The Coalition for Business Development (CBD) is a member-driven, Washington-based trade association that advocates exclusively on behalf of business development companies (BDCs) to expand their ability to provide necessary growth capital to small- and middle-market Main Street businesses so they can expand, invest, and create jobs. The CBD is the successor to the Coalition for Small Business Growth, an ad-hoc coalition of BDCs that in 2018 secured passage of the Small Business Credit Availability Act, produced research and data on the BDC industry, and championed modernization of decades-old BDC regulation.
Driven by the vision and input of our members, the CBD’s mission is to increase awareness of the value of BDCs to Main Street businesses among legislators, regulators, and media; to promote federal policy changes that enable BDCs to expand their lending; and to conduct and publish research on the efficacy of BDC activities and regulation.
There are hundreds of thousands of small- and middle-market enterprises (SMEs) employing millions of people across the country that are eager for capital to expand, innovate, and hire. Until 2018, the BDC regulatory regime had not been meaningfully updated since it was enacted in 1980. In 2018, CBD members successfully demonstrated to lawmakers the benefits of allowing BDCs to enhance their borrowing and lending abilities, which culminated in the enactment of the Small Business Credit Availability Act. While this change in law has been effective, more modernization of the BDC regulatory regime is needed to ensure BDCs can help Main Street businesses grow and thrive. These changes include:
Harmonizing the SEC’s treatment of BDCs with its treatment of other operating companies under its “Acquired Fund Fees and Expenses” (AFFE) Rule.
Ensuring BDCs have access to prudent risk management tools under appropriate accounting principles.
Removing artificial barriers to investment in BDCs by certain sources of capital so that BDCs have access to a sufficiently liquid market for their orders.
Access to capital is one of the most significant challenges facing small businesses in America.
What are BDCs?
In response to a shortfall in lending to small- and middle-market enterprises (SMEs) during the economy of the 1970s, Congress, in 1980, authorized a new business form called a “business development company” (BDC). A BDC is a SEC-regulated fund governed by the Investment Company Act of 1940 that enables Main Street investors to participate in the financing of Main Street businesses. BDCs, by law, must invest a substantial majority of their assets in SMEs.
As traditional bank lending to SMEs has declined in recent years, BDCs have become even more essential to helping SMEs in every industry and geography of the United States.
The CBD’s members have provided capital to software companies, medical device companies, small retailers and grocers, home appliance manufacturers, and thousands of other companies employing tens of thousands of American workers. Today, there are more than 80 BDCs in the United States.
Why are BDCs necessary?
There are nearly 200,000 middle-market businesses that represent one-third of private sector GDP, employing approximately 47.9 million people. In the wake of the 2008 financial crisis, large banks retrenched from lending to smaller US businesses. According to the Wall Street Journal, small business lending from the 10 largest banks collectively decreased 38 percent from 2006 to 2014, while those institutions continued to grow in asset size. BDCs fill the financing gap and help small- and middle-market companies grow. Currently, there are over 80 BDCs in the United States and, at a time when bank lending has scaled back significantly for growing middle-market companies, BDC loan balances have more than tripled since 2008.
How are BDCs regulated?
BDCs are regulated by the SEC under the Investment Company Act of 1940. Publicly-traded BDCs are subject to the disclosure requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934. Despite an outdated regulatory regime that is nearly four decades old, BDCs have managed to provide more than $87 billion in investment capital to American entrepreneurs and have evolved into a primary source of Main Street financing.