Expanding the Activities of Business Development Corporations

Companion bills H.3785 and S.389 would expand the scope of activities that business development corporations (BDC’s) can legally engage in. BDC’s are quasi-public quasi-private entities that receive state and federal funds from the federal Small Business Administration and the State Jobs Economic Development Authority. BDC’s take these government funds and bond them into higher dollar amounts which they then loan either directly to businesses, or to banks who will in turn loan the funds to businesses.

Under the proposed law a number of provisions which restrict the activities of BDC’s would be either amended or removed outright. For example:

  • BDC’s would no longer be required to “advance business prosperity”, and provide loans and investment in their state, but in their “area of operations”. Area of operations is defined to include any states in Federal Reserve districts five and six, meaning BDC’s in South Carolina are now authorized to issue loans and invest in out of state businesses.
  • Business applicants seeking loans from a BDC would no longer have to prove they had loan applications through regular financial channels rejected. This will allow well off businesses to seek government funds for loans (likely with more favorable terms) rather than private funds.
  • BDC’s would be able to create subsidiary corporations that aren’t subject to legal restrictions placed on BDCs. BDC subsidiaries would then be free to do as they wish with taxpayer dollars.

BDC’s are already a negative part of the state code, as they represent a portion of South Carolina’s long failed experiment with corporate welfare. These bills would make BDC’s even worse by removing many of the small restrictions state law places on them. If a business can’t receive financing on the private market it is not the state’s place to step in and rescue that business. Private financial institutions have much larger experience evaluating the risks of an investment and are far less likely (absent government encouragement) to provide loans to businesses that will ultimately only waste valuable resources. BDC’s should be eliminated, not empowered to subsidize even more businesses regardless of their financial situation or state location.

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