Act will fulfill that goal.

The Investing in All of America Act reforms the Small Business Investment Company program at SBA to
encourage private capital investment in underserved areas and industries with the following benefits:

        •   Market-led and market-driven.
        •   No new spending, mandates, or subsidies.
        •   100% of investment is in American small businesses.
        •   Encourages investment in Low-income and Rural Areas.
        •   Encourages investment in domestic manufacturing and critical technologies.
        •   Inflation adjustment allows the program to remain competitive as prices rise.

The Investing in All of America Act would streamline the current bonus leverage provisions to make them
simple and straightforward, with no need for new appropriation for implementation as
drafted. Specifically, the bill provides SBICs with bonus leverage to invest in rural, low-come,
manufacturing, or national security-focused businesses.

The legislation would also adjust the leverage commitment levels by a factor of inflation from the last time
they were adjusted in statute and make annual adjustments thereafter. The leverage caps have not been
adjusted since 2015 for single license holders and 2018 for a family of funds. In that time, inflation has
risen nearly 30%. In the face of current and future inflationary pressure, adjusting the leverage caps is
necessary to ensure the program’s investment power remains consistent with the broader markets and
SBICs can continue assisting job-creating small businesses across the country for years to come.




                                               Page 9 of 11
SBIA supports passage the Investing in Main Street Act

During the first weeks of the 119th Congress, the House unanimously passed H.R. 754, the Investing in
Main Street Act. The bill has a long history of bipartisan support and has been championed in the Senate
by Sens. Todd Young (IN) and Tammy Duckworth (IL). The bill would rectify a historical disconnect between
banking law and small business investment law and allow a bank or federal savings association to invest
up to 15% of their capital and surplus in SBICs, while still subject to the approval of the bank regulator if
above 5%. This would dramatically increase the amount of private capital in the SBIC program, which will
then be deployed to domestic small businesses, at no cost to taxpayers. The legislation has been referred
to the Senate Banking Committee and we urge Members of this Committee to speak with your colleagues
to move it forward.

SBIA urges Congress to ensure all fees charged to, and collected from, SBICs are used by OII exclusively to
administer the SBIC program.

The SBIC program has experienced significant growth recently. There are nearly 320 licensed funds with
combined SBA commitments and private capital exceeding $46 billion. There has also been record-setting
interest from prospective and returning licensees. As previously mentioned, SBA has approved at least
49 green light approvals and 27 licenses to SBICs so far in FY2025. To put that in perspective, the Agency
issued just 26 licenses in all of FY2023.

Ensuring the fee revenues collected from SBICs by the Office of Investment and Innovation are used to
provide the personnel and resources to process and manage this influx of new and existing licensees is
critical.

SBIA thanks the Committee for holding this important hearing and looks forward to working with
Members on bipartisan legislation that will increase capital access for all of America’s small businesses.




                                               Page 10 of 11
                                                              APPENDIX


                                                   Ini al fundraising period of 1 months a er
                                                   issuance of reen ight e er




Submit Pre Screen         Submit applica on,      Applicants interview with      anagment team raises    SBICs have 1 addi onal     Repay SBA in full.
Applica on op onal .      e hibits, and pay       SBA at ashington C          re uired private capital   months post licensing to   Surrender license.
Call with SBA.            applica on fee.           ead uarters.              for inital fund closing.   raise addi onal capital
 ecide to Apply for an    SBA conducts due        Investment Commi ee,        Apply for license and       mul ple closings
SBIC license.             diligence.               icensing Commi ee,         submit fee.                allowed .
                          Investment Commi e      and Administrator vote      Administrator approves     SBIC opera onal life
                          votes to conduct in     to issue reen ight          license and issues it to     5 years for investment
                          person interview with    e er.                      SBIC.                      period.
                          applicant.                reen ight e er issued     Conduct Ini al und           5 years for harvest
                                                    a cer ca on that the      Closing and start          period.
                                                  management team will        opera ng.
                                                  be issued an SBIC license
                                                  and the intended
                                                  leverage commitment
                                                  from SBA at fund closing,
                                                  provide terms and
                                                  condi ons are met.




                                         SBIC icensees must submit uarterly nancial
   reports with respect to fund level nancials and por olio company nancings.




                                            or each nancing of a small business, e cluding
                guarantees, SBIC icensees must submit a por olio nancing report within                   days of
                the close of the uarter in which por olio company nancings occurred.



                                       The SBA O ce of Investment and Innova on amina ons ivision
                         performs periodic remote and on site e amina ons of SBICs every one to two years to
                         monitor regulatory compliance with SBIC program statutory, regulatory and policy
                         re uirements. aminers also ensure the accuracy of informa on SBICs submit to SBA.




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