Central South Dakota News

U.S. Senator Mike Rounds (R-S.D.), a member of the Senate Committee on Banking, Housing, and Urban Affairs, has introduced new legislation aimed at expanding the holding period for merchant banking investments from 10 to 15 years. The bill, named the Merchant Banking Modernization Act, is intended to improve access to capital for small businesses, particularly in rural areas.

“Access to capital remains a barrier for entrepreneurs to start up and grow their business, especially in rural states like South Dakota,” said Rounds. “Small businesses, a central pillar of our state economy, make up 99 percent of the businesses in South Dakota and employ 58 percent of our workforce. The Merchant Banking Modernization Act seeks to bridge the financial gap between small, often rurally-based, businesses that are not privy to the type of investments larger, more established, companies are able to access.”

The legislation is co-sponsored by several senators including Banking Committee Chairman Tim Scott (R-S.C.), Thom Tillis (R-N.C.), Bill Hagerty (R-Tenn.), Kevin Cramer (R-N.D.), Steve Daines (R-Mont.), Markwayne Mullin (R-Okla.), Rick Scott (R-Fla.), Ted Cruz (R-Texas), and John Cornyn (R-Texas). It has received support from organizations such as the U.S. Chamber of Commerce, Independent Community Bankers of America and the South Dakota Bankers Association.

“Small businesses are the backbone of our economy, both in my home state of South Carolina and across the United States, but they need access to capital to grow and support their employees,” said Scott (S.C.). “This bill will support investment in local businesses and help ensure more Americans have a shot at the American Dream.”

Tillis highlighted how extending the investment window could benefit North Carolina’s economy: “Small businesses drive job creation and economic growth in North Carolina, but too often they struggle to secure the long-term capital needed to expand,” he said. “By extending the merchant banking investment window, this legislation will help attract investment in businesses that are vital to our state. I’m proud to support this effort to strengthen North Carolina’s economy and expand opportunities for entrepreneurs.”

Cornyn added his perspective on Texas: “By extending the holding period for merchant banking investments, this legislation would help Texas small businesses access the capital needed to grow and thrive, and I’m proud to support it.”

Mullin referenced his experience as a business owner: "With over twenty-five years of firsthand experience as a business owner, I know just how necessary access to capital is to grow your operation," he said. "By expanding the holding period, the Merchant Banking Modernization Act will boost small businesses in Oklahoma and across the country."

Daines emphasized Montana’s reliance on small enterprises: “Small businesses are the cornerstone of Montana’s economy and represent 99 percent of all businesses in our state,” he said. “As the son of a contractor, I’ve seen firsthand how difficult it can be to keep a company flourishing, and we need to do everything we can to help small businesses grow and remove unnecessary barriers to accessing capital. I’m proud to join my colleagues to introduce this bill, which will support investment in small and rural businesses and unleash our economy.”

Scott from Florida also pointed out challenges faced by entrepreneurs: “Small businesses are the backbone of our economy, and as a former business owner, I understand firsthand how businesses are critical to the success of our economy, to creating jobs, and to sustaining everyday life,” he said. “This legislation makes a common-sense change to help give investors the confidence and flexibility to support entrepreneurs who need more time to grow and stabilize -- especially in rural and underserved communities –-to support job growth and long-term economic prosperity.”

The Bank Holding Company Act of 1956 established requirements for bank holding companies regarding their activities with merchant banking investments. In 2001 regulations were implemented under provisions from Gramm-Leach-Bliley Act allowing financial holding companies greater scope in securities underwriting as well as insurance agency work alongside merchant banking activities.

Currently under federal rules known as The Merchant Banking Rule entities must divest these investments within ten years; supporters argue that this timeline discourages longer-term commitments needed by smaller or newer firms whose development cycles exceed ten years.

If passed into law this act would extend that period by five years giving investors additional time before divesting holdings which proponents believe could increase willingness among financial institutions or other investors interested in supporting smaller or rural-based companies.

A full version of bill text is available online.