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BDCs Win Big in New Spending Bill

Congress signed into law on Friday a bill that allows business development companies to streamline their offering, filing, and registration processes and increase their ability to deploy capital to growing small and mid-size American businesses.

Congress signed into law on Friday a bill that allows business development companies to streamline their offering, filing, and registration processes and increase their ability to deploy capital to growing small and mid-size American businesses.

The bipartisan Small Business Credit Availability Act, which was included in the $1.3 trillion spending bill, amends the Investment Company Act of 1940 to modernize the regulatory regime for BDCs for the first time since the 1980s when they were created by Congress.

BDCs are investment vehicles designed to facilitate capital formation for small- and middle-market companies that may not have access to traditional sources of capital.

The Small Business Credit Availability Act, which is sponsored by Rep. Steve Stivers (R-OH) and co-sponsored by four Democrats and three Republicans, originally passed the House Financial Services Committee in November in a 58-2 vote.

The legislation allows BDCs to double their leverage, which was previously restricted to a 1:1 debt-to-equity ratio, and eliminates certain regulatory burdens.

Industry groups like the Investment Program Association and the Alternative and Direct Investment Securities Association have lobbied for years to modernize BDCs.

“The real winners here are America’s small and mid-size businesses that will have access to additional growth capital resulting in meaningful domestic investments and job creation,” said Tony Chereso, IPA president and CEO. “Further, individual investors will have more investment choices.”

“We applaud the Congress and president for…allowing BDCs to operate with greater flexibility, which will likely allow for greater capitalization of middle-market companies and enhanced returns for BDC investors,” said John Harrison, ADISA executive director and CEO. “This reform enjoyed widespread and bipartisan support in Congress, and we are very pleased to see it enacted.”

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