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Phase II: Raising Private Capital

At the conclusion of Phase I, those SBIC applicants that meet SBA's minimum qualifications criteria are issued a "green light" letter which allows them to move forward in the licensing process.  The letter invites these applicants to file a formal license application and begin Phase III of the licensing process, but only after meeting the following requirements:

Timing

SBIC applicants must file their license application within 18 months of the date of their green light letter.  Applicants unable to file a license application within 18 months will be asked to return to Phase I and refile a Management Assessment Questionnaire.

Minimum Capital Requirements

Prior to filing a license application, SBIC applicants must raise the greatest of the following three minimum capital requirements:

  1. The statutory minimum of $5 million (Small Business Investment Act - Section 302(a)(1))
  2. Any minimum amount stipulated in the applicant's own SBIC license application as required for an initial closing of the fund.
  3. Any minimum amount SBA determines is needed to ensure the applicant's viability.  SBA must determine the applicant has enough capital to make an appropriate number of investments in its targeted size range; to hire adequate staff with the skills and experience needed to source, structure, monitor and exit those investments; and to provide staff with the resources needed to perform these functions.  SBIC applicants often develop business plans based on a specific level of capitalization. If that level of capitalization is not met, SBA will evaluate whether the business plan remains viable.

Ownership Diversity

Prior to filing a license application, SBIC applicants must ensure they meet the ownership diversity requirements outlined in 13 CFR 107.150.  In general terms, this regulation requires that sufficient diversity exists among the individuals managing the operations of the SBIC and those providing the capital.

Legal

SBIC applicants should use SBA's Model Limited Partnership Agreement or Early Stage Model Limited Partnership Agreement when preparing their license application and working with their limited partners.  All legal documents relevant to your case should be submitted with the license application, including the private placement memorandum, limited partnership agreement, general partnership agreement, corporate documents, management services contracts and any required legal opinions.