Although a report on formation of a Small Business Investment Corp. won't be written until Aug. 10, the author will recommend that until a business plan is written and a manager named no state support should be given.
David J. Grant, Utah Division of Economic Development director, said he will make a recommendation to the board's Special Opportunities Fund Subcommittee that what has been presented so far by the SBIC Task Force doesn't constitute a business plan.Several months ago, the task force asked the board for $160,000 to get an SBIC started that would provide "gap financing" to small businesses since banks traditionally don't loan money to small business for extended periods because of the high risk.
Proponents say many small businesses on the verge of expansion need capital to expand, and SBICs are the tool to provide the financing. Those putting money into an SBIC expect a high rate of return on their money because it is a higher risk venture.
Grant has talked to people working for SBICs in several states, mainly Texas and California, to learn more about starting one. His formal report will be discussed by the subcommittee Aug. 15 at 4 p.m. and that recommendation will go to the board Aug. 16 at 8 a.m.
Task force members originally requested $160,000 from the board but felt they didn't have enough information. Board members allocated $2,500 to fly an SBIC official to Salt Lake City and answer questions, but nobody responded to the offer so Grant made several telephone calls instead.
In addition to getting the task force to firm up the business plan for an SBIC, Grant said more details must be provided on fund-raising efforts and management, including who would be the manager. Grant believes the manager is important for an SBIC to succeed.
He said putting money into an SBIC must be treated as a serious investment because investors expect a high rate of return. He has talked to officials of two Utah banks, and they told him they expect a good return on their investment.
Because some task force members told the board that helping to organize an SBIC shows community spirit, Grant said the SBIC people he talked to in other states aren't concerned about community spirit, but they are concerned about the investment of money.
Grant said board members are sensitive about the position they find themselves in - wanting to help economic development - but also being prudent with the available money.
He said the board has been involved with many projects to spur economic development including the Utah Technology Foundation, Deseret Certified Development Corp., local and regional revolving funds, Utah Innovation Foundation and Mountain West Venture Group.
Some of the economic initiatives in prog-ress by the state include establishing a business and banking review panel to evaluate why some businesses are unable to get bank financing, recruiting venture capital funds from outside Utah and the Utah Housing Finance Agency has retained a consulting firm to evaluate the agency's ability to issue bonds and use the proceeds for other economic development projects such as business loans.