What to Know About Small Business Investment Companies (SBICs)
by kmurray, Community Moderator
- Created: April 9, 2014, 12:43 pm
- Updated: April 9, 2014, 12:44 pm
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:
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.
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