Employee Equity Investment Act Introduced in Both Houses with Bipartisan Support
Senators Chris Van Hollen (D-MD) and Marco Rubio (R-FL), along with Representatives Dean Phillips (D-MN) and Blake Moore (R-UT), have introduced the Employee Equity Investment Act (EEIA). The bill would create an investment facility within the Small Business Administration's (SBA's) Small Business Investment Company (SBIC) program to provide loan guarantees for investment funds devoted to expanding employee ownership.
EEIA would create a public-private partnership that works like existing SBIC loans but with a focus on employee ownership. The program would provide federal backing for Employee Equity Investment Companies (EEICs). EEICs would raise their own funds but would receive federal loan guarantees to provide debt at more reasonable costs and/or equity infusions into transactions in which an ESOP ends up with at least 30% of a company or already owns that much and is seeking growth capital. The debt would normally be subordinate to other lenders. EEICs would pay fees into the program, and, like the regular SBIC program, would operate at a zero-subsidy cost to the federal government. EEICs would be funded by a similar mechanism as existing SBICs, where the SBA issues unsecured debt instruments called debentures based on loans the SBICs make. These are pooled and sold as securities as an SBA-guaranteed bond with a fixed interest rate at a standard premium over Treasury notes. The legislation lays out detailed capital and other requirements for EEICs to qualify.
The proposal seeks to address the problem faced by many potential sellers to an ESOP: to sell much or all of the company, they almost always have to take part of the payment in the form of a note. While many sellers are willing to do that, many others want or need more money up front. To do that with an ESOP, they would have to find very costly junior debt, and even that is available only for larger deals. That means many sellers just end up selling to a non-ESOP buyer.
As with any new legislation, the bill will have to clear multiple hurdles before becoming law, but the bipartisan nature of the proposal will help it move forward. The proposal comes from the ESOP Association in collaboration with Ownership America, a nonprofit created to generate innovate state and federal legislative ideas on employee ownership. Links to the text of the bill and press releases from the sponsors can be found here.