BB&T Corp. and Sanwa Bank said they have created venture capital units to make equity investments in growing businesses.
BB&T Capital Partners, a subsidiary of the Winston-Salem, N.C., banking company with $40 million of capital, will make investments of $1 million to $5 million in small businesses in the Southeast.
The unit will make equity and subordinated debt investments for five to seven years and expects to generate annual returns of 25% to 30%, said David Townsend, managing partner of BB&T Capital.
"This is one type of capital that has been available to large corporations but is just working its way down to small businesses," Mr. Townsend said.
Sanwa's venture capital unit, Chicago-based SBC Equity Partners, was started with $50 million of capital and will make equity investments of about $5 million in businesses in the Upper Midwest, said Robert A. Schriesheim, president and chief executive officer of SBC Equity Partners.
Mr. Schriesheim said the unit was created to generate strong returns rather than enhance relationships with bank customers. But he said he also hopes for referrals from Sanwa lenders.
The two banks' creation of venture capital units last month is one of the latest signs of a resurgence in the formation of such firms.
Small-business investment companies are typically privately run, often by banks, but are licensed and regulated by the Small Business Administration.
When the economy slumped in the late 1980s and early 1990s, many small businesses failed and pulled the venture capital units down with them. The cleanup of those small-business investment companies cost the SBA $281 million from 1990 to 1996, according to a General Accounting Office report.
In the last 18 months the number of bank-affiliated venture capital units has increased to 89, with $3.94 billion of capital, from 69, with $3.1 billion of capital, according to the SBA.
The Bank Holding Company Act prohibits banks from owning more than a 5% equity stake in another business, except through a small-business investment company.
Sanwa's venture capital unit is a subsidiary of Sanwa Business Credit, the Chicago-based leasing and asset-based lending subsidiary of Sanwa Bank, Osaka, Japan.
But the unit was not started to create cross-selling opportunities for its parent, Mr. Schriesheim said.
"We're interested in managing our relationship so we can get referrals," he added.
