What is an SBIC?
Small Business Investment Companies (SBICs) are private equity investment firms that are licensed and regulated by the SBA. SBICs are privately owned and managed, and they use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments into qualifying small businesses.
The SBIC Program is one of many financial assistance programs available through the U.S. Small Business Administration. (For information on other SBA programs, search “SBA” here at FindCapital.org or visit www.sba.gov).
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. Detail regarding regulatory size limitations is included in www.sba.gov/library/cfrs/13cfr121.pdf
There are over 400 licensed SBICs in operation today. For a directory organized by state, click this link: http://www.sba.gov/aboutsba/sbaprograms/inv/inv_directory_sbic.html
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”)
NMVCCs invest in Smaller Enterprises as defined by SBA regulations that are located in Low-Income Geographic Areas. For detailed information on whether or not you might qualify for NMVC funding or to find a licensed NMVCC see NVMC
Rural Business Investment Companies (RBICs)
The RBIC program is designed to 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. However, there is (as of April 2010) only one licensed RBIC.