SBIC Flowchart: How the Program Works
The Small Business Investment Company (SBIC) program is a private-sector led partnership with the U.S. government, created to help small U.S. businesses meet long-term, patient capital needs not available through banks or other private capital sources. SBICs have provided almost $60 billion in long-term debt and equity capital to more than 107,000 small U.S. companies since 1958. The eight reference points indicated in red on the flowchart are explained below.
The Budget proposes total program level, subsidy rates, and, if necessary, any appropriation amount. The subsidy rate is an estimate, stated as a percentage, of any appropriations amount to be reserved against possible program losses.
Congress sets the final program levels and, if necessary, the appropriation to support the same.
A prospective SBIC must raise between $5 million and $10 million in private capital before it can be licensed. After licensing, the private capital is always at risk first.
Money (leverage) can only be drawn from the Trust after application to and approval by the Small Business Administration (SBA). A full credit and regulatory compliance review is performed each time leverage is sought. Money drawn by SBICs is repaid in accordance with the terms of the securities.
SBA guarantees payment by the Trust of all principal and interest due on the certificates sold to the public capital market.
Money for leverage is raised by the sale of SBA-guaranteed securities bearing interest at a rate equal to that of 10-year Treasury Bonds plus a variable spread to that rate based on market conditions.
Participating Securities SBICs pay approximately 10% of their profits to SBA.
Investments in small U.S. businesses may be in the form of loans, loans with equity features (e.g., options to obtain stock in the future or royalty rights), or purchases of equity (stock).