SBA Small Business Investment
Company Program
Robert Jay Dilger
Senior Specialist in American National Government
October 23, 2014
Congressional Research Service
7-5700
www.crs.gov
R41456

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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 September 30, 2014, there were 294 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, and
others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e.,
startup, expansion, or turnaround) and geographic area.
The SBIC program has invested or committed about $22.5 billion in small businesses, with the
SBA’s share of capital at risk about $10.7 billion. In FY2014, the SBA committed to guarantee
$2.55 billion in SBIC small business investments. SBICs invested another $2.92 billion from
private capital for a total of almost $5.5 billion in financing for 1,085 small businesses. P.L. 113-
76, the Consolidated Appropriations Act, 2014, increased the annual amount of leverage the SBA
is authorized to provide to SBICs to $4 billion from $3 billion.
Some Members of Congress and the Obama Administration have argued that the program should
be expanded as a means to stimulate economic activity, create jobs, and assist in the national
economic recovery. For example, in addition to P.L. 113-76’s increase of the SBIC program’s
annual authorization amount to $4 billion from $3 billion, 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 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.
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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.


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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 .................................................................................................... 9
Key Features of Regular SBIC Types ............................................................................................ 10
SBIC Investments in Small Businesses ......................................................................................... 11
Leverage ........................................................................................................................................ 14
Leverage Drawdown ............................................................................................................... 14
Debenture SBIC Leverage Requirements ................................................................................ 15
Participating Securities SBIC Leverage Requirements ........................................................... 16
Impact Investment Debenture SBIC Leverage Requirements ................................................. 18
Early Stage Debenture SBIC Leverage Requirements ............................................................ 18
Reporting Requirements ................................................................................................................ 19
SBIC Program Statistics ................................................................................................................ 20
Total Financing ........................................................................................................................ 21
Financing to Specific Demographic Groups ........................................................................... 23
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 ......................................................................................................................... 32
Concluding Observations ............................................................................................................... 33

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, FY2007-FY2014 .................................................. 20
Table 3. SBIC Investments, FY2005-FY2014 ............................................................................... 22
Table 4. SBIC Financing, Minority-Owned Small Businesses, FY2013 ....................................... 23
Table 5. SBIC Financing by State, FY2013 ................................................................................... 25
Table 6. SBIC Financing by Industry FY2013 .............................................................................. 27
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Appendixes
Appendix. Small Business Eligibility Requirements and Application Process ............................. 36

Contacts
Author Contact Information........................................................................................................... 39
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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 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 identified a gap 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
that 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 there was a need for a federal government program to “stimulate the
availability of capital funds to small business” to assist these businesses 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 partners with privately owned
and managed SBICs licensed by the SBA to provide financing to small businesses with private
capital the SBIC has raised (called regulatory capital) and with funds (called leverage) the SBIC
borrows at favorable rates because the SBA guarantees the debenture (loan obligation). As of
September 30, 2014, there were 294 privately owned and managed SBA-licensed SBICs
participating in the SBIC program.5

1 U.S. Small Business Administration (SBA), “Fiscal Year 2014 Congressional Budget Justification and FY2012
Annual Performance Report,” pp. 4-9, at http://www.sba.gov/sites/default/files/files/1-
FY%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 SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Overview_-_September_20.pdf.
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P.L. 113-76, the Consolidated Appropriations Act, 2014, increased the annual amount of leverage
the SBA is authorized to provide to SBICs to $4 billion from $3 billion. In FY2014, the SBA
provided $2.55 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
(the amount of outstanding leverage allowed for two or more SBIC licenses under common
control) to $350 million from $225 million.7
During the 113th Congress, in addition P.L. 113-76 increasing the program’s annual authorization
amount to $4 billion from $3 billion, 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 family of funds
limit 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 family of funds limit to
$350 million from $225 million.
Others worry about the potential risk that an expanded SBIC program would 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 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 allocate 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.
7 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 to $350 million from $225 million.
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It 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.”8 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” and remain in operation.
With few exceptions, SBICs and SSBICs are subject to the same eligibility requirements and
operating rules and regulations. Therefore, the term SBIC is usually used to refer to both SBICs
and SSBICs.
Five types of regular SBICs exist. 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.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 limited
partnership interests, preferred stock, or debentures with interest payable only to the extent of
earnings.11 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
A 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 (45 of

8 P.L. 92-595, the Small Business Investment Act Amendments of 1972.
9 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 a SBIC. Bank
investments in a 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
of the Federal Reserve Board, “Small Business Investment Companies,” 33 Federal Register 6967, May 9, 1968; and
SBA, “Small Business Investment Companies (SBICs),” Small Business Notes, 2009, at
http://www.smallbusinessnotes.com/financing/sbic.html.
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294) are wholly owned, by commercial banks. A few SBICs are corporations with publicly traded
stock.13
One of the primary criteria for licensure as a 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 and
looks 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 a 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.14
SBIC Application Process
Applying for a SBIC debenture license is a multi-step process, beginning with the submission of
the SBA Management Assessment Questionnaire (MAQ). The questionnaire 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 in which the investments are expected to be made;
• the anticipated holding periods for investments;

13 SBA, “For SBIC Applicants: Phase II: Licensing Review,” at http://www.sba.gov/content/phase-ii-licensing-review.
14 SBA, “For SBIC Applicants: Pre-Screening,” at http://www.sba.gov/content/pre-screening.
15 A control person is generally defined as someone with the power to direct corporate management and policies.
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• the types and characteristics of 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, that 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 company is provided a
“Green Light” letter formally inviting it 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. Obtaining a SBIC
license for the first time usually takes two to three 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 with two major differences: 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
The eligibility requirements and application process for small businesses requesting financial
assistance from a SBIC is provided in the Appendix.

16 SBA, “SBIC Management Assessment Questionnaire and License Application: Form 2181,” p. 21, at
http://www.sba.gov/sites/default/files/SBA%20Form%202181.pdf.
17 SBA, “SBIC Program Statistics & Administrative Performance;” and SBA, “SBIC Program Overview, as of
September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/resmgr/Docs/SBIC_Overview_-
_September_20.pdf.
18 SBA “Impact Investment Initiative,” at http://www.sba.gov/content/small-business-investment-company-sbic-
impact-investment-initiative-2.
19 SBA, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal Register 25052, April 27, 2012.
20 Ibid.
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SBIC Capital Investment Requirements
Debenture SBICs
P.L. 85-699 authorized the SBA to select companies to participate in the SBIC program and to
purchase debentures from those companies to provide 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
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

21 13 CFR §107.210.
22 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 SBA, “SBIC Program: FAQs 7. What is the status of the Participating Securities Program?” at
http://www.sba.gov/content/faqs.
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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, which were
allowed to continue operations. However, these securities SBICs 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.28
Although the SBA is no longer issuing new commitments for participating securities, and each
year several participating securities SBICs leave the program because their leverage
commitments are retired, as of September 30, 2014, there were still 53 participating securities
SBICs in the SBIC program.29 To be part of the SBIC program, a participating securities SBIC
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 SBA, “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-cusip-831641-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 long-
term 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 SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Overview_-_September_20.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, 86 at the end of FY2012, and
63 at the end of FY2013.
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 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 These areas initially included businesses located in underserved
communities (as defined by the SBA), the education sector, and the clean energy sector.34 Impact
investment debenture SBICs are required to have a minimum private capital investment of at least
$5 million and are 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.35
As of September 30, 2014, three impact investment SBICs were licensed (one in 2011, one in
2012, and the third in 2014) and five standard debenture SBICs had an impact focus. The SBA
anticipates licensing several more impact investment SBICs by the end of calendar year 2014.
The first three impact investment SBICs manage more than $190 million in assets and have
invested more than $78 million in 16 small businesses.36
On September 25, 2014, the SBA announced several changes to the impact investment program
designed to “broaden access to the fund.”37 The agency announced that it will continue the
program beyond FY2016. Effective October 1, 2014, among other changes, the SBA will
eliminate the program’s $200 million collective, per-fiscal-year leverage cap, add advanced
manufacturing to the list of eligible sectors, provide eligibility to businesses that receive Small
Business Innovation Research or Small Business Technology Transfer grants, and permit, through
December 1, 2014, existing debenture SBICs to apply to opt-into the program if they meet the
program’s requirements.38

33 SBA, “Impact Investment Initiative,” at http://www.sba.gov/content/small-business-investment-company-sbic-
impact-investment-initiative-2; and SBA, Office of Congressional and Legislative Affairs, “Correspondence with the
author,” July 31, 2014.
34 The SBA defines underserved communities as low or moderate income (LMI) enterprises located in LMI Zones, as
defined in 13 CFR 107.50; qualified low-income community investments (QLICIs) located in low-income communities
(LICs), as defined by the New Markets Tax Credit (NMTC) program in 26 CFR 1.45D-1(d)1; rural business concerns
located in rural areas as defined in 7 CFR 4290.502; and, small business concerns located in economically distressed
areas (EDAs), as defined by Section 3013 of the Public Works and Economic Development Act (PWEDA) of 1965, as
amended, 42 U.S.C. 3161.
35 SBA, “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.
36 SBA Office of Congressional and Legislative Affairs, “Correspondence with the author,” October 20, 2014; and U.S
Small Business Administration, “SBA Expands Impact Investment Fund,” September 25, 2014, at http://www.sba.gov/
content/sba-expands-impact-investment-fund.
37 SBA, “SBA Expands Impact Investment Fund,” September 25, 2014, at http://www.sba.gov/content/sba-expands-
impact-investment-fund.
38 Ibid.
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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).39 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.40
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.”41 For example, early stage debenture SBICs must raise more regulatory capital (at
least $20 million) than debenture SBICs, 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
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 all
other applicants was set as May 15, 2013.42 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 license applications.43
The SBA’s second and third annual calls for venture capital fund managers to submit an
application to become a licensed early stage debenture SBIC took place on December 18, 2012,
and February 4, 2014, respectively.44

39 SBA, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal Register 25043, 25050, April 27,
2012.
40 Ibid., pp. 25051-25053.
41 Ibid., p. 25043.
42 SBA, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal Register 25775-25779, May 1,
2012. Applicants must complete first complete a Management Assessment Questionnaire (MAQ), 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.
43 SBA, “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 SBA, “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.
44 SBA, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal Register 74908-74913, December
18, 2012; SBA, “Small Business Investment Companies—Early Stage SBICs,” 79 Federal Register 6665, February 4,
(continued...)
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As of September 30, 2014, five early stage SBICs had raised $226.5 million in private capital,
received $16.3 million in SBA-guaranteed leverage, had $76.6 million in outstanding
commitments, and invested $56.4 million in 27 small businesses.45
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.
Table 1. Key Features of the SBA’s Debenture, Participating Securities, Impact
Investment Debenture, and Early Stage Debenture SBICs
Participating
Security SBICs (no
Program
longer accepting
Impact Investment
Early Stage
Requirement Debenture
SBICs
new investments)
Debenture SBICs
Debenture SBICs
Private Capital
$5 million minimum
$10 million minimum
$5 million minimum
$20 million minimum
SBA Leverage
200% of private capital 200% of private capital 200% of private capital
100% of private
up to $150 million per up to $150 million per up to $150 million;
capital up to $50
SBIC or $225 million
SBIC or $225 million
limited to 100% of
million
for two or more
for two or more
private capital during
SBICs under common
SBICs under common
any 12-month perioda
controla
control
Investments
Broad range of equity
Broad range of equity
Broad range of equity
Broad range of
investments but
investments
investments but
equity investments;
generally later stage
generally later stage
at least 50% in early
and mezzanine
and mezzanine; at least
stage small
50% in underserved
businesses (no
markets and
positive cash flow in
communities facing
any fiscal year prior
barriers to access to
to first financing)
credit and capital

(...continued)
2014; and SBA, “Small Business Investment Companies—Early Stage SBICs,” 79 Federal Register 18750, April 3,
2014. As modified on April 3, 2014, the deadline to submit a MAQ for funds seeking a license in FY2014 is May 16,
2014, with anticipated Green Light letters issued from June 30, 2014 through July 8, 2014. The licensing date for funds
seeking a license in FY2014 that already have $20 million of regulatory capital is July 31, 2014. The anticipated
licensing date for all other funds seeking a license in FY2014 is September 30, 2014. All other funds have 12 months
from issuance of a Green Light letter to submit their license application.
45 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” October 20, 2014.
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Participating
Security SBICs (no
Program
longer accepting
Impact Investment
Early Stage
Requirement Debenture
SBICs
new investments)
Debenture SBICs
Debenture SBICs
Leverage
Interest and SBA
SBA paid interest to
Interest and SBA
Standard: 5 years
Description
annual charge payable
bond holders; SBICs
annual charge payable
interest reserve
semiannual y through
only owed and repaid
semiannual y through
required, interest
maturity
SBA out of profits
maturity
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
None
SBA typically received
None None
Participation
about 8% of any
profits
Sources: U.S. Small Business Administration (SBA), 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 SBA, “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 or a licensed impact investment 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 traditional y approved a maximum of 200% of 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 in
low-income geographic areas and certifies that at least 50% of its future investments will be in low-income
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);46
• 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;47

46 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.
47 13 CFR §107.810; and 13 CFR §107.840.
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• purchasing debt securities from small businesses, which may be convertible into,
or have rights to purchase, equity in the small business;48 and
• providing small businesses, subject to limitations, a guarantee of their monetary
obligations to creditors not associated with the SBIC.49
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);50
• control, either directly or indirectly, any small business on a permanent basis;51
• invest, without SBA approval, more than specified percentages of their 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);52
• invest in farmland, 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;53
• 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;54 or
• provide funds to a small business if the funds will be used substantially for a
foreign operation.55

48 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, a loan that 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.
49 13 CFR §107.820.
50 13 CFR §107.730.
51 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, a 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.”
52 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 SBA, “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. 2, at http://archive.sba.gov/idc/groups/
public/documents/sba_program_office/inv_rcvry_act_sbic_changes.pdf.
53 13 CFR §107.720.
54 Ibid.
55 Ibid. A SBIC may provide venture capital financing to disadvantaged concerns engaged in relending or reinvesting
(continued...)
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The SBA also regulates the interest rates and fees SBICs are allowed to charge small businesses
on loans, debt securities, and equity financing.56
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.”57 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-to-
moderate income area (LMI Zone) or have at least 35% of their full-time employees with their
primary residence in an LMI Zone.58 For example, unlike regular SBIC debentures that typically
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.59
In FY2013, SBICs made 355 investments in small businesses located in a LMI Zone, totaling
$605.5 million—about 17% of the total amount invested.60

(...continued)
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.
56 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.
57 SBA, “Small Business Investment Companies,” 64 Federal Register 52645, September 30, 1999.
58 SBA, “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.
59 SBA, “For SBICs: Background Information on Low or Moderate Income (LMI) Debentures,” at http://www.sba.gov/
content/low-or-moderate-income-lmi-debentures.
60 SBA, “SBIC Program Licensees Financing to Small Businesses Reported Between October 2012 and September
(continued...)
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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.61 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 SBA approves the
draw, 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 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].”62 During the interim period, the bank
charges a SBIC the London Interbank Offered Rate (LIBOR), plus a 30 basis point premium.63
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.”64 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.65
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,

(...continued)
2013.”
61 13 CFR §107.1100.
62 SBA, “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.
63 SBA, “Funding the SBIC Program: An Overview,” at http://www.sba.gov/content/funding-sbic-program-overview.
64 Ibid.
65 To view recent SBIC debenture offering circulars see SBA, “SBIC Debentures Offering Circulars,” at
http://www.sba.gov/category/lender-navigation/sba-loan-programs/sbic-program/program-data-performance/
information-tru-1.
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which is fixed at the time of the leverage commitment, and other administrative and underwriting
fees that are adjusted annually.66
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.67 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.68
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
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.69
Debenture SBICs are required to make semiannual payments on the interest due on the debenture,
semiannual payments on the SBA’s annual charge, and a lump sum principal payment to investors
at maturity.70 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 semiannual 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.71 Also, as

66 13 CFR §107.1130; and 13 CFR §107.1210. The annual fee for debentures at the time of the leverage commitment in
FY2015 is 0.742%. It was 0.355% in FY2014. The participating securities program is no longer issuing new leverage
commitments. See SBA, “SBIC Program: Annual Charge,” at http://www.sba.gov/content/annual-charge.
67 13 CFR §107.1120; 13 CFR §107.1150; and SBA, “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.
68 13 CFR §107.1150. According to 13 CFR §108.50, 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).
69 One debenture has a term of 10 years and 29 weeks. See SBA, “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.
70 SBA, “Small Business Investment Companies (SBICs),” Small Business Notes, 2009, at
http://www.smallbusinessnotes.com/business-finances/small-business-investment-companies-sbics.html; and SBA,
“For SBIC Applicants: Financing Options Explained,” at http://www.sba.gov/content/financing-options-explained.
71 Ibid.; 13 CFR §107.50; and 13 CFR §107.1150.
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mentioned previously, LMI debentures are available in two maturities, for 5 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.72 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 semiannual interest payments on the debenture
and semiannual 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.73
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.74 Also, 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.
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,
2009.75

72 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 SBA, “Trust Certificate
Rates: SBIC Debenture Pools,” at http://www.sba.gov/content/trust-certificate-rates-sbic-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 SBA, “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.
73 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 SBA, “SBIC Program: FAQs: 8. What investment styles and fund types fit best with the SBIC Program?” at
http://www.sba.gov/content/faqs.
74 13 CFR §107.1170.
75 13 CFR §107.1500; and SBA, “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-
(continued...)
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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.”76 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.”77
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.78
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
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.79
As of September 30, 2014, the SBA had a guarantee on an outstanding unpaid principal balance
of $7.7 billion in SBIC debentures, $0.68 billion in SBIC participating securities, and $30.3
million in other, primarily SSBIC, financings.80 The SBA also had an outstanding commitment on
nearly $3.0 billion in SBIC debentures and $6.6 million in outstanding SBIC participating
securities.81

(...continued)
10-cusip-831641-ep6.
76 SBA, “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-2009-10-cusip-831641-ep6.
77 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.
78 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%. SBA, “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.
79 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 SBA, “SBIC Program: FAQs 7. What is the status of the Participating Securities Program?” at http://www.sba.gov/
content/faqs.
80 SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Overview_-_September_20.pdf.
81 Ibid.
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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.”82 On July
26, 2011, the SBA announced that the first impact investment debenture SBIC license had been
awarded to InvestMichigan! Mezzanine Fund.83
Licensed impact investment debenture SBICs may apply to the SBA for leverage of up to 300%
of their 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). The SBA is expected to limit impact investment debenture SBICs to a maximum of 200%
of their private capital, up to $150 million.84
Impact investment debenture SBICs obtain leverage in the same way debenture SBICs obtain
leverage—through the issuance of SBA-guaranteed debentures with a term of up to 10 years.
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).85

82 SBA, “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.
83 SBA, “SBA Licenses First Impact Investment Fund in Michigan,” July 26, 2011, at http://www.sba.gov/content/sba-
licenses-first-impact-investment-fund-michigan. The license was dated April 25, 2011. 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 clean-tech 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. As of October 31, 2013, Michigan Growth Capital Partners
SBIC, L.P. had raised $50.2 million in private capital, received $30.8 million in leverage from the SBA, and provided
$19.2 million in financing to two small businesses. SBA, Office of Congressional and Legislative Affairs,
“Correspondence with the author,” November 18, 2013.
84 SBA, “Start-Up America Impact Investment SBIC Initiative Policy Update,” September 12, 2012, at
http://www.sba.gov/content/updated-policy-letter-outlining-major-elements-investment-division%E2%80%99s-impact-
investment-initi; and SBA, “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.
85 SBA, “Small Business Investment Companies - Early Stage SBICs,” 77 Federal Register 25052, April 27, 2012.
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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 semiannual 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 length of time between the issue date and the next March 1, June 1,
September 1, or December 1).86 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 enabling 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.87 Early stage debenture SBICs make quarterly payments on the
debenture’s interest and on the SBA’s annual charge during years 6 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
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 a SBA-approved independent public accountant. SBICs are also subject to annual on-
site regulatory compliance examinations88 and required to provide the SBA
• a portfolio financing report within 30 days of the closing date for each financing
of a small business;89

86 13 CFR §107.1181. The required reserve is reduced on each payment date upon payment of the required interest and
charges.
87 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” May 2, 2012.
88 13 CFR §107.630; and 13 CFR §107.690.
89 13 CFR §107.640.
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• the value of their 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;90
• any material adverse changes in valuations at least quarterly (within 30 days
following the close of the quarter);91 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 required by the SBA
complete a personal history statement in connection with the SBIC’s license.92
SBIC Program Statistics
As of September 30, 2014, there were 294 licensed SBICs in operation (187 debenture SBICs, 53
participating securities SBICs, 45 bank-owned/non-leveraged SBICs, and 9 SSBICs).93 In
FY2013, 215 SBICs provided at least one new financing to a small business.94
As shown in Table 2, the number of debenture SBICs has increased in recent years. However,
there are fewer licensed SBICs today than in FY2007 and FY2008, primarily due to the planned
reduction in the number of participating securities SBICs and SSBICs.95
Table 2. Number of Licensed SBICs by Type, FY2007-FY2014
SBIC Type
FY2007
FY2008
FY2009
FY2010 FY2011 FY2012 FY2013 FY2014
Debenture
132
129
126
140
143
158
175
187
Participating
164 149 127 107 97 86 63 53
Security
Bank-Owned/
57 54 48 47 46 44 43 45
Non-
Leveraged
Specialized
16 16 14 13 13
13 11 9
SBICs
Total 369
348
315
307
299
301
292
294
Sources: SBA Investment Division, “SBIC Program Overview,” January 23, 2009; and SBA, “SBIC Program
Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/resmgr/Docs/
SBIC_Overview_-_September_20.pdf.

90 13 CFR §107.650.
91 Ibid.
92 13 CFR §107.660.
93 SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Overview_-_September_20.pdf.
94 SBA, “SBIC Program Licensees Financing to Small Businesses Reported Between October 2012 and September
2013.”
95 SBA, Investment Division, “SBIC Program Overview,” September 29, 2010; and SBA, Investment Division, “SBIC
Program Overview,” September 30, 2013.
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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.”96
Overall, SBICs pursue investments in a broad range of industries, geographic areas, and stages of
investment. Some individual SBICs specialize in a particular field or industry in which their
management has expertise, and others invest more generally. Most SBICs concentrate on a
particular stage of investment (i.e., startup, expansion, or turnaround) and identify a geographic
area in which to focus.
Total Financing
From the inception of the SBIC program to June 30, 2014, SBICs have invested approximately
$70.9 billion in approximately 168,572 financings to small concerns.97 As mentioned previously,
as of September 30, 2014, the SBA had a guarantee on an outstanding unpaid principal balance of
$7.7 billion in SBIC debentures, $0.68 billion in SBIC participating securities, and $30.3 million
in other, primarily SSBIC, financings.98 The SBA also had outstanding commitments on nearly
$3.0 billion in SBIC debentures and $6.6 million in outstanding SBIC participating securities.99
Including private investment, as of September 30, 2014, the SBIC program has invested or
committed about $22.5 billion in small businesses, with the SBA’s share of capital at risk about
$10.7 billion.100
In FY2013, SBICs made 2,309 financings (including 8 financings by SSBICs). The average
financing amount was $1,895,078 ($2,312,679 for debenture SBICs, $300,062 for participating
securities SBICs, $915,406 for bank-owned/non-leveraged SBICs, and $515,000 for SSBICs).101
The funds were used primarily for acquiring an existing business (52.2%) and also for operating
capital (22.1%), refinancing or refunding debt (13.9%), purchasing machinery or equipment
(2.5%), research and development (1.7%), marketing activities (1.5%), a new building or plant
construction (0.2%), plant modernization (0.1%), and other uses (5.8%).102

96 SBA, “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, 11
new SBIC licenses (eight to debenture SBICs and three to bank-owned/non-leveraged SBICs) in FY2009, and 23 new
SBIC licenses (21 to debenture SBICs and 2 to bank-owned/non-leveraged SBICs) in FY2010. The SBA issued 22 new
SBIC licenses (18 to debenture SBICs and 4 to bank-owned/non-leveraged SBICs) in FY2011, 30 new SBIC licenses
(27 to debenture SBICs and 3 to bank-owned/non-leveraged SBICs) in FY2012, and 34 new SBIC licenses (29 to
debenture SBICs and 5 to bank-owned/non-leveraged SBICs in FY2013.
97 SBA, “Offering Circular, $1,007,590,000, Guaranteed 3.015% Debenture Participation Certificates, Series SBIC
2014-10 B,” September 16, 2014, at http://www.sba.gov/content/sbic-2014-10-b-cusip-831641-fb6. 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 SBA, “Investment Division,” at http://archive.sba.gov/aboutsba/sbaprograms/inv/
INV_SUCCESS_STORIES.html.
98 SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/resource/
resmgr/Docs/SBIC_Overview_-_September_20.pdf.
99 Ibid.
100 Ibid.
101 SBA, “SBIC Program Licensees Financing to Small Businesses Reported Between October 2012 and September
2013.”
102 Ibid.
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As shown in Table 3, the total amount of SBIC financing declined during the recession
(December 2007-June 2009), reached prerecession levels in FY2011, and has continued to
increase since then. In FY2014, the SBA committed to guarantee nearly $2.55 billion in SBIC
small business investments. SBICs invested another $2.92 billion from private capital for a total
of almost $5.5 billion in financing for 1,085 small businesses.
In addition, the amount of SBA leverage as a share of total financing provided has generally
increased over the past decade. For example, the SBA’s leverage commitments accounted for
12.3% of total financing in FY2005, 16.5 % in FY2006, and 26.7% in FY2007, compared with
59.6% in FY2012, 61.6% in FY2013, and 46.6% in FY2014.
The SBA was authorized to issue up to $3.0 billion in SBIC leverage from 2005 through 2013. As
mentioned previously, P.L. 113-76, the Consolidated Appropriations Act, 2014, increased the
annual amount of leverage the SBA is authorized to provide to SBICs to $4 billion from $3
billion. For comparative purposes, private venture capital firms invested $20.3 billion in 3,149
companies in 2009, $23.3 billion in 3,640 companies in 2010, $29.6 billion in 3,991 companies in
2011, $27.1 billion in 3,826 companies in 2012, and $29.4 billion in 3,995 companies in 2013.103
Table 3. SBIC Investments, FY2005-FY2014
($ in millions)
SBA
Number of Small
Leverage/Guarantee
Private-Sector
Businesses
Year
Commitments
Investment Total
Financing Financed
FY2014
$2,549
$2,916
$5,465
1,085
FY2013 $2,156
$1,342 $3,498 1,068
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
Sources: SBA, “Performance and Financial Highlights, FY2007,” February 4, 2008, p. 4; SBA, “FY2008 Budget
Request and Performance Plan,” 2007, p. 23; SBA, Investment Division, “SBIC Program Overview,” January 23,
2009; and SBA, “SBIC Program Overview, as of September 30, 2014,” at http://c.ymcdn.com/sites/www.sbia.org/
resource/resmgr/Docs/SBIC_Overview_-_September_20.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.”104 The Urban Institute found that debenture SBIC investments accounted for

103 National Venture Capital Association, “Venture Capital Investment 2013 Year-End VC Investment Stats, National
Data,” Arlington, VA, at http://www.nvca.org/.
104 Kenneth Temkin and Brett Theodos, with Kerstin Gentsch, “The Debenture Small Business Investment Company
(continued...)
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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 a SBIC debenture investment was much smaller than the industry average,
SBIC debenture investments accounted for “only 8% of total dollars invested.”105
Financing to Specific Demographic Groups
As shown in Table 4, in FY2013, SBICs made 65 financings (3.52% of all financings) amounting
to $106.0 million (3.03% of the total amount of financings) to minority-owned and -controlled
small businesses.
Table 4. SBIC Financing, Minority-Owned Small Businesses, FY2013
Small Business
Percentage of
Ownership
Number of
Percentage of
$ Amount of
Total $ Amount
Demographic
Financings
Financings
Financings
of Financings
Black-Owned
23
1.25%
$18,185,430
0.52%
Asian Pacific-Owned
16
0.87%
$48,695,551
1.39%
Subcontinent Asian-Owned
12
0.65%
$3,248,062
0.09%
Hispanic-Owned
12
0.65%
$28,419,807
0.81%
Native American-Owned
2
0.10%
$7,500,000
0.21%
Subtotal 65
3.52%
$106,048,850
3.03%
Other (Nonminority)
1,781
96.48%
$3,392,265,675
96.97%
Total—Al Financings
1,846
100.00%
$3,498,314,525
100.00%
Source: SBA, “SBIC Program Licensees Financing to Smal Businesses Reported Between October 2012 and
September 2013.”
Notes: Ownership is defined as owning at least 50% of the smal business.
In addition, in FY2013, SBICs made 24 financings (1.3% of all financings) totaling $38.0 million
(1.1% of the total amount of financings) to women-owned small businesses and 11 financings
(0.6% of all financings) totaling nearly $7.8 million (0.2% of the total amount of financings) to
veteran-owned small businesses.106
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.107

(...continued)
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.
105 Ibid., p. 1.
106 SBA, “SBIC Program Licensees Financing to Small Businesses Reported Between October 2012 and September
2013.”
107 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
(continued...)
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In 2007, the SBA acknowledged at a congressional hearing on its investment programs that
“women and minority representation in [the SBIC program] is low” and has been for many
years.108 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.”109 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 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.”110
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 FY2013, SBICs provided financing to small businesses located in 42
states and the District of Columbia, with the most financing taking place in California (194
financings totaling $457.2 million), New York (283 financings totaling $366.6 million), and Texas
(136 financings totaling $262.9 million).

(...continued)
Urban Institute, January 2008, pp. 2, 26, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
108 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.
109 Ibid.
110 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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Table 5. SBIC Financing by State, FY2013
($ in millions)
# of
Amount of
# of
Amount of
State
Financings
Financings State Financings
Financings
Alabama 11
$47.6
Montana 0
$0.0
Alaska
0 $0.0
Nebraska
0 $0.0
Arizona 19
$30.7
Nevada 1
$0.3
Arkansas 9
$10.3
New
Hampshire
8
$8.6
California
194 $457.2
New
Jersey
164 $200.1
Colorado 50
$223.7
New
Mexico
12
$5.4
Connecticut 21
$52.3
New
York 283
$366.6
Delaware 5
$6.5
North
Carolina
61
$110.0
District of Columbia
2
$0.5
North Dakota
5
$4.3
Florida 63
$181.3
Ohio 22
$83.3
Georgia 65
$140.1
Oklahoma
12
$13.4
Hawai 0
$0.0
Oregon
26
$35.6
Idaho 0
$0.0
Pennsylvania
40
$115.2
Illinois 101
$188.6
Puerto
Rico
0
$0.0
Indiana
13 $12.4
Rhode
Island
10 $23.0
Iowa
6 $17.2
South
Carolina 13 $20.6
Kansas
28 $36.2
South
Dakota
3 $14.6
Kentucky 5
$8.3
Tennessee
45
$65.4
Louisiana 12
$76.3
Texas 136
$262.9
Maine 3
$9.2
Utah 34
$34.9
Maryland 23
$23.6
Vermont 4
$3.4
Massachusetts 152
$230.2
Virginia
45 $45.7
Michigan
31 $95.8
Washington
32 $61.9
Minnesota 32
$66.0
West
Virginia
0
$0.0
Mississippi 0
$0.0
Wisconsin 21
$47.1
Missouri 24
$61.9
Wyoming 0
$0.0
Total

1,846
$3,498.3
Source: SBA, “SBIC Program Licensees Financing to Smal Businesses Reported Between October 2012 and
September 2013.”
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%)
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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 for nearly 84% of the total invested by private venture capital funds,
compared with 64% for debenture SBICs.111
A comparison of the state-by-state distribution of private-sector venture capital fund investments
and SBIC financings in FY2013 (see Table 5) suggests 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 continues to be the case today.112 For example, during the
first three quarters of FY2013, California (51.5%), Massachusetts (10.6%), New York (8.1%), and
Texas (4.8%) received the largest shares of the total dollar volume invested by private venture
capital funds. The four states accounted for three-quarters (75.0%) of the total dollar volume
invested by private venture capital funds during that time period. In contrast, the four states with
the largest share of the total volume invested by SBICs in FY2013 (California at 13.1%, New
York at 10.5%, Texas at 7.5%, and Massachusetts at 6.6%) accounted for about one-third (37.7%)
of the total dollar volume invested by SBICs.
Financing by Industry
As shown in Table 6, SBIC financings in FY2013 were made in a variety of industries, led by
investments in manufacturing; transportation and warehousing; professional, scientific, and
technical services; and information.
The 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 high-tech industries” than
comparable private-sector venture capital investment firms.113 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.114


111 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.
112 National Venture Capital Association, “Venture Capital Investments Q3-2013 – MoneyTree Results, Regional
Data,” Arlington, VA, at http://www.nvca.org/.
113 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.
114 Ibid., p. 11.
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Table 6. SBIC Financing by Industry FY2013
Percentage of $
Number of
Percentage of
$ Amount of
Amount of
Industry
Financings
Financings
Financings
Financings
Manufacturing
472
25.6%
$990,748,274
28.3%
Transportation and Warehousing
318
17.2%
$208,364,200
6.0%
Professional, Scientific, and Technical
245 13.3%
$403,448,756
11.5%
Services
Information 201
10.9%
$472,299,648
13.5%
Wholesale Trade
101
5.5%
$238,037,810
6.8%
Administrative and Support and
97 5.3%
$140,870,937
4.0%
Waste Management
Health Care and Social Assistance
89
4.8%
$327,621,620
9.4%
Retail Trade
85
4.6%
$167,936,440
4.8%
Construction 57
3.1%
$60,274,570
1.7%
Accommodation and Food Services
55
3.0%
$125,859,048
3.6%
Educational Services
26
1.4%
$117,285,529
3.4%
Mining 26
1.4%
$76,423,400
2.2%
Real Estate and Rental Leasing
23
1.3%
$49,366,946
1.4%
Finance and Insurance
19
1.0%
$18,797,862
0.5%
Management of Companies and
4 0.2%
0.7%
Enterprises
$24,157,958
Arts, Entertainment, and Recreation
4
0.2%
$2,652,553
0.1%
Other Industries
24
1.2%
$74,168,974
2.1%
Total 1,846
100.0%
$3,498,314,525
100.0%
Source: SBA, “SBIC Program Licensees Financing to Smal Businesses Reported Between October 2012 and
September 2013.”
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.115 It also encouraged SBIC

115 13 CFR §107.1120; 13 CFR §107.1150; and SBA, “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
(continued...)
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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.116
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.117
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.118 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.
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.

(...continued)
increases in the Consumer Price Index since March 31, 1993.” See SBA, “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.
116 13 CFR §107.1150; and 13 CFR §107.710.
117 13 CFR §107.1150.
118 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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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 2010.119 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.”120 The proposed program emphasized
venture capital investments in startup companies operating in nine targeted industries.121
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.122 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.123 On August 4, 2011, the SBA announced
the selection of the first 20 lenders to participate in the program.124
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.
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.”125 As

119 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.
120 H.R. 5297, the Small Business Lending Fund Act of 2010, Section 399L. Definitions.
121 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.
122 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.
123 P.L. 111-240, the Small Business Jobs Act of 2010, Section 1131. Small Business Intermediary Lending Pilot
Program.
124 SBA, “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.
125 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
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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.126
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.”127 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.128
Legislation to Increase SBIC Financing Levels
In 2009, the Small Business Investor Alliance characterized the SBIC program as “dramatically
underused.”129 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

(...continued)
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.
126 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.
127 Representative Sam Graves, “Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record,
vol. 156, no. 90 (June 16, 2010), p. H4516.
128 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 Early-
Stage Investment Act of 2009, was one of eight bills merged into H.R. 3854, the Small Business Financing and
Investment Act of 2009, and was later added to H.R. 5297, Small Business Jobs and Credit Act of 2010, by H.Res.
1436.
129 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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have a series of investment funds in place, in which, for example, “one fund could be winding
down, another could be at peak, and another could just be ramping up.”130
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%.131 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
FY2011.132
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.133
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
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

130 Ibid., pp. 88, 89.
131 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.
132 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.
133 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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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 adjusted 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, P.L. 113-76 increased the annual amount of leverage the SBA is
authorized to provide to SBICs to $4 billion from $3 billion. Also, during the 113th Congress, in
addition to increasing the program’s authorization amount to $4 billion, 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 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, which was referred to the Senate Committee on Small Business and
Entrepreneurship on July 11, 2013, would, among other provisions, 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
leverage issued so as to improve capital access for small businesses.”134 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.”135
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

134 SBA, “Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual Performance Report,” p. 52.
135 SBA, “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.
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programs.”136 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.137 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.138 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 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
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.

136 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.
137 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.
138 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/remarks-
president-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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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 dow
n 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.139
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.140 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 to 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
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.141
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

139 Senator Olympia Snowe, “Jumpstart Our Business Startups Act,” remarks in the Senate, Congressional Record, vol.
158, no. 45 (March 19, 2012), p. S15845.
140 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/.
141 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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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.
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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, which became effective on July 14, 2014, is
tangible net worth not in excess of $19.5 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 $6.5 million.142 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.”143 The P.L. 111-5ARRA 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.144

142 SBA, “Small Business Size Standards: Inflation Adjustment to Monetary Based Size Standards,” 79 Federal
Register 33647-33669, June 12, 2014. The previous SBIC alternative size standard, which was established in 1994, was
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. See SBA, “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 SBA, “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 that 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 SBA, “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).
143 SBA, “Small Business Investment Companies – Leverage Eligibility and Portfolio Diversification Requirements,”
74 Federal Register 33912, July 14, 2009.
144 13 CFR §107.710.
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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.145
A SBIC licensed on or before February 17, 2009, that has 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 after such date.146
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.147 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.148
Small Business Application Process
Small business owners interested in receiving SBIC financing can search for active SBICs using
the SBA’s SBIC directory.149 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).150
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;

145 Ibid.
146 Ibid.; and SBA, “Small Business Investment Companies – Leverage Eligibility and Portfolio Diversification
Requirements,” 74 Federal Register 33912, July 14, 2009.
147 13 CFR §107.720.
148 Ibid.
149 SBA, “All SBIC Licensees By State,” at http://www.sba.gov/content/all-sbic-licensees-state.
150 Ibid.
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• 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 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).151
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

151 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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considered.”152 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.”153

Author Contact Information

Robert Jay Dilger

Senior Specialist in American National Government
rdilger@crs.loc.gov, 7-3110



152 SBA, “SBIC Program,” at http://www.sba.gov/content/sbic-program-0.
153 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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