What is a Small Business Investment Company (SBIC)?

Small Business Investment Company (SBIC)
Small Business Investment Company (SBIC). DNY59/Getty Images

Small Business Investment Company (SBIC)

A small business investment company is a private lending company which is licensed and regulated by the Small Business Administration (SBA). SBIC's offer venture capital financing to higher-risk small businesses, and SBIC loans are guaranteed by the SBA.An added advantage of SBIC's for small businesses is that, in addition to funding small business growth and more jobs, SBIC's offer management expertise and assistance to companies.

 

SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and capital investments in small businesses.

The SBA says: 

At the end of FY 2011, SBA had over $8.2 billion invested in 299 funds. Together with private capital of approximately $8.8 billion, the program totals over $17 billion in capital resources dedicated to America’s entrepreneurs.

The mission of the SBIC program is:

stimulating and supplementing the flow of private equity capital and long term loan funds for the sound financing, growth, expansion and modernization of small business operations while insuring the maximum participation of private financing sources

Qualifying for SBIC financing

To qualify for financing from an SBIC your business must meet the following criteria

  • You must be a "small business" as defined by the SBA: "businesses with tangible net worth of less than $18 million AND an average of $6 million in net income or less over the previous two years at the time of investment."
  • Your business cannot engage in foreign activities, and
  • Your business cannot be a "prohibited business" (re-lenders or re-investors; passive businesses; most real estate businesses; farmland; project financings, or businesses contrary to the public interest.)

Types of Financing

SBIC's may provide loans, equity, or a combination, depending on the circumstances.

SBIC's typically look for profitable businesses "with sufficient cash flow to pay asPresensociated interest." If your business is not profitable, you would probably need sufficient revenue to qualify for SBIC financing. 

Working with an SBIC

The SBA describes the steps in finding an SBIC: 

1. Research SBIC's to find one whose investment goals fit with your small business plans. 

2. Create a business plan for your meeting with an SBIC. 

3. Present your business plan and proposal for SBIC financing. Before you present a plan, get information on the specific SBIC you want to approach, and try to establish a connection with that company. 

For More Information about SBIC Lending

The SBIC section of the SBA website has information on SBIC lending, including a list of SBIC's on the SBA website.

What if My Business Doesn't Qualify for SBIC investment? 

You may still be eligible for one of a number of SBA loan programs, including their signature 7(a) loan.