U.S. Senators Marco Rubio (R-FL) and Jim Risch (R-ID) introduced the American Innovation and Manufacturing Act. The bill would create a new facility in the Small Business Investment Company (SBIC) program to provide preferential and patient capital to America’s small manufacturers.
The new facility would provide long-term debt with equity features to SBICs that invest in small manufacturing firms. Representative Claudia Tenney (R-NY) will introduce companion legislation in the U.S. House of Representatives.
“The secret to America’s long economic success has been our ability to make things and our capacity to innovate for the future,” Rubio said. “When we do both, we create stable, well-paying jobs that power a strong, dynamic country with safe communities and bright futures. Unfortunately, we have all too often learned the hard way what the loss of productive capacity does to our national stability and economic dynamism. Our challenges were clear even before the pandemic upended global supply chains and highlighted our inability to make even the most basic necessities.”
“As we move to the rebuilding phase, we must help small manufacturing firms that face a debilitating lack of access to critical finance,” Rubio continued. “My American Innovation and Manufacturing Act will help innovative firms engaged in manufacturing production secure the capital they need without the demand for immediate, outsized returns. The success of these companies is critical to confronting the threat posed by the Chinese Communist Party’s economic ambitions and to bringing good jobs back to America.”
“To fully recover from the pandemic, we must shift from short-term fixes to developing long-term solutions that support job creation and promote American ingenuity,” Risch said. “The American Innovation and Manufacturing Act will provide the resources to help us create well-paying jobs and remain competitive in the global marketplace.”
“The American Innovation and Manufacturing Act will help small businesses grow and thrive in the communities I represent across Upstate New York by granting them greater access to financial resources,” Tenney said. “We need to bring manufacturing back to America and rebuild the Made in America movement, and this legislation will help do just that. It will grow the domestic manufacturing industry and workforce while eliminating the challenges many small manufacturing firms face when trying to access capital. I thank Senator Rubio for his leadership on this issue and am pleased to be partnering with him on this important initiative.”
In June 2019, then-Chairman Rubio held a Senate Committee on Small Business and Entrepreneurship hearing on the SBIC, during which he touted the program’s historic success and its ability to play a critical role in rebuilding our nation’s manufacturing capacity.
“The access-to-capital challenge facing innovative American firms with high-growth potential is damaging to our country’s competitiveness, and this financing gap is not being filled by private investment,” Rubio said at the hearing. “Today, venture capital funding in the United States is highly concentrated by geography – primarily to areas like San Francisco, New York, and Boston – and by industry – largely to information and communication technology companies. The relatively short window for expected returns, combined with the prioritization of highly scalable, capital-light businesses for investment, skews funding towards digital technology and away from capital-intensive manufacturing sectors with longer profit horizons.”
Earlier versions of the American Innovation and Manufacturing Act were included in then-Chairman Rubio’s SBA Reauthorization and Improvement Act of 2019 and Continuing Small Business Recovery and Paycheck Protection Program Act in 2020.
Specifically, the American Innovation and Manufacturing Act provides $10 billion in long-term debt with equity features to registered SBA Small Business Investment Companies (SBICs) that invest in small businesses in manufacturing industries. To accomplish this, the Administrator is authorized to make commitments to a participating SBIC and purchase equity-like bonds from a participating SBIC, defined by the following terms:
- A term of at least 15 years with an interest rate of up to two percent; interest shall accrue on the bond rather than require cash interest payments.
- The Administrator will participate in the SBICs’ profits at a rate of 1/3 of the commitment that is approved, divided by the commitment approved plus regulatory capital.
- The Administrator will receive up to two percent interest from the SBIC’s commitment, while the managers of the SBIC will receive a maximum interest of 25 percent minus the interest paid to the Administrator.
- The Administrator must receive all interest payments on bonds committed before an SBIC may distribute capital (including profits) to investors or fund managers.
- If a participating SBIC defaults, the Administrator will receive any unpaid returns or interest prior to the company’s investors or managers.
- The Administrator may directly commit or commit to purchase bonds from an SBIC up to a maximum that is the lesser of 2x the SBIC’s regulatory capital and $200 million.
- Any commitment by the Administrator to purchase bonds will remain available to be sold by an SBIC for four years.
- 50 percent of dollars invested by SBICs under this program must be invested in manufacturing businesses.