Poor L.A. Areas Could Benefit in Clinton Plan
President Clinton’s proposal to channel $1 billion into economically distressed urban and rural areas should help bring needed equity investments and technical assistance to small businesses in Los Angeles’ poorest neighborhoods, Small Business Administration administrator Aida Alvarez said.
Clinton announced the initiatives Friday at a meeting for financial industry and corporate executives organized by the Rev. Jesse Jackson.
The proposal--some elements of which depend on congressional approval--would set aside $1 billion over five years for tax credits, loan guarantees and other enticements for private investment in economically distressed urban and rural areas. The tax credits would be worth as much as 25% for investments in development banks and venture funds and new investment company programs targeted for impoverished areas.
Clinton also envisions setting up a new financial institution called America’s Private Investment Companies. It would be loosely modeled on the Overseas Private Investment Corp., which helps U.S. companies secure loan insurance for overseas projects.
The idea behind APIC would be to support private investment partnerships that would finance the creation or relocation of large businesses in poor areas. Under this program, investors would put a minimum of $100 million in equity into the partnerships, and the Department of Housing and Urban Development and the Small Business Administration would each provide as much as $200 million in loan guarantees.
Other aspects of the Clinton proposal target development of smaller businesses through venture capital, by expanding SBA programs and initiating several new ones, Alvarez said.
“There are many communities with lower- or middle-income status that aren’t being well-served, particularly small businesses that could benefit from an infusion of capital, not simply loans,” she said.
Another program would create 10 to 20 private venture capital companies that would provide equity financing and technical assistance to small businesses in poor areas. Each company must raise at least $5 million in private capital, to be matched by up to $10 million in SBA-backed loan guarantees. Creating one such company in Los Angeles is a priority for the agency, said Don Christensen, SBA associate administrator for investment.
“We believe there is insufficient venture capital in the Los Angeles area,” he said. “Somehow, it has drifted up north.”
The Clinton plan also proposes:
* Expanding the SBA’s Small Business Investment Co. (SBIC) program, which helps companies make the transition from small operations to big ones. America Online Inc. and Staples Inc. have benefited from this program in the past. The expanded program would offer financial incentives only to those SBICs that invest in businesses that are either located in poor areas or hire 35% of their workers from those areas.
* Allowing new non-bank lenders to originate loans under the SBA’s 7(a) General Business Loan Guaranty program, which guarantees as much as 80% of a loan to a small business that can’t otherwise secure financing at reasonable rates.
* $125 million for community development financial institutions, and $3 million in seed money to expand a program called BusinessLINC, which is designed to encourage large businesses to work with small-business owners.
* Expanding tax incentives to increase the equity capital available to low-income businesspeople by making it easier for them to qualify as tax-favored regulated investment companies.
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Associated Press and Bloomberg News were used in compiling this report.
