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Trump’s SEC pick may be good news for small American companies

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Jay Clayton, the president’s nominee for chairman of the Securities and Exchange Commission, embraced broadening access to capital markets in the U.S. during his recent confirmation hearing. It was encouraging news for small and midsize businesses struggling to secure financing from traditional lenders. If Clayton is serious about increasing access, he should partner with middle market lenders to ensure that the small and mid-sized businesses driving this recovery can continue to prosper.

Small and mid-sized companies represent more than $10 trillion of the U.S. economy, but face tough hurdles trying to access capital from traditional banking lenders. Over the past 15 years, most of the local and regional banks that historically provided a vital source of capital for small businesses have either consolidated or shut down. As a result, these banks have reduced their lending share by as much as 44 percent.

{mosads}This consolidation was followed by the 2008 market crisis, which led many large banks to substantially reduce their investments in the middle market. Given the retraction of traditional lenders, America’s small and midsize businesses are increasingly turning to business development companies (BDCs) to access vital capital.


In 1980, Congress established business development companies and mandated that they support only small and middle-market companies. The legislation allowed BDCs to offer greater flexibility in loan terms as well as provide companies with financial guidance and advice, ultimately strengthening the companies they serve.

The authorizing statute also subjected BDCs to specific registration and reporting requirements that — unlike traditional banks — requires them to value their loan portfolio according to fair market value and report on this on a quarterly basis, making a more transparent investment for retail investors. As a result, BDCs have supported small and midsize businesses with more than $70 billion in investment capital since their inception.

BDCs are often the only option for middle market companies that are too small to meet the investment thresholds on traditional bank loans, but too large to qualify for small business finance opportunities. However, BDCs are also subject to many outdated and duplicative regulations that limit the amount of capital they can make available to midsize companies.

Financing middle market businesses is essential to the country’s economic recovery. For the past five years, midsize companies have led the nation’s job growth, contributing more than $9 trillion to the economy and employing nearly 53 million workers. Middle-market companies generated one out of every four dollars of U.S. business revenue last year, and are expected to fuel even greater economic expansion in the years to come.

Clayton can help ensure that all Americans can participate in, and benefit from, U.S. capital markets by creating a culture at the SEC that supports the mission of BDCs to ensure middle-market access to capital and fuel additional economic growth. Clayton can also work with Congress to modernize BDC regulations which will promote the continued advancement of the middle market and help sustain the economic recovery. By protecting and promoting greater access to capital from non-traditional lenders, the SEC can bolster the middle market and keep the U.S. economy moving forward.

Joseph Glatt is chief legal officer at Apollo Investment Corporation, a publicly traded, non-diversified business development company and a member of the Coalition for Small Business Growth.

The views expressed by contributors are their own and are not the views of The Hill.

Tags Business economy Finance Jay Clayton Securities and Exchange Commission Trump administration

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