Small Town

If you're not in the Silicon Valley or in the shadow of Wall Street's skyscrapers, don't think the SBA isn't paying attention.
Magazine Contributor
2 min read

This story appears in the September 1999 issue of Subscribe »

The SBA has finally gotten around to serving those small-business owners who don't live in the boom areas of the last five to seven years. The agency is backing private sector venture-capital companies that invest in small businesses located in low- and moderate-income (LMI) areas-an important element in the Clinton administration's New Markets Initiative.

President Bill Clinton announced the initiative July 7 in Arizona, where a new venture-capital company, Magnet Capital, is being formed to provide small businesses with the kind of equity investments that helped get firms like Intel, AOL and FedEx up and running. So far, Magnet Capital has raised $5 million in private capital and can leverage that with up to $15 million in SBA-backed funding.

Magnet Capital is an initiative of Arizona MultiBank, a significant investor in the firm's investment pool and the first small-business investment company (SBIC) in the country to base its investment strategy on small businesses located in LMI areas. Six major banks have joined Arizona MultiBank in contributing a total of $5 million in private capital, the minimum amount required to start an SBIC.

That strategy allows Arizona MultiBank to stimulate venture capital investments in designated "New Markets"-those places that haven't received their fair share of the recent economic boom. Because the LMI funding allows SBICs to defer five years of interest payments on money borrowed with SBA guarantees, these SBICs are more willing to take risks on small businesses.

Companies that make LMI investments also have more flexibility to participate in the ownership and management of the companies in which they invest, allowing them to work more closely with start-up companies or people with good ideas but relatively little experience. Under the SBIC program, SBA-licensed venture-capital companies put risk capital, in the form of debt and equity financing, into small businesses for growth, modernization and expansion.

For those of you just starting out, SBICs are privately owned and managed for-profit investment companies licensed by the SBA. They make equity investments and long-term loans to small businesses, using their own capital supplemented by funding secured through SBA guarantees. For more information on the SBIC program and other SBA programs, call the SBA Answer Desk at (800) U-ASK-SBA, or visit the SBA's extensive Web site at

Kurt Samson is a freelance business writer and public relations consultant in Annapolis, Maryland.

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