Small Business Investment Company Best Practices
Date Issued: Monday, August 23, 2004
Report Number: 94-08-002

U.S. Small Business Administration
Washington, D.C. 20416

August 23, 1994

TO: Erskine B. Bowles, Administrator

THROUGH: James F. Hoobler, Inspector General

FROM: Tim Cross, Assistant Inspector General for Inspection and Evaluation

SUBJECT: SBIC Best Practices Inspection

I am pleased to submit our inspection report on Small Business Investment Company (SBIC) Best Practices. The inspection team received excellent cooperation from Investment Division staff and from senior officers of the SBICs it reviewed and their portfolio firms. Bob Stillman and his staff provided us with helpful feedback on the report in draft, and their formal comments on the final report are attached in full as an appendix.

We believe the inspection findings provide an accurate compilation of the characteristics that mark financially successful SBICs. We hope that this will prove useful to the Investment Division in licensing future SBICs, as well as to a broader audience seeking information about the program or about "best practice" analyses.

If you have any questions or comments, we would be happy to discuss them with you at your convenience.

Attachment

Table of Contents

  • BACKGROUND

  • EXECUTIVE SUMMARY

  • OBJECTIVES, SCOPE AND METHODOLOGY

  • FINDINGS

A. Practices Common to Profitable SBICs
 

1. Financially successful SBICs are headed by managers who are well-qualified in terms of their work experience and academic backgrounds

2. Profitable SBICs offer compensation packages and intangible benefits sufficient to attract and retain high-quality personnel.

3. Financially successful SBICs are adequately capitalized and follow good cash management principles.

4. Profitable SBIC investment strategies generally minimize risk.

5. Financially successful SBICs use a systematic approach to identify, evaluate, and structure deals.

6. Profitable SBICs closely monitor the financial health of their portfolio companies to protect their interests.

7. Successful SBICs add "value" to their portfolio companies, in conjunction with financing, thereby increasing the companies net worth.
 

B. Portfolio Companies Credited SBIC Financing with Having Significant Impact on Their Financial Growth

C. SBICs Failed Primarily Because of a Combination of Unqualified Management and Low Private Capital

 

    • TABLE
  • 1. Changes in Employee Levels and Revenue at the 17 SBCs surveyed, After Receiving SBIC Financing

     

    • APPENDICES

    A. Profiles of the Profitable SBICs Reviewed

    B. Investment Division Comments

    C. Contributors to This Report

    To view the complete article, please see the attachment below.