Small Business Investment Companies

By Kristi Craig, Senior Investment Officer, U.S. Small Business Administration

The Small Business Investment Company (“SBIC”) Program, a public-private partnership administered by the Investment Division of the U.S. Small Business Administration, was created by Congress in 1958 to bridge the gap between entrepreneurs’ need for capital and traditional financing sources.  Since that time, the SBIC program has grown to just under 400 private investment partnerships managing $22 billion in combined public and private capital commitments.  Several of the world’s largest and most successful companies got their start with SBIC financing, including Federal Express, Costco, Apple Computer, and more.  In fiscal year 2005, SBICs invested $2.9 billion in 2,299 small businesses nationwide.  

The structure of the program is unique in that SBICs are privately owned and managed investment funds, licensed and regulated by the U.S. Small Business Administration, that use private investor capital plus funds borrowed with an SBA guarantee to make investments in qualifying small businesses.  A licensed SBIC in good standing, with a demonstrated need for funds, may receive leverage (i.e., SBA guaranteed borrowings)  up to 300 percent of its private investor capital (most are approved for a maximum of 200 percent), but no fund management team may exceed the allowable maximum amount of leverage, currently $124 million of total SBA leverage and commitments. 

SBICs invest across the spectrum of private equity financing, including venture, buyout, and mezzanine and provide a diverse investment opportunity to private investors.  Even in the current large and highly developed U.S. venture capital and private equity market, SBICs address the needs of underserved markets and communities by providing capital to entrepreneurs that because of the size of their capital requirements, their location, or industry, are largely underserved by the private funds.  Banks support the program through their private capital investments in SBICs.  In addition to economic returns commensurate with venture and private equity, investments in SBICs are “qualified investments” for Community Reinvestment Act purposes, meaning bank investments in SBICs factor positively into a bank’s CRA rating.

For more information about the SBIC program, please visit our Web site at www.sba.gov/inv or contact Kristi Craig in the Office of SBIC Program Development, at 202-205-7546, kristi.craig@sba.gov