A Lesser Known SBA Program

by Keith Basik on June 26, 2012

SBIC - Small Business Investment CompanyAnother SBA loan guaranty program is the SBIC program–SBIC stands for Small Business Investment Company .  Since 1959, Small Business Investment Companies (SBICs) have supplied equity capital, long term loans and management assistance to qualifying small businesses. All SBICs are profit motivated businesses.  A major incentive for SBICs to invest in small businesses is the chance to share in the success of the small business if it grows and prospers.

Per the SBA website:

The SBIC Program is one of many financial assistance programs available through the U.S. Small Business Administration. The structure of the program is unique in that SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses. The U.S. Small Business Administration does not invest directly into small business through the SBIC Program.

Note that SBICs are specifically targeted toward the needs of entrepreneurs who have been denied opportunity to own and operate a business because of social and economic disadvantage.

Who benefit from the SBIC Program?  

Pursuant to IBBA (International Business Broker Association):

  • Small businesses, which qualify for assistance from the SBIC, program are able to receive equity capital, long-term loans, and expert management.
  • Venture capitalist participating in the SBIC program can supplement their own private investment capital with funds borrowed at favorable rates through the federal government.
  • The U.S. taxpayer as tax revenue generated each year from successful SBIC investments more than cover the cost of the program.
  • Nation’s economy as small businesses financed by SBICs has created hundreds of thousands of jobs over the life of the program.

Seeking SBIC Financing

Only companies defined by SBA as “small” are eligible for SBIC financing. Generally, the SBIC Program defines a company as “small” when its net worth is $18.0 million or less and its average after tax net income for the prior two years does not exceed $6.0 million.

SBICs may not invest in the following: other SBICs, finance and investment companies or finance-type leasing companies, unimproved real estate, companies with less than 51% of their assets and employees in the United States, passive or casual businesses (those not engaged in a regular and continuous business operation), or companies which will use the proceeds to acquire farm land. SBICs may not provide funds for a small concern whose primary business activity is deemed contrary to the public interest.

Entrepreneurs have three sources to search for active SBICs.

  1. Our SBIC Directory – A directory of operating SBICs organized by state.
  2. National Association of Small Business Investment Companies (NASBIC)
  3. National Association of Investment Companies (NAIC) which dedicates financial resources to investment in an ethnically diverse marketplace.

Once you have identified the SBICs that are best suited to provide the type of financing required, you should take steps to present your business plan to them. For information on how to prepare a business plan see the resources above or access entrepreneurial assistance through the U.S. Small Business Administration. Note that the average SBIC receives hundreds of business plans per year.

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