Rural Business Investment Companies:
Designed to Promote Small Rural Enterprises
In 2002 Congress created the Rural Business Investment Program (RBIP) which in turn licenses new rural business investment companies (RBICs). RBICs were modeled after a combination of SBA’s Small Business Investment Company Program and the New Markets Venture Capital Program, but RBICs were designed primarily to promote economic development and job creation in rural areas. The program provides for a 3 to 1 leverage of private capital through the use of federally guaranteed, discounted debentures. Thus, for every dollar of private capital raised by a licensed RBIC, the RBIC can leverage three borrowed dollars that USDA will guarantee. The debentures are considered “discounted” because five years of interest is deducted on a pre-paid basis, allowing the net proceeds to be invested as equity because there is no need to generate current income to service interest payments.
By licensing qualified management teams and structuring the RBIP appropriately, the program is designed to encourage private risk-taking and investment in rural America. Applicants for RBIC licensing must identify targeted rural areas and demonstrate how they would assist those areas through disciplined, profit-oriented investing in rural enterprises.
A promising aspect of the RBIC is the availability of operational assistance grants to assist RBICs, and their portfolio companies, with technical, managerial, or networking assistance. The amount of operational assistance funding is limited to 10 percent of private capital raised by the RBIC or $1 million. This technical assistance will be especially valuable in rural areas where supportive services for entrepreneurs and small businesses are relatively limited.
Only one RBIP, of the three conditionally approved, has been able to raise the necessary capital for full approval to license an RBIC, Meritus Ventures. In 2005 Congress cut funding for the program and repealed the authority to spend funds in the future. Thus, Congress has ended any future funding for the program.
More information can be found at:
http://www.rurdev.usda.gov/rd/farmbill/2002/RBIPfactsheet.html and http://www.sba.gov/INV/RBIP