Small Business Investment Companies are privately organized and managed venture capital firms licensed by the U.S. Small Business Administration (SBA) to make equity capital or long-term loans available to small companies. The Small Business Investment Act of 1958 provided the legal basis upon which this program has been developed and outlines the licensing procedures used by the SBA to register SBICs. The National Association of Small Business Investment Companies (NASBIC) is the association that unites these independent SBICs. The primary concern of the NASBIC is providing representation before government on behalf of the SBIC industry. The association is located at 666 11th St., NW, Suite 750, Washington, DC 20001; 202-628-5055. The association's Web site is www.nasbic.org.
According to NASBIC, the several thousand SBICs operating in the United States and Puerto Rico are privately organized and managed financial institutions that invest capital in small independent businesses. They differ from venture capital firms in that they are licensed by the Small Business Administration. In exchange for investing only in small businesses, the SBA helps SBICs qualify for government-insured long-term loans. SBICs have complete control over their own lending policies and investment choices and are not bound by government regulation to make capital available to any particular type of business or business owner. Among the companies that began with funding from an SBIC are Apple Computer, Federal Express, Outback Steakhouse, America Online, and Intel. According to the NASBIC, since its inception in 1958, the SBIC program has provided $46 billion in long-term debt and equity growth capita to nearly 100,000 small U.S. companies.
SSBICs, or Special Small Business Investment Companies, are identical to SBICs except in the respect that they tend to concentrate their lending in the area of socially and economically disadvantage entrepreneurs. However, all SBICs may consider applicants from all backgrounds.
FACTORS IN APPROACHING AN SBIC
NASBIC reports that small business owners contemplating a pitch to an SBIC should be mindful of the following considerations.
- Loan size—Consider the amount of capital your business will need when choosing a particular SBIC as their policies differ and many have a defined range within which they are willing to lend.
- Loan type—Decide in advance whether your business will be better served by a straight loan, an equity investment, or another kind of financing is useful. Different SBICs offer different options.
- Industry—Some SBICs choose to lend only to businesses in a particular industrial sector, due to the expertise of the SBIC's officers or directors.
- Geography—Although SBICs may operate regionally or even nationally, it is wise to look into the closest suitable SBIC, because they tend to lend to businesses in their general locale.
Seekers of financing should also note that SBICs may consider working in conjunction with one another to provide pooled capital if a special case merits a departure from standard policy, so no one company should be immediately ruled out.
Your business qualifies as a "small business" according to NASBIC parameters if it has a net worth under 18 million dollars and average after-tax earnings of less than $6 million for the past two years. If your business fails these tests, it may qualify under employment or annual sales parameters.
When presenting your business to an SBIC for consideration, business owners must provide a business plan that includes information on every aspect of your operation, including detailed descriptions of the product or service and the facilities; an explanation of your customer base and distribution system; a description of your business's competition; an account of all key personnel and their qualifications; and financial statements, such as balance sheets and revenue projections. The ultimate acceptance or denial process will take a few weeks, although an indication will be made immediately of general interest or lack thereof.
When considering all sources of funding, a small business owner should weigh the appropriateness of each source with his or her needs. The wide variety of funding options provide many choices, with only a small number, perhaps, that will be suitable. Small Business Investment Companies provide a unique offering in that they have the security of the government behind them, but the flexibility of a private firm.
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The Small Business Investment Company (SBIC) Program. Available from http://www.nasbic.org/ Retrieved on 14 April 2006.