| The Small Business Administration (SBA) was created | | | | million. Further, there is a seven year maximum |
| by the United States government in 1958 to provide | | | | investment horizon for any SBIC investment. SBIC's |
| a clear and efficient path for small businesses to | | | | are also prohibited from investing in project finance |
| acquire capital. The SBA raises capital by selling SBA | | | | such as real estate and motion pictures. |
| Guaranteed Certificates to various public and private | | | | INVESTMENT TYPES |
| investors. The capital acquired is then dispersed as | | | | More than 90 percent of SBIC financing typically goes |
| debentures to licensed Small Business Investment | | | | to operating capital (~50%) and acquisition capital |
| Companies (SBIC's), who in turn invest in small | | | | (~40%). Other uses of investment capital include |
| business portfolios with the intent to stimulate the | | | | plant modernization, refinancing, new building |
| flow of private equity capital and long-term loans to | | | | construction, purchase of new equipment and |
| small businesses. | | | | machinery, land acquisition, marketing activities and |
| SMALL BUSINESS INVESTMENT COMPANY (SBIC) | | | | research and development. |
| SBIC's contribute equity and/or debt capital to small | | | | Approximately half of all SBIC financing is straight |
| businesses and may be viewed as small, | | | | equity, about 25 percent is straight debt and the |
| regionally-focused private equity firms or mezzanine | | | | remaining 25 percent is a debt-with-equity structure. |
| investors. Collectively, these firms provide more than | | | | ADVANTAGES |
| 2,100 unique businesses with investment capital | | | | SBIC's are designed to leverage private capital with |
| annually. | | | | SBA debenture securities (up to three times the |
| SBIC's undergo a rigorous SBA licensing program. To | | | | amount of private capital) to create a much larger |
| qualify, an SBIC firm must be privately managed, | | | | pool of funds to invest. The SBA contribution |
| create for-profit investment funds, invest in small | | | | increases the fund amount while reducing the time |
| businesses and subject themselves to an annual | | | | and effort required to raise larger pools of |
| regulatory audit. For this, SBIC's may receive up to | | | | investment capital for a private fund. |
| 300% additional leverage on their private capital from | | | | Reprint Rights |
| SBA-guaranteed debentures. | | | | (c) 2004-2009 PEI Services Ltd. All Rights Reserved. |
| Only companies defined as "small" are eligible for SBIC | | | | You may reprint or distribute this article for free as |
| financing. The SBIC Program defines "small" as a net | | | | long as you leave the links, the content and the |
| worth less than $18.0 million and an average after tax | | | | signature intact. |
| net income for the prior two years less than $6.0 | | | | |