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SBA Small Business Investment Company
Company Program
Robert Jay Dilger
Senior Specialist in American National Government
Oscar R. Gonzales
Analyst in Economic Development Policy
January 10, 2011July 18, 2013
Congressional Research Service
7-5700
www.crs.gov
R41456
CRS Report for Congress
Prepared for Members and Committees of Congress
c11173008
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SBA Small Business Investment Company Program
Summary
The Small Business Administration’s (SBA’s) Small Business Investment Company (SBIC)
Program is designed to enhance small business access to venture capital by stimulating and
supplementing “the flow of private equity capital and long term loan funds which small business
concerns need for the sound financing of their business operations and for their growth,
expansion, and modernization, and which are not available in adequate supply.” Facilitating the
flow of capital to small businesses to stimulate the national economy was, and remains, the SBIC
program’s primary objective.
As of June 30, 2013, there were 295 privately owned and managed SBA-licensed SBICs
providing small businesses private capital the SBIC has raised (called regulatory capital) and
funds the SBIC borrows at favorable rates (called leverage) because the SBA guarantees the
debenture (loan obligation). SBICs pursue investments in a broad range of industries, geographic
areas, and stages of investment. Some SBICs specialize in a particular field or industry, while
others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e.,
startup, expansion, or turnaround) and geographic area.
The SBA is authorized to provide up to $3 billion in leverage to SBICs annually. The SBIC
program has invested or committed about $18.9 billion in small businesses, with the SBA’s share
of capital at risk about $9.2 billion. In FY2012, the SBA committed to guarantee $1.9 billion in
SBIC small business investments, and SBICs invested another $1.3 billion from private capital,
for a total of more than $3.2 billion in financing for 1,094 small businesses.
Some Members of Congress and the Obama Administration argue that the program should be
expanded as a means to stimulate economic activity, create jobs, and assist in the national
economic recovery. For example, S. 511, the Expanding Access to Capital for Entrepreneurial
Leaders Act (EXCEL Act) and S. 1285, the Small Business Innovation Act of 2013, would
increase the program’s annual authorization amount to $4 billion from $3 billion and increase the
program’s family of funds limit (the amount of outstanding leverage allowed for two or more
SBIC licenses under common control) to $350 million from $225 million.
Others worry that an expanded SBIC program could result in loses and increase the federal
deficit. In their view, the best means to assist small business, promote economic growth, and
create jobs is to reduce business taxes and exercise federal fiscal restraint.
Some Members have also proposed that the program target additional assistance to startup and
early stage small businesses, which are generally viewed as relatively risky investments but also
as having a relatively high potential for job creation. For example, during the 113th Congress,
H.R. 30, the Small Business Investment Enhancement and Tax Relief Act, and S. 1285 would
authorize the Administration to establish a separate SBIC program for early-stage small
businesses. Also, as part of the Obama Administration’s Startup America Initiative, the SBA
established a five-year, $1 billion early stage debenture SBIC initiative in 2012. Early stage
debenture SBICs are required to invest at least 50% of their investments in early stage small
businesses, defined as small businesses that have never achieved positive cash flow from
operations in any fiscal year.
Congressional Research Service
SBA Small Business Investment Company Program
This report describes the SBIC program’s structure and operations and examines legislative
proposals to expand the program by increasing the leverage available to SBICs and increasing the
SBIC program’s authorization amount to $4 billion annually.
Congressional Research Service
SBA Small Business Investment Company Program
Contents
SBIC Program Overview ................................................................................................................. 1
SBIC Types ...................................................................................................................................... 3
SBIC Eligibility Requirements ........................................................................................................ 3
SBIC Application Process................................................................................................................ 4
SBIC Capital Investment Requirements .......................................................................................... 6
Debenture SBICs ....................................................................................................................... 6
Participating Securities SBICs................................................................................................... 6
Impact Investment Debenture SBICs ........................................................................................ 8
Early Stage Debenture SBICs.................................................................................................... 8
Key Features of Regular SBIC Types .............................................................................................. 9
SBIC Investments in Small Businesses ......................................................................................... 11
Leverage ........................................................................................................................................ 13
Leverage Drawdown ............................................................................................................... 13
Debenture SBIC Leverage Requirements................................................................................ 14
Participating Securities SBIC Leverage Requirements ........................................................... 15
Impact Investment Debenture SBIC Leverage Requirements ................................................. 17
Early Stage Debenture SBIC Leverage Requirements ............................................................ 18
Reporting Requirements ................................................................................................................ 19
SBIC Program Statistics ................................................................................................................ 19
Total Financing ........................................................................................................................ 20
Financing to Specific Demographic Groups ........................................................................... 22
Financing by State ................................................................................................................... 24
Financing by Industry .............................................................................................................. 26
Legislative Activity ........................................................................................................................ 27
Legislation to Target Additional Assistance to Startup and Early Stage Small
Businesses ............................................................................................................................ 28
Discussion ......................................................................................................................... 29
Legislation to Increase SBIC Financing Levels ...................................................................... 30
Discussion ......................................................................................................................... 31
Concluding Observations............................................................................................................... 32
Tables
Table 1. Key Features of the SBA’s Debenture, Participating Securities, Impact
Investment Debenture, and Early Stage Debenture SBICs ......................................................... 10
Table 2. Number of Licensed SBICs, By Type, FY2006-FY2013 ................................................ 20
Table 3. SBIC Investments, FY2005-FY2013 ............................................................................... 22
Table 4. SBIC Financing, Minority-Owned Small Businesses, FY2012 ....................................... 23
Table 5. SBIC Financing, by State, FY2012 .................................................................................. 24
Table 6. SBIC Financing, by Industry, FY2012............................................................................. 26
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SBA Small Business Investment Company Program
Appendixes
Appendix. Small Business Eligibility Requirements and Application Process ............................. 35
Contacts
Author Contact Information........................................................................................................... 38
Congressional Research Service
(SBA) administers several programs to support small
businesses, including loan guaranty programs to enhance small business access to capital;
programs to increase small business opportunities in federal contracting; direct loans for
businesses, homeowners, and renters to assist their recovery from natural disasters; and access to
entrepreneurial education to assist with business formation and expansion. It also administers the
Small Business Investment Company (SBIC) Program. Authorized by P.L. 85-699, the Small
Business Investment Act of 1958, as amended, the SBIC program enhances small business access
to venture capital by stimulating and supplementing “the flow of private equity capital and long
term loan funds which small business concerns need for the sound financing of their business
operations and for their growth, expansion, and modernization, and which are not available in
adequate supply.” Facilitating the flow of capital to small businesses to stimulate the national
economy was, and remains, the SBIC program’s primary objective.
The SBA does not make direct investments in small businesses. It works with 307 privately
owned and managed SBICs licensed by the SBA to provide financing to small businesses with
private capital the SBIC has raised and with funds the SBIC borrows at favorable rates because
the SBA guarantees the debenture (loan obligation).
SBICs pursue investments in a broad range of industries, geographies, and stage of investment.
Some SBICs specialize in a particular field or industry in which their management has expertise,
while others invest more generally. Most SBICs concentrate on a particular stage of investment
(i.e., start-up, expansion, or turnaround) and identify a geographic area in which to focus.
The SBIC program currently has invested about $15.0 billion in small businesses, with about $8.7
billion raised from private capital and $6.3 billion guaranteed by the SBA. In FY2010, the SBA
guaranteed $931 million in SBIC small business investments, and SBICs provided another $1.1
billion in investments from private capital, for a total of more than $2.0 billion in financing for
1,331 small businesses.
Congressional interest in the SBIC program has increased in recent years primarily because it is
viewed as a means to stimulate economic activity, create jobs, and assist in the national economic
recovery. However, there are disagreements concerning whether the program should target
additional assistance to startup and early-stage small businesses, which are generally viewed as
relatively risky investments but also as having a relatively high potential for job creation.
This report examines the SBIC program’s structure and operation, focusing on SBIC eligibility
requirements, investment activity, and program statistics. It also examines legislation considered
during the 111th Congress, including H.R. 3854, the Small Business Financing and Investment
Act of 2009, H.R. 5554, the Small Business Assistance and Relief Act of 2010, and P.L. 111-240,
the Small Business Jobs Act of 2010, which address the following SBIC-related issues: (1) the
targeting of additional assistance to startup and early-stage small businesses, (2) the SBA’s
management of the program’s financial risk and its processing of SBIC applications, and (3)
whether the program’s financing levels are appropriate given the nation’s current economic
circumstances.
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SBA Small Business Investment Company Program
Contents
SBIC Program Overview.............................................................................................................1
SBIC Types.................................................................................................................................2
SBIC Eligibility Requirements ....................................................................................................2
SBIC Application Process ...........................................................................................................4
SBIC Investment Activity ...........................................................................................................5
SBIC Investments in Small Businesses..................................................................................5
SBA Investments ..................................................................................................................7
Leverage.........................................................................................................................7
Debentures......................................................................................................................8
Participating Securities....................................................................................................9
Reporting Requirements...................................................................................................... 11
SBIC Program Statistics............................................................................................................ 12
Total Financing ................................................................................................................... 12
Financing to Specific Demographic Groups......................................................................... 14
Financing By State.............................................................................................................. 16
Financing By Industry......................................................................................................... 17
Legislative Activity................................................................................................................... 19
Legislation to Target Additional Assistance to Startup and Early-Stage Small
Businesses ....................................................................................................................... 19
Discussion .................................................................................................................... 20
Legislation to Require Expedited SBIC Licensing Procedures ............................................. 21
Discussion .................................................................................................................... 22
Legislation to Increase SBIC Financing Levels.................................................................... 23
Discussion .................................................................................................................... 24
Concluding Observations .......................................................................................................... 25
Tables
Table 1. SBIC Financing, FY2005-FY2010 ............................................................................... 14
Table 2. SBIC Financing, Minority-Owned Small Businesses, FY2010 ..................................... 15
Table 3. SBIC Financing, By State, FY2010.............................................................................. 17
Table 4. SBIC Financing, By Industry, FY2010 ......................................................................... 18
Appendixes
Appendix. Small Business Eligibility Requirements and Application Process ............................ 27
Contacts
Author Contact Information ...................................................................................................... 29
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SBA Small Business Investment Company Program
SBIC Program Overview
The Small Business Administration (SBA) administers several programs to support small
businesses, including loan guaranty programs to enhance small business access to capital;
programs to increase small business opportunities in federal contracting; direct loans for
businesses, homeowners, and renters to assist their recovery from natural disasters; and access to
entrepreneurial education to assist with business formation and expansion. 1 It also administers the
Small Business Investment Company (SBIC) Program.
Authorized by P.L. 85-699, the Small
Business Investment Act of 1958, as amended, the SBIC program enhances small business access
to venture capital
program is designed to “improve and stimulate the national economy in general and the small
business segment thereof in particular” by stimulating and supplementing “the flow of private
equity capital and long
term loan funds which small business concerns need for the sound
financing of their business
operations and for their growth, expansion, and modernization, and
which are not available in
adequate supply.”2
The SBIC program was created to address concerns raised in a Federal Reserve Board report to
Congress that concluded that a gap existed in the capital markets for long-term funding for
growth-oriented small businesses. The report noted that the SBA’s loan programs were “limited to
providing short-term and intermediate-term credit when such loans are unavailable from private
institutions,” and the SBA “did not provide equity financing.”3 Equity financing (or equity
capital) is money raised by a company in exchange for a share of ownership in the business.
Ownership is represented by owning shares of stock outright or having the right to convert other
financial instruments into stock. Equity financing allows a business to obtain funds without
incurring debt, or without having to repay a specific amount of money at a particular time. The
Federal Reserve Board’s report concluded that there was a need for a federal government program
to “stimulate the availability of capital funds to small business” to assist them in gaining access to
long-term financing and equity financing. 4 Facilitating the flow of capital to small businesses to
stimulate the national economy was, and remains, the SBIC program’s primary objective.
The SBA does not make direct investments in small businesses. It works with 307 privately
owned partners with privately owned
and managed SBICs licensed by the SBA to provide financing to small businesses with
private private
capital the SBIC has raised and with funds the SBIC (called regulatory capital) and with funds (called leverage) the SBIC
borrows at favorable rates because
the SBA guarantees the debenture (loan obligation).
Congressional interest in the SBIC program has increased in recent years primarily because it is
viewed as another means to stimulate economic activity, create jobs, and assist in the national
economic recovery. However, there are disagreements concerning whether the program should
target additional assistance to startup and early-stage small businesses, which are generally
viewed as relatively risky investments but also as having a relatively high potential for job
creation.
1
the SBA guarantees the debenture (loan obligation). As of
June 30, 2013, there were 295 licensed SBICs participating in the SBIC program.5
1
U.S. Small Business Administration, “Fiscal Year 20112014 Congressional Budget Justification and FY2009FY2012 Annual
Performance Report,” Washington, DC, 2010, p. 1.
2
15 U.S.C. § pp. 4-9, at http://www.sba.gov/sites/default/files/files/1FY%202014%20CBJ%20FY%202012%20APR.PDF.
2
15 U.S.C. §661.
3
U.S. Congress, House Committee on Banking and Currency, Small Business Investment Act of 1958, report to
accompany S.3651, 85th Cong., 2nd sess., June 30, 1958, H.Rept. 85-2060 (Washington: GPO, 1958), pp. 4, 5.
4
Ibid., p. 5.
5
U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
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SBA Small Business Investment Company Program
This report examines the structure and operation of the SBIC program, focusing on SBIC
eligibility requirements, investment activity, and program statistics. It also examines legislation,
including H.R. 3854, the Small Business Financing and Investment Act of 2009, H.R. 5554, the
Small Business Assistance and Relief Act of 2010, and P.L. 111-240, the Small Business Jobs Act
of 2010, which address the following SBIC-related issues: (1) the targeting of additional
assistance to startup and early-stage small businesses, (2) the SBA’s management of the
program’s financial risk and its processing of SBIC applications, and (3) whether the program’s
financing levels are appropriate given the nation’s current economic circumstancesThe SBA is authorized to provide up to $3 billion in leverage to SBICs annually. In FY2012, the
SBA provided $1.9 billion in leverage to SBICs.6
Some Members of Congress, the Obama Administration, and small business advocates have
argued that the SBIC program should be expanded as a means to stimulate economic activity,
create jobs, and assist in the national economic recovery. For example, during the 112th Congress,
H.R. 6504, the Small Business Investment Company Modernization Act of 2012, was passed by
the House on December 18, 2012. It would have increased the program’s family of funds limit to
$350 million from $225 million.7
During the 113th Congress, S. 511, the Expanding Access to Capital for Entrepreneurial Leaders
Act (EXCEL Act), which was ordered to be reported by the Senate Committee on Small Business
and Entrepreneurship on June 17, 2013, would increase the program’s authorization to $4 billion
from $3 billion and increase the program’s family of funds limit (the amount of outstanding
leverage allowed for two or more SBIC licenses under common control) to $350 million from
$225 million. In addition, S. 1285, the Small Business Innovation Act of 2013, which was
referred to the Senate Committee on Small Business and Entrepreneurship on July 11, 2013,
would, among other provisions, increase the program’s authorization to $4 billion from $3 billion
and increase the program’s family of funds limit to $350 million from $225 million.
Others worry about the potential risk an expanded SBIC program has for increasing the federal
deficit. In their view, the best means to assist small business, promote economic growth, and
create jobs is to reduce business taxes and exercise federal fiscal restraint.
Some Members and small business advocates have also proposed that the program target
additional assistance to startup and early stage small businesses, which are generally viewed as
relatively risky investments but also as having a relatively high potential for job creation. For
example, S. 1285 and H.R. 30, the Small Business Investment Enhancement and Tax Relief Act,
which was referred to the House Committee on Small Business and the House Committee on
Ways and Means on January 3, 2013, would authorize the Administration to establish a separate
SBIC program for early stage small businesses, defined as a small business concern that has not
generated gross annual sales exceeding $15 million in any of the previous three years. Also, as
part of the Obama Administration’s Startup America Initiative, the SBA established a five-year,
$1 billion early stage debenture SBIC initiative in 2012. Early stage debenture SBICs are required
to invest at least 50% of their investments in early stage small businesses, defined as small
businesses that have never achieved positive cash flow from operations in any fiscal year.
This report examines the structure and operation of the SBIC program, focusing on SBIC
eligibility requirements, investment activity, and program statistics. It includes information
concerning the SBIC program’s debenture SBIC program, participating securities SBIC program,
$1 billion early stage debenture SBIC initiative (targeting early stage small businesses), and $1
billion impact investment SBIC initiative (targeting underserved markets and communities facing
barriers to access to credit and capital).
6
Ibid.
H.R. 3219, the Small Business Investment Company Modernization Act of 2011, the processor bill to H.R. 6504, the
Small Business Investment Company Modernization Act of 2012, also would have increased the SBIC program’s
family of funds limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common
control) to $350 million from $225 million.
7
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SBA Small Business Investment Company Program
This report also examines legislation introduced during the 113th Congress to expand the SBIC
program, including S. 511, H.R. 30, and S. 1285.
SBIC Types
There are two types of SBICs. Investment companies licensed under Section 301(c) of the Small
Business Investment Act of 1958, as amended, are referred to as original, or regular, SBICs.
Investment companies licensed under Section 301(d) of the act, called Specialized Small
Business Investment Companies (SSBICs), focus on providing financing to small business
entrepreneurs “whose participation in the free enterprise system is hampered because of social or
economic disadvantage.”58 Section 301(d) was repealed by P.L. 104-208, the Omnibus
Consolidated Appropriations Act, 1997 (Title II of Division D, the Small Business Programs
Improvement Act of 1996). As a result, no new SSBIC licenses have been issued since October 1,
1996. However, existing SSBICs were “grandfathered” in and remain in operation.
With few exceptions, SBICs and SSBICs are subject to the same eligibility requirements and
operating rules and regulations. Therefore, the SBIC name is usually used to refer to both SBICs
and SSBICs simultaneously.
In addition, regular SBICs are also distinguished by the nature of their financings. As will be
discussed, there are debenture SBICs, participating securities SBICs, and bank-owned, nonleveraged SBICs. There are five types of regular SBICs. Debenture SBICs, impact investment debenture SBICs,
and early stage debenture SBICs receive leverage through the issuance of debentures.9
Debentures are debt obligations issued by SBICs and held or guaranteed by the
SBA. 6 10
Participating securities SBICs receive leverage through the issuance of participating securities.
Participating securities are redeemable, preferred, equity-type securities, often in the form
of of
limited partnership interests, preferred stock, or debentures with interest payable only to the
extent of earnings. 711 Bank-owned, non-leveraged SBICs do not receive leverage.12 This report
focuses on the four types of regular SBICs that receive leverage from the SBA.
SBIC Eligibility Requirements
An SBIC can be organized in any state, as either a corporation, limited partnership (LP), or a
limited liability company (LLCs must be organized under Delaware law). Most SBICs are owned
by relatively small groups of local investors, although many are partially owned, and some are
wholly owned (47 of 307), by commercial banks.8 A few SBICs are corporations with publicly
traded stock.9
5
P.L. 92-595, the Small Business Investment Act Amendments of 1972.
13 CFR § 107.50.
7
Ibid.
6
8
8
P.L. 92-595, the Small Business Investment Act Amendments of 1972.
A debenture SBIC may issue and have outstanding both guaranteed debentures and participating securities, provided
that the total amount of participating securities outstanding does not exceed 200% of its private capital. See 13 CFR
§107.1170. The SBA stopped issuing new commitments for participating securities on October 1, 2004.
10
13 CFR §107.50.
11
Ibid.
12
Commercial banks may invest up to 5% of their capital and surplus to partially or wholly own an SBIC. Bank
investments in an SBIC are presumed by federal regulatory agencies to be a “qualified investment” for Community
Reinvestment Act purposes. See P.L. 90-104, the Small Business Act Amendments of 1967; The Board of Governors
(continued...)
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SBA Small Business Investment Company Program
The two primary criteria for licensure as an SBIC are having qualified management and sufficient
private capital. The SBA reviews and approves prospective SBIC’s management teams based
upon their professional capabilities and character. Specifically, the SBA examines the SBIC’s
management team looking of the Federal Reserve Board, “Small Business Investment Companies,” 33 Federal Register 6967, May 9, 1968; and
U.S. Small Business Administration, “Small Business Investment Companies (SBICs),” Small Business Notes, 2009, at
http://www.smallbusinessnotes.com/financing/sbic.html.
9
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wholly owned (44 of 295), by commercial banks. A few SBICs are corporations with publicly
traded stock.13
One of the primary criteria for licensure as an SBIC is having qualified management. The SBA
reviews and approves a prospective SBIC’s management team based upon its professional
capabilities and character. Specifically, the SBA examines the SBIC’s management team looking
for
•
substantive and relevant principal investment experience;
•
realized track record of superior returns, based on an overall evaluation of
appropriate quantitative performance measures;
•
evidence of a strong rate of business proposals and investment offers (deal flow)
in the investment area proposed for the new fund;
•
a cohesive management team, with complementary skills and history of working
together;
•
managerial, operational, or technical experience that can add value at the
portfolio company level; and
•
a demonstrated ability to manage cash flows so as to provide assurance the SBA
will be repaid on a timely basis.10
Debenture SBICs are required to have a minimum private capital investment of $5 million (called
regulatory capital). 11 The SBA has discretion to license an applicant with regulatory capital of $3
million if the applicant has satisfied all licensing standards and requirements, has a viable
business plan reasonably projecting profitable operations, and has a reasonable timetable for
achieving regulatory capital of at least $5 million. 12 At least 30% of the debenture SBIC’s
regulatory and leverageable capital must come from three people unaffiliated with the fund’s
management and with each other. 13 Also, no more than 33% of the SBIC’s regulatory capital can
come from state or local government entities.14
Participating securities SBICs must have regulatory capital of $10 million. The SBA has
discretion to require less than $10 million in regulatory capital if the licensee can demonstrate
that it can be financially viable over the long term with a lower amount. In this circumstance, the
regulatory amount required can not be lower than $5 million.15 At least 30% of the participating
securities SBIC’s regulatory and leverageable capital must come from three people unaffiliated
(...continued)
of the Federal Reserve Board, “Small Business Investment Companies,” 33 Federal Register 6967, May 9, 1968; and
U.S. Small Business Administration, “Small Business Investment Companies (SBICs),” Small Business Notes,
Washington, DC, 2009, http://www.smallbusinessnotes.com/financing/sbic.html.
9
U.S. Small Business Administration, “For SBIC Applicants,” Washington, DC, http://archive.sba.gov/aboutsba/
sbaprograms/inv/forsbicapp/INV_APPLICATION_PROCESS.html.
10
Ibid.
11
13 CFR § 107.210.
12
Ibid.
13
13 CFR § 107.150.
14
13 CFR § 107.230.
15
13 CFR § 107.210.
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with the fund’s management and with each other.16 Also, no more than 33% of the SBIC’s
regulatory capital can come from state or local government entities. 17
The eligibility requirements for small businesses requesting financial assistance from an SBIC is
described in the Appendix.
SBIC Application Process
Applying for an SBIC license is a multi-step process, beginning with the submission of the SBA
Management Assessment Questionnaire (MAQ). It includes, among others, questions concerning
•
the fund’s legal name, and the name and addresses of its principals and control
persons;
•
the fund’s finances and expenses;
•
the management team’s professional experience;
•
the fund’s expected investing focus (e.g., will the fund be primarily a sole
investor, lead investor, or co-investor; its anticipated percentage of investments in
technology, life sciences, health care, manufacturing, distribution, service,
consumer products and retail, or other industries; and its anticipated percentage
of investments by business life cycle—seed, early stage, expansion, later stage,
change of control, or turnaround);
•
the geographic areas where the investments are expected to be made;
•
the anticipated holding periods for investments;
•
the types and characteristics of the securities that will be used to make
investments; and
•
the extent to which “special groups of businesses” will be targeted for
investment, such as “ethnic groups, women, rural, inner city, etc.”18
After receiving the firm’s application a member of the SBA’s Program Development Office
reviews the MAQ, assesses the investment company’s proposal in light of the program’s
minimum requirements and management qualifications, performs initial due diligence including
making reference telephone calls, and prepares a written recommendation to the SBA’s
Investment Division’s Investment Committee (composed of senior members of the Division).
If, after reviewing the MAQ and the SBA’s Program Development Office’s evaluation, the
Investment Committee concludes, by majority vote at a regularly scheduled meeting, that the
investment company’s management team may be qualified for a license, the investment
company’s management team is invited to the SBA’s headquarters in Washington, DC, for an
interview. If, following the interview, the Investment Committee votes to proceed, the investment
16
13 CFR § 107.150.
13 CFR § 107.230.
18
U.S. Small Business Administration, “SBIC Management Assessment Questionnaire and License Application: Form
2181,” Washington, DC, p. 21, http://www.sba.gov/sites/default/files/inv_sba_form_2181.pdf.
17
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SBA Small Business Investment Company Program
team is provided a “Green Light” letter, formally inviting the investment team to file a license
application, along with a filing fee of $10,000, plus an additional $5,000 for partnerships or LLC
SBICs. If the license is approved, all SBIC principals must complete the SBA’s SBIC Regulations
training classes. On average, obtaining an SBIC license takes about six months from the time of
the initial submission of the MAQ to issuance of the license. 19
The application process for small businesses requesting financial assistance from an SBIC is
described in the Appendix.
SBIC Investment Activity
SBIC Investments in Small Businesses
SBICs provide equity capital to small businesses in various ways, including by
•
purchasing small business equity securities (e.g., stock, stock options, warrants,
limited partnership interests, membership interests in a limited liability company,
or joint venture interests); 20
•
making loans to small businesses, either independently or in cooperation with
other private or public lenders, that have a maturity of no more than 20 years;21
•
purchasing debt securities from small businesses, which may be convertible into,
or have rights to purchase, equity in the small business;22 and
•
subject to limitations, providing small businesses a guarantee of their monetary
obligations to creditors not associated with the SBIC.23
SBICs are subject to statutory and regulatory restrictions concerning the nature of their approved
investments. For example, SBICs are not allowed to
•
directly or indirectly provide financing to any of their associates (e.g., officers,
directors, and employees);24
•
control, either directly or indirectly, any small business on a permanent basis;25
19
U.S. Small Business Administration, “For SBIC Applicants,” Washington, DC, http://archive.sba.gov/aboutsba/
sbaprograms/inv/forsbicapp/INV_APPLICATION_PROCESS.html; and U.S. Small Business Administration, Office
of Legislative Affairs, correspondence with the authors, September 21, 2100.
20
13 CFR § 107.800. The SBIC is not allowed to become a general partner in any unincorporated business or become
jointly or severally liable for any obligations of an unincorporated business.
21
13 CFR § 107.810; and 13 CFR § 107.840.
22
13 CFR § 107.815. Debt securities are instruments evidencing a loan with an option or any other right to acquire
equity securities in a small business or its affiliates, or a loan which by its terms is convertible into an equity position,
or a loan with a right to receive royalties that are excluded form the cost of money.
23
13 CFR § 107.820.
24
13 CFR § 107.730.
25
13 CFR § 107.865. The period of time that an SBIC can exercise control over a small business for purposes
connected with its investment through ownership of voting securities, management agreements, voting trusts, majority
representation on the board of directors, or otherwise, is “limited to the seventh anniversary of the date on which such
control was initially acquired, or any earlier date specified by the terms of any investment agreement.” With the SBA’s
(continued...)
Congressional Research Service
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SBA Small Business Investment Company Program
•
invest, without SBA approval, more than specified percentages of its private
(regulatory) capital in securities, commitments, or guarantees in any one small
business (e.g., SBICs are not allowed to invest more than 30% of their private
capital in any one small business if their investment plan includes two or more
tiers of SBA leverage); 26
•
invest in farm land, unimproved land, or any small business classified under
Major Group 65 (Real Estate) of the Standard Industrial Classification (SIC)
Manual, with the exception of title abstract companies, real estate agents,
brokers, and managers;27
•
provide funds for small businesses whose primary business activity involves
directly or indirectly providing funds to others, purchasing debt obligations,
factoring, or leasing equipment on a long-term basis with no provision for
maintenance or repair;28 or
•
provide funds to a small business if the funds will be used substantially for a
foreign operation.29
The SBA also regulates the interest rates and fees SBICs are allowed to charge small businesses
on loans, debt securities, and equity financing.30
In 1999, the SBA introduced the low and moderate income investments (LMI) initiative to
encourage SBICs to invest in small businesses located in inner cities and rural areas “that have a
severe shortages of equity capital” because investments in those areas “often are of a type that
will not have the potential for yielding returns that are high enough to justify the use of
(...continued)
prior written approval, an SBIC “may retain control for such additional period as may be reasonably necessary to
complete divestiture of control or to ensure the financial stability of the portfolio company.”
26
A tier of SBA leverage equals the amount of the SBIC’s private (regulatory) capital. SBICs approved for less than
two tiers of SBA leverage must not invest more than 20% of its private capital in any one small business if the SBIC’s
plan contemplates one tier of leverage and no more than 25% of its private capital if its plan contemplates 1.5 tiers of
leverage. See 13 CFR § 107.740; and U.S. Small Business Administration, “American Recovery and Investment Act of
2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate Administrator for
Investment, to All Small Business Investment Companies (SBICs) and Applicants, Washington, DC, May 4, 2009, p. 2,
http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_rcvry_act_sbic_changes.pdf.
27
13 CFR § 107.720.
28
Ibid.
29
Ibid. SBICs may provide venture capital financing to “disadvantaged concerns” engaged in relending or reinvesting
activities (except agricultural credit companies and banking and savings and loan institutions not insured by a federal
agency). Without SBA approval, these financings, at the end of the fiscal year, may not exceed the SBIC’s regulatory
capital. A disadvantaged concern is defined as a small business that is at least 50% owned, controlled, and managed, on
a day-to-day basis, by a person or persons whose participation in the free enterprise system is hampered because of
social or economic disadvantages.
30
The SBA has a general interest rate ceiling of 19% for a loan and 14% for a debt security, with provisions for a
higher interest rate under specified circumstances. See 13 CFR § 107.855. SBICs are allowed to collect a
nonrefundable application fee of no more than 1% of the amount of financing requested from a small business to
review its financing application, a closing fee of no more than 2% of the amount of financing requested from a small
business concern for a loan, charged no earlier than the date of the first disbursement, and a closing fee of no more than
4% of the amount of financing requested from a small business concern for a debt security or equity security financing,
charged no earlier than the date of the first disbursement. SBICs are also allowed to charge a small business for
reasonable out-of-pocket expenses, other than management expenses incurred to process the small business’s financing
application. See 13 CFR § 107.860.
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participating securities.”31 This ongoing initiative provides incentives to SBICs that invest in
small businesses that have at least 50% of its employees or tangible assets located in a low-tomoderate income area (LMI Zone) or have at least 35% of its full-time employees with their
primary residence in an LMI Zone. 32 For example, unlike regular SBIC debentures that typically
have a 10-year maturity, LMI debentures are available in two maturities, for five years and 10
years, plus the stub period. The stub period is the time between the debenture’s issuance date and
the next March 1 or September 1. The stub period allows all LMI Debentures to have common
March 1 or September 1 maturity dates to simplify administration of the program.
In addition, LMI debentures are issued at a discount so that the proceeds the SBIC receives for
the sale of the debenture are reduced by (1) the debenture’s interest costs for the first five years,
plus the stub period; (2) the SBA’s annual fee for the debenture’s first five years, plus the stub
period; and (3) the SBA’s 2% leverage fee. As a result, these interest costs and fees are
effectively deferred, freeing SBICs from the requirement to make interest payments on LMI
debentures, or pay the SBA’s annual fees on LMI debentures, for the first five years of the
debenture, plus the stub period between the debenture’s issuance date and the next March 1 or
September 1.33
In FY2010, SBICs made 569 financings to small businesses located in a LMI Zone, totaling
$444.5 million—about 22% of the total amount financed.34
SBA Investments
Leverage
A licensed SBIC in good standing, with a demonstrated need for funds, may apply to the SBA for
financial assistance (called leverage) of up to 300% of its private capital. However, most SBICs
are approved for a maximum of 200% of its private capital and no fund management team may
exceed the allowable maximum amount of leverage, currently $150 million per SBIC and $225
million for two or more licenses under common control.35 SBICs licensed on or after October 1,
2009, may elect to have a maximum leverage amount of $175 million per SBIC and $250 million
31
U.S. Small Business Administration, “Small Business Investment Companies,” 64 Federal Register 52645,
September 30, 1999.
32
U.S. Small Business Administration, “Small Business Investment Companies,” 64 Federal Register 52641-52646,
September 30, 1999. LMIs Zones are areas located in a HUBZone, an Urban Empowerment Zone or Urban Enterprise
Community designated by the Secretary of the U.S. Department of Housing and Urban Development, a Rural
Empowerment Zone or Rural Enterprise Community as designated by the Secretary of the U.S. Department of
Agriculture, an area of low income or moderate income as recognized by the Federal Financial Institutions
Examination Council, or a county with persistent poverty as classified by the U.S. Department of Agriculture’s
Economic Research Service. See 13 CFR § 107.50.
33
U.S. Small Business Administration, “For SBICs: Background Information on Low or Moderate Income(LMI)
Debentures,” Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/inv/forsbic/inv_backgroundinfo.html.
34
U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010: Summary
of SBIC Program Financing,” Washington, DC.
35
13 CFR § 107.1120; 13 CFR § 107.1150; and U.S. Small Business Administration, “American Recovery and
Investment Act of 2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate
Administrator for Investment, to All Small Business Investment Companies (SBICs) and Applicants, Washington, DC,
May 4, 2009, p. 1, http://archive.sba.gov/idc/groups/public/documents/sba_program_office/
inv_rcvry_act_sbic_changes.pdf.
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SBA Small Business Investment Company Program
for two or more licenses under common control if it has invested at least 50% of its financings in
low-income geographic areas and certifies that at least 50% of its future investments will be in
low-income geographic areas.36
The SBIC’s application for SBA financial assistance is to secure the “SBA’s conditional
commitment to reserve a specific amount of leverage” for the SBIC’s future use.37 If the
application is approved, the SBIC draws down the leverage as it makes financial commitments.
Leverage is provided through the issuance of either SBA-guaranteed debentures or SBAguaranteed participating securities.
Debentures
Debenture SBICs obtain leverage by issuing SBA-guaranteed debentures. The SBA pools these
debentures and sells SBA-guaranteed debenture participation certificates, representing an
undivided interest in the pool, to investors through periodic public offerings.38 SBA-guaranteed
debenture participation certificates can have a term of up to 15 years, although currently only one
outstanding SBA-guaranteed debenture participation certificate has a term exceeding 10 years
and all recent public offerings have specified a term of 10 years.39 SBA-guaranteed debentures
provide for semi-annual interest payments and a lump sum principal payment to investors at
maturity. 40 SBICs are allowed to prepay SBA-guaranteed debentures without penalty. However, a
SBA-guaranteed debenture must be prepaid in whole and not in part, and can only be prepaid on a
semi-annual payment date. The debenture’s coupon (interest) rate is determined by market
conditions and the interest rate of 10-year treasury securities at the time of the sale. 41 Also, as
mentioned previously, LMI debentures are available in two maturities, for five years and 10 years
(plus the stub period).
Because the SBA guarantees the debenture, investors are more likely to purchase the SBIC’s
debenture participation certificate as opposed to others available on the market. They are also
more likely to accept a lower coupon (interest) rate than what would be expected without the
SBA’s guarantee. 42 As a result, the SBIC’s access to venture capital is enhanced, and its cost of
36
13 CFR § 107.1150.
13 CFR § 107.1100.
38
The SBA is required by statute to issue guarantees “at periodic intervals of not less than every 12 months and shall
do so at such shorter intervals as it deems appropriate, taking into consideration the amount and number of such
guarantees or trust certificates.” See 15 U.S.C. § 687m.
39
U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating Securities Participation
Certificates, Series SBIC-PS 2009-10 A,” Washington, DC, p. 11, http://www.sba.gov/idc/groups/public/documents/
sba_program_office/inv_sbic-ps-2009-10a-831641ep6.pdf.
40
U.S. Small Business Administration, “Small Business Investment Companies (SBICs),” Small Business Notes,
Washington, DC, 2009, http://www.smallbusinessnotes.com/financing/sbic.html; and U.S. Small Business
Administration, “For SBIC Applicants,” Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/inv/forsbicapp/
INV_APPLICATION_PROCESS.html.
41
Ibid.; 13 CFR § 107.50; and 13 CFR § 107.1150.
37
42
The coupon (interest) rate on SBA debentures is based on the 10-year Treasury rate (adjusted to the nearest 1/8th of
one percent) plus a market-driven spread, currently about 70-80 basis points. See 13 CFR § 107.50; and U.S. Small
Business Administration, “SBIC Program: FAQs,” Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/inv/
faq/index.html. The coupon rate for the most recent sale of a SBA debenture participating certificate, which took place
on March 24, 2010, was 4.108%. U.S. Small Business Administration, “Offering Circular, Guaranteed 4.108%
Debenture Participation Certificates, Series SBIC 2010-10 A,” Washington, DC, http://archive.sba.gov/idc/groups/
public/documents/sba_program_office/inv_sbic-2010-10-a-831641es0.pdf.
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SBA Small Business Investment Company Program
raising additional financial resources is reduced. Because debenture SBICs make semi-annual
interest payments to investors, they tend to focus their investments on mid- and later-stage small
businesses that have positive cash flow and are seeking capital for expansion.43
The SBA operates the SBIC debenture program on a zero-subsidy basis. To recoup its expenses,
the SBA requires the SBIC to pay a 3% origination fee for each debenture issued (1% at
commitment and 2% at draw), an annual fee on the leverage drawn which is fixed at the time of
the leverage commitment, and other administrative and underwriting fees which are adjusted
annually.44
Participating Securities
P.L. 102-366, the Small Business Credit and Business Opportunity Enhancement Act of 1992
(Title IV, the Small Business Equity Enhancement Act of 1992), authorized the SBA to guarantee
participating securities. Participating securities are redeemable, preferred, equity-type securities
issued by SBICs in the form of limited partnership interests, preferred stock, or debentures with
interest payable only to the extent of earnings.
In 1994, the SBA established the SBIC Participating Securities Program (SBIC PSP) to
encourage the formation of participating securities SBICs which would make equity investments
in startup and early stage small businesses. The SBA created the program to fill a perceived
investment gap created by the SBIC debenture program’s focus on mid- and later-stage small
businesses. As will be discussed, the SBIC PSP lost more than $2.7 billion during the early 2000s.
In 2004, the SBA began an ongoing process to end the program. However, in recent years,
congressional interest in either revising the program or starting a new program modeled on
certain aspects of the SBIC PSP to assist startup and early-stage small businesses has increased.45
Participating securities SBICs obtained leverage by issuing SBA-guaranteed participating
securities. The SBA pooled these participating securities and sold SBA-guaranteed participating
securities certificates, representing an undivided interest in the pool, to investors through periodic
public offerings. The SBA’s regulations allow these certificates to have a term of up to 15 years,
but all recent public offerings have specified a term of 10 years.
There have been 35 public offerings of SBA-guaranteed participating securities certificates since
the start of the participating securities program, amounting to just under $10.3 billion. The final
43
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 11;
and U.S. Small Business Administration, “SBIC Program: FAQs,” Washington, DC, http://archive.sba.gov/aboutsba/
sbaprograms/inv/faq/index.html.
44
13 CFR § 107.1130; and 13 CFR § 107.1210.
45
U.S. Congress, House Committee on Small Business, Subcommittee Markup of Legislation Affecting the SBA Capital
Access Programs, 111th Cong., 1st sess., October 8, 2009, House Small Business Committee Document No. 111-050
(Washington: GPO, 2009), pp. 7, 10, 11, 187-194; U.S. Congress, House Committee on Small Business, Full
Committee Hearing on Increasing Capital for Small Business, 111th Cong., 1st sess., October 14, 2009, House Small
Business Committee Document No. 111-051 (Washington: GPO, 2009), pp. 1, 2, 40, 98; and U.S. Congress, House
Committee on Small Business, Small Business Financing and Investment Act of 2009, report to accompany H.R. 3854,
111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 3, 4, 10-12.
Congressional Research Service
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SBA Small Business Investment Company Program
SBA-guaranteed participating securities certificate, for $332 million, had a term of 10 years and
was offered to investors on February 19, 2009.46
SBIC participating securities certificates provide for quarterly payments to investors from
dividends on preferred stock, interest on an income bond, or a priority return on a preferred
limited partnership equal to a specified interest rate on the principal amount and a lump sum
principal payment at maturity. The participating securities SBIC is obligated to make these
quarterly payments “only to the extent it has sufficient profits available to make such
payments.”47 If it is unable to make any required payment, the SBA will make the payment on
behalf of the SBIC. Because startup and early-stage small businesses often are not initially
profitable, the SBA included language in its participating securities’ offering circulars that it
“anticipates that it will be called upon routinely to make such … payments for the SBICs in the
early years of the lives of such SBICs” and that it “expects to be reimbursed [by the SBIC] any
amounts paid … under its guarantee over the life of a participating security.”48
Because the SBA guaranteed the certificate, investors were more likely to purchase the SBIC’s
participating securities certificate as opposed to others available on the market. They were also
more likely to accept a lower payment rate than what would be expected without the SBA’s
guarantee. 49
In addition, participating securities SBICs are more likely than debenture SBICs to finance
startup and early-stage small businesses because the SBA is willing to make the SBIC’s required
quarterly payments to investors, at least during the early years of the investment. Because
participating securities SBICs are not required to make these quarterly payments, they are
encouraged to focus on the small business’s long-term prospects for growth and profitability,
rather than on its prospects for having immediate positive cash-flow. 50
In 2004, the SBA projected losses of more than $2.7 billion in the SBIC PSP, primarily because
investments in technology startup and early-stage small businesses lost much of their stock value
during the early 2000s. Consequently, on October 1, 2004, the SBA ceased issuing new licenses
and new leverage for participating securities SBICs, effectively beginning the process of ending
the SBIC PSP.51 The SBA continued to honor its existing commitments to participating securities
46
13 CFR § 107.1500; and U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating
Securities Participation Certificates, Series SBIC-PS 2009-10 A,” Washington, DC, pp. 7, 14, http://archive.sba.gov/
idc/groups/public/documents/sba_program_office/inv_sbic-ps-2009-10a-831641ep6.pdf.
47
U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating Securities Participation
Certificates, Series SBIC-PS 2009-10 A,” Washington, DC, p. 2, http://archive.sba.gov/idc/groups/public/documents/
sba_program_office/inv_sbic-ps-2009-10a-831641ep6.pdf.
48
Ibid., pp. 2, 3. Also, see U.S. Congress, House Committee on Small Business, Private Equity for Small Firms: The
Importance of the Participating Securities Program, 109th Cong., 1st sess., April 13, 2005, Serial No. 109-10
(Washington: GPO, 2005), p. 5.
49
The coupon rate for most recent sale of a SBA guaranteed participating securities participation certificate, which took
place on February 25, 2010, was 4.727%. U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727%
Participating Securities Participation Certificates, Series SBIC-PS 2009-10 A,” Washington, DC, p. 1,
http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_sbic-ps-2009-10a-831641ep6.pdf.
50
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 11;
and U.S. Small Business Administration, “SBIC Program: FAQs,” Washington, DC, http://archive.sba.gov/aboutsba/
sbaprograms/inv/faq/index.html.
51
U.S. Congress, House Committee on Small Business, Private Equity for Small Firms: The Importance of the
(continued...)
Congressional Research Service
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SBA Small Business Investment Company Program
SBICs and they were allowed to continue operations. However, they were required to comply
with special rules concerning minimum capital, liquidity, non-SBA borrowing, and equity
investing.52 As mentioned previously, the final SBA-guaranteed participating securities
participation certificate was offered to investors on February 19, 2009.53
At the end of FY2010, the SBA had a guarantee on the outstanding unpaid principal balance of
$3.4 billion in SBIC debentures, $2.9 billion in SBIC participating securities, and $14.2 million in
SSBIC financings.54
Reporting Requirements
Once licensed, each SBIC is required to file with the SBA an annual financial report which
includes an audit by an SBA-approved independent public accountant. SBICs are also subject to
annual onsite regulatory compliance examinations. 55 SBICs are also required to provide the SBA:
•
a portfolio financing report within 30 days of the closing date for each financing
of a small business;56
•
the value of its loans and investments within 90 days of the end of the fiscal year
in the case of annual valuations, and within 30 days following the close of other
reporting periods;57
•
any material adverse changes in valuations at least quarterly (within 30 days
following the close of the quarter);58 and
(...continued)
Participating Securities Program, 109th Cong., 1st sess., April 13, 2005, Serial No. 109-10 (Washington: GPO, 2005),
p. 5, 33; and U.S. Small Business Administration, “SBIC Program: FAQs,” Washington, DC, http://archive.sba.gov/
aboutsba/sbaprograms/inv/faq/index.html.
52
13 CFR § 107.1500. SBICs that wish to be eligible to issue participating securities must have regulatory capital of at
least $10 million unless it can demonstrate to the SBA’s satisfaction that it can be financially viable over the long-term
with a lower amount, but not less than $5 million. See 13 CFR § 107.210. They must also maintain sufficient liquidity
to avoid a condition of “Liquidity Impairment,” defined as a liquidity ratio (total current funds available divided by
total current funds required) of less than 1.2. See 13 CFR § 107.1505. The only type of debt, other than leverage,
SBICs that have applied to issue participating securities or have outstanding participating securities are permitted to
incur is temporary debt. Temporary debt is defined as short-term borrowings from a regulated financial institution, a
regulated credit company, or a non-regulated lender approved by the SBA for the purpose of maintaining the SBIC’s
operating liquidity or providing funds for a particular financing of a small business. The total outstanding borrowings,
not including leverage, can not exceed 50% of the SBIC’s leveraged capital and all such borrowings must be fully paid
off for at least 30 consecutive days during the SBIC’s fiscal year so that it has no outstanding third-party debt for 30
days. See 13 CFR § 107.570. SBICs issuing participating securities are required to invest an amount equal to the
original issue price of such securities solely in equity capital investments (e.g., common or preferred stock, limited
partnership interests, options, warrants, or similar equity instruments). See 13 CFR § 107.1505.
53
U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating Securities Participation
Certificates, Series SBIC-PS 2009-10 A,” Washington, DC, p. 7, http://archive.sba.gov/idc/groups/public/documents/
sba_program_office/inv_sbic-ps-2009-10a-831641ep6.pdf.
54
U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” Washington, DC, October 13,
2010, p. 1, http://www.nasbic.org/resource/resmgr/Docs/SBIC_Stats_Oct._13.pdf.
55
13 CFR § 107.630; and 13 CFR § 107.690.
56
13 CFR § 107.640.
57
13 CFR § 107.650.
58
Ibid.
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SBA Small Business Investment Company Program
•
copies of reports provided to investors, documents filed with the Securities and
Exchange Commission, and documents pertaining to litigation or other legal
proceedings, including criminal charges against any person who was required by
the SBA complete a personal history statement in connection with the SBIC’s
license. 59
SBIC Program Statistics
There are 307 licensed SBICs in operation (140 debenture SBICs, 107 participating securities
SBICs, 47 bank-owned/non-leveraged SBICs, and 13 SSBICs).60 In FY2010, 218 SBICs
provided at least one new financing to a small business. 61
The number of licensed SBICs has declined in recent years, with most of the decline due to the
planned phase-out of participating securities SBICs and SSBICs.62 For example, in FY2006, there
were 396 licensed SBICs (132 debenture SBICs, 173 participating securities SBICs, 67 bankowned/non-leveraged SBICs, and 24 SSBICs).63
Overall, SBICs pursue investments in a broad range of industries, geographies, and stage of
investment. Some individual SBICs specialize in a particular field or industry in which their
management has expertise, while others invest more generally. Most SBICs concentrate on a
particular stage of investment (i.e., start-up, expansion, or turnaround) and identify a geographic
area in which to focus.
Total Financing
Since its inception, the SBIC program has provided more than $57.6 billion in financial assistance
to more than 107,000 small firms.64 As mentioned previously, at the end of FY2010, the SBA had
a guarantee on the outstanding unpaid principal balance of $3.4 billion in SBIC debentures, $2.9
59
13 CFR § 107.660.
U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” Washington, DC, October 13,
2010, p. 1, http://www.nasbic.org/resource/resmgr/Docs/SBIC_Stats_Oct._13.pdf.
61
U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010: Form of
Business, Pre-Financing Information, and Licensing Activity Levels,” Washington, DC.
60
62
In recent years, the SBA has made it a goal to increase the number of new SBIC licenses issued each year. In
FY2008, the SBA issued six new SBIC licenses (five to debenture SBICs and one to a bank-owned/non-leveraged
SBIC). In FY2009, the SBA issued 11 new SBIC licenses (eight to debenture SBICs and three to bank-owned/nonleveraged SBICs). In FY2010, the SBA issued 23 new SBIC licenses (21 to debenture SBICs and 2 to bankowned/non-leveraged SBICs). See U.S. Small Business Administration, Investment Division, “SBIC Program
Overview,” Washington, DC, October 13, 2010, p. 2, http://www.nasbic.org/resource/resmgr/Docs/
SBIC_Stats_Oct._13.pdf.
63
Ibid., p. 1.
64
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the author, October 20,
2010; U.S. Small Business Administration, Press Office, “SBA Growth Capital Program Provides Record $1.59 Billion
in Financing for Small Businesses in FY10,” October 14, 2010, http://www.sba.gov/content/sba-growth-capitalprogram-provides-record-159-billion-financing-small-businesses-fy10. The SBA has a selected list of firms that have
received SBIC financing, including Apple Computer, Compaq Computer, Costco Wholesale Corporation, FedEx, Intel,
Jenny Craig, Inc., Outback Steakhouse, Sports Authority, Staples, and Sun Microsystems, on its website. See U.S.
Small Business Administration, “Investment Division,” Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/
inv/INV_SUCCESS_STORIES.html.
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billion in SBIC participating securities, and $14.2 million in SSBIC financings. 65 All together, the
SBIC program currently has invested about $15.0 billion in small businesses, with about $8.7
billion raised from private capital and $6.3 billion guaranteed by the SBA.66
In FY2010, SBICs made 2,455 financings (including 43 financings by SSBICs). The average
financing amount was $833,862 ($1,080,295 for debenture SBICs, $420,613 for participating
securities SBICs, $838,478 for bank-owned/non-leveraged SBICs, and $68,585 for SSBICs).67
The funds were used primarily for operating capital (93.3%). Other uses were for research and
development (2.8%), to acquire an existing business (1.6%), plant modernization (0.6%),
purchasing equipment (0.4%), refinancing or refunding debt (0.3%), marketing activities (0.2%),
a new building or plant construction (0.1%), and other uses (0.7%).68
As shown in Table 1, the SBA’s leverage increased each fiscal year from FY2005 to FY2008,
peaking at just over $1.0 billion, declined in FY2009 to $787 million, and increased to $931
million in FY2010. In addition, SBICs provided total investments of more than $2.0 billion in
FY2010 ($931 million in SBA leverage and $1.1 billion from private capital), about $1.85 billion
in FY2009 ($787 in SBA leverage and $1.06 billion from private capital) and $2.2 billion in
FY2008 ($1.0 billion in SBA leverage and $1.2 billion from private capital).69
The SBA has had congressional authorization to issue up to $3 billion in SBIC leverage each year
since 2005. For comparative purposes, private venture capital firms invested $18.3 billion in
2,916 companies in 2009, and, based on their activity during the first three quarters of 2010, are
on pace to invest $21 billion in about 3,100 companies in 2010.70
The SBA has indicated that one of its goals is “to enhance program acceptance in the marketplace
and increase the number of funds licensed and the amount of leverage issued so as to improve
capital access for small businesses.”71
65
U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” Washington, DC, October 13,
2010, p. 1, http://www.nasbic.org/resource/resmgr/Docs/SBIC_Stats_Oct._13.pdf.
66
Ibid.
67
U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010: Summary
of SBIC Program Financing,” Washington, DC.
68
U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010: Use of
Proceeds by the Financed Businesses,” Washington, DC.
69
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the author, October 20,
2010; U.S. Small Business Administration, “Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report,” Washington, DC, 2010, pp. 19, 51; and U.S. Small Business Administration, “FY2010
Congressional Budget Justification,” Washington, DC, 2009, pp. 17, 42.
70
National Venture Capital Association, “Venture Capital Investments Q3-2010 – MoneyTree Results, National Data,”
Arlington, VA, October 15, 2010, p. 3, http://www.nvca.org/.
71
U.S. Small Business Administration, “Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report,” Washington, DC, 2010, p. 52.
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Table 1. SBIC Financing, FY2005-FY2010
($ in millions)
Year
SBA
Leverage/Guarantee
# of Small
Businesses
Financed
FY2010
$931
1,331
FY2009
$787
1,481
FY2008
$1,029
1,905
FY2007
$707
2,057
FY2006
$477
1,488
FY2005
$355
1,559
Source: U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the author,
October 20, 2010; U.S. Small Business Administration, “Fiscal Year 2011 Congressional Budget Justification and
FY2009 Annual Performance Report,” Washington, DC, 2010, pp. 19, 51; U.S. Small Business Administration,
“FY2010 Congressional Budget Justification,” Washington, DC, 2009, pp. 17, 41, 42; U.S. Small Business
Administration, “Fiscal Year 2009 Congressional Submission and FY2007 Annual Performance Report,”
Washington, DC, 2008, pp. 25, 43; U.S. Small Business Administration, “FY 2008 Budget Request and
Performance Plan,” Washington, DC, 2007, pp. 23, 57; and U.S. Small Business Administration, “Performance and
Financial Highlights, FY2007,” Washington, DC, February 4, 2008, p. 4.
In 2008, the Urban Institute released an analysis comparing debenture SBIC investments made
from 1997 to 2005 to private sector venture capital investments made during that time period in
second stage business loans, third stage business loans, and bridge loans “because these
investments are likely to be of the same character (debt with equity features) as those made by
debenture SBICs.”72 The Urban Institute found that debenture SBIC investments accounted for
more than 62% of all venture capital financings in second stage business loans, third stage
business loans, and bridge loans in the United States during that time period. However, because
the average amount of an SBIC debenture investment was much smaller than the industry
average, SBIC debenture investments accounted for “only 8% of total dollars invested.”73
Financing to Specific Demographic Groups
As shown in Table 2, in FY2010, SBICs made 123 financings (5.0% of all financings) amounting
to $69.2 million (3.4% of the total amount of financings) to minority-owned and -controlled small
businesses.
In addition, in FY2010, SBICs made 43 financings (1.8% of all financings) amounting to $2.1
million (1.4% of the total amount of financings) to women-owned small businesses, and 4
financings (0.2% of all financings) amounting to $1.6 million (0.1% of the total amount of
financings) to veteran-owned small businesses.74
72
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity, The Urban Institute ,
Washington, DC, January 2008, p. 3, http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
73
Ibid., p. 1.
74
U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010:
Demographics of Financed Businesses,” Washington, DC.
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Table 2. SBIC Financing, Minority-Owned Small Businesses, FY2010
Small Business
Ownership
Demographic
# of Financings
% of Financings
$ Amount of
Financings
% of Total $
Amount of
Financings
Black-Owned
40
1.6%
$36,865,781
1.8%
Subcontinent Asian-Owned
39
1.6%
$5,135,745
0.3%
Hispanic-Owned
26
1.1%
$5,402,931
0.3%
Asian Pacific-Owned
18
0.7%
$21,794,698
1.1%
0
0.0%
$0
0.0%
123
5.0%
$69,199,155
3.4%
Other (non-minority)
2,332
95.0%
$1,977,932,234
96.6%
Total—All Financings
2,455
100.0%
$2,047,131,389
100.0%
Native American-Owned
Subtotal
Source: U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010:
Demographics of Financed Businesses.,” Washington, DC.
Notes:: Ownership is defined as owning at least 50% of the small business.
Research concerning private venture capital investment in minority-owned or women-owned
small businesses is limited. As a result, it is difficult to find the data necessary to compare the
SBIC program’s investment in minority-owned or women-owned small businesses to the private
sector’s investment in these firms. 75
In 2007, the SBA acknowledged at a congressional hearing on the SBA’s investment programs
that “women and minority representation in [the SBIC program] is low” and has been low for
many years.76 The SBA reported at that time that it does not control the investments made by
SBICs, but it has tried to increase women and minority representation in the SBIC program by
reaching out to venture capital firms, trade organizations, and others to better understand why
women and minority representation in the SBIC program is low, and by “finding debenture firms
with minority representation on their investment committees and in senior management.”77
However, despite these efforts, in 2009, the National Association of Small Business Investment
Companies (NASBIC) asserted at a congressional hearing on the SBA’s capital access programs
that the SBA’s SBIC licensing process “has done an abysmal job at attracting and licensing funds
led by women and minorities.”78
S. 1831, the Small Business Venture Capital Act of 2009, introduced on October 21, 2009, and
referred to the Senate Committee on Small Business and Entrepreneurship, would encourage
SBIC investments in women-owned small businesses and socially and economically
75
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity, The Urban Institute ,
Washington, DC, January 2008, pp. 2, 26, http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
76
U.S. Congress, House Committee on Small Business, Full Committee Hearing on Legislation Updating and
Improving the SBA’s Investment and Surety Bond Programs, 110th Cong., 1st sess., September 6, 2007, Serial Number
110-44 (Washington: GPO, 2007), p. 15.
77
Ibid.
78
U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), p. 89.
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SBA Small Business Investment Company Program
disadvantaged small business concerns by increasing the amount of leverage available to SBICs
that invest at least 50% of their financings in small business concerns owned and controlled by
women or socially and economically disadvantaged small business concerns.
Financing By State
As shown on Table 3, in FY2010, SBICs provided financing to small businesses located in 46
states, the District of Columbia, and Puerto Rico, with the most financings taking place in New
York (455 financings amounting to $243.2 million) and California (422 financings amounting to
$295.2 million).
The previously mentioned 2008 Urban Institute comparative analysis of debenture SBIC
financing from 1997 to 2005 found that the dollar volume of investments from debenture SBICs
was much more evenly distributed across the nation than from comparable private venture capital
funds. For example, the Urban Institute found that California (45.8%) and Massachusetts (12.9%)
received the largest share of the total dollar volume invested by private venture capital funds from
1997 to 2005. The two states accounted for more than half (58.7%) of the total dollar volume
invested by private venture capital funds. In contrast, New York (18.7%) and California (11.1%)
received the largest share of the total dollar volume invested by debenture SBICs from 1997 to
2005. The two states accounted for less than one-third (29.8%) of the total dollar volume invested
by debenture SBICs. Also, the top 10 states in terms of their share of the total dollar volume
invested accounted nearly 84% of the total invested by private venture capital funds, compared to
64% for debenture SBICs.79
Data concerning private sector venture capital fund investments during the third quarter of 2010
and the state-by-state distribution of SBIC financings shown on Table 3 suggest that the Urban
Institute’s finding that SBICs investments were much more evenly distributed across the nation
than private sector venture capital fund investments from 1997 to 2005 may continue to be the
case today. 80 For example, California (46.0%) and Massachusetts (10.1%) received the largest
share of the total dollar volume invested by private venture capital funds during the third quarter
of 2010. The two states accounted for 56.1% of the total dollar volume invested by private
venture capital funds. In contrast, California (14.4%) and New York (11.9%) received the largest
share of the total dollar volume invested by SBICs during FY2010. The two states accounted for
26.3% of the total dollar volume invested by SBICs.
79
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity, The Urban Institute ,
Washington, DC, January 2008, pp. 3, 18-24, http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
80
National Venture Capital Association, “Venture Capital Investments Q3-2010 – MoneyTree Results, Regional Data,”
Arlington, VA, October 15, 2010, p. 17, http://www.nvca.org/.
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Table 3. SBIC Financing, By State, FY2010
($ in millions)
# of
Financings
Amount of
Financings
# of
Financings
Amount of
Financings
Alabama
5
$5.1
Montana
1
$0.1
Alaska
0
$0.0
Nebraska
1
$4.0
Arizona
23
$81.3
Nevada
11
$19.2
Arkansas
2
$1.0
New Hampshire
17
$6.9
California
422
$295.2
New Jersey
146
$104.0
Colorado
47
$26.2
New Mexico
5
$0.5
Connecticut
27
$21.3
New York
455
$243.2
Delaware
5
$0.7
North Carolina
61
$70.1
District of Columbia
8
$4.5
North Dakota
3
$8.1
Florida
97
$190.0
47
$45.9
Georgia
40
$47.0
4
$1.9
Hawaii
1
$6.9
Oregon
10
$8.9
Idaho
4
$0.4
Pennsylvania
101
$86.7
Illinois
86
$45.1
Puerto Rico
0
$0.0
Indiana
27
$8.4
Rhode Island
0
$0.0
Iowa
18
$5.4
South Carolina
19
$41.1
Kansas
18
$19.5
South Dakota
0
$0.0
Kentucky
12
$15.7
Tennessee
22
$31.7
Louisiana
5
$10.6
Texas
177
$211.1
Maine
3
$0.5
Utah
37
$23.3
25
$13.4
Vermont
15
$20.9
185
$121.5
Virginia
58
$60.6
Michigan
14
$26.7
Washington
64
$26.6
Minnesota
26
$17.3
West Virginia
11
$2.0
Mississippi
6
$4.3
Wisconsin
35
$25.5
49
$37.4
Wyoming
0
$0.0
2,455
$2,047.1
State
Maryland
Massachusetts
Missouri
Total
State
Ohio
Oklahoma
Source: U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010:
SBIC Program Financing by State,” Washington, DC.
Financing By Industry
As shown on Table 4, in FY2010, SBIC financings were made in a variety of industries, led by
investments in manufacturing; transportation and warehousing; professional, scientific, and
technical services; and information.
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The previously mentioned 2008 Urban Institute comparative analysis of SBIC financings from
1997 to 2005 found that “SBIC financing is less concentrated by industry than financing from
private venture capital firms” and “total financings by SBICs are much less likely to be in hightech industries” than comparable private sector venture capital investment firms.81 The Urban
Institute found that unlike SBICs, “the value of investments by private venture capital firms is
predominately directed towards information and finance,” with computer and Internet firms
receiving roughly half of all private sector investments.82
Table 4. SBIC Financing, By Industry, FY2010
Industry
$ Amount of
Financings
% of $ Amount
of Financings
# of Financings
% of Financings
Manufacturing
739
30.1%
$527,277,437
25.8%
Transportation and
Warehousing
421
17.2%
$217,787,008
10.6%
Professional, Scientific, and
Technical Services
333
13.6%
$232,320,253
11.3%
Information
332
13.5%
$236,968,531
11.6%
Wholesale Trade
86
3.5%
$130,427,351
6.4%
Administrative and Support
and Waste Management
84
3.4%
$112,767,605
5.5%
Retail Trade
83
3.4%
$71,012,876
3.5%
Accommodation and Food
Services
64
2.6%
$29,759,323
1.5%
Health Care and Social
Assistance
59
2.4%
$188,706,225
9.2%
Real Estate and Rental
Leasing
52
2.1%
$55,785,086
2.7%
Construction
46
1.9%
$39,610,816
1.9%
Finance and Insurance
40
1.6%
$43,746,936
2.1%
Educational Services
18
0.7%
$109,899,891
5.4%
Arts, Entertainment and
Recreation
11
0.5%
$2,933,006
0.1%
5
0.2%
$1,071,239
0.1%
82
3.3%
$47,057,806
2.3%
2,455
100.0%
$2,047,131,389
100.0%
Mining
Other Industries
Total
Source: U.S. Small Business Administration, “SBIC Program Financing to Small Businesses – Fiscal Year 2010:
Industrial Classification of the Financed Businesses,” Washington, DC.
81
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity, The Urban Institute ,
Washington, DC, January 2008, pp. 3, 11-17, http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
82
Ibid., p. 11.
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Legislative Activity
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), included provisions
designed to increase the amount of leverage issued under the SBIC program by increasing the
maximum amount of leverage available to an individual SBIC to 300% of its private capital, or
$150 million, whichever is less; and by increasing the maximum amount of leverage available for
two or more licenses under common control to $225 million.83 It also encouraged SBIC
investment in smaller enterprises by requiring SBICs licensed on or after the date of its enactment
(February 17, 2009) to certify that at least 25% of all future financing dollars are invested in
smaller enterprises. ARRA defined smaller enterprises as firms having either a net worth of no
more than $6 million and average after-tax net income for the preceding two years of no more
than $2 million, or meeting the SBA’s size standard for its industry classification.84
ARRA also encouraged SBIC investments in low-income areas by allowing SBICs licensed on or
after October 1, 2009, to elect to have a maximum leverage amount of $175 million per SBIC and
$250 million for two or more licenses under common control if it has invested at least 50% of its
financings in low-income geographic areas and certifies that at least 50% of its future investments
will be in low-income geographic areas.85
Congress also considered several bills during the 111th Congress that were designed to address
several other SBIC-related issues, including (1) the targeting of additional assistance to startup
and early-stage small businesses, (2) the SBA’s management of the program’s financial risk and
its processing of SBIC license applications, and (3) whether the program’s financing levels are
appropriate given the nation’s current economic circumstances.
Legislation to Target Additional Assistance to Startup and EarlyStage Small Businesses
As mentioned previously, congressional interest in the SBIC program has increased in recent
years primarily because it is viewed as a means to stimulate economic activity, create jobs, and
assist in the national economic recovery. However, there are disagreements concerning whether
the program should target additional assistance to startup and early-stage small businesses, which
are generally viewed as relatively risky investments but also as having a relatively high potential
for job creation.
Advocates of targeting additional assistance to startup and early-stage small businesses argue that
the SBA’s participating securities program was created to fill a perceived investment gap
resulting from the SBA’s debenture program’s focus on mid- and later-stage small businesses.
Because the SBA is no longer providing new licenses or leverage for participating securities
83
13 CFR § 107.1120; 13 CFR § 107.1150; and U.S. Small Business Administration, “American Recovery and
Investment Act of 2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate
Administrator for Investment, to All Small Business Investment Companies (SBICs) and Applicants, Washington, DC,
May 4, 2009, p. 1, http://archive.sba.gov/idc/groups/public/documents/sba_program_office/
inv_rcvry_act_sbic_changes.pdf.
84
13 CFR § 107.1150; and 13 CFR § 107.710.
85
13 CFR § 107.1150.
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SBA Small Business Investment Company Program
SBICs, they have introduced legislation to create a new SBA program that would focus on the
investment needs of startup and early-stage small businesses.
For example, during the 111th Congress the House passed, by a vote of 241-182, H.R. 5297, the
Small Business Jobs and Credit Act of 2010. It would have authorized a $1 billion Small Business
Early-Stage Investment Program.86 The proposed program, which was not included in the final
version of the bill, which became P.L. 111-240, the Small Business Jobs Act of 2010, would have
provided equity investment financing of up to $100 million in matching funds to each
participating investment company. It would have required participating investment companies to
invest in small businesses, with at least 50% of the financing in early-stage small businesses,
defined as not having “gross annual sales revenues exceeding $15 million in any of the previous
three years.”87 The proposed program emphasized venture capital investments in start-up
companies operating in nine targeted industries.88
P.L. 111-240, which was signed into law by President Obama on September 27, 2010, did not
include legislative language authorizing a Small Business Early-Stage Investment Program.89
Instead, it authorizes a three-year Intermediary Lending Pilot Program to provide direct loans to
not more than 20 eligible nonprofit lending intermediaries each year, totaling not more than $20
million and $1 million per intermediary. The intermediaries, in turn, can make loans to new or
growing small businesses, not to exceed $200,000 per business.90
Discussion
Advocates of the Small Business Early-Stage Investment Program and other efforts to encourage
capital investment in startup and early-stage small businesses argue that, given the SBA’s
elimination of the SBIC participating securities program, it is necessary to “fill the gaps in the
SBA’s existing array of capital access programs, particularly in the provision of capital to earlystage small businesses in capital-intensive industries,” because early-stage small businesses “have
historically encountered the greatest difficulties in accessing credit.”91 Advocates assert that (1)
“these inherent limitations have only been aggravated by the economic downturn;” (2) “venture
capital financing and investments in early-stage businesses has stagnated since the last quarter of
86
Representative Edward Perlmutter, “Providing for Further Consideration of H.R. 5297, Small Business Jobs and
Credit Act of 2010, Roll No. 368,” Congressional Record, daily edition, vol. 156, no. 91 (June 17, 2010), pp. H4608,
H4609.
87
H.R. 5297, the Small Business Lending Fund Act of 2010, Sec. 399L. Definitions.
88
Ibid. The nine targeted industries are: agricultural technology, energy technology, environmental technology, life
science, information technology, digital media, clean technology, defense technology, and photonics technology. A
similar $200 million Small Business Early-Stage Investment Program was included in H.R. 3854, the Small Business
Financing and Investment Act of 2009, which was passed by the House on October 29, 2009, by a vote of 389-32. It is
awaiting action in the Senate.
89
Senator Al Franken, “Small Business Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Congressional
Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S7158.
90
P.L. 111-240, the Small Business Jobs Act of 2010, Sec. 1131. Small Business Intermediary Lending Pilot Program.
91
H.Rept. 111-315, to accompany H.R. 3854, the Small Business Financing and Investment Act of 2009, p. 2. For the
arguments presented by various organizations advocating the program see U.S. Congress, House Committee on Small
Business, Subcommittee on Finance and Tax Hearing on Legislative Proposals to Reform the SBA’s Capital Access
Programs, 111th Cong., 1st sess., July 23, 2009, House Small Business Committee Document No. 111-039
(Washington: GPO, 2009), pp. 10-12, 60-67; and U.S. Congress, House Committee on Small Business, Full Committee
Hearing on Increasing Access to Capital for Small Business, 111th Cong., 1st sess., October 14, 2009, House Small
Business Committee Document No. 111-051 (Washington: GPO, 2009), pp. 33-35, 50-54, 63-69, 86-99.
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2008”; (3) “as a result, the gap for investment in early-stage and capital-intensive small
businesses has grown wider”; and (4) “this critical component of the small business community
has continued to be underserved by existing government programs.”92 They also argue that
“according to SBA studies, the total unmet need for early-stage equity financing for small
businesses is about $60 billion annually.”93
Opponents argue that the Small Business Early-Stage Investment Program “will pile unnecessary
risk or costs onto taxpayers at a time when we’re dealing with record debt and unsustainable
deficit spending.”94 They also argue that the program is untested, that the availability of federal
funding is likely to encourage risky investments, and the legislation requires “only 50% of the
funding … to be invested” in early-stage small businesses. 95
Legislation to Require Expedited SBIC Licensing Procedures
In 2003, the SBA’s Office of the Inspector General (OIG) reported that “an ongoing audit of
SBIC oversight indicates that policies and procedures in the Investment Division do not limit
financial risk.”96 In October 2004, the SBA’s OIG issued seven recommendations to reduce the
likelihood of the SBA facing large, unanticipated losses in the SBIC program such as those
experienced following the collapse of technology-based stock values in 2000 and 2001.97 Three
of the recommendations concerned the SBA’s measurement and oversight of potential SBIC
program costs and four of the recommendations concerned the oversight and liquidation of
financially troubled SBICs.98
At that time, the SBA’s OIG included the SBA’s financial oversight of the SBIC program in its
annual list of the most serious management and performance challenges facing the SBA, and
indicated that the SBIC program would remain on the list until the recommendations were
implemented. 99 In 2009, the SBA’s OIG reported that the SBA had adequately addressed five of
its seven recommendations. 100 In 2010, the SBA’s OIG reported that the SBA had adequately
92
H.Rept. 111-315, to accompany H.R. 3854, the Small Business Financing and Investment Act of 2009, p. 3.
Ibid., p. 20.
94
Representative Sam Graves, “Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record,
vol. 156, no. 90 (June 16, 2010), p. H4516.
95
Ibid; and Representative Jeff Flake, “Small Business Early-Stage Investment Act of 2009,” House debate,
Congressional Record, vol. 155, no. 171 (November 18, 2009), p. H13083.
96
U.S. Small Business Administration, Office of the Inspector General, “FY2003 Agency Management Challenges,”
Washington, DC, January 17, 2003, p. 30, http://archive.sba.gov/ig/onlinelibrary/tmc/index.html.
93
97
U.S. Small Business Administration, Office of the Inspector General, “FY2005 Report on the Most Serious
Management and Performance Challenges Facing the SBA,” Washington, DC, October 15, 2004, p. 11,
http://archive.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy05.pdf.
98
U.S. Small Business Administration, Office of the Inspector General, “FY2005 Report on the Most Serious
Management and Performance Challenges Facing the SBA,” Washington, DC, October 15, 2004, p. 11,
http://archive.sba.gov/idc/groups/public/documents/sba/oig_reports_tmc_fy05.pdf.
99
The most recent Office of the Inspector General’s annual reports on the most serious management and performance
challenges facing the SBA are on-line at http://www.sba.gov/office-of-inspector-general/875 and an archive of reports
since FY2000 can be viewed at http://archive.sba.gov/ig/onlinelibrary/tmc/index.html.
100
U.S. Small Business Administration, Office of the Inspector General, “FY2010 Report on the Most Serious
Management and Performance Challenges Facing the SBA,” Washington, DC, October 16, 2009, p. 7,
http://www.sba.gov/office-of-inspector-general/875/12354.
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addressed the remaining recommendations and removed the SBIC program from its list of most
serious management and performance challenges facing the SBA.101
The SBA is currently focusing its attention on improving the SBIC licensing process, which
NASBIC has argued in recent congressional hearings is “the number one complaint of SBICs.”102
In FY2009, the SBA took, on average, 13.2 months to process an SBIC license. During the first
half of FY2010, the SBA reduced that average processing time to 5.8 months.103 NASBIC has
argued that it should take the SBA no longer than six months, and preferably no longer than four
months, to process an application for an SBIC license from a new applicant, and less time than
that to process an application for an SBIC license from an existing SBIC.104
The SBA reported that it was able to reduce the SBIC licensing processing time in FY2010 by
making licensing a priority for the SBA Investment Division, initiating a “Fast Track” licensing
process for SBICs seeking a subsequent license, reducing the number of questions asked of
SBICs seeking a subsequent license, incorporating timeliness standards in all SBA licensing
analysts and supervisors’ performance plans to further emphasize speed in processing
applications, adding two new analysts to the SBA’s licensing office to assist with the processing
of applications, and adding another analyst to the SBA’s program development office to assist
with the review of applications prior to the actual filing of the application. 105 The SBA also
reported that is continuing to identify additional processing changes to further “facilitate
processing and reduce any redundancies in the process.”106
Discussion
H.R. 3854, the Small Business Financing and Investment Act of 2009, included a provision
requiring the SBA to develop expedited licensing procedures for experienced SBIC applicants.
Specifically, the SBA would be required to approve an application for a new SBIC license within
60 days of its receipt if the applicant met a list of requirements, including having been in
operation as a licensed SBIC for at least three years prior to the receipt of the request, having at
least half of the principal managers of the applicant consist of at least two-thirds of the principal
managers of a licensed SBIC, meeting specified minimum performance thresholds (such as
having maintained six consecutive quarters of profitable net investment income and at least three
exits from investments in small businesses that have realized profits from those respective
101
U.S. Small Business Administration, Office of the Inspector General, “FY2011 Report on the Most Serious
Management and Performance Challenges Facing the SBA,” Washington, DC, October 15, 2010, p. 10,
http://www.sba.gov/sites/default/files/oig_reports_tmc_fy11_0.pdf.
102
U.S. Small Business Administration, “FY2011 Congressional Budget Justification and FY2009 Annual Performance
Report,” Washington, DC, 2010, p. 51; and U.S. Congress, House Committee on Small Business, Full Committee
Hearing on Increasing Access to Capital for Small Businesses, 111th Cong., 1st sess., October 14, 2009, House Small
Business Committee Document No. 111-051 (Washington: GPO, 2009), p. 88.
103
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the authors, September 21,
2100.
104
U.S. Congress, House Committee on Small Business, Full Committee Hearing on Laying the Groundwork for
Economic Recovery: Expanding Small Business Access to Capital , 111th Cong., 1st sess., June 10, 2009, House
Committee on Small Business Document No. 111-028 (Washington: GPO, 2009), pp. 10, 22, 23, 70.
105
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the authors, September 21,
2100.
106
Ibid.
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investments), and being in good standing. 107 The bill was passed by the House on October 29,
2009, by a vote of 389-32, and referred to the Senate for consideration.108 On November 2, 2009,
the bill was referred to the Senate Committee on Small Business and Entrepreneurship.
The House committee report accompanying H.R. 3854 argued that “the existing licensing process
is perhaps the single-greatest impairment to the SBIC program.”109 The report also indicated that
the SBA’s licensing procedures for experienced SBICs needed to be revised because the SBA’s
“licensing and relicensing process has become so cumbersome that many successful SBICs leave
the program rather than deal with the arduous and lengthy task of SBA licensing.”110
H.R. 5554, the Small Business Assistance and Relief Act of 2010, included the same legislative
language contained in H.R. 3854 providing for expedited licensing procedures for experienced
SBIC applicants.111 It was introduced on June 17, 2010, and referred to the House Committee on
Small Business.112
Legislation to Increase SBIC Financing Levels
In FY2010, the SBA’s leverage ($931 million) amounted to less than one-third (31.0%) of its
authorized level of $3 billion.113 NASBIC has characterized the SBIC program as “dramatically
underused.”114 It has argued that the program’s financing levels would increase if (1) the SBA
further improved its licensing processing procedures to make them more timely and objective, (2)
the percentage of SBIC regulatory capital allowed from state or local government entities was
increased from its present maximum of 33%, and (3) the SBIC program’s family of funds limit
(currently $225 million for two or more licenses under common control) was increased to allow
107
The bill defines good standing as being a licensed leveraged or non-leveraged SBIC actively operating on the date
of the initial receipt of the application, having no principal manager found liable in a civil action for fraud if the SBA
makes a reasonable determination based on evidence that such liability has a material adverse effect on the applicant’s
ability to perform required obligations required by a license, and having no principal manager under investigation by a
governmental agency or authority, under indictment, or convicted of a felony for a violation of federal or state
securities laws, fraud, or another criminal violation if such investigation, indictment, or conviction has a material
adverse effect on the applicant’s ability to perform obligations required by a license. See H.R. 3854, the Small Business
Financing and Investment Act of 2009, Sec. 402. Expedited Licensing for Experienced Applicants.
108
Representative Diana DeGette, “Roll No. 830,” House vote on H.R. 3854, Congressional Record, daily edition, vol.
155, part 159 (October 29, 2009), pp. H12116, H12117.
109
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 36.
110
Ibid.
111
H.R. 5554, the Small Business Assistance and Relief Act of 2010, Sec. 592. Expedited Licensing for Experienced
Applicants.
112
The bill was also referred to the House Committees on Ways and Means, Appropriations, Energy and Commerce,
and Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of
such provisions as fall within the jurisdiction of the committee concerned.
113
U.S. Small Business Administration, Office of Legislative Affairs, correspondence with the author, October 20,
2010.
114
U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), pp. 32, 87.
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SBICs to have a series of investment funds in place, where, for example, “one fund could be
winding down, another could be at peak, and another could just be ramping up.”115
H.R. 3854 and H.R. 5554 would have encouraged greater utilization of the SBIC program by
increasing the maximum percentage of SBIC regulatory capital allowed from state or local
government entities from 33% to 45%.116 Both measures would have also increased the SBIC
program’s family of funds limit from $225 million to $350 million; increased the SBIC program’s
limit of $250 million to $400 million for multiple funds under common control who are licensed
after September 30, 2009, and invest 50% of their dollars in low income geographic areas; and
increased the SBIC program’s authorization level from $3 billion to $5.5 billion in FY2011.117
Discussion
One of the SBA’s goals is to enhance the SBIC program’s “acceptance in the marketplace and
increase the number of funds licensed and the amount of leverage issued so as to improve capital
access for small businesses.”118 The SBA has asserted that ARRA’s changes to the SBIC program
will help it to achieve this goal. ARRA increased the maximum leverage available to SBICs to up
“to three times the private capital raised by the SBIC, or $150 million, whichever is less, and
$225 million for multiple licensees under common control” and increased “the maximum
leverage amounts to $175 million for single funds and $250 million for multiple funds under
common control who are licensed after September 30, 2009, and invest 50% of their dollars in
low income geographic areas.”119 The SBA has not requested a further increase in the SBIC
program’s leverage limits or an increase in the program’s current authorization level of $3 billion.
Advocates of increasing the SBIC program’s leverage limits and authorization level to achieve a
greater utilization of the SBIC program argue that these actions are necessary to help fill a gap “in
the SBA’s array of capital access programs.”120 For example, NASBIC has argued that the demise
of the SBIC participating securities program and the current “underutilization” of the SBIC
debentures program is preventing many small firms from accessing the capital necessary to fully
realize their economic potential and assist in the national economic recovery. 121 Others worry
about the potential risk an expanded SBIC program has for the taxpayer, especially if investments
115
U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), pp. 88, 89.
116
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 401. Increased Investment from States;
and H.R. 5554, the Small Business Assistance and Relief Act of 2010, Sec. 591. Increased Investment from States.
117
H.R. 3854, the Small Business Financing and Investment Act of 2009, Sec. 401. Increased Investment From States,
Sec. 403. Revised Leverage Limitations For Successful SBICs, and Sec. 408. Program Levels; and H.R. 5554, the
Small Business Assistance and Relief Act of 2010, Sec. 591. Increased Investment from States, Sec. 593. Revised
Leverage Limitations for Successful SBICs, and Sec. 598. Program Levels.
118
U.S. Small Business Administration, “Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report,” Washington, DC, 2010, p. 52.
119
U.S. Small Business Administration, “SBA Project Plan, Section 505: SBIC Program Changes,” Washington, DC,
June 16, 2010, http://archive.sba.gov/idc/groups/public/documents/sba_homepage/sba_sbic_plan.pdf.
120
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 3.
121
U.S. Congress, House Committee on Small Business, Full Committee Hearing on Increasing Capital for Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), pp. 88-91.
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are targeted at startup and early-stage small businesses which, by definition, have a more limited
credit history and a higher risk for default than businesses that have established positive cash
flow.
Concluding Observations
Some, including President Barack Obama, have agued that current economic conditions make it
imperative that the SBA be provided additional resources to assist small businesses in acquiring
capital necessary to start, continue, or expand operations and create jobs. 122 In their view,
encouraging greater utilization of the SBIC program will increase small business access to
capital, result in higher levels of job creation and retention, and promote economic growth. For
example, the House Committee on Small Business report accompanying H.R. 3854 indicated that
The SBA’s lending and investment programs are intended to bridge the gap in financing that
occurs when the private markets contract. Conventional wisdom would suggest that these
programs would expand when the gap in private credit grows during times of economic
stress. Unfortunately, that has not been the case in this economic downturn. A growing
number of businesses have struggled to secure loans and other forms of capital through the
SBA’s lending and investment programs. Despite moderate improvements that can be
attributed to the small business lending initiatives contained in ARRA, the conditions for
small business credit have been slow to improve….
If the declines in small business lending [are] to be halted, inherent deficiencies in the SBA’s
capital access programs must be addressed. The agency must have additional lending
programs that are better suited to operate under conditions where lenders are under increased
capital constraints and extremely sensitive to risk. Additionally, these programs must provide
significant tangible benefits to small business borrowers that are struggling with lower
revenues and greater uncertainty in the near-term. While the SBA’s existing programs cannot
meet these criteria, the changes implemented under H.R. 3854 [including enhancements to
the SBIC program] will address these needs.123
Others worry about the potential risk an expanded SBIC program has for increasing the federal
deficit. In their view, the best means to assist small business, promote economic growth, and
create jobs is to reduce business taxes and exercise federal fiscal restraint.124 For example, during
floor debate on H.R. 3854 Representative Pete Sessions argued:
This legislation … would offer some assistance to small business, but I believe there are
more effective ways to assist them during the economic crisis. For instance, not growing the
size of government just to give them, small business, a loan. We should be doing things to
122
Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate,
Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary
Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily
edition, vol. 155, no. 185 (December 10, 2009), p. S12910; and The White House, “Remarks by the President on Job
Creation and Economic Growth,” Washington, DC, December 8, 2009, http://www.whitehouse.gov/the-press-office/
remarks-president-job-creation-and-economic-growth.
123
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009,
committee print, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 5.
124
National Federation of Independent Business, “Payroll Tax Holiday,” Washington, DC, http://www.nfib.com/issueselections/issues-elections-item/cmsid/49039/; and NFIB, “Government Spending,” Washington, DC,
http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
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SBA Small Business Investment Company Program
improve small business by expensing, by permanently repealing the death tax, by extending
tax relief, by improving regulatory reform, by not adding a cap-and-trade bill, and by … not
… passing a health care bill which will diminish American jobs.125
As these quotations attest, congressional debate concerning the SBIC program has primarily
involved assessments of the ability of small businesses to access capital from the private sector
and evaluations of the program’s risk, the effect of proposed changes on the program’s risk, and
the potential impact of the program’s risk on the federal deficit. Empirical analysis of economic
data can help inform debate concerning the ability of small businesses to access capital from the
private sector and the extent of the program’s risk, the affect of proposed changes on the
program’s risk, and the potential impact of the program’s risk on the federal deficit. Additional
data concerning SBIC investment impact on recipient job creation and firm survival might also
prove useful. However, ultimately, these assessments are often secondary to personal value
judgments concerning the federal government’s role in promoting business, and the SBA’s role in
promoting small business.
125
Representative Pete Sessions, “Providing for Consideration of H.R. 3854, Small Business Financing and Investment
Act of 2009,” House debate, Congressional Record, daily edition, vol. 155, part 159 (October 29, 2009), p. H12071.
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Appendix. Small Business Eligibility Requirements
and Application Process
Small Business Eligibility Requirements
Only businesses that meet the SBA’s definition of “small” may participate in the SBIC program.
They must meet either the SBA’s size standard for the industry in which they are primarily
engaged, or a separate financial size standard which has been established for the SBIC program.
SBICs use the size standard that is most likely to qualify the company, typically the financial size
standard for the SBIC program. It is currently set as a maximum net worth of no more than $18
million and average after-tax net income for the preceding two years of not more than $6
million. 126 All of the company’s subsidiaries, parent companies, and affiliates are considered in
determining if it meets the size standard.
In addition, since 1997, the SBA has required SBICs to set aside a specified percentage of their
financing to “businesses at the lower end of the permitted size range,” primarily because “the
financial size standards applicable to the SBIC program are considerably higher than those used
in other SBA programs.”127 For example, P.L. 111-5, the American Recovery and Reinvestment
Act of 2009 (ARRA), amended those regulations to require SBICs licensed on or after the date of
its enactment (February 17, 2009) to certify that at least 25% of their future financing is invested
in smaller enterprises. A smaller enterprise is a company that, together with any affiliates, either
has net worth of no more than $6 million and average after-tax net income for the preceding two
years of no more than $2 million, or meets the SBA’s size standard in the industry in which the
applicant is primarily engaged. 128
SBICs licensed before February 17, 2009, that have not received any SBA leverage commitments
after February 17, 2009, must have at least 20% of its aggregate financing dollars (plus 100% for
leverage commitments over $90 million) invested in smaller enterprises.
SBICs licensed before February 17, 2009, that have received a SBA leverage commitment after
February 17, 2009, must meet the 20% threshold (plus 100% for leverage commitments over $90
million) for financing provided before the date of the first leverage commitment issued after
February 17, 2009, and the 25% threshold for financing made on or after such date. 129
SBICs are not allowed to invest in the following: other SBICs; finance and investment companies
or finance-type leasing companies; unimproved real estate; companies with less than 51% of their
assets and employees in the United States; passive or casual businesses (those not engaged in a
regular and continuous business operation); or companies that will use the proceeds to acquire
farmland. 130 In addition, SBICs may not provide funds for a small business whose primary
126
13 CFR § 107.700; 13 CFR § 107.710; 13 CFR § 301(c)(2); and 13 CFR § 301(c)(1).
127
U.S. Small Business Administration, “Small Business Investment Companies ─ Leverage Eligibility and Portfolio
Diversification Requirements,” 74 Federal Register 33912, July 14, 2009.
128
13 CFR § 107.710.
129
U.S. Small Business Administration, “Small Business Investment Companies ─ Leverage Eligibility and Portfolio
Diversification Requirements,” 74 Federal Register 33912, July 14, 2009.
130
13 CFR § 107.720.
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business activity is deemed contrary to the public interest or if the funds will be used substantially
for a foreign operation.131
Small Business Application Process
Small business owners interested in receiving SBIC financing can search for active SBICs using
the SBA’s SBIC directory. 132 It provides contact information for all licensed SBICs, sorted by
state. It also includes the SBIC’s preferred minimum and maximum financing size range, the type
of capital provided (e.g., equity, mezzanine, subordinated debt, 1st and 2nd lien secured term, and
preferred stock), funding stage preference (e.g., early stage, growing and expansion stage, and
later stage), industry preference (e.g., business services, manufacturing, environmental services,
and distribution), geographic preference (e.g., national, regional, or specific state or states), and a
description of the firm’s focus (e.g., equity capital to later stage companies for expansion and
acquisition, targeting companies with revenues of at least $5 million and profitability at the time
of financing).133
After locating a suitable SBIC, the small business owner presents the SBIC a business plan that
addresses the business’s operations, management, financial condition, and funding requirements.
The typical business plan includes the following information:
131
•
the name of the business as it appears on the official records of the state or
community in which it operates;
•
the city, county, and state of the principal location and any branch offices or
facilities;
•
the form of business organization and, if a corporation, the date and state of
incorporation;
•
a description of the business, including the principal products sold or services
rendered;
•
a history of the general development of the products or services during the past
five years (or since inception);
•
information about the relative importance of each principal product or service to
the volume of the business and to its profits;
•
a description of business’s real and physical property and adaptability to other
business ventures;
•
a description of technical attributes of its products and facilities;
•
detailed information about the business’s customer base, including potential
customers;
•
a marketing survey or economic feasibility study;
Ibid.
132
U.S. Small Business Administration, “Small Business Investment Companies: Entrepreneurs Seeking Financing,”
Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/inv/esf/INV_DIRECTORY_SBIC.html.
133
Ibid.
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•
a description of the distribution system for the business’s products or services;
•
a descriptive summary of the competitive conditions in the industry in which the
business is engaged, including its competitive position relative to its largest and
smallest competitors;
•
a full explanation and summary of the business’s pricing polices;
•
brief resumes of the business’s management personnel and principal owners,
including their ages, education, and business experience;
•
banking, business, and personal references for each member of management and
for the principal owners;
•
balance sheets and profit and loss statements for the last three fiscal years (or
from inception);
•
detailed projections of revenues, expenses, and net earnings for the coming year;
•
a statement of the amount of funding requested and the time requirements for the
funds;
•
the reasons for the request for funds and a description of the proposed uses; and
•
a description of the benefits the business expects to gain from the financing (e.g.,
expansion, improvement in financial position, expense reduction, and increase in
efficiency).134
Because SBICs typically receive hundreds of business plans per year, the SBA recommends that
small business owners seek a personal referral or introduction to the particular SBIC fund
manager being targeted to increase “the likelihood that the business plan will be carefully
considered.”135 According to NASBIC, “a thorough study an SBIC must undertake before it can
make a final decision could take several weeks or longer.”136
Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
Oscar R. Gonzales
Analyst in Economic Development Policy
ogonzales@crs.loc.gov, 7-0764
134
National Association of Small Business Investment Companies, “SBIC Financing: Step-by-Step,” Washington, DC,
http://www.nasbic.org/?page=SBIC_financing.
135
U.S. Small Business Administration, “Small Business Investment Companies: Entrepreneurs Seeking Financing,”
Washington, DC, http://archive.sba.gov/aboutsba/sbaprograms/inv/esf/INV_DIRECTORY_SBIC.html.
136
National Association of Small Business Investment Companies, “SBIC Financing: Step-by-Step,” Washington, DC,
http://www.nasbic.org/?page=SBIC_financing.
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SBIC Application Process
Applying for an SBIC debenture license is a multi-step process, beginning with the submission of
the SBA Management Assessment Questionnaire (MAQ). It includes, among others, questions
concerning
•
the fund’s legal name, and the name and addresses of its principals and control
persons;15
•
the fund’s finances and expenses;
•
the management team’s professional experience;
•
the fund’s expected investing focus (e.g., will the fund be primarily a sole
investor, lead investor, or co-investor; its anticipated percentage of investments in
technology, life sciences, health care, manufacturing, distribution, service,
consumer products and retail, or other industries; and its anticipated percentage
of investments by business life cycle—seed, early stage, expansion, later stage,
change of control, or turnaround);
•
the geographic areas where the investments are expected to be made;
13
U.S. Small Business Administration, “For SBIC Applicants: Phase II: Licensing Review,” at http://www.sba.gov/
content/phase-ii-licensing-review.
14
U.S. Small Business Administration, “For SBIC Applicants: Pre-Screening,” at http://www.sba.gov/content/prescreening.
15
A control person is generally defined as someone with the power to direct corporate management and policies.
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•
the anticipated holding periods for investments;
•
the types and characteristics of the securities that will be used to make
investments; and
•
the extent to which “special groups of businesses” will be targeted for
investment, such as “ethnic groups, women, rural, inner city, etc.”16
After receiving the firm’s application, a member of the SBA’s Program Development Office
reviews the MAQ; assesses the investment company’s proposal in light of the program’s
minimum requirements and management qualifications; performs initial due diligence, including
making reference telephone calls; and prepares a written recommendation to the SBA’s
Investment Division’s Investment Committee (composed of senior members of the division).
If, after reviewing the MAQ and the SBA’s Program Development Office’s evaluation, the
Investment Committee concludes, by majority vote at a regularly scheduled meeting, that the
investment company’s management team may be qualified for a license, the investment
company’s management team is invited to the SBA’s headquarters in Washington, DC, for an
interview. If, following the interview, the Investment Committee votes to proceed, the investment
team is provided a “Green Light” letter, formally inviting the investment team to file a license
application, along with a filing fee of $10,000, plus an additional $5,000 for partnerships or LLC
SBICs. If the license is approved, all SBIC principals must complete the SBA’s SBIC Regulations
training classes. On average, obtaining an SBIC license takes about six months from the time of
the initial submission of the MAQ to issuance of the license.17
As will be discussed, new applications for the participating securities program are no longer
being accepted. Impact investment debenture SBIC applicants are required to submit the same
documents, follow the same process, and meet the same standards as applicants seeking a
debenture SBIC license. However, impact investment debenture SBICs are provided an expedited
review process.18
The application process for an early stage debenture SBIC license is similar to the application
process for a SBIC debenture license. Two major differences are that the SBA only accepts
applications to the early stage innovation program during specific time periods published “from
time to time” in the Federal Register (currently done annually) and places “particular emphasis
on managers’ skills and experience in evaluating and investing in early stage companies.”19 Also,
early stage debenture SBIC applicants must pay a partnership licensee fee plus an additional
$10,000, for a total application fee of $25,000.20
16
U.S. Small Business Administration, “SBIC Management Assessment Questionnaire and License Application: Form
2181,” p. 21, at http://www.sba.gov/sites/default/files/SBA%20Form%202181.pdf.
17
U.S. Small Business Administration, “SBIC Program Statistics & Administrative Performance,” at
http://www.sba.gov/content/program-statistics-administrative-performance#LicTimes; and U.S. Small Business
Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
18
U.S. Small Business Administration, “Impact Investment Initiative,” at http://www.sba.gov/content/small-businessinvestment-company-sbic-impact-investment-initiative-2.
19
U.S. Small Business Administration, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal
Register 25052, April 27, 2012.
20
Ibid.
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The eligibility requirements and application process for small businesses requesting financial
assistance from an SBIC is provided in the Appendix.
SBIC Capital Investment Requirements
Debenture SBICs
P.L. 85-699, the Small Business Investment Act of 1958, authorized the SBA to select companies
to participate in the SBIC program and to purchase debentures from those companies to provide
them additional funds to invest in small businesses. Initially, debenture SBICs were required to
have a private capital investment of at least $300,000 to participate in the SBIC program.
Debenture SBICs are now required to have a private capital investment of at least $5 million
(called regulatory capital).21 The SBA has discretion to license an applicant with regulatory
capital of $3 million if the applicant has satisfied all licensing standards and requirements, has a
viable business plan reasonably projecting profitable operations, and has a reasonable timetable
for achieving regulatory capital of at least $5 million.22 At least 30% of a debenture SBIC’s
regulatory and leverageable capital must come from three people unaffiliated with the fund’s
management and unaffiliated with each other.23 Also, no more than 33% of a SBIC’s regulatory
capital may come from state or local government entities.24
Participating Securities SBICs
P.L. 102-366, the Small Business Credit and Business Opportunity Enhancement Act of 1992
(Title IV, the Small Business Equity Enhancement Act of 1992), authorized the SBA to guarantee
participating securities. Participating securities are redeemable, preferred, equity-type securities
issued by SBICs in the form of limited partnership interests, preferred stock, or debentures with
interest payable only to the extent of earnings.
In 1994, the SBA established the SBIC Participating Securities Program (SBIC PSP) to
encourage the formation of participating securities SBICs that would make equity investments in
startup and early stage small businesses. The SBA created the program to fill a perceived
investment gap created by the SBIC debenture program’s focus on mid- and later-stage small
businesses. The SBA stopped issuing new commitments for participation securities on October 1,
2004, beginning a process to end the program, which continues.25
The SBA stopped issuing new commitments for participating securities primarily because the
program experienced a projected loss of $2.7 billion during the early 2000s as investments in
21
13 CFR §107.210.
Ibid.
23
13 CFR §107.150.
24
13 CFR §107.230.
25
U.S. Congress, House Committee on Small Business, Private Equity for Small Firms: The Importance of the
Participating Securities Program, 109th Cong., 1st sess., April 13, 2005, Serial No. 109-10 (Washington: GPO, 2005),
p. 5, 33; and U.S. Small Business Administration, “SBIC Program: FAQs 7. What is the status of the Participating
Securities Program?” at http://www.sba.gov/content/faqs.
22
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technology startup and early stage small businesses lost much of their stock value at that time.
The SBA found that “the fees payable by SBICs for participating securities leverage are not
sufficient to cover the projected net losses in the participating securities program.”26 The SBA
continued to honor its existing commitments to participating securities SBICs and they were
allowed to continue operations. However, they were required to comply with special rules
concerning minimum capital, liquidity, non-SBA borrowing, and equity investing.27 In recent
years, some Members have expressed interest in either revising the program or starting a new
program modeled on certain aspects of the SBIC PSP to assist startup and early stage small
businesses has increased.28
Although the SBA is no longer issuing new commitments for participating securities, and each
year several participating securities SBICs leave the program as their leverage commitments are
retired, as of June 30, 2013, there were still 70 participating securities SBICs in the SBIC
program.29 To participate in the SBIC program, a participating securities SBICs must have
regulatory capital of at least $10 million. The SBA has discretion to require less than $10 million
in regulatory capital if the licensee can demonstrate that it can be financially viable over the long
term with a lower amount. In this circumstance, the regulatory amount required may not be lower
than $5 million.30 At least 30% of a participating securities SBIC’s regulatory and leverageable
capital must come from three people unaffiliated with the fund’s management and unaffiliated
with each other.31 Also, no more than 33% of a SBIC’s regulatory capital can come from state or
local government entities.32
26
U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating Securities Participation
Certificates, Series SBIC-PS 2009-10 A,” February 19, 2009, at http://www.sba.gov/content/sbic-ps-2009-10-cusip831641-ep6.
27
13 CFR §107.1500. A SBIC that wishes to be eligible to issue participating securities must have regulatory capital of
at least $10 million unless it can demonstrate to the SBA’s satisfaction that it can be financially viable over the longterm with a lower amount, but not less than $5 million. See 13 CFR §107.210. It must also maintain sufficient liquidity
to avoid a condition of “Liquidity Impairment,” defined as a liquidity ratio (total current funds available divided by
total current funds required) of less than 1.2. See 13 CFR §107.1505. The only type of debt, other than leverage, than a
SBIC that has applied to issue participating securities or have outstanding participating securities is permitted to incur
is temporary debt. Temporary debt is defined as short-term borrowings from a regulated financial institution, a
regulated credit company, or a non-regulated lender approved by the SBA for the purpose of maintaining the SBIC’s
operating liquidity or providing funds for a particular financing of a small business. The total outstanding borrowings,
not including leverage, may not exceed 50% of a SBIC’s leveraged capital and all such borrowings must be fully paid
off for at least 30 consecutive days during a SBIC’s fiscal year so that it has no outstanding third-party debt for 30
days. See 13 CFR §107.570. A SBIC issuing participating securities is required to invest an amount equal to the
original issue price of such securities solely in equity capital investments (e.g., common or preferred stock, limited
partnership interests, options, warrants, or similar equity instruments). See 13 CFR §107.1505.
28
U.S. Congress, House Committee on Small Business, Subcommittee Markup of Legislation Affecting the SBA Capital
Access Programs, 111th Cong., 1st sess., October 8, 2009, House Small Business Committee Document No. 111-050
(Washington: GPO, 2009), pp. 7, 10, 11, 187-194; U.S. Congress, House Committee on Small Business, Full
Committee Hearing on Increasing Capital for Small Business, 111th Cong., 1st sess., October 14, 2009, House Small
Business Committee Document No. 111-051 (Washington: GPO, 2009), pp. 1, 2, 40, 98; and U.S. Congress, House
Committee on Small Business, Small Business Financing and Investment Act of 2009, report to accompany H.R. 3854,
111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), pp. 3, 4, 10-12.
29
U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf. There were 149 participating securities
SBICs at the end of FY2008, 127 at the end of FY2009, 107 at the end of FY2010, 97 at the end of FY2011, and 86 at
the end of FY2012.
30
13 CFR §107.210.
31
13 CFR §107.150.
32
13 CFR §107.230.
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Impact Investment Debenture SBICs
On April 7, 2011, the SBA announced that it was establishing a $1 billion impact investment
SBIC initiative (up to $150 million in leverage in FY2012, and up to $200 million in leverage per
fiscal year thereafter until the limit is reached). Under this initiative, SBA-licensed impact
investment debenture SBICs are required to invest at least 50% of their financings, “which target
areas of critical national priority including underserved markets and communities facing barriers
to access to credit and capital.”33 Impact investment debenture SBICs are required to have a
minimum private capital investment of at least $5 million, subject to the same conditions as
debenture SBICs concerning the source of the funds.
Initially, an impact investment SBIC could receive up to $80 million in SBA leverage. On June 6,
2013, the SBA announced that it was increasing the maximum leverage available to impact
investment SBICs to $150 million.34
At the end of FY2012, two impact investment SBICs had been licensed and four standard
debenture SBICs had an impact focus. The SBA reported that these funds have over $200 million
in private capital and close to $400 million of SBA-guaranteed leverage to make impact
investments.35
Early Stage Debenture SBICs
On April 27, 2012, the SBA published a final rule in the Federal Register establishing a $1 billion
early stage debenture SBIC initiative (up to $150 million in leverage in FY2012, and up to $200
million in leverage per fiscal year thereafter until the limit is reached).36 Early stage debenture
SBICs are required to invest at least 50% of their financings in early-stage small businesses,
defined as small businesses that have never achieved positive cash flow from operations in any
fiscal year.37
33
U.S. Small Business Administration, “Impact Investment Initiative,” at http://www.sba.gov/content/small-businessinvestment-company-sbic-impact-investment-initiative-2. To receive an investment, a small business must meet at least
one of the following criteria: (a) it must be located in, or have at least 35% of its full-time employees, at the time of the
initial investment, residing in a low or moderate income area as defined in 13 CFR §107.50; or be located in an
economically distressed area as defined by Section 3011 of the Public Works and Economic Development Act of 1965,
as amended [per capita income of 80% or less of the national average or an unemployment rate that is, for the most
recent 24-month period for which data are available, at least 1% greater than the national average unemployment rate];
or (b) be in an industrial sector that the SBA has identified as a national priority (currently clean energy and education).
The SBA has announced that additional industrial sectors will be added over time in partnership with other missiondriven agencies.
34
U.S. Small Business Administration, “SBA Announces $50 Million Increase Match in its SBIC Early Stage Fund and
$70 Million Bump in its Impact Investment Fund,” June 6, 2013, at http://www.sba.gov/about-sba-services/7367/
654981.
35
U.S. Small Business Administration, “The Small Business Investment Company (SBIC) Program: Annual Report
FY2012,” p. 19, at http://www.sba.gov/sites/default/files/files/
SBIC%20Program%20FY%202012%20Annual%20Report.pdf.
36
U.S. Small Business Administration, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal
Register 25043, 25050, April 27, 2012.
37
Ibid., pp. 25051-25053.
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In recognition of the higher risk associated with investments in early stage small businesses, the
initiative includes “several new regulatory provisions intended to reduce the risk that an early
stage SBIC would default on its leverage and to improve SBA’s recovery prospects should a
default occur.”38 For example, early stage debenture SBICs are required to raise more regulatory
capital (at least $20 million) than debenture SBICs and impact investment debenture SBICs (at
least $5 million) and participating securities SBICs (at least $10 million). They are also subject to
special distribution rules to require pro rata repayment of SBA leverage when making
distributions of profits to their investors. In addition, as will be discussed, early stage debenture
SBICs are also provided less leverage (up to 100% of regulatory capital, $50 million maximum)
than debenture SBICs and participating securities SBICs (up to 200% of regulatory capital, $150
million maximum per SBIC and $225 million for two or more SBICs under common control),
and impact investment debenture SBICs (up to 200% of regulatory capital, $150 million
maximum).
On May 1, 2012, the SBA published a notice in the Federal Register announcing its first annual
call for venture capital fund managers to submit an application to become a licensed early stage
debenture SBIC. The deadline for completing the four-step application process for applicants with
signed commitments for at least $15 million in regulatory capital and evidence of their ability to
raise the remaining $5 million in regulatory capital was set as July 30, 2012. The deadline for
completing the four-step application process for all other applicants was set as May 15, 2013.39
Thirty-three venture capital funds submitted preliminary application materials to participate in the
program. After these materials were examined and interviews held, the SBA announced on
October 23, 2012, that it had issued “green light” letters to six funds, formally inviting these
funds to file a license application.40
On December 18, 2012, the SBA published a notice in the Federal Register announcing its
second annual call for venture capital fund managers to submit an application to become a
licensed early stage debenture SBIC. The deadline for completing the four-step application
process for applicants with signed commitments for at least $15 million in regulatory capital and
evidence of their ability to raise the remaining $5 million in regulatory capital was set as June 7,
2013. The deadline for completing the four-step application process for all other applicants was
set as September 27, 2013.41
Key Features of Regular SBIC Types
Table 1 provides the key features of the SBA’s debenture SBICs, participating securities SBICs,
impact investment debenture SBICs, and early stage debenture SBICs.
38
Ibid., p. 25043.
U.S. Small Business Administration, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal
Register 25775-25779, May 1, 2012. Applicants must complete first complete a Management Assessment
Questionnaire, then, if invited, complete an interview process, then receive a “Green Light Letter” from the SBA, and,
finally, submit the SBIC license application, consisting of SBA Form 2181 and SBA Form 2182.
40
U.S. Small Business Administration, “SBA’s Growth Capital Program Sets Record For Third Year in a Row $2.95
Billion in Financing for Small Businesses in FY12,” at http://www.sba.gov/about-sba-services/7367/342171; and U.S.
Small Business Administration, “The Small Business Investment Company (SBIC) Program: Annual Report FY2012,”
p. 20, at http://www.sba.gov/sites/default/files/files/SBIC%20Program%20FY%202012%20Annual%20Report.pdf.
41
U.S. Small Business Administration, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal
Register 74908-74913, December 18, 2012.
39
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Table 1. Key Features of the SBA’s Debenture, Participating Securities, Impact
Investment Debenture, and Early Stage Debenture SBICs
Program
Requirement
Debenture SBICs
Participating
Security SBICs (no
longer accepting
new investments)
Impact Investment
Debenture SBICs
Early Stage
Debenture SBICs
Private Capital
$5 million minimum
$10 million minimum
$5 million minimum
$20 million minimum
SBA Leverage
200% of private
capital up to $150
million per SBIC or
$225 million for two
or more SBICs under
common controla
200% of private
capital up to $150
million per SBIC or
$225 million for two
or more SBICs under
common control
200% of private
capital up to $150
million; limited to
100% of private
capital during any 12month period
100% of private
capital up to $50
million
Investments
Broad range of equity
investments, but
generally later stage
and mezzanine
Broad range of equity
investments
Broad range of equity
investments, but
generally later stage
and mezzanine; at
least 50% in
underserved markets
and communities
facing barriers to
access to credit and
capital
Broad range of
equity investments;
at least 50% in early
stage small
businesses (no
positive cash flow in
any fiscal year prior
to first financing)
Leverage
Description
Interest and SBA
annual charge payable
semi-annually through
maturity
SBA paid interest to
bond holders; SBICs
only owed and repaid
SBA out of profits
Interest and SBA
annual charge payable
semi-annually through
maturity
Standard: 5 years
interest reserve
required, interest
and SBA annual
charge payable
quarterly through
maturity OR
Discounted: interest
and SBA annual
charge discounted
for first 5 years plus
the “stub” period;
interest and SBA
annual charge
payable quarterly
thereafter through
maturity
Profit
Participation
None
SBA typically received
about 8% of any
profits
None
None
Source: U.S. Small Business Administration, Office of Investment and Innovation, “Early Stage Small Business
Investment Companies,” January 2012; U.S. Small Business Administration, “Correspondence with the author,”
May 2, 2012; and U.S. Small Business Administration, “SBA Announces $50 Million Increase Match in its SBIC
Early Stage Fund and $70 Million Bump in its Impact Investment Fund,” June 6, 2013, at http://www.sba.gov/
about-sba-services/7367/654981.
a.
A licensed debenture SBIC in good standing, with a demonstrated need for funds, may apply to the SBA for
leverage of up to 300% of its private capital. However, the SBA has traditionally approved debenture SBICs
for a maximum of 200% of their private capital. It is anticipated that the SBA will also limit impact
investment debenture SBICs to a maximum of 200% of their private capital. Also, a debenture SBIC licensed
on or after October 1, 2009, may elect to have a maximum leverage amount of $175 million per SBIC and
$250 million for two or more licenses under common control if it has invested at least 50% of its financings
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SBA Small Business Investment Company Program
in low-income geographic areas and certifies that at least 50% of its future investments will be in lowincome geographic areas.
SBIC Investments in Small Businesses
SBICs provide equity capital to small businesses in various ways, including by
•
purchasing small business equity securities (e.g., stock, stock options, warrants,
limited partnership interests, membership interests in a limited liability company,
or joint venture interests);42
•
making loans to small businesses, either independently or in cooperation with
other private or public lenders, that have a maturity of no more than 20 years;43
•
purchasing debt securities from small businesses, which may be convertible into,
or have rights to purchase, equity in the small business;44 and
•
providing small businesses, subject to limitations, a guarantee of their monetary
obligations to creditors not associated with the SBIC.45
SBICs are subject to statutory and regulatory restrictions concerning the nature of their approved
investments. For example, SBICs are not allowed to
•
directly or indirectly provide financing to any of their associates (e.g., officers,
directors, and employees);46
•
control, either directly or indirectly, any small business on a permanent basis;47
•
invest, without SBA approval, more than specified percentages of its private
(regulatory) capital in securities, commitments, or guarantees in any one small
business (e.g., SBICs are not allowed to invest more than 30% of their private
capital in any one small business if their investment plan includes two or more
tiers of SBA leverage);48
42
13 CFR §107.800. A SBIC is not allowed to become a general partner in any unincorporated business or become
jointly or severally liable for any obligations of an unincorporated business.
43
13 CFR §107.810; and 13 CFR §107.840.
44
13 CFR §107.815. Debt securities are instruments evidencing a loan with an option or any other right to acquire
equity securities in a small business or its affiliates, or a loan which by its terms is convertible into an equity position,
or a loan with a right to receive royalties that are excluded from the cost of money.
45
13 CFR §107.820.
46
13 CFR §107.730.
47
13 CFR §107.865. The period of time that a SBIC may exercise control over a small business for purposes connected
with its investment through ownership of voting securities, management agreements, voting trusts, majority
representation on the board of directors, or otherwise, is “limited to the seventh anniversary of the date on which such
control was initially acquired, or any earlier date specified by the terms of any investment agreement.” With the SBA’s
prior written approval, an SBIC “may retain control for such additional period as may be reasonably necessary to
complete divestiture of control or to ensure the financial stability of the portfolio company.”
48
A tier of SBA leverage equals the amount of a SBIC’s private (regulatory) capital. A SBIC approved for less than
two tiers of SBA leverage must not invest more than 20% of its private capital in any one small business if the SBIC’s
plan contemplates one tier of leverage and no more than 25% of its private capital if its plan contemplates 1.5 tiers of
leverage. See 13 CFR §107.740; and U.S. Small Business Administration, “American Recovery and Reinvestment Act
of 2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate Administrator for
(continued...)
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SBA Small Business Investment Company Program
•
invest in farm land, unimproved land, or any small business classified under
Major Group 65 (Real Estate) of the Standard Industrial Classification (SIC)
Manual, with the exception of title abstract companies, real estate agents,
brokers, and managers;49
•
provide funds for small businesses whose primary business activity involves
directly or indirectly providing funds to others, purchasing debt obligations,
factoring, or leasing equipment on a long-term basis with no provision for
maintenance or repair;50 or
•
provide funds to a small business if the funds will be used substantially for a
foreign operation.51
The SBA also regulates the interest rates and fees SBICs are allowed to charge small businesses
on loans, debt securities, and equity financing.52
In 1999, the SBA introduced the low and moderate income investments (LMI) initiative to
encourage SBICs to invest in small businesses located in inner cities and rural areas “that have
severe shortages of equity capital” because investments in those areas “often are of a type that
will not have the potential for yielding returns that are high enough to justify the use of
participating securities.”53 This ongoing initiative provides incentives to SBICs that invest in
small businesses that have at least 50% of their employees or tangible assets located in a low-tomoderate income area (LMI Zone) or have at least 35% of their full-time employees with their
primary residence in an LMI Zone.54 For example, unlike regular SBIC debentures that typically
(...continued)
Investment, to All Small Business Investment Companies (SBICs) and Applicants, May 4, 2009, p. 2, at
http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_rcvry_act_sbic_changes.pdf.
49
13 CFR §107.720.
50
Ibid.
51
Ibid. A SBIC may provide venture capital financing to “disadvantaged concerns” engaged in relending or reinvesting
activities (except agricultural credit companies and banking and savings and loan institutions not insured by a federal
agency). Without SBA approval, these financings, at the end of the fiscal year, may not exceed a SBIC’s regulatory
capital. A disadvantaged concern is defined as a small business that is at least 50% owned, controlled, and managed, on
a day-to-day basis, by a person or persons whose participation in the free enterprise system is hampered because of
social or economic disadvantages.
52
The SBA has a general interest rate ceiling of 19% for a loan and 14% for a debt security, with provisions for a
higher interest rate under specified circumstances. See 13 CFR §107.855. A SBIC is allowed to collect a nonrefundable
application fee of no more than 1% of the amount of financing requested from a small business to review its financing
application, a closing fee of no more than 2% of the amount of financing requested from a small business concern for a
loan, charged no earlier than the date of the first disbursement, and a closing fee of no more than 4% of the amount of
financing requested from a small business concern for a debt security or equity security financing, charged no earlier
than the date of the first disbursement. A SBIC is also allowed to charge a small business for reasonable out-of-pocket
expenses, other than management expenses incurred to process the small business’s financing application. See 13 CFR
§107.860.
53
U.S. Small Business Administration, “Small Business Investment Companies,” 64 Federal Register 52645,
September 30, 1999.
54
U.S. Small Business Administration, “Small Business Investment Companies,” 64 Federal Register 52641-52646,
September 30, 1999. LMI Zones are areas located in a HUBZone; an Urban Empowerment Zone or Urban Enterprise
Community designated by the Secretary of the U.S. Department of Housing and Urban Development; a Rural
Empowerment Zone or Rural Enterprise Community as designated by the Secretary of the U.S. Department of
Agriculture; an area of low income or moderate income as recognized by the Federal Financial Institutions
Examination Council; or a county with persistent poverty as classified by the U.S. Department of Agriculture’s
Economic Research Service. See 13 CFR §107.50.
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SBA Small Business Investment Company Program
have a 10-year maturity, LMI debentures are available in two maturities, for 5 years and 10 years,
plus the stub period. The stub period is the time between the debenture’s issuance date and the
next March 1 or September 1. The stub period allows all LMI debentures to have common March
1 or September 1 maturity dates to simplify administration of the program.
In addition, LMI debentures are issued at a discount so that the proceeds that a SBIC receives for
the sale of a debenture is reduced by (1) the debenture’s interest costs for the first five years, plus
the stub period; (2) the SBA’s annual fee for the debenture’s first five years, plus the stub period;
and (3) the SBA’s 2% leverage fee. As a result, these interest costs and fees are effectively
deferred, freeing SBICs from the requirement to make interest payments on LMI debentures, or
pay the SBA’s annual fees on LMI debentures, for the first five years of a debenture, plus the stub
period between the debenture’s issuance date and the next March 1 or September 1.55
In FY2012, SBICs made 356 investments in small businesses located in a LMI Zone, totaling
$471.5 million—about 15% of the total amount invested.56
Leverage
Leverage Drawdown
A SBIC applies to the SBA for financial assistance (leverage) to secure the “SBA’s conditional
commitment to reserve a specific amount of leverage” for the SBIC’s future use.57 If the
application is approved, a SBIC draws down the leverage as it makes financial commitments.
The SBA accepts draw applications from SBICs twice a month. When the draw is approved by
the SBA, it issues a payment voucher to a SBIC (called an approval notice). The payment
voucher has a term of approximately 60 days and provides a SBIC with the ability to draw funds
on a daily basis.
A debenture is executed in conjunction with each draw and is held by an agent of a bank selected
by the SBA (Federal Home Loan Bank of Chicago), which provides interim funding to the SBIC
until a “SBIC’s debenture(s) can be pooled with others and sold to the public, a process that
occurs every six months [each March and September].”58 During the interim period, the bank
charges a SBIC the London Interbank Offered Rate (LIBOR), plus a 30 basis point premium.59
55
U.S. Small Business Administration, “For SBICs: Background Information on Low or Moderate Income (LMI)
Debentures,” at http://www.sba.gov/content/low-or-moderate-income-lmi-debentures.
56
U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported Between
October 2011 and September 2012.”
57
13 CFR §107.1100.
58
U.S. Small Business Administration, “Funding the SBIC Program: An Overview,” at http://www.sba.gov/content/
funding-sbic-program-overview. The SBA is required by statute to issue guarantees “at periodic intervals of not less
than every 12 months and shall do so at such shorter intervals as it deems appropriate, taking into consideration the
amount and number of such guarantees or trust certificates.” See 15 U.S.C. §687m.
59
U.S. Small Business Administration, “Funding the SBIC Program: An Overview,” at http://www.sba.gov/content/
funding-sbic-program-overview.
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The SBA determines the size of the debenture pool two weeks prior to each scheduled pooling
date. All of “the debentures scheduled to be pooled are purchased and pooled together by an
entity called the Investment Trust which is managed by the Bank of New York Mellon” and, as
the pooling occurs, “the SBA signs an agreement with the Trust to guarantee all the interest and
principal payments due on each of the debentures in the pool.”60 The trust then securitizes the
pool of debentures and issues new securities called trust certificates. Underwriters are hired to sell
the trust certificates to investors in the public market. An offering circular is issued to notify
investors of the trust certificates’ availability, the terms of the securities, and information
concerning how they can be purchased.61
The SBA operates the SBIC program on a zero-subsidy basis. To recoup its expenses should
defaults occur, the SBA is authorized to charge SBICs a 3% origination fee for each debenture
and for each participating security issued (1% at commitment and 2% at draw), an annual fee (not
to exceed 1.38% for debentures and 1.46% for participating securities) on the leverage drawn,
which is fixed at the time of the leverage commitment, and other administrative and underwriting
fees which are adjusted annually.62
Debenture SBIC Leverage Requirements
A licensed debenture SBIC in good standing, with a demonstrated need for funds, may apply to
the SBA for financial assistance (leverage) of up to 300% of its private capital. However, the SBA
has traditionally approved debenture SBICs for a maximum of 200% of their private capital and
no fund management team may exceed the allowable maximum amount of leverage of $150
million per SBIC and $225 million for two or more licenses under common control.63 A SBIC
licensed on or after October 1, 2009, may elect to have a maximum leverage amount of $175
million per SBIC and $250 million for two or more licenses under common control if it has
invested at least 50% of its financings in low-income geographic areas and certifies that at least
50% of its future investments will be in low-income geographic areas.64
Debenture SBICs obtain leverage from the sale of SBA-guaranteed debenture participation trust
certificates. SBA-guaranteed debenture participation trust certificates may have a term of up to 15
60
Ibid.
To view recent SBIC debenture offering circulars see U.S. Small Business Administration, “SBIC Debentures
Offering Circulars,” at http://www.sba.gov/category/lender-navigation/sba-loan-programs/sbic-program/program-dataperformance/information-tru-1.
62
13 CFR §107.1130; and 13 CFR §107.1210.
63
13 CFR §107.1120; 13 CFR §107.1150; and U.S. Small Business Administration, “American Recovery and
Reinvestment Act of 2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate
Administrator for Investment, to All Small Business Investment Companies (SBICs) and Applicants, May 4, 2009, p. 1,
at http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_rcvry_act_sbic_changes.pdf.
64
13 CFR §107.1150. A low-income area is (1) any population census tract that has a poverty rate that is not less than
20% or (a) if located within a metropolitan area, 50% or more of the households in that census tract have an income
equal to less than 60% of the area median gross income; or (b) if not located within a metropolitan area, the median
household income in that census tract does not exceed 80% of the statewide median household income; or (c) has been
determined by the SBA Administrator to contain a substantial population of low-income individuals in residence, an
inadequate access to investment capital, or other indications of economic distress; or (2) any area located within (i) a
Historically Underutilized Business Zone; (ii) an Urban Empowerment Zone or Urban Enterprise Community (as
designated by the Secretary of the United States Department of Housing and Urban Development); or (iii) a Rural
Empowerment Zone or Rural Enterprise Community (as designated by the Secretary of the United States Department
of Agriculture). See 13 CFR §108.50.
61
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years, although only one outstanding SBA-guaranteed debenture participation trust certificate has
a term exceeding 10 years and all recent public offerings have specified a term of 10 years.65
Debenture SBICs are required to make semi-annual payments on the interest due on the
debenture, semi-annual payments on the SBA’s annual charge, and a lump sum principal payment
to investors at maturity.66 SBICs are allowed to prepay SBA-guaranteed debentures without
penalty. However, a SBA-guaranteed debenture must be prepaid in whole and not in part, and can
only be prepaid on a semi-annual payment date. The debenture’s coupon (interest) rate is
determined by market conditions and the interest rate of 10-year treasury securities at the time of
the sale.67 Also, as mentioned previously, LMI debentures are available in two maturities, for five
years and 10 years (plus the stub period).
Because the SBA guarantees the debenture, investors are more likely to purchase a debenture
participation trust certificate as opposed to others available on the market. They are also more
likely to accept a lower coupon (interest) rate than what would be expected without the SBA’s
guarantee.68 As a result, the SBIC program enhances a SBIC’s access to venture capital, and
reduces its cost of raising additional financial resources.
Because debenture SBICs are required to make semi-annual interest payments on the debenture
and semi-annual payments on the SBA’s annual charge, they tend to focus their investments on
mid- and later-stage small businesses that have a positive cash flow. Businesses with a positive
cash flow have resources available to make payments to the debenture SBIC, either in the form of
interest payments or dividends. In many instances, small businesses with positive cash flow are
seeking capital for expansion.69
Participating Securities SBIC Leverage Requirements
Although the SBA is no longer issuing new commitments for participating securities, the SBA is
authorized to accept an application from a licensed participating securities SBIC for leverage of
up to 200% of its private capital.70 Also, no fund management team may exceed the allowable
65
One debenture has a term of 10 years and 29 weeks. See U.S. Small Business Administration, “Offering Circular,
Guaranteed 2.245% Debenture Participating Securities, Series SBIC 2012-10B,” September 11, 2012, at
http://www.sba.gov/content/sbic-2012-10-b-cusip-831641-ex9.
66
U.S. Small Business Administration, “Small Business Investment Companies (SBICs),” Small Business Notes, 2009,
at http://www.smallbusinessnotes.com/business-finances/small-business-investment-companies-sbics.html; and U.S.
Small Business Administration, “For SBIC Applicants: Financing Options Explained,” at http://www.sba.gov/content/
financing-options-explained.
67
Ibid.; 13 CFR §107.50; and 13 CFR §107.1150.
68
The coupon (interest) rate on SBA debentures is based on the 10-year Treasury rate (adjusted to the nearest 1/8th of
1%) plus a market-driven spread, currently about 70-90 basis points. See 13 CFR §107.50; and U.S. Small Business
Administration, “Trust Certificate Rates: SBIC Debenture Pools,” at http://www.sba.gov/content/trust-certificate-ratessbic-debenture-poolsat http://archive.sba.gov/aboutsba/sbaprograms/inv/faq/index.html. The coupon rate for the most
recent sale of a SBA debenture participating certificate, which took place on September 11, 2012, was 2.245%. See
U.S. Small Business Administration, “Offering Circular, Guaranteed 2.245% Debenture Participating Securities, Series
SBIC 2012-10B,” September 11, 2012, at http://www.sba.gov/content/sbic-2012-10-b-cusip-831641-ex9.
69
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 11;
and U.S. Small Business Administration, “SBIC Program: FAQs: 8. What investment styles and fund types fit best with
the SBIC Program?” at http://www.sba.gov/content/faqs.
70
13 CFR §107.1170.
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SBA Small Business Investment Company Program
maximum amount of leverage of $150 million per SBIC and $225 million for two or more
licenses under common control.
Participating securities SBICs obtained leverage by issuing SBA-guaranteed participating
securities. The SBA pooled these participating securities and sold SBA-guaranteed participating
securities certificates, representing an undivided interest in the pool, to investors through periodic
public offerings. SBA participating securities may have a term of up to 15 years, but all recent
public offerings had a specified a term of 10 years.
There were 35 public offerings of SBA-guaranteed participating securities certificates since the
start of the participating securities program, amounting to just under $10.3 billion. The final
SBA-guaranteed participating securities certificate, for $332 million, had a term of 10 years and
was offered to investors on February 19, 2009, with delivery of the certificates on February 25,
2009.71
SBIC participating securities certificates provide for quarterly payments to investors from
dividends on preferred stock, interest on an income bond, or a priority return on a preferred
limited partnership equal to a specified interest rate on the principal amount and a lump sum
principal payment at maturity. A participating securities SBIC is obligated to make these quarterly
payments “only to the extent it has sufficient profits available to make such payments.”72 If a
participating securities SBIC is unable to make any required payment, the SBA will make the
payment on its behalf. Because startup and early stage small businesses often are not initially
profitable, the SBA included language in its participating securities’ offering circulars that it
“anticipates that it will be called upon routinely to make such … payments for the SBICs in the
early years of the lives of such SBICs” and that it “expects to be reimbursed [by the SBIC] any
amounts paid … under its guarantee over the life of a participating security.”73
Because the SBA guaranteed the certificate, investors were more likely to purchase a SBIC
participating securities certificate as opposed to others available on the market. They were also
more likely to accept a lower payment rate than what would be expected without the SBA’s
guarantee.74
In addition, participating securities SBICs are more likely than debenture SBICs to invest in
startup and early stage small businesses because the SBA is willing to make a participating
securities SBIC’s required quarterly payments to investors, at least during the early years of the
investment. Because participating securities SBICs are not required to make these quarterly
71
13 CFR §107.1500; and U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating
Securities Participation Certificates, Series SBIC-PS 2009-10 A,” February 19, 2009, pp. 7, 14, at http://www.sba.gov/
content/sbic-ps-2009-10-cusip-831641-ep6.
72
U.S. Small Business Administration, “Offering Circular, Guaranteed 4.727% Participating Securities Participation
Certificates, Series SBIC-PS 2009-10 A,” February 19, 2009, p. 2, at http://www.sba.gov/content/sbic-ps-2009-10cusip-831641-ep6.
73
Ibid., pp. 2, 3. Also, see U.S. Congress, House Committee on Small Business, Private Equity for Small Firms: The
Importance of the Participating Securities Program, 109th Cong., 1st sess., April 13, 2005, Serial No. 109-10
(Washington: GPO, 2005), p. 5.
74
The coupon rate for the most recent sale of a SBA guaranteed participating securities participation certificate, which
took place on February 25, 2009, was 4.727%. U.S. Small Business Administration, “Offering Circular, Guaranteed
4.727% Participating Securities Participation Certificates, Series SBIC-PS 2009-10 A,” February 19, 2009, p. 1, at
http://www.sba.gov/content/sbic-ps-2009-10-cusip-831641-ep6.
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SBA Small Business Investment Company Program
payments, they are encouraged to focus on a small business’s long-term prospects for growth and
profitability, rather than on its prospects for having immediate, positive cash-flow.75
As of June 30, 2013, the SBA had a guarantee on an outstanding unpaid principal balance of $5.7
billion in SBIC debentures, $1.2 billion in SBIC participating securities, and $23.9 million in
other, primarily SSBIC, financings.76 The SBA also had an outstanding commitment on $2.5
billion in SBIC debentures and $26.0 million in outstanding SBIC participating securities.77
Impact Investment Debenture SBIC Leverage Requirements
As mentioned previously, the SBA announced on April 7, 2011, that it was establishing a $1
billion Impact Investment SBIC Initiative to “target areas of critical national priority including
underserved markets and communities facing barriers to access to credit and capital.”78 On July
26, 2011, the SBA announced that the first impact investment debenture SBIC license was
awarded to InvestMichigan! Mezzanine Fund.79
Licensed impact investment debenture SBICs may apply to the SBA for leverage of up to 300%
of its private capital, limited to $150 million. In addition, they may receive leverage amounting to
no more than 100% of their private capital during any fiscal year (subject to the $150 million
limit and the availability of impact investment initiative financing). It is anticipated that the SBA
will limit impact investment debenture SBICs to a maximum of 200% of their private capital, up
to $150 million.80
Impact investment debenture SBICs obtain leverage in the same way that debenture SBICs obtain
leverage ─through the issuance of SBA-guaranteed debentures with a term of up to 10 years.
75
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 11;
and U.S. Small Business Administration, “SBIC Program: FAQs 7. What is the status of the Participating Securities
Program?” at http://www.sba.gov/content/faqs.
76
U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
77
Ibid.
78
U.S. Small Business Administration, “Impact Investment Small Business Investment Company (“SBIC”) Fund,” p.
1, at http://www.sba.gov/sites/default/files/files/Impact_Investment_Call_for_Action.pdf.
79
U.S. Small Business Administration, “SBA Licenses First Impact Investment Fund in Michigan,” July 26, 2011, at
http://www.sba.gov/content/sba-licenses-first-impact-investment-fund-michigan. Mezzanine financing is a hybrid of
debt and equity financing and is typically used to finance the expansion of an existing business. It provides the lender
the right to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It
is generally subordinated to debt provided by senior lenders such as banks and venture capital companies. Another
license was awarded to SJF Ventures, which has offices in New York, San Francisco, and Durham. It reportedly will
serve a licensing and oversight role, and will not receive leverage from the SBA. See “SBA chooses firm with a cleantech profile as its newest investment partner, Washington Post, March 8, 2012, at http://www.washingtonpost.com/
business/on-small-business/sba-chooses-firm-with-a-clean-tech-profile-as-its-newest-investment-partner/2012/03/08/
gIQAKgmPzR_story.html.
80
U.S. Small Business Administration, “Start-Up America Impact Investment SBIC Initiative Policy Update,”
September 12, 2012, at http://www.sba.gov/content/updated-policy-letter-outlining-major-elements-investmentdivision%E2%80%99s-impact-investment-initi; and U.S. Small Business Administration, “SBA Announces $50
Million Increase Match in its SBIC Early Stage Fund and $70 Million Bump in its Impact Investment Fund,” June 6,
2013, at http://www.sba.gov/about-sba-services/7367/654981.
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SBA Small Business Investment Company Program
They are also subject to the same terms and conditions as debenture SBICs, except they are
provided an expedited application review process.
Early Stage Debenture SBIC Leverage Requirements
On April 27, 2012, the SBA published a final rule in the Federal Register establishing the $1
billion Early Stage Innovation SBIC Initiative (up to $150 million in SBA leverage in FY2012,
and up to $200 million in SBA leverage per fiscal year thereafter until the limit is reached). A
licensed early stage SBIC may apply to the SBA for leverage of up to 100% of its private capital,
limited to $50 million. The SBA does not consider applications from an early stage SBIC
applicant that is under common control with another early stage SBIC applicant or an existing
early stage SBIC (unless the existing early stage SBIC has no outstanding leverage or leverage
commitments and will not seek additional leverage in the future).81
Early stage debenture SBICs obtain leverage in the same way that debenture SBICs obtain
leverage—through the issuance of SBA-guaranteed debentures with a term of up to 10 years.
However, early stage debentures come in two forms: early stage standard debentures and early
stage discounted debentures.
Early stage standard SBIC debentures are similar to standard SBIC debentures, but, instead of
requiring semi-annual payments on the debenture’s interest and on the SBA’s annual charge, they
require quarterly payments on the debenture’s interest and on the SBA’s annual charge. In
addition, early stage SBICs must maintain a reserve sufficient to pay the interest on the debenture
and on the SBA’s annual charges for the first 21 payment dates following the date of issuance
(five years plus the stub period—the length of time between the issue date and the next March 1,
June 1, September 1, or December 1).82 Because early stage standard debentures require early
stage debenture SBICs to make quarterly payments, they are most appropriate for investments in
small businesses that have established a positive cash flow that enables them to pay interest or
dividends to the early stage debenture SBIC.
Early stage discounted debentures are issued at a discount (less than face value) equal to the first
five years’ of interest on the debenture and the first five years of annual SBA charges. The
discount eliminates the need for early stage debenture SBICs to make interest payments on the
debenture and to make payments on the SBA’s annual charge for five years from the date of
issuance, plus the stub period.83 Early stage debenture SBICs make quarterly payments on the
debenture’s interest and on the SBA’s annual charge during years six through 10. They are also
responsible for paying the debenture’s principal amount when the debenture reaches its maturity
date.
Because early stage discounted debentures do not require interest payments or payments on the
SBA’s annual charge for five years, they are most appropriate for investments in small businesses
that have not established a positive cash flow to pay interest or dividends to the early stage
81
U.S. Small Business Administration, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal
Register 25052, April 27, 2012.
82
13 CFR §107.1181. The required reserve is reduced on each payment date upon payment of the required interest and
charges.
83
U.S. Small Business Administration, Office of Congressional and Legislative Affairs, “Correspondence with the
author,” May 2, 2012.
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SBA Small Business Investment Company Program
debenture SBIC. As a result, early stage discounted debentures are designed to encourage
investments in early stage small businesses, which by definition have not established a positive
cash flow.
Reporting Requirements
Once licensed, each SBIC is required to file with the SBA an annual financial report that includes
an audit by an SBA-approved independent public accountant. SBICs are also subject to annual
onsite regulatory compliance examinations.84 SBICs are also required to provide the SBA:
•
a portfolio financing report within 30 days of the closing date for each financing
of a small business;85
•
the value of its loans and investments within 90 days of the end of the fiscal year
in the case of annual valuations, and within 30 days following the close of other
reporting periods;86
•
any material adverse changes in valuations at least quarterly (within 30 days
following the close of the quarter);87 and
•
copies of reports provided to investors, documents filed with the Securities and
Exchange Commission, and documents pertaining to litigation or other legal
proceedings, including criminal charges against any person who was required by
the SBA complete a personal history statement in connection with the SBIC’s
license.88
SBIC Program Statistics
As of June 30, 2013, there were 295 licensed SBICs in operation (170 debenture SBICs, 70
participating securities SBICs, 44 bank-owned/non-leveraged SBICs, and 11 SSBICs).89 In
FY2012, 221 SBICs provided at least one new financing to a small business.90
As shown in Table 2, the number of licensed SBICs has generally declined since FY2006, with
most of the decline due to the planned phase-out of participating securities SBICs and SSBICs.91
84
13 CFR §107.630; and 13 CFR §107.690.
13 CFR §107.640.
86
13 CFR §107.650.
87
Ibid.
88
13 CFR §107.660.
89
U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
90
U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported Between
October 2011 and September 2012.”
91
U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” September 29, 2010; and
U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” September 30, 2012.
85
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SBA Small Business Investment Company Program
Table 2. Number of Licensed SBICs, By Type, FY2006-FY2013
SBIC Type
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
(June
30,
2013)
Debenture
132
132
129
126
140
143
158
170
Participating
Security
173
164
149
127
107
97
86
70
Bank-Owned/
NonLeveraged
67
57
54
48
47
46
44
44
Specialized
SBICs
24
16
16
14
13
13
13
11
396
369
348
315
307
299
301
295
Total
Source: U.S. Small Business Administration, Investment Division, “SBIC Program Overview,” January 23, 2009;
and U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/
sites/www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
The SBA has made it a goal to increase the number of new SBIC licenses issued each year, with
an emphasis on new debenture SBICs licenses, “to position the program for continued growth.”92
Overall, SBICs pursue investments in a broad range of industries, geographic areas, and stage of
investment. Some individual SBICs specialize in a particular field or industry in which their
management has expertise, while others invest more generally. Most SBICs concentrate on a
particular stage of investment (i.e., start-up, expansion, or turnaround) and identify a geographic
area in which to focus.
Total Financing
From the inception of the SBIC program to December 31, 2012, SBICs have invested
approximately $64.5 billion in more than 165,500 financings in small businesses.93 As mentioned
previously, as of June 30, 2013, the SBA had a guarantee on an outstanding unpaid principal
balance of $5.7 billion in SBIC debentures, $1.2 billion in SBIC participating securities, and
$23.9 million in other, primarily SSBIC, financings.94 The SBA also had an outstanding
92
U.S. Small Business Administration, “FY 2012 Congressional Budget Justification and FY 2010 Annual
Performance Report,” p. 60, at http://www.sba.gov/sites/default/files/
FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0.pdf. The SBA issued six new SBIC licenses (five to
debenture SBICs and one to a bank-owned/non-leveraged SBIC) in FY2008 and 11 new SBIC licenses (eight to
debenture SBICs and three to bank-owned/non-leveraged SBICs) in FY2009. The SBA issued 23 new SBIC licenses
(21 to debenture SBICs and 2 to bank-owned/non-leveraged SBICs) in FY2010 and 22 new SBIC licenses (18 to
debenture SBICs and 4 to bank-owned/non-leveraged SBICs) in FY2011. In FY2012, the SBA issued 30 new SBIC
licenses (27 to debenture SBICs and 3 to bank-owned/non-leveraged SBICs).
93
U.S. Small Business Administration, “Offering Circular, $1,063,910,000 Guaranteed 2.351% Debenture
Participating Certificates, Series SBIC 2013-10A,” March 27, 2013, at http://www.sba.gov/content/sbic-2013-10-cusip831641-ey7. The SBA has a selected list of firms that have received SBIC financing, including Apple Computer,
Compaq Computer, Costco Wholesale Corporation, FedEx, Intel, Jenny Craig, Inc., Outback Steakhouse, Sports
Authority, Staples, and Sun Microsystems, on its website. See U.S. Small Business Administration, “Investment
Division,” at http://archive.sba.gov/aboutsba/sbaprograms/inv/INV_SUCCESS_STORIES.html.
94
U.S. Small Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
(continued...)
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SBA Small Business Investment Company Program
commitment on $2.3 billion in SBIC debentures and $27.6 million in outstanding SBIC
participating securities.95 Including private investment, the SBIC program has invested or
committed about $18.9 billion in small businesses, with the SBA’s share of capital at risk about
$9.2 billion. 96
In FY2012, SBICs made 1,907 financings (including 58 financings by SSBICs). The average
financing amount was $1,692,412 ($1,741,923 for debenture SBICs, $285,257 for participating
securities SBICs, $878,299 for bank-owned/non-leveraged SBICs, and $114,053 for SSBICs).97
The funds were used primarily for acquiring an existing business (58.1%). Other uses were for
operating capital (21.7%), refinancing or refunding debt (10.1%), a new building or plant
construction (1.8%), purchasing equipment (1.6%), research and development (1.3%), marketing
activities (0.6%), plant modernization (0.4%), and other uses (4.4%).98
As shown in Table 3, the total amount of SBIC financing declined during the recession
(December 2007-June 2009), reached pre-recession levels in FY2011, exceeded pre-recession
levels in FY2012, and is on pace to exceed pre-recession levels in FY2013.
In FY2012, the SBA committed to guarantee $1.9 billion in SBIC small business investments and
SBICs provided another $1.3 billion in investments from private capital, for a total of more than
$3.2 billion in financing for 1,094 small businesses. In FY2013 (through June 30, 2013, or threequarters of the fiscal year), the SBA has committed to guarantee nearly $1.5 billion in SBIC small
business investments and SBICs have provided another $1.2 billion in investments from private
capital, for a total of more than $2.7 billion in financing for 841 small businesses.
In addition, as shown in Table 3, the amount of SBA leverage as a share of total financing
provided has increased in recent years. For example, the SBA’s leverage commitments accounted
for 12.3% of total financing in FY2005, compared with 59.6% in FY2012, and 54.4% in FY2013
(through June 30, 2013).
The SBA has had congressional authorization to issue up to $3.0 billion in SBIC leverage each
year since 2005. For comparative purposes, private venture capital firms invested $20.2 billion in
3,110 companies in 2009, $23.4 billion in 3,598 companies in 2010, $29.5 billion in 3,838
companies in 2011, and $26.5 billion in 3,715 companies in 2012.99
As mentioned previously, the Obama Administration has recommended that the SBIC’s maximum
leverage amount be increased to $4 billion a year.100
(...continued)
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
95
Ibid.
96
Ibid.
97
U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported Between
October 2011 and September 2012.”
98
Ibid.
99
National Venture Capital Association, “Corporate VC Stats as of 12/31/2012,” Arlington, VA, at
http://www.nvca.org/index.php?option=com_docman&task=cat_view&gid=99&Itemid=317.
100
U.S. Small Business Administration, “Fiscal Year 2014 Congressional Budget Justification and FY2012 Annual
Performance Report,” p. 8, at http://www.sba.gov/sites/default/files/files/1FY%202014%20CBJ%20FY%202012%20APR.PDF
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Table 3. SBIC Investments, FY2005-FY2013
($ in millions)
SBA
Leverage/Guarantee
Commitments
Private-Sector
Investment
Total Financing
FY2013 (through
June 30, 2013)
$1,491
$1,246
$2,737
841
FY2012
$1,924
$1,303
$3,227
1,094
FY2011
$1,828
$1,005
$2,833
1,339
FY2010
$1,165
$882
$2,047
1,331
FY2009
$788
$1,068
$1,856
1,481
FY2008
$1,029
$1,398
$2,427
1,905
FY2007
$708
$1,940
$2,648
2,057
FY2006
$477
$2,420
$2,897
2,121
FY2005
$355
$2,540
$2,895
2,298
Year
# of Small
Businesses
Financed
Source: U.S. Small Business Administration, “Performance and Financial Highlights, FY2007,” February 4, 2008,
p. 4; U.S. Small Business Administration, “FY2008 Budget Request and Performance Plan,” 2007, p. 23; U.S. Small
Business Administration, Investment Division, “SBIC Program Overview,” January 23, 2009; and U.S. Small
Business Administration, “SBIC Program Overview, as of June 30, 2013,” at http://c.ymcdn.com/sites/
www.sbia.org/resource/resmgr/Docs/SBIC_Program_Overview_-_June.pdf.
In 2008, the Urban Institute released an analysis comparing debenture SBIC investments made
from 1997 to 2005 to private-sector venture capital investments made during that time period in
second stage business loans, third stage business loans, and bridge loans “because these
investments are likely to be of the same character (debt with equity features) as those made by
debenture SBICs.”101 The Urban Institute found that debenture SBIC investments accounted for
more than 62% of all venture capital financings in second stage business loans, third stage
business loans, and bridge loans in the United States during that time period. However, because
the average amount of an SBIC debenture investment was much smaller than the industry
average, SBIC debenture investments accounted for “only 8% of total dollars invested.”102
Financing to Specific Demographic Groups
As shown in Table 4, in FY2012, SBICs made 116 financings (6.1% of all financings) amounting
to $128.1 million (4.0% of the total amount of financings) to minority-owned and -controlled
small businesses.
101
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, “The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity,” Washington, DC: The
Urban Institute, January 2008, p. 3, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
102
Ibid., p. 1.
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SBA Small Business Investment Company Program
Table 4. SBIC Financing, Minority-Owned Small Businesses, FY2012
Small Business
Ownership
Demographic
# of Financings
% of Financings
$ Amount of
Financings
% of Total $
Amount of
Financings
Black-Owned
42
2.2%
$56,200,200
1.7%
Subcontinent Asian-Owned
39
2.0%
$3,418,560
0.1%
Hispanic-Owned
18
0.9%
$27,987,568
0.9%
Asian Pacific-Owned
17
0.9%
$40,490,376
1.3%
0
0.0%
$0
0.0%
116
6.1%
$128,096,704
4.0%
Other (non-minority)
1,791
93.9%
$3,099,333,671
96.0%
Total—All Financings
1,907
100.0%
$3,227,430,375
100.0%
Native American-Owned
Subtotal
Source: U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported
Between October 2011 and September 2012.”
Notes: Ownership is defined as owning at least 50% of the small business.
In addition, in FY2012, SBICs made 50 financings (2.6% of all financings) amounting to $38.4
million (1.2% of the total amount of financings) to women-owned small businesses and 9
financings (0.5% of all financings) amounting to $8.9 million (0.3% of the total amount of
financings) to veteran-owned small businesses.103
Research concerning private venture capital investment in minority-owned or women-owned
small businesses is limited. As a result, it is difficult to find the data necessary to compare the
SBIC program’s investment in minority-owned or women-owned small businesses to the private
sector’s investment in these firms.104
In 2007, the SBA acknowledged at a congressional hearing on the SBA’s investment programs
that “women and minority representation in [the SBIC program] is low” and has been low for
many years.105 The SBA reported at that time that it did not control the investments made by
SBICs, but it has tried to increase women and minority representation in the SBIC program by
reaching out to venture capital firms, trade organizations, and others to better understand why
women and minority representation in the SBIC program is low, and by “finding debenture firms
with minority representation on their investment committees and in senior management.”106
However, despite these efforts, in 2009, the Small Business Investor Alliance (then called the
National Association of Small Business Investment Companies) asserted at a congressional
103
U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported Between
October 2011 and September 2012.”
104
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, “The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity,” Washington, DC: The
Urban Institute, January 2008, pp. 2, 26, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
105
U.S. Congress, House Committee on Small Business, Full Committee Hearing on Legislation Updating and
Improving the SBA’s Investment and Surety Bond Programs, 110th Cong., 1st sess., September 6, 2007, Serial Number
110-44 (Washington: GPO, 2007), p. 15.
106
Ibid.
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SBA Small Business Investment Company Program
hearing on the SBA’s capital access programs that the SBA’s SBIC licensing process “has done an
abysmal job at attracting and licensing funds led by women and minorities.”107
During the 111th Congress, S. 1831, the Small Business Venture Capital Act of 2009, was
introduced on October 21, 2009, and referred to the Senate Committee on Small Business and
Entrepreneurship. No further action was taken on the bill. It would have encouraged SBIC
investments in women-owned small businesses and socially and economically disadvantaged
small business concerns by increasing the amount of leverage available to SBICs that invest at
least 50% of their financings in small business concerns owned and controlled by women or
socially and economically disadvantaged small business concerns.
Financing by State
As shown in Table 5, in FY2012, SBICs provided financing to small businesses located in 45
states, the District of Columbia, and Puerto Rico, with the most financings taking place in
California (247 financings amounting to $480.1 million), New York (226 financings amounting to
$261.8 million), and Texas (182 financings amounting to $348.6 million).
Table 5. SBIC Financing, by State, FY2012
($ in millions)
# of
Financings
Amount of
Financings
# of
Financings
Amount of
Financings
Alabama
5
$34.2
Montana
0
$0.0
Alaska
0
$0.0
Nebraska
0
$0.0
Arizona
14
$27.7
Nevada
2
$0.8
Arkansas
10
$2.4
10
$1.4
California
247
$480.1
New Jersey
120
$149.1
Colorado
36
$62.6
New Mexico
13
$12.9
Connecticut
24
$50.8
New York
226
$261.8
Delaware
7
$1.4
North Carolina
33
$96.4
District of Columbia
9
$15.6
North Dakota
1
$1.5
Florida
100
$179.2
Ohio
36
$59.6
Georgia
46
$135.0
Oklahoma
20
$15.6
Hawaii
1
$2.5
Oregon
15
$36.4
Idaho
2
$.2
Pennsylvania
67
$156.1
Illinois
108
$189.9
Puerto Rico
3
$13.4
Indiana
18
$46.1
Rhode Island
3
$4.0
9
$20.4
South Carolina
16
$10.9
State
Iowa
State
New Hampshire
107
U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), p. 89.
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SBA Small Business Investment Company Program
# of
Financings
Amount of
Financings
Kansas
26
$17.3
South Dakota
Kentucky
12
$48.1
Tennessee
Louisiana
11
$24.3
1
$9.7
15
$52.5
143
$125.2
Michigan
24
$80.0
Minnesota
35
$110.3
Mississippi
17
$1.7
Missouri
16
$27.4
State
Maine
Maryland
Massachusetts
Total
# of
Financings
Amount of
Financings
0
$0.0
36
$78.1
Texas
182
$348.6
Utah
72
$39.2
5
$13.2
Virginia
65
$79.2
Washington
25
$22.9
2
$10.8
Wisconsin
19
$70.8
Wyoming
0
$0.0
1,907
$3,227.4
State
Vermont
West Virginia
Source: U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported
Between October 2011 and September 2012.”
The previously mentioned 2008 Urban Institute comparative analysis of debenture SBIC
financing from 1997 to 2005 found that the dollar volume of investments from debenture SBICs
was more evenly distributed across the nation than from comparable private venture capital funds.
For example, the Urban Institute found that California (45.8%) and Massachusetts (12.9%)
received the largest share of the total dollar volume invested by private venture capital funds from
1997 to 2005. The two states accounted for more than half (58.7%) of the total dollar volume
invested by private venture capital funds. In contrast, New York (18.7%) and California (11.1%)
received the largest share of the total dollar volume invested by debenture SBICs from 1997 to
2005. The two states accounted for less than one-third (29.8%) of the total dollar volume invested
by debenture SBICs. Also, the top 10 states in terms of their share of the total dollar volume
invested accounted nearly 84% of the total invested by private venture capital funds, compared
with 64% for debenture SBICs.108
A comparison of the state-by-state distribution of private-sector venture capital fund investments
and SBIC financings in FY2012 (see Table 5) suggest that the Urban Institute’s finding that
SBICs investments were more evenly distributed across the nation than private-sector venture
capital fund investments from 1997 to 2005 continue to be the case today.109 For example,
California (53.7%), Massachusetts (11.6%), New York (6.4%), and Texas (3.6%) received the
largest share of the total dollar volume invested by private venture capital funds during the first
three quarters of FY2012. The four states accounted for about three-quarters (75.3%) of the total
dollar volume invested by private venture capital funds. In contrast, the four states with the
largest share of the total volume invested by SBICs in FY2012 (California at 14.9%, Texas at
10.8%, New York at 8.1%, and Illinois at 5.9%) accounted for 39.7% of the total dollar volume
invested by SBICs.
108
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, “The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity,” Washington, DC: The
Urban Institute, January 2008, pp. 3, 18-24, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
109
National Venture Capital Association, “Venture Capital Investments Q3-2012 – MoneyTree Results, Regional
Data,” Arlington, VA, at http://www.nvca.org/.
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SBA Small Business Investment Company Program
Financing by Industry
As shown on Table 6, in FY2012, SBIC financings were made in a variety of industries, led by
investments in manufacturing; professional, scientific, and technical services; transportation and
warehousing; and information.
The previously mentioned 2008 Urban Institute comparative analysis of SBIC financings from
1997 to 2005 found that “SBIC financing is less concentrated by industry than financing from
private venture capital firms” and “total financings by SBICs are much less likely to be in hightech industries” than comparable private-sector venture capital investment firms.110 The Urban
Institute found that unlike SBICs, “the value of investments by private venture capital firms is
predominately directed towards information and finance,” with computer and Internet firms
receiving roughly half of all private-sector investments.111
Table 6. SBIC Financing, by Industry, FY2012
# of
Financings
% of
Financings
$ Amount of
Financings
% of $ Amount
of Financings
Manufacturing
537
28.2%
$884,493,305
27.4%
Professional, Scientific, and Technical
Services
300
15.7%
$508,094,582
15.7%
Transportation and Warehousing
242
12.7%
$162,474,082
5.0%
Information
216
11.3%
$268,203,978
8.3%
Administrative and Support and
Waste Management
108
5.7%
$224,893,219
7.0%
Retail Trade
93
4.9%
$161,415,213
5.0%
Wholesale Trade
91
4.8%
$214,011,523
6.6%
Accommodation and Food Services
74
3.9%
$127,083,453
3.9%
Health Care and Social Assistance
56
2.9%
$170,186,509
5.3%
Construction
44
2.3%
$133,990,273
4.2%
Real Estate and Rental Leasing
30
1.6%
$34,340,426
1.1%
Finance and Insurance
21
1.1%
$40,144,640
1.2%
Mining
20
1.0%
$61,968,243
1.9%
Educational Services
17
0.9%
$47,601,840
1.5%
Arts, Entertainment and Recreation
14
0.7%
$28,383,083
0.9%
5
0.3%
$44,265,110
1.4%
39
2.0%
$115,880,896
3.6%
1,907
100.0%
$3,227,430,375
100.0%
Industry
Management of Companies and
Enterprises
Other Industries
Total
110
Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, “The Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity,” Washington, DC: The
Urban Institute, January 2008, pp. 3, 11-17, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
111
Ibid., p. 11.
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Source: U.S. Small Business Administration, “SBIC Program Licensees Financing to Small Businesses Reported
Between October 2011 and September 2012.”
Legislative Activity
P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), included provisions
designed to increase the amount of leverage issued under the SBIC program by increasing the
maximum amount of leverage available to an individual SBIC to 300% of its private capital, or
$150 million, whichever is less; and by increasing the maximum amount of leverage available for
two or more licenses under common control to $225 million.112 It also encouraged SBIC
investment in smaller enterprises by requiring SBICs licensed after the date of its enactment
(February 17, 2009) to certify that at least 25% of all future financing dollars are invested in
smaller enterprises. ARRA defined smaller enterprises as firms having either a net worth of no
more than $6 million and average after-tax net income for the preceding two years of no more
than $2 million, or meeting the SBA’s size standard for its industry classification.113
ARRA also encouraged SBIC investments in low-income areas by allowing a SBIC licensed on
or after October 1, 2009, to elect to have a maximum leverage amount of $175 million, and $250
million for two or more licenses under common control, if the SBIC has invested at least 50% of
its financings in low-income geographic areas and certified that at least 50% of its future
investments will be in low-income geographic areas.114
As part of its Startup America Initiative, on January 31, 2012, the Obama Administration
recommended that the SBIC program’s annual authorization be increased to $4 billion from $3
billion and that the amount of SBA leverage available to licensees under common control (family
of funds) be increased to $350 million from $225 million.115 On April 27, 2012, the SBA also
published a final rule in the Federal Register establishing the $1 billion Early Stage Innovation
SBIC Initiative (up to $150 million in SBA leverage in FY2012, and up to $200 million in SBA
leverage per fiscal year thereafter until the limit is reached) to encourage SBIC program
investments in early-stage small businesses. As will be discussed, several bills have been
introduced during recent Congresses to expand the SBIC program by increasing its annual
authorization to $4 billion, increasing the family of funds limit to $350 million, or authorizing a
SBIC program specifically designed to encourage SBIC investments in business startups and
other early-stage small businesses.
112
13 CFR §107.1120; 13 CFR §107.1150; and U.S. Small Business Administration, “American Recovery and
Reinvestment Act of 2009: Implementation of SBIC Program Changes,” letter from Harry Haskins, Acting Associate
Administrator for Investment, to All Small Business Investment Companies (SBICs) and Applicants, May 4, 2009, p. 1,
at http://archive.sba.gov/idc/groups/public/documents/sba_program_office/inv_rcvry_act_sbic_changes.pdf.
Previously, “... the total principal amount of outstanding debentures and participating securities guaranteed by SBA and
issued by any SBIC or group of commonly controlled SBICs may not, in general, exceed at any one time an amount
equal to three times such SBIC’s Private Capital or $130.6 million, whichever is less, of which no more than two times
the SBIC’s Private Capital may be represented by participating securities. Such dollar limit has been adjusted annually
to reflect increases in the Consumer Price Index since March 31, 1993.” See U.S. Small Business Administration,
“Offering Circular, Guaranteed 5.725% Debenture Participation Certificates, Series SBIC 2008-10 B,” September 18,
2008, at http://www.sba.gov/content/sbic-2008-10-b-cusip-831641-en1.
113
13 CFR §107.1150; and 13 CFR §107.710.
114
13 CFR §107.1150.
115
The White House, “Startup America Legislative Agenda,” January 31, 2012, at http://www.whitehouse.gov/sites/
default/files/uploads/startup_america_legislative_agenda.pdf.
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SBA Small Business Investment Company Program
Legislation to Target Additional Assistance to Startup and Early
Stage Small Businesses
Some Members and small business advocates have proposed legislation to establish a
“permanent” congressionally-authorized SBIC program to target additional assistance to startup
and early stage small businesses, which are generally viewed as relatively risky investments but
also as having a relatively high potential for job creation. Advocates of targeting additional
assistance to startup and early stage small businesses argue that the SBA’s participating securities
program was created to fill a perceived investment gap resulting from the SBA’s debenture
program’s focus on mid- and later-stage small businesses. Because the SBA is no longer
providing new licenses or leverage for participating securities SBICs, several Members have
introduced legislation to create a new SBA program that would focus on the investment needs of
startup and early stage small businesses.
For example, during the 111th Congress, the House passed, by a vote of 241-182, H.R. 5297, the
Small Business Jobs and Credit Act of 2010.116 Among its provisions, as passed by the House,
H.R. 5297 would have authorized a $1 billion Small Business Early Stage Investment Program.
The proposed program would have provided equity investment financing of up to $100 million in
matching funds to each participating investment company. It would have required participating
investment companies to invest in small businesses, with at least 50% of the financing in early
stage small businesses, defined as those small businesses not having “gross annual sales revenues
exceeding $15 million in any of the previous three years.”117 The proposed program emphasized
venture capital investments in startup companies operating in nine targeted industries.118
H.R. 5297, as subsequently enacted by Congress and signed into law by President Obama on
September 27, 2010 (P.L. 111-240, the Small Business Jobs Act of 2010) did not include
legislative language authorizing a Small Business Early Stage Investment Program.119 However, it
authorized a three-year Intermediary Lending Pilot Program to provide direct loans to not more
than 20 eligible nonprofit lending intermediaries each year, totaling not more than $20 million
and $1 million per intermediary. The intermediaries, in turn, may make loans to new or growing
small businesses, not to exceed $200,000 per business.120 On August 4, 2011, the SBA announced
the selection of the first 20 lenders to participate in the program.121
116
Representative Edward Perlmutter, “Providing for Further Consideration of H.R. 5297, Small Business Jobs and
Credit Act of 2010, Roll No. 368,” Congressional Record, daily edition, vol. 156, no. 91 (June 17, 2010), pp. H4608, H
4609.
117
H.R. 5297, the Small Business Lending Fund Act of 2010, Section 399L. Definitions.
118
Ibid. The nine targeted industries are: agricultural technology, energy technology, environmental technology, life
science, information technology, digital media, clean technology, defense technology, and photonics technology. A
similar $200 million Small Business Early Stage Investment Program was included in H.R. 3854, the Small Business
Financing and Investment Act of 2009, which was passed by the House on October 29, 2009, by a vote of 389-32. It is
awaiting action in the Senate.
119
Senator Al Franken, “Small Business Lending Fund Act of 2010,” Rollcall Vote No. 237 Leg., Congressional
Record, daily edition, vol. 156, part 125 (September 16, 2010), p. S7158.
120
P.L. 111-240, the Small Business Jobs Act of 2010, Section 1131. Small Business Intermediary Lending Pilot
Program.
121
U.S. Small Business Administration, “Small Businesses Have New Non-Profit Sources for SBA-financed Loans,”
August 4, 2011, at http://www.sba.gov/content/intermediary-lending-pilot-program-0.
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SBA Small Business Investment Company Program
As mentioned previously, the SBA subsequently established, in 2012, the $1 billion Early Stage
Innovation SBIC Initiative to encourage SBIC investments in early-stage small businesses. Also,
H.R. 30, the Small Business Investment Enhancement and Tax Relief Act, and S. 1285, the Small
Business Innovation Act of 2013, would authorize the Administration to establish a separate SBIC
program for early-stage small businesses, defined as small business concerns with gross annual
sales not exceeding $15 million in any of the previous three years.
Discussion
Advocates of efforts to encourage capital investment in startup and early stage small businesses,
including Members of Congress who have served on the House or Senate Small Business
Committees, have argued that the SBA’s elimination of the SBIC participating securities program
has created a gap “in the SBA’s existing array of capital access programs, particularly in the
provision of capital to early stage small businesses in capital-intensive industries.”122 As
Representative Nydia Velázquez argued on the House floor during congressional consideration of
H.R. 5297
This legislation, Mr. Chairman, also recognizes that capital markets are changing
dramatically. Credit standards are stricter, and small businesses are now looking not only to
loans and to credit cards to finance their operations, but they are also looking to equity
investment to turn their ideas into reality. This has become even more pronounced as asset
values have declined, leaving entrepreneurs with less collateral to borrow against.
Unfortunately, small firms’ access to venture capital and to equity investment has declined.
Last year, such investments plummeted from $28 billion in 2008 to only $17 billion last
year. This is due, in part, to the previous administration’s decision to terminate the SBA’s
largest pure equity financing program—the Small Business Investment Company
Participating Securities program. This has left many entrepreneurs who need equity
investment to fulfill their business plans without a source of such financing.123
Opponents of efforts to encourage capital investment in startup and early stage small businesses
have argued that such efforts could “pile unnecessary risk or costs onto taxpayers at a time when
we’re dealing with record debt and unsustainable deficit spending.”124 During consideration of the
proposed Small Business Early Stage Investment Program, opponents argued that it was untested,
would likely encourage risky investments, and the legislation required “only 50% of the funding
… to be invested” in early stage small businesses.125
122
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315, p. 2. For the arguments presented
by various organizations advocating programs to assist early stage small businesses and startups see U.S. Congress,
House Committee on Small Business, Subcommittee on Finance and Tax Hearing on Legislative Proposals to Reform
the SBA’s Capital Access Programs, 111th Cong., 1st sess., July 23, 2009, House Small Business Committee Document
No. 111-039 (Washington: GPO, 2009), pp. 10-12, 60-67; and U.S. Congress, House Committee on Small Business,
Full Committee Hearing on Increasing Access to Capital for Small Business, 111th Cong., 1st sess., October 14, 2009,
House Small Business Committee Document No. 111-051 (Washington: GPO, 2009), pp. 33-35, 50-54, 63-69, 86-99.
123
Representative Nydia Velázquez, “Small Business Jobs and Credit Act of 2010,” House debate, Congressional
Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4516.
124
Representative Sam Graves, “Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record,
vol. 156, no. 90 (June 16, 2010), p. H4516.
125
Ibid; and Representative Jeff Flake, “Small Business Early Stage Investment Act of 2009,” House debate,
Congressional Record, vol. 155, no. 171 (November 18, 2009), p. H13083. Note: H.R. 3738, the Small Business EarlyStage Investment Act of 2009, was one of eight bills merged into H.R. 3854, the Small Business Financing and
(continued...)
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SBA Small Business Investment Company Program
Legislation to Increase SBIC Financing Levels
In 2009, the Small Business Investor Alliance characterized the SBIC program as “dramatically
underused.”126 It argued that the program’s financing levels would increase if (1) the SBA further
improved its licensing processing procedures to make them more timely and objective, (2) the
percentage of SBIC regulatory capital allowed from state or local government entities was
increased from its present maximum of 33%, and (3) the SBIC program’s family of funds limit
($225 million for two or more licenses under common control) was increased to allow SBICs to
have a series of investment funds in place, where, for example, “one fund could be winding
down, another could be at peak, and another could just be ramping up.”127
During the 111th Congress, H.R. 3854, the Small Business Financing and Investment Act of 2009,
which was passed by the House on October 29, 2009, and H.R. 5554, the Small Business
Assistance and Relief Act of 2010, which was not reported after being referred to five committees
for consideration, proposed to encourage greater use of the SBIC program by increasing the
maximum percentage of SBIC regulatory capital allowed from state or local government entities
to 45% from 33%.128 Both measures would have also increased the SBIC program’s family of
funds limit to $350 million from $225 million; increased the SBIC program’s limit of $250
million to $400 million for multiple funds under common control that were licensed after
September 30, 2009, and invested 50% of their dollars in low-income geographic areas; and
increased the SBIC program’s authorization level from to $5.5 billion from $3 billion in
FY2011.129
The Obama Administration also recommended, as part of its Startup America Initiative (which
included the SBA’s $1 billion early stage debenture SBIC initiative and $1 billion impact
investment SBIC initiative), that the 112th Congress adopt legislation to increase the SBIC
program’s annual authorization to $4 billion from $3 billion. The Administration recommended as
well that the 112th Congress adopt legislation to increase the amount of SBA leverage available to
licensees under common control to $350 million from $225 million.130
During the 112th Congress, H.R. 3219, the Small Business Investment Company Modernization
Act of 2011, would have encouraged greater utilization of the SBIC program by increasing the
maximum amount of outstanding SBA leverage available to any single licensed SBIC from the
(...continued)
Investment Act of 2009, and was later added to H.R. 5297, Small Business Jobs and Credit Act of 2010, by H.Res.
1436.
126
U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), pp. 32, 87.
127
Ibid., pp. 88, 89.
128
H.R. 3854, the Small Business Financing and Investment Act of 2009, Section 401. Increased Investment from
States; and H.R. 5554, the Small Business Assistance and Relief Act of 2010, Section 591. Increased Investment from
States.
129
H.R. 3854, the Small Business Financing and Investment Act of 2009, Section 401. Increased Investment From
States, Section 403. Revised Leverage Limitations For Successful SBICs, and Section 408. Program Levels; and H.R.
5554, the Small Business Assistance and Relief Act of 2010, Section 591. Increased Investment from States, Section
593. Revised Leverage Limitations for Successful SBICs, and Section 598. Program Levels.
130
The White House, “Startup America Legislative Agenda,” at http://www.whitehouse.gov/sites/default/files/uploads/
startup_america_legislative_agenda.pdf.
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SBA Small Business Investment Company Program
lesser of 300% of its private capital or $150 million, to the lesser of 300% of its private capital or
$200 million if a majority of the managers of the company are experienced in managing one or
more SBIC licensed companies. It would also have increased the maximum amount of
outstanding SBA leverage available to two or more licenses under common control to $350
million from $225 million.
S. 2136, a bill to increase the maximum amount of leverage permitted under title III of the Small
Business Investment Act of 1958, would have encouraged greater use of the SBIC program by
increasing the maximum amount of outstanding SBA leverage available to two or more licenses
under common control to $350 million from $225 million. It also would have increased the SBIC
program’s authorization level to $4 billion from $3 billion.
On March 15, 2012, S.Amdt. 1833, the INVEST in America Act of 2012, was offered on the
Senate floor as an amendment in the nature of a substitute to H.R. 3606, the Jumpstart Our
Business Startups Act, which had previously passed the House. Two of the provisions in the
amendment proposed to encourage greater use of the SBIC program by (1) increasing the
maximum amount of outstanding SBA leverage available to two or more licenses under common
control to $350 million from $225 million and (2) increasing the SBIC program’s authorization
level to $4 billion from $3 billion. The Senate later passed H.R. 3606 with amendments, which
did not address the SBIC program. The House accepted the Senate amendments and passed the
bill, which President Obama signed into law (P.L. 112-106).
S. 3442, the SUCCESS Act of 2012, and S. 3572, the Restoring Tax and Regulatory Certainty to
Small Businesses Act of 2012, would have, among other provisions, increased the SBIC
program’s authorization amount to $4 billion from $3 billion, increased the family of funds limit
to $350 million from $225 million, and annually adjust the maximum outstanding leverage
amount available to both individual SBICs and SBICs under common control to account for
inflation.
Also, H.R. 6504, the Small Business Investment Company Modernization Act of 2012, which
was passed by the House on December 18, 2012, would have increased the SBIC program’s
family of funds limit to $350 million from $225 million.
As mentioned previously, during the 113th Congress S. 511, the Expanding Access to Capital for
Entrepreneurial Leaders Act (EXCEL Act), which was ordered to be reported by the Senate
Committee on Small Business and Entrepreneurship on June 17, 2013, would increase the
program’s authorization to $4 billion from $3 billion and increase the program’s family of funds
limit (the amount of outstanding leverage allowed for two or more SBIC licenses under common
control) to $350 million from $225 million. In addition, S. 1285, the Small Business Innovation
Act of 2013, which was referred to the Senate Committee on Small Business and
Entrepreneurship on July 11, 2013, would, among other provisions, increase the program’s
authorization to $4 billion from $3 billion and increase the program’s family of funds limit to
$350 million from $225 million.
Discussion
In 2010, the SBA announced that one of its goals for the SBIC program was to increase its
“acceptance in the marketplace and increase the number of funds licensed and the amount of
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SBA Small Business Investment Company Program
leverage issued so as to improve capital access for small businesses.”131 The SBA asserted that
ARRA’s changes to the SBIC program would help it to achieve this goal. ARRA increased the
maximum leverage available to SBICs to up “to three times the private capital raised by the
SBIC, or $150 million, whichever is less, and $225 million for multiple licensees under common
control” and increased “the maximum leverage amounts to $175 million for single funds and
$250 million for multiple funds under common control who are licensed after September 30,
2009, and invest 50% of their dollars in low income geographic areas.”132
As mentioned previously, advocates of increasing the SBIC program’s leverage limits still further
and to increase the SBIC program’s authorization level to $4 billion from $3 billion have argued
that these actions are necessary to help fill a perceived gap in the SBA’s “array of capital access
programs.”133 In addition, they argue that the demise of the SBIC participating securities program
and the current “underutilization” of the SBIC debentures program is preventing many small
firms from accessing the capital necessary to fully realize their economic potential and assist in
the national economic recovery.134 On the other hand, others worry about the potential risk that an
expanded SBIC program has for the taxpayer, especially if investments are targeted at startup and
early stage small businesses which, by definition, have a more limited credit history and a higher
risk for default than businesses that have established positive cash flow.
Concluding Observations
Some, including President Obama, as most recently evidenced by his Startup America Initiative,
have argued that the SBA should be provided additional resources to assist small businesses in
acquiring capital necessary to start, continue, or expand operations and create jobs.135 In their
view, encouraging greater utilization of the SBIC program will increase small business access to
capital, result in higher levels of job creation and retention, and promote economic growth. For
example, on March 19, 2012, during Senate consideration of S.Amdt. 1833, the INVEST in
America Act of 2012, then-Senator Olympia Snowe argued
The amendment [S.Amdt. 1833] I and Senator Landrieu introduced would also help small
companies access capital by modifying the Small Business Investment Company, SBIC,
Program to raise the amount of SBIC debt the Small Business Administration, SBA, can
131
U.S. Small Business Administration, “Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual
Performance Report,” p. 52.
132
U.S. Small Business Administration, “SBA Project Plan, Section 505: SBIC Program Changes,” June 16, 2010, at
http://archive.sba.gov/idc/groups/public/documents/sba_homepage/sba_sbic_plan.pdf.
133
U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009, report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009), p. 3.
134
U.S. Congress, House Committee on Small Business, Full Committee Hearing on Increasing Capital for Small
Business, 111th Cong., 1st sess., October 14, 2009, House Small Business Committee Document No. 111-051
(Washington: GPO, 2009), pp. 88-91; and Representative Nydia Velázquez, “Small Business Jobs and Credit Act of
2010,” House debate, Congressional Record, daily edition, vol. 156, no. 90 (June 16, 2010), p. H4516.
135
Representative Nydia Velázquez, “Small Business Financing and Investment Act of 2009,” House debate,
Congressional Record, daily edition, vol. 155, no. 159 (October 29, 2009), pp. H12074, H12075; Senator Mary
Landrieu, “Statements on Introduced Bills and Joint Resolutions,” remarks in the Senate, Congressional Record, daily
edition, vol. 155, no. 185 (December 10, 2009), p. S12910; The White House, “Remarks by the President on Job
Creation and Economic Growth,” December 8, 2009, at http://www.whitehouse.gov/the-press-office/remarkspresident-job-creation-and-economic-growth; and The White House, “Startup America Legislative Agenda,” at
http://www.whitehouse.gov/sites/default/files/uploads/startup_america_legislative_agenda.pdf.
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guarantee from $3 billion to $4 billion. It would also increase the amount of SBA guaranteed
debt a team of SBIC fund managers who operate multiple funds can borrow. The SBIC
provisions in this amendment have bipartisan support, are noncontroversial, come at no cost
to taxpayers and will create jobs. We do not get many bills of this kind in the Senate
anymore.
One of the most difficult challenges facing new small businesses today is access to capital.
The SBIC Program has helped companies like Apple, FedEx, Callaway Golf, and Outback
Steakhouse become household names. As entrepreneurs and other aspiring small business
owners well know, it takes money to make money. This legislation ensures that our
entrepreneurs and high-growth companies have access to the resources they need so they can
continue to drive America’s economic growth and job creation in these challenging times.
There is no reason why Congress should not approve this amendment to ensure capital is
getting into the hands of America’s job creators.
This amendment will spur investment in capital-starved startup small businesses, which will
play a critical role in leading the Nation of the devastating economic down turn from which
we have yet to emerge. For those who may be unfamiliar, despite significant entrepreneurial
demand for small amounts of capital, because of their substantial size, most private
investment funds cannot dedicate resources to transactions below $5 million. The Nation’s
SBICs are working to fill that gap, especially even during these challenging times.136
Others worry about the potential risk an expanded SBIC program may have for increasing the
federal deficit. In their view, the best means to assist small business, promote economic growth,
and create jobs is to reduce business taxes and exercise federal fiscal restraint.137 For example,
Representative Sam Graves, chair of the House Committee on Small Business, indicated in the
Small Business Committee’s FY2013 “views and estimates” letter to the House Budget
Committee that the House Small Business Committee supported an increase in the SBIC
program’s authorization to $4 billion from $3 billion. However, he indicated that the committee
opposed funding for the SBA’s early stage debenture SBIC initiative and impact investment SBIC
initiative because of their potential to generate losses that could lead to higher SBIC fees, or for
the need to provide federal funds to subsidize the SBIC program. Representative Graves wrote in
the FY2013 views and estimates letter that
The debenture SBIC program is designed to provide equity injections to small businesses
that have been operational and have a track record of cash-flow and profits. … The program
is financially sound because the structure of repayments ensures that the government will not
suffer significant losses. Thus, no changes are needed to the program and it operates on a
zero subsidy basis without an appropriation. The SBA budget is fully supportive of this
program and we concur in that recommendation, including raising the program level from $3
billion to $4 billion.
Presumably, some of the additional program level (which will cost the federal government
no money) will be used to support two new variations in the Debenture SBIC Program [the
early stage debenture SBIC initiative and the impact investment SBIC initiative] … Neither
initiative has received authority from Congress nor had its operational principles assessed by
136
Senator Olympia Snowe, “Jumpstart Our Business Startups Act,” remarks in the Senate, Congressional Record, vol.
158, no. 45 (March 19, 2012), p. S15845.
137
National Federation of Independent Business, “Payroll Tax Holiday,” Washington, DC, at http://www.nfib.com/
issues-elections/issues-elections-item/cmsid/49039/; and NFIB, “Government Spending,” Washington, DC, at
http://www.nfib.com/issues-elections/issues-elections-item/cmsid/49051/.
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the Committee prior to implementation. The Committee reiterates its recommendation from
last year’s views and estimates – no funds should be allocated from the additional debenture
program levels for these two programs. The Committee on the Budget also should provide
further protection to the existing debenture SBIC program by requiring any modifications to
the program, whether a pilot program or not, be based on a new subsidy calculation that
ensures the current debenture program will operate at zero subsidy without any increase in
fees due to losses stemming from the Impact and Early Stage Innovation programs.138
As these quotations attest, congressional debate concerning the SBIC program has primarily
involved assessments of the ability of small businesses to access capital from the private sector
and evaluations of the program’s risk, the effect of proposed changes on the program’s risk, and
the potential impact of the program’s risk on the federal deficit. Empirical analysis of economic
data can help inform debate concerning the ability of small businesses to access capital from the
private sector and the extent of the program’s risk, the effect of proposed changes on the
program’s risk, and the potential impact of the program’s risk on the federal deficit. Additional
data concerning SBIC investment impact on recipient job creation and firm survival might also
prove useful.
138
Representative Sam Graves, “Views and Estimates of the Committee on Small Business on Matters to be set forth in
the Concurrent Resolution on the Budget for Fiscal Year 2013,” Washington, DC, pp. 4, 5, at http://smbiz.house.gov/
UploadedFiles/Views_and_Estimates_FY_2013.pdf. Also, see Representative Sam Graves, “Views and Estimates of
the Committee on Small Business on Matters to be set forth in the Concurrent Resolution on the Budget for Fiscal Year
2012,” Washington, DC, pp. 4, 5, at http://smbiz.house.gov/UploadedFiles/
March_17_Views_and_Estimates_Letter.pdf.
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Appendix. Small Business Eligibility Requirements
and Application Process
Small Business Eligibility Requirements
Only businesses that meet the SBA’s definition of “small” may participate in the SBIC program.
Businesses must meet either the SBA’s size standard for the industry in which they are primarily
engaged or the SBA’s alternative size standard for the SBIC program. SBICs use the size standard
that is most likely to qualify the company, typically the alternative size standard for the SBIC
program. The current SBIC alternative size standard of tangible net worth not in excess of $18
million, and average net income after federal income taxes (excluding any carry-over losses) for
the preceding two completed fiscal years not in excess of $6 million was established in 1994.139
All of a company’s subsidiaries, parent companies, and affiliates are considered in determining if
it meets the size standard.
In addition, since 1997, the SBA has required SBICs to set aside a specified percentage of their
financing for “businesses at the lower end of the permitted size range,” primarily because “the
financial size standards applicable to the SBIC program are considerably higher than those used
in other SBA programs.”140 P.L. 111-5, the American Recovery and Reinvestment Act of 2009
(ARRA), requires SBICs licensed after the date of its enactment (February 17, 2009) to certify
that at least 25% of their future financing is invested in smaller enterprises. A smaller enterprise is
a company that, together with any affiliates, either has net worth of no more than $6 million and
average after-tax net income for the preceding two years of no more than $2 million, or meets the
SBA’s size standard in the industry in which the applicant is primarily engaged.141
A SBIC licensed on or before February 17, 2009, that has not received any SBA leverage
commitments after February 17, 2009, must have at least 20% of its aggregate financing dollars
(plus 100% for leverage commitments over $90 million) invested in smaller enterprises.142
139
U.S. Small Business Administration, “Small Business Size Standards: Increase Size Standard of Small Business
Concerns Eligible for Assistance by Small Business Investment Companies,” 59 Federal Register 16953-16956, April
8, 1994. The 1994 final rule used net worth, as opposed to tangible net worth. In 1996, the SBA replaced net worth
with tangible net worth for both the 504/CDC loan guaranty program and the SBIC program “because items such as
goodwill have no tangible value and should not be taken into account during calculation of net worth for loan approval
purposes.” See U.S. Small Business Administration, “Small Business Size Standards,” 61 Federal Register 3282,
January 31, 1996. The previous alternative SBIC size standard of no more than $6 million in net worth and no more
than $2 million in after-tax net income was established in 1979. The previous alternative SBIC size standard was a
small business concern which does not have assets exceeding $9.0 million, does not have net worth in excess of $4.0
million, and does not have after-tax average net income for the preceding two years in excess of $400,000. See U.S.
Small Business Administration, “Small Business Size Standards: Increase Size Standard of Small Business Concerns
for Assistance by Small Business Investment Companies or by Development Companies,” 44 Federal Register 55815,
September 28, 1979. Also, see 13 CFR §107.700; 13 CFR §107.710; 13 CFR §121.301(c)(1) and 13 CFR
§121.301(c)(2).
140
U.S. Small Business Administration, “Small Business Investment Companies – Leverage Eligibility and Portfolio
Diversification Requirements,” 74 Federal Register 33912, July 14, 2009.
141
13 CFR §107.710.
142
Ibid.
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A SBIC licensed on or before February 17, 2009, that has received an SBA leverage commitment
after February 17, 2009, must meet the 20% threshold (plus 100% for leverage commitments over
$90 million) for financing provided before the date of the first leverage commitment issued after
February 17, 2009, and the 25% threshold for financing made after such date.143
SBICs are not allowed to invest in the following: other SBICs; finance and investment companies
or finance-type leasing companies; unimproved real estate; companies with less than 51% of their
assets and employees in the United States; passive or casual businesses (those not engaged in a
regular and continuous business operation); or companies that will use the proceeds to acquire
farmland.144 In addition, SBICs may not provide funds for a small business whose primary
business activity is deemed contrary to the public interest or if the funds will be used substantially
for a foreign operation.145
Small Business Application Process
Small business owners interested in receiving SBIC financing can search for active SBICs using
the SBA’s SBIC directory.146 The directory provides contact information for all licensed SBICs,
sorted by state. It also includes the SBIC’s preferred minimum and maximum financing size
range, the type of capital provided (e.g., equity, mezzanine, subordinated debt, 1st and 2nd lien
secured term, or preferred stock), funding stage preference (e.g., early stage, growing and
expansion stage, or later stage), industry preference (e.g., business services, manufacturing,
environmental services, or distribution), geographic preference (e.g., national, regional, or
specific state or states), and a description of the firm’s focus (e.g., equity capital to later stage
companies for expansion and acquisition, or targeting companies with revenues of at least $5
million and profitability at the time of financing).147
After locating a suitable SBIC, the small business owner presents the SBIC a business plan that
addresses the business’s operations, management, financial condition, and funding requirements.
The typical business plan includes the following information:
•
the name of the business as it appears on the official records of the state or
community in which it operates;
•
the city, county, and state of the principal location and any branch offices or
facilities;
•
the form of business organization and, if a corporation, the date and state of
incorporation;
•
a description of the business, including the principal products sold or services
rendered;
143
Ibid.; and U.S. Small Business Administration, “Small Business Investment Companies – Leverage Eligibility and
Portfolio Diversification Requirements,” 74 Federal Register 33912, July 14, 2009.
144
13 CFR §107.720.
145
Ibid.
146
U.S. Small Business Administration, “All SBIC Licensees By State,” at http://www.sba.gov/content/all-sbiclicensees-state.
147
Ibid.
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•
a history of the general development of the products or services during the past
five years (or since inception);
•
information about the relative importance of each principal product or service to
the volume of the business and to its profits;
•
a description of business’s real and physical property and adaptability to other
business ventures;
•
a description of technical attributes of its products and facilities;
•
detailed information about the business’s customer base, including potential
customers;
•
a marketing survey or economic feasibility study;
•
a description of the distribution system for the business’s products or services;
•
a descriptive summary of the competitive conditions in the industry in which the
business is engaged, including its competitive position relative to its largest and
smallest competitors;
•
a full explanation and summary of the business’s pricing policies;
•
brief resumes of the business’s management personnel and principal owners,
including their ages, education, and business experience;
•
banking, business, and personal references for each member of management and
for the principal owners;
•
balance sheets and profit and loss statements for the last three fiscal years (or
from inception);
•
detailed projections of revenues, expenses, and net earnings for the coming year;
•
a statement of the amount of funding requested and the time requirements for the
funds;
•
the reasons for the request for funds and a description of the proposed uses; and
•
a description of the benefits the business expects to gain from the financing (e.g.,
expansion, improvement in financial position, expense reduction, or increase in
efficiency).148
Because SBICs typically receive hundreds of business plans per year, the SBA recommends that
small business owners seek a personal referral or introduction to the particular SBIC fund
manager being targeted to increase “the likelihood that the business plan will be carefully
considered.”149 According to the Small Business Investor Alliance, “a thorough study an SBIC
must undertake before it can make a final decision could take several weeks or longer.”150
148
Small Business Investor Alliance (formerly the National Association of Small Business Investment Companies),
“SBIC Financing: Step-by-Step,” Washington, DC, at http://www.nasbic.org/?page=SBIC_financing.
149
U.S. Small Business Administration, “SBIC Program,” at http://www.sba.gov/content/sbic-program-0.
150
Small Business Investor Alliance (formerly the National Association of Small Business Investment Companies),
“SBIC Financing: Step-by-Step,” Washington, DC, at http://www.nasbic.org/?page=SBIC_financing.
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Author Contact Information
Robert Jay Dilger
Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110
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