Seeking SBIC Financing for Your Business
By Tim Porter, Director of Capital Resources for The Client Advocate Network, Information obtained from the SBA website
The U.S. Small Business Administration and Investment Division welcome your interest in obtaining SBIC financing for your company. Since 1959, Small Business Investment Companies (SBICs) have supplied equity capital, long term loans and management assistance to qualifying small businesses.
General Information:
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.
We encourage you to review the information below to better understand the program and process for accessing SBIC capital. As you review the information, keep in mind that SBIC financing is not appropriate for all types of businesses and financing needs. The U.S. Small Business Administration offers a wide variety of financial assistance programs designed to suit the varied needs of America's small businesses.
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. All of the company's subsidiaries, parent companies and affiliates are considered in determining the size standard and for certain industries alternative size standards may apply.
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.
There are over 400 licensed SBICs in operation today. SBICs pursue investments in a broad range of industries, geographies and stage of investment. Some SBICs invest in a particular field or industry in which their management has expertise, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e. start-up, expansion or turnaround) and identify a geographic area in which to focus.
The form of SBA funding that a particular SBIC uses can vary and will have an impact on the type of investments they can make.
- Debenture SBICs focus primarily on providing debt or debt with equity features. Debenture SBICs will typically focus on companies that are mature enough to make current interest payments on the investment so that, in turn, the SBIC can meet its interest obligations to SBA.
- Participating Securities SBICs typically focus on making pure equity investments but can make debt investments as well. Participating SBICs are able to invest patient equity capital in earlier stage opportunities because interest is accrued on their obligation to SBA.
- Specialized Small Business Investment Companies ("SSBICs") are a type of SBIC that provide assistance solely to small businesses owned by socially or economically disadvantaged persons. Although they are not technically part of the SBIC Program, the New Markets Venture Capital Companies Program and Rural Business Investment Companies Program are modeled on the SBIC Program and may be a suitable source of capital for certain businesses.
New Markets Venture Capital Companies ("NMVCCs") invest in Smaller Enterprises as defined by SBA regulations that are located in Low-Income Geographic Areas.
Rural Business Investment Companies (RBICs) target investments in profit-oriented rural enterprises. The Rural Business Investment Program which licenses and oversees the RBICs is a joint initiative between the U. S. Department of Agriculture (USDA) and the Small Business Administration (SBA) designed to promote economic development and job creation in rural areas.
Have a comment on this issue? Speak out on our blog. Click here.
