Small Business Investment Companies (SBICs)

Providing equity capital, long-term loans, and management assistance

Congress created the Small Business Investment Company Program in 1958 to fill the gap between the availability of venture capital and the needs of small business in startup and growth situations.

Licensed and regulated by the Small Business Administration (SBA), SBICs are privately owned and managed investment firms. They use their own funds, plus funds obtained by borrowing at favorable rates with an SBA guaranty and/or by selling their preferred stock to the SBA, to make venture-capital investments in small businesses.

Virtually all SBICs are profit-motivated businesses. They provide equity capital, long-term loans, debt-equity investments, and management assistance to qualifying small businesses. Their incentive is the chance to share in the success of the small business as it grows and prospers.

Most SBICs are owned by small groups of local investors. Many, however, are owned by commercial banks. Some SBICs are corporations with publicly traded stock; others are subsidiaries of corporations. The program makes funding available to all types of manufacturing, distribution, and service industries.

Many investment companies seek out small businesses with new products or services because of the strong growth potential of such firms. Some SBICs specialize in a particular field in which their management has special knowledge or competency. Most, however, consider a wide variety of investment opportunities.

Eligibility, Uses, and Restrictions
A business must meet the SBA's definition of "small" to be eligible for SBIC financing. In general, the SBA defines small businesses as companies whose net worth is $18 million or less and whose average net (after-tax) income for the preceding 2 years does not exceed $6 million.

For some industries, the above standards are too low, and alternate size standards are used. In determining whether a business qualifies, the SBA considers its parent, subsidiaries, and affiliates.

The SBA publishes a regularly updated directory of all current SBIC licenses as well as the amount of each SBIC's private capital and the amount of government leverage it has received. Information on each SBIC's type of ownership and investment policies is also available from the SBA by mail or over the Internet at www.sba.gov/INV/.

Contact
Check the telephone directory under "U.S. Government" for the nearest SBA office or call the Small Business Answer Desk (800) U-ASK-SBA. For the hearing impaired, the TDD number is (704) 344-6640.

Internet
www.sba.gov
SBIC Program: www.sba.gov/aboutsba/sbaprograms/inv/index.html

Last Updated September 14, 2008