Kelly proposes measure to help minorities, women get additional funding for businesses
Rep. Robin Kelly wants to make it easier for businesses owned by minorities and women participating in federal government set-aside programs to get venture capital and private equity investments.
Under current rules, minority-and woman-owned businesses are required to have "unconditional" majority ownership in their companies to receive U.S. Small Business Administration certifications. The certifications enable them to compete for federal government contracts in government set-aside programs.
But the unconditional requirement has prevented equity investment in these companies, said Kelly, D-Matteson.
Typically, investors want a board seat or some other condition when they provide capital to businesses.
"This has forced business owners to choose between program participation and growing their businesses," Kelly said.
Anyone who has watched the television show "Shark Tank" knows investors don't just part with their money unconditionally, Kelly said.
"They want to be part of building a company," she said. "They want to ensure success for their investments. Unfortunately, our current laws and policies do not reflect this reality. This bill preserves the program's intention, aiding, training and resources for disadvantaged business owners, while allowing them to access venture capital to grow their business and become industry leaders."
Kelly's proposed Women and Minority Equity Investment Act would amend SBA requirements for set-aside programs. It would allow companies to retain SBA certifications and receive venture capital and equity investments as long as the minority or woman business owner maintains at least a 51% ownership stake in the company.
That ownership stake could fall below 51% under certain conditions — the legislation would allow for equity investments of 51% or higher from minority-and woman-owned venture capital or private equity firms.
The legislation has bipartisan support. Republican U.S. Sen. Marco Rubio, of Florida, and Democratic Sen. Maria Cantwell, of Washington, proposed the same legislation in the Senate.
"I think this will help many minority- and woman-owned businesses because people will be able to invest and have a seat on the boards and then they can participate in the SBA programs," Kelly said. "That's major."
Supporters of the legislation said it also could help spur growth of minority-owned venture capital firms. Currently, only 2% of venture capital firms are owned or controlled by women, said Candace Waterman, president and CEO of Washington, D.C.-based Women in Public Policy, which supports the legislation.
Just 10% of venture capital dollars are invested in companies with at least one female founder while businesses owned by African-Americans and Hispanics get just 2% of venture capital dollars, according to Kelly's office.
"I'm hoping this will be a big game changer for the financial industry, one that will provide access to capital for those businesses that really need it and spur more venture capital firms owned by minorities and or women," Waterman said.
Several south suburban SBA-certified participating businesses welcomed the legislation.
"I think it's great," said Lauren Sustek, owner of South Holland-based Bartkowski Life Safety Corp., a safety and specialty contracting company.
She has participated in the set-aside program for about five years and has landed roughly $5 million in contracts, she said. But getting financing was a challenge for her business, she said, noting she was rejected when she sought financing from several large lenders.
"My experience was there was a lot of hesitancy to be able to provide financing to the degree that a small business would need," she said.
Ultimately, she succeeded in gaining a line of credit from a small local bank. Because of the SBA certification restrictions, she never pursued venture capital or equity financing.
"It's a little difficult when you're in the I(set-aside program) to now sell off some of my business and tell that person that's buying that they really don't have any control, they really don't have any say," she said.
To be able to get to the next level from a small business to a mid-size company, businesses need access to venture capital and equity financing, she said.
Karen Riffice, owner of Amalgamated Services Inc., a Frankfort based heating, air conditioning, ventilation and plumbing company, had a similar view.
She has received roughly $10 million in contracts through the government program in the last five years, she said. She was unsuccessful in gaining financing for her company through traditional commercial lenders.
"Their standards are too high. They don't like contractors," she said.
She is paying higher interest rates than she would prefer to a nontraditional lender, she said, adding if the bill becomes law, she would be open to considering venture capital or equity investment.
"This legislation would be very welcome," she said.
With additional cash infusions from investors, firms would be able "to aggressively go after more federal government contracts, make more revenues and employ more people," said Jaemie Neely, director of the Women's Business Development Center Procurement Technical Assistance Center at Prairie State College in Chicago Heights. The center helps small businesses seek contracts and apply for government certification.
WBDC President and CEO Emilia DiMenco said access to capital remains a major hurdle to many small business owners. The legislation is a helpful step in the right direction but more needs to be done, she said.
"We need to do a lot more to provide capital to small businesses," she said. "Relying on traditional banks, relying on historical SBA programs obviously is not doing the job. We have to figure out how to create more microlenders that provide alternative forms of capital to small businesses. We have to really focus on all forms of capital, on how to get capital to neighborhoods to promote innovation which will ultimate create jobs and fuel economic growth."