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What to Know About Small Business Investment Companies (SBICs)

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What to Know About Small Business Investment Companies (SBICs)

By kmurray, Contributor and Moderator
Published: April 9, 2014 Updated: April 9, 2014

When it comes to financing, you probably already know that SBA doesn’t lend money directly to small business owners and entrepreneurs, but has various programs to help get small business ventures financed through local lenders. But did you also know that the Small Business Investment Company (SBIC) Program has been helping small business access capital for more than fifty years?

 

What’s the SBIC Program?

The Small Business Investment Company (SBIC) Program is a multi-billion dollar program that, in fiscal year 2013 alone, invested $3.5 billion in financing dollars to small businesses! So how does it work?

SBICs are privately owned and managed investment funds. They’re licensed and regulated by SBA and use their own capital plus funds – borrowed with an SBA guarantee – to make equity and debt investments in qualifying small businesses.

The SBA doesn’t invest directly into small business through the SBIC Program, but provides funding to qualified investment management firms that are experts in certain sectors or industries. For every $1 an SBIC raises from a private investor, the SBA will typically provide $2 of debt capital (with a cap of $150 million). Here’s a look at how it works:

SBIC flow chart depicts private investor funds and SBA funds funneling into SBICs funneling into small businesses

Firms combine their own capital with funds borrowed from the federal government at low rates. In turn, they invest these funds in promising new ventures. And it’s all done with zero taxpayer dollars!

 

What are the benefits of the SBIC Program?

There are benefits for the SBICs and the small business recipients!

Small businesses that qualify for assistance from the SBIC program can receive equity capital, long-term loans and expert management assistance. SBICs benefit small business owners by opening up greater access to equity capital and expert guidance they may not otherwise get through traditional venture capitalists.

Investment managers participating in the SBIC program can add to their own private investment capital with funds borrowed at favorable rates through the federal government.

And ultimately, the national economy benefits from the SBIC program as the small businesses financed by SBICs continue to create jobs and generate tax revenues over the program’s life.

 

Want to learn more about the SBIC Program? Visit the SBIC Program pages, including the FAQ. Still have questions? Email askSBIC@sba.gov.

About the Author:

Katie Murray

Contributor and Moderator

I am an author and moderator for the the SBA.gov Community. I'll share useful information for your entrepreneurial endeavors and help point you in the right direction to find other resources for your small business needs. Our ongoing goal is to improve this site to meet your needs, so we're happy to receive your feedback and participation. Thanks for joining our online Community here at SBA.gov!

Comments:

I thank the SBA, SBA has provided vital funding for small companies to help us a lot about business. It's great to get support from the SBA and it is something that every business would like to thank
Very informative article about SBIC pragram. SBA does not provide capital directly to businesses. Instead, SBA partners with private investors to capitalize professionally-managed investment funds that finance small businesses.
Great write up of a great program. The SBIC program allows current private equity firms to expand their offerings and the amount they can offer to each business - and it is not just equity capital as many also offer venture debt, subordinated debt or straight business debt that could later convert to equity should both parties find that beneficial. Great program from growing businesses that have yet to impress their banks when seeking capital.
Very well explained how we can use & be benefited of SBIC program. The flow pattern SBA/Private Investors > SBIC > Small Business(s) is easy to understand. Thank you @kmurray
Its all information about SBICs in Brief.Small business working capital stay undeserved and represent a price chance for investors. Low price of Small Business Administration capital provides fund managers with valuation flexibility. SBICs are allowable to arrange themselves as complete entities, drop-down vehicles or side-car vehicles.
SBIC is truly a great help towards funding small businesses in a great manner & all the thanks goes to SBA in promoting every channel to help small time businesses to recover fully.

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