About the SBIC Program
What is a Small Business Investment Company and what is the SBIC Program?
The Small Business Investment Company (SBIC) Program has a long history of success helping small U.S. businesses access long-term, patient capital for growth and job creation. For more than 60 years, SBICs have been providing capital to American small businesses to help them expand their operations and create jobs. The SBIC program, administered by the U.S. Small Business Administration (SBA), utilizes the talent of experienced private investment fund managers to achieve critical public policy objectives. Fund management teams that meet the SBA’s minimum requirements and successfully complete the application process, access low cost leverage up to two times the private capital they raise. These funds then invest in a portfolio of U.S. small businesses, creating jobs, fostering innovation, and fueling economic growth.
SBIC Program Fast Facts
The SBIC program, created in 1958, is an investment program designed to increase small business access to venture and private equity capital for growth, production, and modernization.
SBICs represent nearly $30 billion in domestic investment capital. The SBIC program is run by the Small Business Administration’s Office of Investment and Innovation.
The SBIC program was established to stimulate and supplement the flow of private equity capital in long-term loan funds to the small business sector to aid in their growth, expansion and modernization.
Small businesses that in their early stages received SBIC investments and have subsequently grown into icons of American industry include Federal Express, Apple, Intel, Costco, Tesla, Whole Foods, and Callaway Golf. Many more small businesses backed by SBICs have grown into robust, sustainable mid-sized businesses that bring prosperity and employment to communities across the country.
At the start of 2020, there were nearly 300 licensed SBIC funds representing nearly $30 billion in domestic capital. All of this capital is or will be invested in American small businesses.
A recent study by the Library Congress found that SBIC-backed small businesses created almost 3 million new jobs and supported an additional 6.5 million jobs over the 20-year period of their study.
- Every one of the jobs created by each of those small businesses was a gain to the communities where they are located and to the broader regions from where they drew employees and to whom they provided goods and services. These businesses and jobs continue on, succeeding independently of SBICs after the investment is completed. These small businesses are not “propped up” or subsidized.
- These investments are in real companies with real staying power and real growth potential.
SBICs are federally regulated, privately-owned and managed investment funds that invest exclusively in domestic small business.
SBICs are primarily formed as limited partnerships and they provide equity, long-term loans, or debt-equity investments along with management assistance to small businesses across a range of sectors, geographic locations, and stages of growth. Some SBICs specialize in an industry sector, region, or specific stage while other SBICs invest more broadly.
The SBIC program is effective and distinct because the private sector leads with its capital and investment expertise, and then SBIC leverage follows to augment the impact of the private investment. The government does not pick winners and losers, private investors guide capital to the companies with the best potential.
There are currently two forms of SBICs:
Non-leveraged SBICs funds can provide both debt or equity in whatever proportion they choose. These funds are structured, formed, and operate in nearly the same way as a conventional venture capital private equity fund, but they must be granted a license by SBA and limit their investment to American small businesses that are permitted under the SBIC rules. These funds are able to provide more equity to small businesses than levered (debenture) SBIC funds because they do not need to make interest payments on SBIC leverage. Banks commonly invest some of the Institutional Capital into these funds. Unlike conventional venture or private equity funds, the SBICs are able to have bank LPs and their investments automatically qualify for certain Community Reinvestment Act benefits for these bank LPs.
Leveraged (Debenture) SBIC funds increase the amount of capital available for domestic small business investing by accessing the SBIC credit facility to amplify private capital raised and invested. SBIC leverage is borrowed at the fund level, not at the small business level. For example a an SBIC fund that raised $50 Million in private capital may access up to an additional $100 Million in SBIC leverage on the condition that all $150 Million is invested in American small businesses.