SBA Small Business Investment
Company Program
Updated November 4, 2021
Congressional Research Service
https://crsreports.congress.gov
R41456

SBA Small Business Investment Company Program

Summary
The Smal Business Administration’s (SBA’s) Smal Business Investment Company (SBIC)
program is designed to enhance smal business access to venture capital by stimulating and
supplementing “the flow of private equity capital and long-term loan funds which smal -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 smal businesses to stimulate the national economy was, and remains, the SBIC
program’s primary objective.
As of September 30, 2021, there were 307 privately owned and managed SBA-licensed SBICs
providing smal businesses private capital the SBIC has raised (cal ed regulatory capital) and
funds the SBIC borrows at favorable rates (cal ed 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 general y. Most SBICs concentrate on a particular stage of investment (i.e.,
startup, expansion, or turnaround) and geographic area.
The SBIC program currently has invested or committed about $34.2 bil ion in small businesses,
with the SBA’s share of capital at risk about $14.6 bil ion. In FY2021, the SBA provided SBICs
over $2.4 bil ion in leverage and SBICs invested nearly $4.7 bil ion from private capital for a
total of nearly $7.1 bil ion in financing for 1,080 smal businesses.
Some Members of Congress have argued that the program should be expanded as a means to
stimulate economic activity and create jobs. For example, 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 bil ion from $3 bil ion. P.L. 114-113, the Consolidated Appropriations
Act, 2016, increased the amount of outstanding leverage al owed for two or more SBIC licenses
under common control (the multiple licenses/family of funds limit) to $350 mil ion from $225
mil ion. P.L. 115-187, the Smal Business Investment Opportunity Act of 2017, increased the
amount of outstanding leverage al owed for individual SBICs to $175 mil ion from $150 mil ion.
Others worry that an expanded SBIC program could result in losses and increase the federal
deficit. In their view, the best means to assist smal 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 smal businesses, which are general y viewed as relatively risky investments but also
as having a relatively high potential for job creation. During the Obama Administration, the SBA
established a five-year, early stage SBIC initiative. Early stage SBICs are required to invest at
least 50% of their investments in early stage smal businesses, defined as smal businesses that
have never achieved positive cash flow from operations in any fiscal year. The SBA stopped
accepting new applicants for the early stage SBIC initiative in 2017.
This report describes the SBIC program’s structure and operations, focusing on SBIC eligibility
requirements, investment activity, and program statistics. It also includes information concerning
the SBIC program’s debenture SBIC program, participating securities SBIC program, impact
investment SBIC program (targeting underserved markets and communities facing barriers to
access to credit and capital), and early stage SBIC initiative.
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Contacts
Author Information ....................................................................................................... 38

Congressional Research Service

SBA Small Business Investment Company Program

SBIC Program Overview
The Smal Business Administration (SBA) administers several programs to support smal
businesses, including loan guaranty programs to enhance smal business access to capital;
programs to increase smal 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
Smal Business Investment Company (SBIC) program.
Authorized by P.L. 85-699, the Smal Business Investment Act of 1958, as amended, the SBIC
program is designed to “improve and stimulate the national economy in general and the smal -
business segment thereof in particular” by stimulating and supplementing “the flow of private
equity capital and long-term loan funds which smal -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
smal 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 al ows 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 smal business” to assist these businesses in gaining
access to long-term financing and equity financing.4 Facilitating the flow of capital to smal
businesses to stimulate the national economy was, and remains, the SBIC program’s primary
objective.
The SBA does not make direct investments in smal businesses. It partners with privately owned
and managed SBICs licensed by the SBA to provide financing to smal businesses with private
capital the SBIC has raised (cal ed regulatory capital) and with funds (cal ed leverage) the SBIC
borrows at favorable rates because the SBA guarantees the debenture (loan obligation).5 As of

1 U.S. Small Business Administration (SBA), Fiscal Year 2020 Congressional Budget Justification and FY2018 Annual
Perform ance Report, pp. 2-3, at https://www.sba.gov/document/report -congressional-budget-justification-annual-
performance-report.
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. Also, see
U.S. Congress, Committees on Banking and Currency and Select Committees on Small Business, Financing Sm all
Business, report to the Committees on Banking and Currency and Select Committees on Small Business, United States
Congress, by the Federal Reserve System, 85th Cong., 2nd sess., April 11, 1958, Committee Print (Washington : GPO,
1958).
4 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), p. 5.
5 Small business investment companies (SBICs) must invest in small businesses, defined as those with no more than
49% of employees overseas, less than $19.5 million in tangible net worth and average after -tax income for the
preceding two years of less than $6.5 million, or businesses qualifying as small under the SBA’s NAICS industry code
size standards. In addition, SBICs are required to invest set percentages of their financings, which vary based on when
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September 30, 2021, there were 307 licensed SBICs participating in the SBIC program.6 In
FY2021, SBICs drew over $2.4 bil ion in leverage.7
In recent years, some Members of Congress have argued that the program should be expanded as
a means to stimulate economic activity and create jobs. For example, 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 bil ion from $3 bil ion and P.L. 114-113, the Consolidated
Appropriations Act, 2016, increased the amount of outstanding leverage al owed for two or more
SBIC licenses under common control (the multiple licenses/family of funds limit) to $350 mil ion
from $225 mil ion.8 In addition, P.L. 115-187, the Smal Business Investment Opportunity Act of
2017, increased the amount of outstanding leverage al owed for individual SBICs to $175 mil ion
from $150 mil ion.
Others worry that an expanded SBIC program could result in losses and increase the federal
deficit. In their view, the best means to assist smal business, promote economic growth, and
create jobs is to reduce business taxes and exercise federal fiscal restraint.
Some Members and smal business advocates have also proposed that the program target
additional assistance to startup and early stage smal businesses, which are general y viewed as
relatively risky investments but also as having a relatively high potential for job creation. For
example, during the 113th Congress, S. 1285 and H.R. 30, the Smal Business Investment
Enhancement and Tax Relief Act, would have authorized the Administration to establish a
separate SBIC program for early stage smal businesses. In addition, as part of the Obama
Administration’s Startup America Initiative, the SBA established a five-year, $1 bil ion early
stage SBIC initiative in 2012. Early stage SBICs are required to al ocate at least 50% of their
investments in early stage smal businesses, defined as smal businesses that have never achieved
positive cash flow from operations in any fiscal year.
The SBA stopped accepting new applicants for the early stage SBIC initiative in 2017. In
addition, on June 11, 2018, the SBA withdrew a proposed rule published on September 19, 2016,

the SBIC received its license, in “smaller enterprises.” A smaller enterprise is a businesses with no more than 49% of
employees overseas, less than $6 million of tangible net worth and average after -tax income for the preceding two
years of less than $2 million, or a business qualifying as small under the SBA’s NAICS industry code size standards.
For example, SBICs licensed after February 17, 2009, must invest at least 25% (in dollars) of their financings in
smaller enterprises. See 13 C.F.R. §107.710 and the Appe ndix.
6 SBA, “Small Business Investment Company (SBIC) Program Overview Report as of September 30, 2021,” at
https://www.sba.gov/document/report -small-business-investment -company-sbic-program-overview-report-september-
30-2021 (hereinafter cited as SBA, “ SBIC Program Overview as of September 30, 2021” ).
7 SBA, “SBIC Program Overview as of September 30, 2021.”
8 According to a U.S. Government Accountability (GAO) report released on January 27, 2016, “ About 70% (130 of
187) of debenture SBICs—the most common SBIC fund type—were managed by 69 multiple licensees in 2014 .... T he
proportion of debenture SBICs managed by multiple licensees has sharply increased, rising from about 20 % in 2005 to
about 70% in 2014... For debenture SBICs specifically, multiple licensees also increased their share of total SBA
leverage during 2005–2014. These SBICs held about 24% of SBA leverage in 2005, but about 74% of the
approximately $7 billion in SBA leverage in 2014 .... from 2009 to 2014, no more than 2.8% of multiple licensees
reached the then-applicable $225 million leverage limit ... T he Small Business Investor Alliance and some SBIC fund
managers told us they believed the leverage limit nonetheless has a significant effect because it deters some SBIC
managers who want to substantially grow their fund over the long-term from continuing to participate in the program ....
SBIC characteristics, including geographic distribution and management demographics, were largely similar for sin gle
and multiple licensees.... Multiple licensees, in the aggregate, demonstrated better investment performance than single
licensees from 2005 to 2014.” See GAO, Sm all Business Investm ent Com panies: Characteristics and Investm ent
Perform ance of Single and Multiple Licensees, GAO-16-107, January 27, 2016, pp. 8, 10, 11, 13, at
https://www.gao.gov/assets/680/674813.pdf.
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to amend the initiative to make it “more attractive and ... a permanent part of the SBIC
program.”9 The SBA indicated that it withdrew the proposed rule “because very few qualified
funds applied to the Early Stage SBIC initiative, the costs were not commensurate with the
results, and the comments to the proposed rule did not demonstrate broad support for a permanent
Early Stage SBIC program.”10
This report examines the SBIC program’s structure and operations, focusing on SBIC eligibility
requirements, investment activity, and program statistics. It includes information concerning the
SBA’s debenture SBIC program, participating securities SBIC program, impact investment SBIC
program (targeting underserved markets and communities facing barriers to access to credit and
capital), and early stage SBIC initiative.
This report also discusses legislative efforts that led to an increase in (1) the maximum annual
leverage the SBA is authorized to provide to SBICs and (2) the maximum amount of outstanding
leverage al owed for two or more SBIC licenses under common control.11
SBIC Types
There are two types of SBICs. Investment companies licensed under Section 301(c) of the Smal
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, cal ed Specialized Small Business
Investment Companies (SSBICs), focus on providing financing to smal business entrepreneurs
“whose participation in the free enterprise system is hampered because of social or economic
disadvantage.”12 Section 301(d) was repealed by P.L. 104-208, the Omnibus Consolidated
Appropriations Act, 1997 (Title II of Division D, the Smal Business Programs Improvement Act
of 1996). As a result, no new SSBIC licenses have been issued since October 1, 1996. However,
“successful” SSBICs were “grandfathered” and al owed to remain in the program.13

9 T he proposed changes would have allowed early stage applicants to apply at any time, similar to other SBIC
applicants, instead of only during limited time frames identified in the Federal Register (which the SBA published on
an annual basis); allowed early stage SBICs to obtain an unsecured line of credit without SBA approval un der specified
conditions; allowed an application from an applicant under common control with an existing early stage SBIC that has
outstanding debentures or debenture commitments; and increased the initiative’s maximum leverage commitment of
100% of regulatory capital or $50 million, whichever is less, to 100% of regulatory capital or $75 million, whichever is
less. See SBA, “ Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26875,
June 11, 2018; and SBA, “ Small Business Investment Companies (SBIC); Early Stage Initiative,” 81 Federal Register
64075-64080, September 19, 2016.
10 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26875, June 11,
2018.
11 In addition, S. 2831, A bill to amend the Small Business Investment Act of 1958 to provide priority for applicants for
a license to operate as a small business investment company that are located in a disaster area, was introduced on April
21, 2016, and reported favorably, with an amendment, by the Senate Committee on Small Business and
Entrepreneurship on May 24, 2016. T he bill would require the SBA Administrator to give priority to an application for
a license to operate as a SBIC that is from an applicant located in a disaster area. T he bill would also prohibit the SBA
from including the cost basis of any investment made by a SBIC in a small business concern located in a major disaster
area during the one-year period beginning on the date of the disaster declaration when determining if that SBIC has
reached its leverage limit.
12 P.L. 92-595, the Small Business Investment Act Amendments of 1972.
13 For a discussion of why specialized SBICs were eliminated and “successful” ones grandfathered, see Senator
Christopher Bond, “Small Business Investment Company Improvement Act of 1996,” Senate debate, Congressional
Record, vol. 142, number 111, (July 25, 1996), pp. S8933-S8934.
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With few exceptions, SBICs and SSBICs are subject to the same eligibility requirements and
operating rules and regulations. Therefore, the term SBIC is usual y used to refer to both SBICs
and SSBICs.
Five types of regular SBICs exist. Debenture SBICs, impact investment SBICs, and early stage
SBICs receive leverage through the issuance of debentures.14 Debentures are debt obligations
issued by SBICs and held or guaranteed by the SBA.15 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.16 Bank-owned, non-leveraged
SBICs do not receive leverage.17 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, a limited partnership (LP), or a
limited liability company (LLCs must be organized under Delaware law). Most SBICs are owned
by relatively smal groups of local investors, although many are partial y owned, and some (55 of
299) are wholly owned, by commercial banks. A few SBICs are corporations with publicly traded
stock.
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. Specifical y, the SBA examines the SBIC’s management team and
looks for
 at least two principals (general partners or equivalent) with substantive and
analogous principal investment experience;
 realized track record of superior returns, based on an overal 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 skil s and a history of
working together;
 managerial, operational, or technical experience that can add value at the
portfolio company level; and

14 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 C.F.R.
§107.1170. T he SBA stopped issuing new commitments for participating securities on October 1, 2004.
15 13 C.F.R. §107.50.
16 13 C.F.R. §107.50.
17 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; and T he Board of
Governors of the Federal Reserve Board, “ Small Business Investment Companies,” 33 Federal Register 6967, May 9,
1968.
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 a demonstrated ability to manage cash flows so as to provide assurance the SBA
wil be repaid on a timely basis.18
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) and an initial, nonrefundable licensing
fee of $10,500.19 The questionnaire includes, among others, questions concerning
 the fund’s legal name and the name and addresses of its principals and control
persons;20
 the fund’s investment strategy (including geographic focus, industry focus,
diversification strategy, primary types of securities to be used, whether it plans to
be primarily an equity or debt investor, etc.);
 the management team’s history and professional experience;
 the fund’s investment decisionmaking process, from deal origination to portfolio
monitoring;
 the fund’s economics (including a description of the fund’s carried interest,21 the
formula used to calculate management fees and the fund’s policy on the
al ocation of fees between the fund and any management or other affiliated
entities, details concerning compensation the principals earn outside of this
partnership, etc.);
 the fund’s capitalization (including investment strategy, whether a placement
agent has been or wil be hired, information concerning any third-party
borrowing arrangements, etc.);

18 SBA, Office of Investment and Innovation, “Processing Applications for SBIC Licenses,” SOP 10-04-1, effective
August 6, 2014, pp. 28-30, at https://www.sba.gov/document/sop-10-04-2001-processing-applications-sbic-licenses.
19 In 1996, the SBA set SBIC licensing fees “to reflect the agency’s costs of processing applicants.” At that t ime, the
SBIC licensing fee consisted of a base fee of $10,000, plus $5,000 if the applicant intended to operate as a limited
partnership and an additional $5,000 if the applicant intended to issue participating securities (a type of leverage no
longer available). Later, an additional $10,000 fee was charged if the applicant intended to be licensed as an Early
Stage SBIC (a type of license no longer issued after September 30, 2016).
In 2017, the SBA increased its licensing fees by establishing an initial licensing fee ($10,000 through FY2020) and a
final licensing fee ($20,000), totaling $30,000. The SBIC final licensing fee was increased in annual steps through
October 2020, when it reached $35,000 (totaling $45,000). Beginning on October 1, 2021, both of these fees are
adjusted for inflation annually. T he current fees are $10,500 and $36,900 , respectively, totaling $47,400. See SBA,
“Small Business Investment Companies,” 62 Federal Register 23337, April 30, 1997; SBA, “Small Business
Investment Companies-Administrative Fees,” 82 Federal Register 52174-52186, November 13, 2017; and SBA, “ SBIC
Licensing and Examination Fee Inflation Adjustment,” 86 Federal Register 49087, September 1, 2021.
An applicant under common control with one of more licenses must submit a written request to the SBA, as well as the
initial licensing fee, to be considered for a license and is exempt from the requirement to submit a MAQ unless
otherwise determined by the SBA in its discretion.
20 A control person is generally defined as someone with the power to direct corporate management and policies.
21 General partners in most private equity and hedge funds are compensated in two ways. First, to the extent that they
contribute their capital in the funds, they share in the appreciation o f the assets. Second, they charge the limited
partners two kinds of annual fees: a percentage of total fund assets (usually in the 1% to 2% range) and a percentage of
the fund’s earnings (usually 15% to 25%, once specified benchmarks are met). T he latter p erformance fee is called
“carried interest” and is treated, or characterized, as capital gains under current tax rules. See CRS Report RS22717,
Taxation of Private Equity and Hedge Fund Partnerships: Chara cterization of Carried Interest, by Donald J. Marples.
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 the fund’s governance structure (including an organizational chart); and
 a 10-year financial forecast for the fund.22
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 cal s; 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 in-person interview. If, following
the interview, the Investment Committee votes to proceed, the investment company is provided a
“Green Light” letter formal y inviting it to proceed to the final licensing phase of the application
process.
Once an applicant receives a Green Light letter, the applicant typical y has up to 18 months to
raise the requisite private capital. During this time frame, the SBA “keeps in touch with the
applicant, conducts SBIC training classes, and provides guidance as needed.”23 Final licensing
occurs when the SBA accepts an applicant’s complete licensing application (consisting of an
updated SBA Form 2181 and complete SBA Forms 2182 and 2183), which is submitted after
raising sufficient private capital, and receives a final licensing fee, currently $36,900.24 Obtaining
a SBIC license for the first time usual y takes six to eight months from the initial MAQ
submission to the license issuance.25
As discussed below, new applications for the participating securities program, impact investment
program, and early stage SBIC initiative are no longer being accepted.
The eligibility requirements and application process for smal businesses requesting financial
assistance from a SBIC is provided in the Appendix.
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 smal

22 SBA, “SBIC Management Assessment Questionnaire and License Application: Form 2181,” at https://www.sba.gov/
sbic/applying-be-sbic/application-forms.
23 SBA, “Small Business Investment Companies-Administrative Fees,” 82 Federal Register 52179, November 13,
2017.
24 T he final licensing fee was $20,000 from December 13, 2017, to September 30, 2 018; increased to $25,000 from
October 1, 2018, to September 30, 2019; $30,000 from October 1, 2019, to September 30, 2020; $35,000 from October
1, 2020, to September 30, 2021; and was adjusted for inflation annually each fiscal year thereafter (to $36,900 in
FY2022). T he final SBIC licensing fee is in addition to the initial SBIC licensing fee (currently a combined total of
$45,000, increasing to $47,400 on October 1, 2021). See 13 C.F.R. §107.300; SBA, “Small Business Investment
Companies-Administrative Fees,” 82 Federal Register 52174-52186, November 13, 2017; and SBA, “ SBIC Licensing
and Examination Fee Inflation Adjustment,” 86 Federal Register 49087, September 1, 2021.
25 SBA, “SBIC Program Overview as of June 30, 2021.”
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businesses. Initial y, 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 mil ion
(cal ed regulatory capital).26 The SBA has discretion to license an applicant with regulatory
capital of $3 mil ion if the applicant has satisfied al 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 mil ion.27 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.28 Also, no more than 33% of a SBIC’s regulatory
capital may come from state or local government entities.29
Participating Securities SBICs
P.L. 102-366, the Smal Business Credit and Business Opportunity Enhancement Act of 1992
(Title IV, the Smal 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 smal businesses. The SBA created the program to fil a perceived
investment gap created by the SBIC debenture program’s focus on mid- and later-stage smal
businesses. The SBA stopped issuing new commitments for participation securities leverage on
October 1, 2004, beginning a process to end the program, which continues.30
The SBA stopped issuing new commitments for participating securities primarily because the
program experienced a projected loss of $2.7 bil ion during the early 2000s as investments in
technology startup and early stage smal businesses lost much of their stock value at that time.
The SBA found that “the fees payable by SBICs for participating securities leverage are not
sufficient to cover the projected net losses in the participating securities program.”31 The SBA
continued to honor its existing leverage commitments to participating securities SBICs, which
were al owed to continue operations. Al remaining SBA commitments for additional
participating securities leverage expired on September 20, 2008, and the last of 35 participating
securities offering circulars was issued on February 19, 2009.
In addition to ending new participating securities leverage commitments, the SBA required
participating securities SBICs to comply with special rules concerning minimum capital,
liquidity, non-SBA borrowing, and equity investing.32 In recent years, some Members have

26 13 C.F.R. §107.210.
27 13 C.F.R. §107.210.
28 13 C.F.R. §107.150.
29 13 C.F.R. §107.230.
30 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),
pp. 5, 33.
31 SBA, “Offering Circular, Guaranteed 4.727% Participating Securities Participation Certificates, Series SBIC-PS
2009-10 A,” February 19, 2009, at https://www.sba.gov/content/sbic-ps-2009-10-cusip-831641-ep6.
32 13 C.F.R. §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-
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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 smal businesses.33
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, 2021, there were 9 participating securities SBICs in the SBIC program, with
$154.5 mil ion in private capital and no outstanding SBA capital at risk.34 Participating securities
SBIC are required to have regulatory capital of at least $10 mil ion. The SBA has discretion to
require less than $10 mil ion in regulatory capital if the licensee can demonstrate that it can be
financial y viable over the long term with a lower amount. In this circumstance, the regulatory
amount required may not be lower than $5 mil ion.35 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.36 Also, no more than 33% of a SBIC’s
regulatory capital can come from state or local government entities.37
Impact Investment SBICs
On April 7, 2011, the SBA announced it was establishing a $1 bil ion impact investment SBIC
initiative (up to $150 mil ion in leverage in FY2012 and up to $200 mil ion in leverage per fiscal
year thereafter until the limit is reached). SBA-licensed impact investment 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.”38 These
areas initial y included businesses located in underserved communities (as defined by the SBA),

term with a lower amount, but not less than $5 million. See 13 C.F.R. §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 C.F.R. §107.1505. T he 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. T emporary debt is defined as short -term borrowings from a regulated financial
institution, a regulated credit company, or a nonregulated 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. T he 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 C.F.R. §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 C.F.R. §107.1505.
33 U.S. Congress, House Committee on Small Business, Subcommittee Markup of Legislation Affecting the SBA Capital
Access Program s, 111th Cong., 1st sess., October 8, 2009, H.Doc. no. 111-050 (Washington: GPO, 2009), pp. 7, 10, 11,
187-194; U.S. Congress, House Committee on Small Business, Full Com m ittee Hearing on Increasing Capital for
Sm all Business, 111th Cong., 1st sess., October 14, 2009, H.Doc. no. 111 -051 (Washington: GPO, 2009), pp. 1, 2, 40,
98; and U.S. Congress, House Committee on Small Business, Sm all Business Financing and Investm ent Act of 2009 ,
report to accompany H.R. 3854, 111th Cong., 1st sess., Oct ober 26, 2009, H.Rept. 111-315 (Washington: GPO, 2009),
pp. 3, 4, 10-12.
34 SBA, “SBIC Program Overview as of September 30, 2021.” T here 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, 63
at the end of FY2013, 53 at the end of FY2014, 46 at the end of FY2015, 41 at the end of FY2016, 33 at the end of
FY2017, 25 at the end of FY2018, 22 at the end of FY2019, and 12 at the end of FY2020.
35 13 C.F.R. §107.210.
36 13 C.F.R. §107.150.
37 13 C.F.R. §107.230.
38 SBA, “Impact Investment Initiative,” at https://www.sba.gov/sites/default/files/files/
Impact_Investment_Call_for_Action.pdf; and SBA, Office of Congressional and Legislative Affairs, “ Correspon dence
with the author,” July 31, 2014.
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the education sector, and the clean energy sector.39 Impact investment SBICs are required to have
a minimum private capital investment of at least $5 mil ion and are subject to the same conditions
as debenture SBICs concerning the source of the funds.
Initial y, an impact investment SBIC could receive up to $80 mil ion in SBA leverage. On June 6,
2013, the SBA announced that it was increasing the maximum leverage available to impact
investment SBICs to $150 mil ion.40
Nine impact investment SBICs were licensed (two in 2011, one in 2012, two in 2014, two in
2015, and two in 2016).41 As of September 30, 2020, they managed more than $942 mil ion in
assets and had investments in 119 smal businesses. In FY2020, impact investment SBICs
invested $156.4 mil ion in 32 smal businesses.42
On September 28, 2017, the SBA provided notice to program stakeholders that it would no longer
accept new applications to be a licensed impact investment SBIC on or after November 1, 2017.
The SBA also announced that it was withdrawing a proposed rule, published on February 3, 2016,
that would have provided impact investment SBICs additional benefits “to encourage qualified
private equity fund managers with a focus on social impact to apply to the SBIC program.”43 The
SBA indicated that the cost of the proposed additional benefits was “not commensurate” with the
benefits.44 The SBA also indicated that few qualified SBICs had applied to participate in the
program, and that many of the program’s participants would have applied to the SBIC program
“regardless of the existence of the [impact investment program].”45

39 T he SBA defines underserved communities as low or moderate income (LMI) enterprises located in LMI Zones, as
defined in 13 C.F.R. §107.50; qualified low-income community investments (QLICIs) located in low-income
communities (LICs), as defined by the New Markets T ax Credit (NMT C) program in 26 C.F.R. §1.45D-1(d)1; rural
business concerns located in rural areas as defined in 7 C.F.R. §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.
40 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 https://www.sba.gov/content/sba-announces-50-million-increase-match-its-
sbic-early-stage-fund-and-70-million-bump-its. Also, effective October 1, 2014, among other changes, the SBA
eliminated the program’s $200 million collective, per-fiscal-year leverage cap; added advanced manufacturing to the
list of eligible sectors; provided eligibility to businesses that receive Small Business Innovation Research or Small
Business T echnology T ransfer grants; and permitted, through December 1, 2014, existing debenture SBICs to apply to
opt-into the program if they meet the program’s requirements. See SBA, “ SBA Expands Impact Investment Fund,”
September 25, 2014, at https://www.sba.gov/about -sba/sba-newsroom/press-releases-media-advisories/sba-expands-
impact -investment-fund.
41 SBA, “ Impact Investment Fund Grows T hreefold,” January 27, 2015, at https://www.sba.gov/content/impact-
investment -fund-grows-threefold; and SBA, “ SBIC Directory,” at https://www.sba.gov/funding-programs/investment -
capital#paragraph-11.
42 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” February 18, 2021.
43 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26874, June 11,
2018. Impact investment SBIC applicants would have received a 60% discount on the licensing fee and a 10% discount
on the examination base fee. T hey also could have simultaneously applied as an early stage SBIC not subject to the call
and timing provisions identified under 13 C.F.R. §107.300. T he proposed rule also imposed certain penalties if an
impact investment SBIC did not adhere to its impact strategy or impact investment SBIC rules. See SBA, “Small
Business Investment Company Program-Impact SBICs,” 81 Federal Register 5666-5676, February 3, 2016.
44 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26875, June 11,
2018. T he SBA indicated that due to the risk associated with this class of SBICs the proposed rule was expected t o
increase the cost to all SBICs by increasing the annual fee by approximately 6.1 basis points.
45 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26874, 26875,
June 11, 2018.
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Early Stage SBICs
On April 27, 2012, the SBA published a final rule in the Federal Register establishing a $1 bil ion
early stage SBIC initiative (up to $150 mil ion in leverage in FY2012 and up to $200 mil ion in
leverage per fiscal year thereafter until the limit is reached).46 As mentioned previously, the SBA
is no longer seeking new applicants for the early stage SBIC initiative.
Early stage SBICs are required to invest at least 50% of their financings in early stage smal
businesses, defined as smal businesses that have never achieved positive cash flow from
operations in any fiscal year.47 In recognition of the higher risk associated with investments in
early stage smal businesses, the initiative included “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.”48 For example, early stage SBICs are required to raise
more regulatory capital (at least $20 mil ion) than debenture SBICs, impact investment SBICs (at
least $5 mil ion), and participating securities SBICs (at least $10 mil ion). 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, early stage SBICs are provided less leverage
(up to 100% of regulatory capital, $50 mil ion maximum) than debenture SBICs and participating
securities SBICs (up to 200% of regulatory capital, $175 mil ion maximum per SBIC and $350
mil ion for two or more SBICs under common control) and impact investment SBICs (up to
200% of regulatory capital, $175 mil ion maximum).
On May 1, 2012, the SBA published a notice in the Federal Register announcing its first annual
cal for venture capital fund managers to submit an application to become a licensed early stage
SBIC.49 Thirty-three venture capital funds submitted preliminary application materials. 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, formal y inviting them to file license
applications.50
The SBA’s second, third, fourth, and fifth annual cal s for venture capital fund managers to
submit an application to become a licensed early stage SBIC took place on December 18, 2012,
February 4, 2014, January 12, 2015, and February 2, 2016, respectively.51

46 SBA, “Small Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25043, 25050, April 27,
2012.
47 SBA, “Small Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25051-25053, April 27,
2012.
48 SBA, “Small Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25043, 25043, April 27,
2012.
49 T he 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
July 30, 2012. T he deadline for all other applicants was May 15, 2013 . Applicants must first complete a Management
Assessment Questionnaire (MAQ), then, if invited, complete an interview process, then receive a Green Light letter,
and, finally, submit the SBIC license application, consisting of SBA Form 2181 and SBA Form 2182. See SBA, “ Small
Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25775-25779, May 1, 2012.
50 SBA, “ SBA’s Growth Capital Program Sets Record For T hird Year in a Row $2.95 Billion in Financing for Small
Businesses in FY12,” at https://www.sba.gov/content/sbas-growth-capital-program-sets-record-third-year-row; and
SBA, “ T he Small Business Investment Company (SBIC) Program: Annual Report FY2012,” p. 20, at
https://www.sba.gov/sites/default/files/files/SBI C%20Program%20FY%202012%20Annual%20Report.pdf .
51 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,
2014; SBA, “ Small Business Investment Companies—Early Stage SBICs,” 79 Federal Register 18750, April 3, 2014;
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Five of the 63 investment funds that applied to participate in the program were granted an early
stage SBIC license.52 As of September 30, 2020, the five early stage SBICs had outstanding
private capital of $170 mil ion, outstanding SBA-guaranteed leverage of $87.2 mil ion, no
outstanding commitments, and invested $334 mil ion in 92 smal businesses. In FY2020, early
stage SBICs invested $26.9 mil ion in 30 smal businesses.53
On September 19, 2016, the SBA published a notice of proposed rulemaking in the Federal
Register, which included proposed changes to the early stage SBIC initiative to “make material
improvements to the program” and “attract more qualified early stage fund managers.”54 The
SBA, at that time, indicated its intention to continue the initiative beyond its initial five-year
term.55
As mentioned, the SBA stopped accepting new applications for the early stage SBIC initiative in
2017. In addition, on June 11, 2018, the SBA withdrew the September 19, 2016 proposed rule that
included provisions designed to encourage qualified SBICs to participate in the initiative.56
Key Features of Regular SBIC Types
Table 1 provides five key features distinguishing the SBA’s debenture SBICs, participating
securities SBICs, impact investment SBICs, and early stage SBICs
 the minimum amount of capital required to obtain a license;
 the amount of SBA leverage that can be received;
 the nature of the investments provided;
 a description of the requirements for repaying the SBA’s leverage; and
 any profit participation requirements.

SBA, “Small Business Investment Companies—Early Stage SBICs,” 80 Federal Register 1575-1579, January 12,
2015; and SBA, “ Small Business Investment Companies—Early Stage SBICs,” 81 Federal Register 5508-5511,
February 2, 2016.
52 SBA, “Small Business Investment Companies‒Early Stage,” 80 Federal Register 14034, March 18, 2015; and SBA,
Office of Innovation and Investment, slides, “ SBIC Early Stage Innovation Program,” at https://www.sba.gov/sites/
default/files/articles/OII_Early_Stage_Slide_Deck_January_2016.pdf.
53 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” February 18, 2021.
54 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 81 Federal Register 64075-64080,
September 19, 2016. T he proposed changes were based in part on feedback received on an earlier, advance notice of
proposed rulemaking. See SBA, “Small Business Investment Companies‒Early Stage,” 80 Federal Register 14034,
March 18, 2015. T he proposed changes would have allowed early stage applicants to apply at any time, similar to other
SBIC applicants, instead of only during limited time frames identified in the Federal Register (which the SBA has
published on an annual basis since 2012); allowed early stage SBICs to obtain an unsecured line of credit without SBA
approval under specified conditions; allowed an application from an applicant under common control with an existing
early stage SBIC t hat has outstanding debentures or debenture commitments; and increased the initiative’s maximum
leverage commitment of 100% of regulatory capital or $50 million, whichever is less, to 100% of regulatory capital or
$75 million, whichever is less.
55 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 81 Federal Register 64075,
September 19, 2016.
56 SBA, “Small Business Investment Companies (SBIC); Early Stage Initiative,” 83 Federal Register 26875, June 11,
2018.
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Table 1. Key Features of the SBA’s Debenture, Participating Securities, and Impact
Investment Debenture Programs and Early Stage Debenture Initiative
Participating
Security SBICs
Impact Investment
Early Stage SBICs
(no longer
SBICs (no longer
(no longer
Program
accepting new
accepting new
accepting new
Requirement
Debenture SBICs
investments)
applicants)
applicants)
Private Capital
$5 mil ion minimum
$10 mil ion minimum
$5 mil ion minimum
$20 mil ion minimum
SBA Leverage
200% of private
200% of private
200% of private
100% of private
capital up to $175
capital up to $175
capital up to $175
capital up to $50
mil ion per SBIC or
mil ion per SBIC or
mil ion; limited to
mil ion
$350 mil ion for two
$350 mil ion for two
100% of private
or more SBICs
or more SBICs
capital during any 12-
under common
under common
month perioda
controla
control
Investments
Broad range of
Broad range of
Broad range of equity
Broad range of equity
equity investments
equity investments
investments but
investments; at least
but general y later
general y later stage
50% in early stage
stage and mezzanine
and mezzanine; at
smal businesses (no
least 50% in
positive cash flow in
underserved markets
any fiscal year prior
and communities
to first financing)
facing barriers to
access to credit and
capital
Leverage
Interest and SBA
SBA paid interest to
Interest and SBA
Standard: 5 years
Description
annual charge
bond holders; SBICs
annual charge payable
interest reserve
payable semiannual y
only owed and
semiannual y through
required, interest and
through maturity
repaid SBA out of
maturity
SBA annual charge
profits
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 typical y
None
None
Participation
received about 8% of
any profits
Sources: U.S. Smal Business Administration (SBA), Office of Investment and Innovation (OII), “Early Stage Smal
Business Investment Companies,” January 2012; SBA, “Correspondence with the author,” May 2, 2012; and SBA,
“SBA Announces $50 Mil ion Increase Match in its SBIC Early Stage Fund and $70 Mil ion Bump in its Impact
Investment Fund,” June 6, 2013, at https://www.sba.gov/content/sba-announces-50-mil ion-increase-match-its-
sbic-early-stage-fund-and-70-mil ion-bump-its.
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 mil ion per SBIC and $250
mil ion 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 wil be in low-income
geographic areas. P.L. 114-113, the Consolidated Appropriations Act, 2016, increased the multiple
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licenses/family of funds limit to $350 mil ion from $225 mil ion. The act did not address the multiple
licenses/family of funds limit for financings in low-income geographic areas. Presumably, SBICs would apply
the $350 mil ion multiple licenses/family of funds limit for al of its financings, including those in low-income
geographic areas.
SBIC Investments in Small Businesses
SBICs provide equity capital to smal businesses in various ways, including by
 purchasing smal business equity securities (e.g., stock, stock options, warrants,
limited partnership interests, membership interests in a limited liability company,
or joint venture interests);57
 making loans to smal businesses, either independently or in cooperation with
other private or public lenders, that have a maturity of no more than 20 years;58
 purchasing debt securities from smal businesses, which may be convertible into,
or have rights to purchase, equity in the smal business;59 and
 providing smal businesses, subject to limitations, a guarantee of their monetary
obligations to creditors not associated with the SBIC.60
SBICs are subject to statutory and regulatory restrictions concerning the nature of their approved
investments. For example, SBICs are not al owed to
 directly or indirectly provide financing to any of their associates (e.g., officers,
directors, and employees);61
 control, either directly or indirectly, any smal business on a permanent basis;62
 invest, without SBA approval, more than specified percentages of their private
(regulatory) capital in securities, commitments, or guarantees in any one smal
business (e.g., SBICs are not al owed to invest more than 30% of their private
capital in any one smal business if their investment plan includes two or more
tiers of SBA leverage);63

57 13 C.F.R. §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.
58 13 C.F.R. §107.810; and 13 C.F.R. §107.840.
59 13 C.F.R. §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.
60 13 C.F.R. §107.820.
61 13 C.F.R. §107.730.
62 13 C.F.R. §107.865. T he 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.”
63 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 C.F.R. §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.
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 invest in farmland, unimproved land, or any smal 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;64
 provide funds for smal 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;65 or
 provide funds to a smal business if the funds wil be used substantial y for a
foreign operation.66
The SBA also regulates the interest rates and fees SBICs are al owed to charge smal businesses
on loans, debt securities, and equity financing.67
In 1999, the SBA introduced the low and moderate income investments (LMI) initiative to
encourage SBICs to invest in smal 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
wil not have the potential for yielding returns that are high enough to justify the use of
participating securities.”68 This ongoing initiative provides incentives to SBICs that invest in
smal 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.69 For example, unlike regular SBIC debentures that typical y
have a 10-year maturity, LMI debentures are available in two maturities, for five years and 10
years, plus the stub period. The stub period is the time between the debenture’s issuance date and
the next March 1 or September 1. The stub period al ows al LMI debentures to have common
March 1 or September 1 maturity dates to simplify administration of the program.

64 13 C.F.R. §107.720.
65 13 C.F.R. §107.720.
66 13 C.F.R. §107.720. A SBIC may provide venture capital financing to disadvantaged concerns engaged in relending
or reinvesting activities (except agricultural credit companies and banking and savings and loan institutions not insured
by a federal agency). Without SBA approval, these financings, at the end of the fiscal yea r, 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 ha mpered
because of social or economic disadvantages.
67 T he 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 C.F.R. §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 C.F.R. §107.860.
68 SBA, “Small Business Investment Companies,” 64 Federal Register 52645, September 30, 1999.
69 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 C.F.R. §107.50.
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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.
In FY2020, SBICs made 492 investments in smal businesses located in a LMI Zone, totaling
nearly $862 mil ion—about 17.6% of the total amount invested.70
In 2007, P.L. 110-140, the Energy Independence and Security Act of 2007, authorized the SBA to
issue Energy Saving Debentures for the purpose of making “Energy Saving Qualified
Investments,” defined in the act as an investment “in a smal business concern that is primarily
engaged in researching, manufacturing, developing, or providing products, goods, or services that
reduce the use or consumption of non-renewable energy resources.”71 Energy Saving Debentures
are structured as a discount debenture similar to LMI debentures. For example, there are no
interest payments or SBA annual charge for the first five years of the Energy Saving Debenture,
plus the stub period between the debenture’s issuance date and the next March 1 or September 1
payment date.
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.72 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 (cal ed 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.73
A debenture is executed in conjunction with each draw and held by an agent of a bank selected by
the SBA which provides interim funding to the SBIC until a SBIC’s debenture can be pooled with
others and sold to the public, a process that occurs every six months [each March and
September].74 During the interim period, the bank charges a SBIC the London Interbank Offered
Rate (LIBOR), plus a 30 basis point premium.75

70 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” February 18, 2021.
71 P.L. 110-140, the Energy Independence and Security Act of 2007, §1205. Energy Saving Debentures.
72 13 C.F.R. §107.1100.
73 SBA, “Draw Application Instructions,” at https://www.sba.gov/document/policy-guidance—draw-application-
instructions.
74 SBA, “Offering Circular, $986,840,000, Guaranteed 3.113% Debenture Participation Certificates, Series SBIC 2019-
10 A,” March 12, 2019, p. 8, at https://www.sba.gov/article/2019/mar/13/sbic-2019-10a-cusip-831641-fm2. 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.
75 SBA, “Commitment Instructions: Memorandum of Instructions Application for Commitment of SBIC Debentures,”
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The SBA determines the size of the debenture pool two weeks prior to each scheduled pooling
date. Al of the debentures scheduled to be pooled are purchased and pooled together by an entity
cal ed the Investment Trust which is managed by the Bank of New York Mel on, and, as the
pooling occurs, the SBA signs an agreement with the Trust to guarantee al the interest and
principal payments due on each of the debentures in the pool. The trust then securitizes the pool
of debentures and issues new securities cal ed trust certificates. Underwriters are hired to sel 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.76
The SBA operates the SBIC program on a zero-subsidy basis. To recoup its expenses should
defaults occur, the SBA is authorized to charge SBICs a 3% origination fee for each debenture
and for each participating security issued (1% at commitment and 2% at draw), an annual fee (not
to exceed 1.38% for debentures and 1.46% for participating securities) on the leverage drawn,
which is fixed at the time of the leverage commitment, and other administrative and underwriting
fees that are adjusted annual y.77
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 traditional y approved debenture SBICs for a maximum of 200% of their private capital, and
no fund management team may exceed the al owable maximum amount of leverage of $175
mil ion per SBIC and $350 mil ion for two or more licenses under common control.78
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 al recent public offerings have specified a term of 10 years.79
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. SBICs are al owed 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

p. 7, at https://www.sba.gov/sites/default/files/files/commitment_app_instruction.pdf.
76 T o view recent SBIC debenture offering circulars see SBA, “SBIC Debentures Offering Circulars,” at.
https://www.sba.gov/article?sortBy=Authored%20on%20Date&search=&articleCategory=Offering%20Circular%20-
%20Debenture&program=All&page=1.
77 13 C.F.R. §107.1130; and 13 C.F.R. §107.1210. T he FY2021 annual fee for debentures at the time of the leverage
commitment is 0.271%. T he annual fee was 0.672% in FY2016, 0.347% in FY2017, 0.222% in FY2018, 0.094% i n
FY2019, 0.275% in FY2020, 0.271% in FY2021, and 0.173% in FY2022. T he participating securities program is no
longer issuing new leverage commitments. See SBA, “SBIC Program: Annual Charge,” at https://www.sba.gov/
document/support -object -object-annual-charge.
78 13 C.F.R. §107.1120; 13 C.F.R. §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.
79 One debenture has a term of 10 years and 29 weeks. See SBA, “Offering Circular, $1,192,235,000, Guaranteed
2.829% Debenture Participation Certificates, Series SBIC 2015 -10 B,” September 14, 2015, at https://www.sba.gov/
content/sbic-2015-10-b-cusip-831641-fe0.
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market conditions and the interest rate of 10-year Treasury securities at the time of the sale.80
Also, as mentioned previously, LMI debentures are available in two maturities, for five years and
10 years (plus the stub period).
Because the SBA guarantees the debenture, investors are more likely to purchase a debenture
participation trust certificate as opposed to others available on the market. They are also more
likely to accept a lower coupon (interest) rate than what would be expected without the SBA’s
guarantee.81 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 smal 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, smal businesses with positive cash flow are
seeking capital for expansion.82
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 licensed participating securities SBICs for leverage of up
to 200% of their private capital.83 Also, no fund management team may exceed the al owable
maximum amount of leverage of $175 mil ion per SBIC and $350 mil ion 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 al 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 bil ion. The final
SBA-guaranteed participating securities certificate, for $332 mil ion, had a term of 10 years and
was offered to investors on February 19, 2009, with delivery of the certificates on February 25,
2009.84
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

80 13 C.F.R. §107.50; and 13 C.F.R. §107.1150.
81 T he coupon (interest) rate on SBA debentures is based on the 10-year T reasury rate (adjusted to the nearest 1/8th of
1%) plus a market -driven spread, currently about 70-90 basis points. See 13 C.F.R. §107.50; and SBA, “ T rust
Certificate Rates: SBIC Debenture Pools,” at https://www.sba.gov/content/trust-certificate-rates-sbic-debenture-pools.
T he coupon rate for the SBA debenture certificate issued on September 17, 2019, was 2.283%.
82 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.
83 13 C.F.R. §107.1170.
84 13 C.F.R. §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 https://www.sba.gov/content/sbic-ps-2009-
10-cusip-831641-ep6.
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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.”85 If a
participating securities SBIC is unable to make any required payment, the SBA wil make the
payment on its behalf. Because startup and early stage smal businesses often are not initial y
profitable, the SBA included language in its participating securities’ offering circulars that it
“anticipates that it wil be cal ed 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.”86
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.87
In addition, participating securities SBICs are more likely than debenture SBICs to invest in
startup and early stage smal businesses because the SBA is wil ing 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 smal business’s long-term prospects for growth and
profitability rather than on its prospects for having immediate, positive cash flow.88
As of September 30, 2021, the SBA had a guarantee on an outstanding unpaid principal balance
of $10.4 bil ion in SBIC debentures, $0 in SBIC participating securities, and $28.4 mil ion in
other, primarily SSBIC, financings.89 The SBA also had outstanding commitments on nearly $4.2
bil ion in SBIC debentures, none for participating securities, and $7.2 mil ion in other, primarily
SSBIC, financings.90
Impact Investment SBIC Leverage Requirements
The SBA established the Impact Investment SBIC Initiative in 2011 to “target areas of critical
national priority including underserved markets and communities facing barriers to access to

85 SBA, “Offering Circular, Guaranteed 4.727% Participating Securities Participation Certificates, Series SBIC-PS
2009-10 A,” February 19, 2009, p. 2, at https://www.sba.gov/content/sbic-ps-2009-10-cusip-831641-ep6.
86 SBA, “Offering Circular, Guaranteed 4.727% Participating Securities Participation Certificates, Series SBIC-PS
2009-10 A,” pp. 2, 3. Also, see U.S. Congress, House Committee on Small Business, Private Equity for Sm all Firm s:
The Im portance of the Participating Securities Program , 109th Cong., 1st sess., April 13, 2005, Serial No. 109-10
(Washington: GPO, 2005), p. 5.
87 T he 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 https://www.sba.gov/content/sbic-
ps-2009-10-cusip-831641-ep6.
88 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.
89 SBA, “SBIC Program Overview as of September 30, 2021.” As of September 7, 2021, the seven Specialized SBICs
had private capital of $70.9 million. Of these Specialized SBICs, five had no outstanding financings guaranteed by the
SBA and two, with private capital of $54.3 million, had $28.4 million of outstanding SBA guaranteed debenture
borrowings. See SBA, “Offering Circular, $1,360,355,000, Guaranteed 1.304% Debenture Participation Certificates,
Series SBIC 2021-10 B,” September 14, 2021, p. 9, at https://www.sba.gov/article/2021/sep/20/sbic-2021-10b-cusip-
831641-fs9.
90 SBA, “SBIC Program Overview as of September 30, 2021.”
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credit and capital.”91 On July 26, 2011, the SBA announced that the first impact investment SBIC
license had been awarded to InvestMichigan! Mezzanine Fund.92
Licensed impact investment SBICs may apply to the SBA for leverage of up to 300% of their
private capital, limited to $175 mil ion. In addition, they may receive leverage amounting to no
more than 100% of their private capital during any fiscal year (subject to the $175 mil ion limit).
The SBA general y limits impact investment SBICs to a maximum of 200% of their private
capital, up to $175 mil ion.93
Impact investment 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 were provided an
expedited application review process when new applications to the impact investment program
were being accepted.
Early Stage SBIC Leverage Requirements
The SBA established the Early Stage Innovation SBIC Initiative in 2012 to “expand access to
capital for early stage smal businesses throughout the United States.”94 A licensed early stage
SBIC may apply to the SBA for leverage of up to 100% of its private capital, limited to $50
mil ion. The SBA does not consider applications for leverage 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 wil not seek additional leverage in the future).95
Early stage 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, 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

91 SBA, “Impact Investment Small Business Investment Company (‘SBIC’) Fund,” p. 1, at https://www.sba.gov/sites/
default/files/files/Impact_Investment_Call_for_Action.pdf.
92 SBA, “SBA Licenses First Impact Investment Fund in Michigan,” July 26, 2011, at https://www.sba.gov/content/sba-
licenses-first-impact -investment-fund-michigan. T he 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.
93 SBA, “Start-Up America Impact Investment SBIC Initiative Policy Update,” September 26, 2012, at
https://www.sba.gov/sites/default/files/files/External%20Impact%20Memo%202012 -09-26%20final.pdf; 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 https://www.sba.gov/content/sba-announces-50-million-increase-match-its-sbic-
early-stage-fund-and-70-million-bump-its.
94 SBA, “Small Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25043, April 27, 2012.
95 SBA, “Small Business Investment Companies—Early Stage SBICs,” 77 Federal Register 25052, April 27, 2012.
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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).96 Because early stage standard debentures require early stage
SBICs to make quarterly payments, they are most appropriate for investments in smal businesses
that have established a positive cash flow enabling them to pay interest or dividends to the early
stage 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 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.97 Early stage 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 smal businesses
that have not established a positive cash flow to pay interest or dividends to the early stage SBIC.
As a result, early stage discounted debentures are designed to encourage investments in early
stage smal 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 examinations98 and required to provide the SBA
 a portfolio financing report within 30 days of the closing date for each financing
of a smal business;99
 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;100
 any material adverse changes in valuations at least quarterly (within 30 days
following the close of the quarter);101 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.102

96 13 C.F.R. §107.1181. T he required reserve is reduced on each payment date upon payment of the required interest
and charges.
97 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” May 2, 2012.
98 13 C.F.R. §107.630; and 13 C.F.R. §107.690.
99 13 C.F.R. §107.640.
100 13 C.F.R. §107.650.
101 13 C.F.R. §107.650.
102 13 C.F.R. §107.660.
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SBIC Program Statistics
As of September 30, 2021, there were 307 licensed SBICs in operation (235 debenture SBICs; 9
participating securities SBICs; 56 bank-owned, non-leveraged SBICs; and 7 SSBICs).103
As shown in Table 2, the number of licensed SBICs has remained fairly stable since FY2012,
with some variation from year-to-year in the number of debenture SBICs, slow growth in the
number of bank-owned SBICs, and a planned reduction in the number of participating securities
SBICs and SSBICs.
Table 2. Number of Licensed SBICs by Type, FY2012-FY2021
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
SBIC Type
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Debenture
158
175
187
205
216
227
227
224
232
235
Participating
86
63
53
46
41
33
25
22
12
9
Security
Bank-Owned/
44
43
45
43
47
47
47
48
52
56
Nonleveraged
Specialized
13
11
9
9
9
8
6
6
6
7
SBICs
Total
301
292
294
303
313
315
305
300
302
307
Sources: U.S. Smal Business Administration, “SBIC Program Overview,” September 30, 2013; September 30,
2018; and September 30, 2021.
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.”104
Overal , 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 and others invest
more general y. 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 December 31, 2020, SBICs have invested
approximately $108.3 bil ion in approximately 186,412 financings to smal businesses.105 As

103 SBA, “SBIC Program Overview as of September 30, 2021.”
104 SBA, FY2012 Congressional Budget Justification and FY2010 Annual Performance Report, p. 60, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/
FINAL%20FY%202012%20CBJ%20FY%202010%20APR_0.pdf . The SBA issued 23 new SBIC licenses (21 to
debenture SBICs and 2 to bank-owned, nonleveraged SBICs) in FY2010; 22 (18 to debenture SBICs and 4 to bank -
owned, nonleveraged SBICs) in FY2011; 30 (27 to debenture SBICs and 3 to bank -owned, nonleveraged SBICs) in
FY2012; 34 (29 to debenture SBICs and 5 to bank -owned, nonleveraged SBICs) in FY2013; 30 (24 to debenture SBICs
and 6 to bank-owned, nonleveraged SBICs) in FY2014; 25 (22 to debenture SBICs and 3 to bank -owned, nonleveraged
SBICs) in FY2015; 21 (17 to debenture SBICs and 4 to bank -owned, nonleveraged SBICs) in FY2016; 15 (11 to
debenture SBICs and 4 to bank-owned, nonleveraged SBICs) in FY2017; 25 (21 to debenture SBICs and 4 to bank -
owned, nonleveraged SBICs) in FY2018; 18 (15 to debenture SBICs and 3 to bank -owned, nonleveraged SBICs) in
FY2019; and 26 (21 to debenture SBICs and 5 to bank-owned, nonleveraged SBICs) in FY2020.
105 See SBA, “Offering Circular, $1,360,355,000, Guaranteed 1.304% Debenture Participation Certificates, Series
SBIC 2021-10 B,” September 14, 2021, p. 8, at https://www.sba.gov/article/2021/sep/20/sbic-2021-10b-cusip-831641-
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mentioned, as of September 30, 2021, the SBA had a guarantee on an outstanding unpaid
principal balance of $10.4 bil ion in SBIC debentures, $0 in SBIC participating securities, and
$28.4 mil ion in other, primarily SSBIC, financings.106 The SBA also had outstanding
commitments on nearly $4.2 bil ion in SBIC debentures, none for participating securities, and
$7.2 mil ion in other, primarily SSBIC, financings.107
As of September 30, 2021, the SBIC program had invested or committed about $34.2 bil ion in
smal businesses, with the SBA’s share of capital at risk about $14.6 bil ion.108
In FY2020, SBIC funds were used primarily for operating capital (43.1%) and acquiring an
existing business (37.4%). Other uses include refinancing or refunding debt (5.6%), research and
development (2.1%), purchasing machinery or equipment (1.5%), marketing activities (1.3%), a
new building or plant construction (0.6%), plant modernization (0.4%), and other uses (8%).109
As shown in Table 3, the total SBIC financing declined during the recession (December 2007-
June 2009), reached prerecession levels in FY2011, and has general y increased since then. In
FY2021, the SBICs drew nearly $2.442 bil ion in SBA leverage and invested another $4.661
bil ion from private capital for a total of $7.103 bil ion in financing for 1,080 smal businesses.
Table 3. SBIC Investments, FY2007-FY2021
($ in mil ions)
Number of Small
SBA Leverage
Private-Sector
Businesses
Year
Draws
Investment
Total Financing
Financed
FY2021
$2,442
$4,661
$7,103
1,080
FY2020
$1,996
$2,889
$4,885
1,063
FY2019
$1,927
$3,939
$5,866
1,191
FY2018
$2,118
$3,385
$5,503
1,151
FY2017
$1,902
$3,825
$5,727
1,077
FY2016
$2,158
$3,834
$5,992
1,201
FY2015
$2,337
$3,949
$6,286
1,210
FY2014
$2,065
$3,400
$5,465
1,085
FY2013
$1,737
$1,761
$3,498
1,068
FY2012
$1,422
$1,805
$3,227
1,094
FY2011
$1,392
$1,441
$2,833
1,339
FY2010
$931
$1,116
$2,047
1,331

fs9.
T he SBA has occasionally provided a selected list of firms that have received SBIC financing, including AOL, Apple
Computer, Build-a-Bear, Compaq Computer, Costco Wholesale Corporation, FedEx, Intel, Jenny Craig, Inc.,
Nutrisystem, Outback Steakhouse, Sports Authority, Staples, and Sun Microsystems, on its website. For example, see
SBA, Office of Investment and Innovation, “Early Stage SBIC Program,” slide presentation, January 2016, at
https://www.sba.gov/sites/default/files/articles/SBIC-Early-Stage-Initiative.pdf.
106 SBA, “SBIC Program Overview as of September 30, 2021.”
107 SBA, “SBIC Program Overview as of September 30, 2021.”
108 SBA, “SBIC Program Overview as of September 30, 2021.”
109 SBA, Office of Congressional and Legislative Affairs, “Correspondence with the author,” February 18, 2021.
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Number of Small
SBA Leverage
Private-Sector
Businesses
Year
Draws
Investment
Total Financing
Financed
FY2009
$595
$1,261
$1,856
1,481
FY2008
$649
$1,778
$2,427
1,905
FY2007
$468
$2,180
$2,648
2,057
Sources: U.S. Smal Business Administration, “SBIC Program Overview,” October 24, 2011, September 30,
2015, September 30, 2019, and September 30, 2021.
The SBA was authorized to issue up to $3 bil ion in SBIC leverage from FY2006 through
FY2013. As mentioned, P.L. 113-76, the Consolidated Appropriations Act, 2014, increased that
annual SBIC-leverage amount to $4 bil ion. For comparative purposes, private venture capital
firms invested $60.7 bil ion in 6,397 deals in 2014, $77.3 bil ion in 6,643 deals in 2015, $60.9
bil ion in 6,412 deals in 2016, $87.7 bil ion in 6,883 deals in 2017, $122.1 bil ion in 7,182 deals
in 2018, $113.5 bil ion in 6,796 deals in 2019, and $133.2 bil ion in 6,305 deals in 2020.110
Financing to Underserved Small Businesses
Each year, SBICs provide about 5% of their total financing to minority-owned and controlled
smal businesses, about 3% to women-owned smal businesses, and less than 1% to veteran-
owned smal businesses.111
Research concerning private venture capital investment in minority-owned, women-owned, and
veteran-owned smal businesses is limited. As a result, it is difficult to find the data necessary to
compare the SBIC program’s investment in these smal businesses to the private sector’s
investment in these firms.112
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.113 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.”114 However,
despite these efforts, in 2009, the Smal Business Investor Al iance (then cal ed the National
Association of Smal Business Investment Companies) asserted at a congressional hearing on the

110 PricewaterhouseCoopers, National Venture Capital Association, “MoneyT ree™ Report , National Aggregate Data,”
at http://www.pwcmoneytree.com/.
111 SBA, Office of Legislative and Congressional Affairs, “Correspondence with the author,” December 20, 2018.
112 Kenneth T emkin and Brett T heodos, with Kerstin Gentsch, “T he Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity, ” Washington, DC: T he
Urban Institute, January 2008, pp. 2, 26, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
113 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.
114 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Legislation Updating and
Improving the SBA’s Investment and Surety Bond Programs.
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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.”115
During the 111th Congress, S. 1831, the Smal Business Venture Capital Act of 2009, was
introduced on October 21, 2009, and referred to the Senate Committee on Smal Business and
Entrepreneurship. No further action was taken on the bil . It would have encouraged SBIC
investments in women-owned smal businesses and social y and economical y disadvantaged
smal business concerns by increasing the amount of leverage available to SBICs that invest at
least 50% of their financings in smal business concerns owned and controlled by women or
social y and economical y disadvantaged smal business concerns.
In recognition of congressional interest in the SBIC program’s investments in minority, veteran,
and women-owned smal businesses, the SBA provides the number of underserved smal
businesses that receive SBIC investments in the agency’s annual congressional budget
justification document and in its SBIC quarterly performance reports. The SBA defines an
underserved smal business as a business owned by women, veterans, or minorities or located in
underserved geographic areas, which includes low- and moderate-income areas.
As shown in Table 4, in FY2021, SBICs provided financing to 253 underserved smal businesses
(23.4% of al smal businesses that received SBIC financing).
Table 4. Number of Underserved Small Businesses Financed by SBICs,
FY2012-FY2021
Number of
Underserved
Percentage of
Small
All Small
Businesses
Businesses
FY
Financed
Financed
2021
253
23.4%
2020
262
24.6%
2019
292
24.5%
2018
315
27.4%
2017
308
28.6%
2016
332
27.6%
2015
288
23.8%
2014
281
25.9%
2013
260
24.3%
2012
290
26.5%
Source: U.S. Smal Business Administration (SBA), Fiscal Year 2019 Congressional Budget Justification and FY2017
Annual Performance Report, pp. 39, 40, at https://www.sba.gov/sites/default/files/2018-06/
Fiscal%20year%202019.zip; SBA, “Smal Business Investment Company (SBIC) Program Overview, as of
September 30, 2020,” at https://www.sba.gov/document/report-smal -business-investment-company-sbic-
program-overview-report-september-30-2020; and SBA, “Smal Business Investment Company (SBIC) Program
Overview, as of September 30, 2021,” at https://www.sba.gov/document/report-smal -business-investment-
company-sbic-program-overview-report-september-30-2021.

115 U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, committee document no. 111-051 (Washington: GPO, 2009), p. 89.
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Note: The SBA defines an underserved smal businesses as businesses that women, veterans, or minorities own
or businesses located in underserved geographic areas, which includes low- and moderate-income areas.
Financing by State
As shown in Table 5, in FY2021, SBICs provided financing to smal businesses located in 49
states, the District of Columbia and Puerto Rico, with the most funding taking place in California
(291 financings totaling $1.043 bil ion), Texas (218 financings totaling $527.3 mil ion), and New
York (242 financings totaling $478.0 mil ion).
Table 5. SBIC Financing by State, FY2021
($ in mil ions)
# of
Amount of
# of
Amount of
State
Financings
Financings
State
Financings
Financings
Alabama
24
$84.9
Montana
6
$32.0
Alaska
2
4.9
Nebraska
17
46.7
Arizona
74
139.1
Nevada
23
72.1
Arkansas
13
31.7
New Hampshire
11
6.5
California
291
1,043.5
New Jersey
87
281.6
Colorado
58
212.9
New Mexico
1
0.2
Connecticut
45
143.5
New York
242
478.0
Delaware
14
74.7
North Carolina
74
297.6
District of Columbia
5
30.4
North Dakota
1
<0.1
Florida
136
319.3
Ohio
43
152.6
Georgia
76
181.3
Oklahoma
15
21.4
Guam
0
0.0
Oregon
27
100.3
Hawai
2
7.7
Pennsylvania
123
341.2
Idaho
11
20.9
Puerto Rico
7
25.2
Il inois
161
446.7
Rhode Island
7
14.3
Indiana
56
130.0
South Carolina
15
43.9
Iowa
16
37.7
South Dakota
4
8.9
Kansas
12
42.0
Tennessee
43
115.2
Kentucky
5
14.1
Texas
218
527.3
Louisiana
14
54.3
Utah
41
129.1
Maine
3
18.1
Vermont
5
33.6
Maryland
58
161.1
Virgin Islands
0
0.0
Massachusetts
101
241.6
Virginia
47
199.1
Michigan
60
97.8
Washington
28
87.9
Minnesota
52
163.9
West Virginia
5
8.5
Mississippi
8
28.6
Wisconsin
47
215.8
Missouri
57
133.9
Wyoming
0
0.0
Total

2,491
$7,103.7
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Source: U.S. Smal Business Administration, Office of Investment and Innovation, “SBIC Program – Financing to
Businesses by State, FY2017 to FY2021,” at https://www.sba.gov/document/report-sbic-program-state-state-
financing-report-fy2017-fy2021.
A 2008 Urban Institute comparative analysis of debenture SBIC financing from 1997 to 2005
found that the dollar volume of investments from debenture SBICs was more evenly distributed
across the nation than from comparable private venture capital funds. For example, the Urban
Institute found that California (45.8%) and Massachusetts (12.9%) received the largest share of
the total dollar volume invested by private venture capital funds from 1997 to 2005. The two
states accounted for more than half (58.7%) of the total dollar volume invested by private venture
capital funds. In contrast, New York (18.7%) and California (11.1%) received the largest share of
the total dollar volume invested by debenture SBICs from 1997 to 2005. The two states accounted
for less than one-third (29.8%) of the total dollar volume invested by debenture SBICs. In
addition, 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.116
A comparison of the state-by-state distribution of private-sector venture capital fund investments
in 2020 and SBIC financings in FY2021 (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. For example, during
2020, California (50.6%), New York (12.2%), Massachusetts (11.3%), and Washington (2.8%)
received the largest shares of the total dollar volume invested by private venture capital funds.
The four states accounted for over three-quarters (76.9%) of the total dollar volume invested by
private venture capital funds during that time period.117 In contrast, the four states with the largest
share of the total volume invested by SBICs in FY2021 (California at 14.7%, New York at 7.4%,
Texas at 6.7%, and Il inois at 6.3%) accounted for about one-third (35.1%) of the total dollar
volume invested by SBICs.
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 mil ion, whichever is less, and by increasing the maximum amount of leverage available for
two or more licenses under common control to $225 mil ion.118 It also encouraged SBIC

116 Kenneth T emkin and Brett T heodos, with Kerstin Gentsch, “T he Debenture Small Business Investment Company
Program: A Comparative Analysis of Investment Patterns with Private Venture Capital Equity,” Washington, DC: T he
Urban Institute, January 2008, pp. 3, 18-24, at http://www.urban.org/UploadedPDF/411601_sbic_gap_analysis.pdf.
117 PricewaterhouseCoopers, National Venture Capital Association, “Venture Capital Investments, Regional Aggregate
Data,” at https://www.pwc.com/us/en/industries/technology/moneytree.html.
118 13 C.F.R. §107.1120; and 13 C.F.R. §107.1150. 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 [in 2008] $130.6
million, whichever is less, of which no more than two times the SBIC’s Private Capital may be represented by
participating securities.” See SBA, “Offering Circular, Guarant eed 5.725% Debenture Participation Certificates, Series
SBIC 2008-10 B,” September 18, 2008, at https://www.sba.gov/content/sbic-2008-10-b-cusip-831641-en1. P.L. 102-
366, the Small Business Credit and Business Opportunity Enhancement Act of 1992, set the maximum leverage
amount for SBICs and SBICs under common control at $90 million. Licensees under common control were allowed to
have aggregate outstanding leverage over $90 million only if the SBA gave them permission to do so. P.L. 105-135, the
Small Business Reauthorization Act of 1997, set the maximum leverage amount for SBICs and SBICs under common
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investment in smal er enterprises by requiring SBICs licensed after the date of its enactment
(February 17, 2009) to certify that at least 25% of al future financing dollars are invested in
smal er enterprises. ARRA defined smal er enterprises as firms having either a net worth of no
more than $6 mil ion and average after-tax net income for the preceding two years of no more
than $2 mil ion or meeting the SBA’s size standard for its industry classification.119
ARRA also encouraged SBIC investments in low-income areas by al owing a SBIC licensed on
or after October 1, 2009, to elect to have a maximum leverage amount of $175 mil ion, and $250
mil ion 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 wil be in low-income geographic areas.120
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 bil ion from $3
bil ion and that the amount of SBA leverage available to licensees under common control (the
multiple licenses/family of funds limit) be increased to $350 mil ion from $225 mil ion.121 On
April 27, 2012, the SBA also published a final rule in the Federal Register establishing the $1
bil ion Early Stage Innovation SBIC Initiative (up to $150 mil ion in SBA leverage in FY2012
and up to $200 mil ion in SBA leverage per fiscal year thereafter until the limit is reached) to
encourage SBIC program investments in early stage smal businesses. As wil be discussed,
several bil s have been introduced during recent Congresses to expand the SBIC program by
increasing its annual authorization to $4 bil ion (enacted), increasing the multiple licenses/family
of funds limit to $350 mil ion (enacted), increasing the individual SBIC fund limit to $175
mil ion (enacted), or authorizing a SBIC program specifical y designed to encourage SBIC
investments in business startups and other early stage smal businesses (introduced).
Legislation to Target Additional Assistance to Startup and Early
Stage Small Businesses
Some Members and smal business advocates have proposed legislation to establish a
“permanent” congressional y authorized SBIC program to target additional assistance to startup
and early stage smal businesses, which are general y 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 smal businesses argue that the SBA’s participating securities
program was created to fil a perceived investment gap resulting from the SBA’s debenture
program’s focus on mid- and later-stage smal 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 smal businesses.
For example, during the 111th Congress, the House passed, by a vote of 241-182, H.R. 5297, the
Smal Business Jobs and Credit Act of 2010.122 Among its provisions, as passed by the House,

control at $90 million and added the requirement that the amount be adjusted annually for inflation.
119 13 C.F.R. §107.1150; and 13 C.F.R. §107.710.
120 13 C.F.R. §107.1150.
121 T he White House, “Startup America Legislative Agenda,” January 31, 2012, at
https://obamawhitehouse.archives.gov/blog/2012/01/31/legislative-agenda-startup-america.
122 Rep. Edward Perlmutter, “Providing for Further Consideration of H.R. 5297, Small Business Jobs and Credit Act of
2010, Roll No. 368,” Congressional Record, daily edition, vol. 156, no. 91 (June 17, 2010), pp. H4608, H4609.
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H.R. 5297 would have authorized a $1 bil ion Smal Business Early Stage Investment Program.
The proposed program would have provided equity investment financing of up to $100 mil ion in
matching funds to each participating investment company. It would have required participating
investment companies to invest in smal businesses, with at least 50% of the financing in early
stage smal businesses, defined as those smal businesses not having “gross annual sales revenues
exceeding $15 mil ion in any of the previous three years.”123 The proposed program emphasized
venture capital investments in startup companies operating in nine targeted industries.124
H.R. 5297, as subsequently approved by Congress and signed into law by President Obama on
September 27, 2010 (P.L. 111-240, the Smal Business Jobs Act of 2010), did not include
legislative language authorizing a Smal Business Early Stage Investment Program.125 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 mil ion
and $1 mil ion per intermediary at an interest rate of 1%. The intermediaries, in turn, may make
loans to new or growing smal businesses, not to exceed $200,000 per business.126 The
Intermediary Lending Pilot Program was funded for two years. Thirty-six lenders currently
participate in the program.127
As mentioned previously, in 2012, the SBA established the early stage SBIC initiative to
encourage SBIC investments in early stage smal businesses. Also, during the 113th Congress,
H.R. 30, the Smal Business Investment Enhancement and Tax Relief Act, and S. 1285, the Smal
Business Innovation Act of 2013, would have authorized the Administration to establish a
separate SBIC program for early stage smal businesses. The Smal Business Innovation Act (of
2016) was reintroduced (S. 3375) during the 114th Congress.
Discussion
Advocates of efforts to encourage capital investment in startup and early stage smal businesses,
including Members of Congress who have served on the House or Senate Smal 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 smal businesses in capital-intensive industries.”128 As

123 H.R. 5297, the Small Business Lending Fund Act of 2010, §399L. Definitions.
124 H.R. 5297, the Small Business Lending Fund Act of 2010, §399L. Definitions. T he 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.
125 Sen. 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.
126 P.L. 111-240, the Small Business Jobs Act of 2010, §1131. Small Business Intermediary Lending Pilot Program.
127 SBA, “Small Businesses Have New Non-Profit Sources for SBA-financed Loans,” August 4, 2011, at
https://www.sba.gov/content/small-businesses-have-new-non-profit -sources-sba-financed-loans; and SBA,
“Intermediary Lending Pilot Program (ILP) Intermediaries, FY2011 /FY2012,” at https://www.sba.gov/sites/default/
files/files/ILP_Intermediaries_150218.pdf.
128 U.S. Congress, House Committee on Small Business, Small Business Financing and Investment Act of 2009 , report
to accompany H.R. 3854, 111th Cong., 1st sess., October 26, 2009, H.Rept. 111-315, p. 2. For the arguments presented
by various organizations advocating programs to assist early stage small businesses and startups, see U.S. Congress,
House Committee on Small Business, Subcom m ittee on Finance and Tax Hearing on Legislative Proposals to Reform
the SBA’s Capital Access Programs, 111th Cong., 1st sess., July 23, 2009, H.Doc. no. 111-039 (Washington: GPO,
2009), pp. 10-12, 60-67; and U.S. Congress, House Committee on Small Business, Full Com m ittee Hearing on
Increasing Access to Capital for Sm all Business, 111th Cong., 1st sess., October 14, 2009, H.Doc. no. 111 -051
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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.129
Opponents of efforts to encourage capital investment in startup and early stage smal 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.”130 During consideration of the
proposed Smal Business Early Stage Investment Program, opponents argued that it was untested,
that it would likely encourage risky investments, and that the legislation required “only 50% of
the funding … to be invested” in early stage smal businesses.131
Legislation to Increase SBIC Financing Levels
In 2009, the Smal Business Investor Al iance characterized the SBIC program as “dramatical y
underused.”132 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 al owed from state or local government entities was
increased from its present maximum of 33%, and (3) the SBIC program’s multiple
licenses/family of funds limit (at that time $225 mil ion for two or more licenses under common
control) was increased to al ow SBICs to 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.”133
During the 111th Congress, H.R. 3854, the Smal Business Financing and Investment Act of 2009,
which was passed by the House on October 29, 2009, and H.R. 5554, the Smal 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

(Washington: GPO, 2009), pp. 33-35, 50-54, 63-69, 86-99.
129 Rep. 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.
130 Rep. Sam Graves, “Small Business Jobs and Credit Act of 2010,” House debate, Congressional Record, vol. 156,
no. 90 (June 16, 2010), p. H4516.
131 Rep. Sam Graves, “Small Business Jobs and Credit Act of 2010,” and Rep. Jeff Flake, “Small Busin ess 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.
132 U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, 111th Cong., 1st sess., October 14, 2009, H.Doc. no. 111-051 (Washington: GPO, 2009), pp. 32, 87.
133 U.S. Congress, House Committee on Small Business, Full Committee Hearing On Increasing Capital For Small
Business, pp. 88, 89.
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maximum percentage of SBIC regulatory capital al owed from state or local government entities
to 45% from 33%.134 Both measures would have also increased the SBIC program’s multiple
licenses/family of funds limit to $350 mil ion from $225 mil ion; increased the SBIC program’s
limit of $250 mil ion to $400 mil ion 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 bil ion from $3.0 bil ion in
FY2011.135
The Obama Administration also recommended, as part of its Startup America Initiative (which
included the SBA’s $1 bil ion early stage SBIC initiative and $1 bil ion impact investment SBIC
initiative), that the 112th Congress adopt legislation to increase the SBIC program’s annual
authorization to $4 bil ion from $3 bil ion. The Administration recommended as wel that the
112th Congress adopt legislation to increase the amount of SBA leverage available to licensees
under common control to $350 mil ion from $225 mil ion.136
During the 112th Congress, H.R. 3219, the Smal 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 mil ion to the lesser of 300% of its private capital or
$200 mil ion 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
mil ion from $225 mil ion.
S. 2136, a bil to increase the maximum amount of leverage permitted under title III of the Smal
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 mil ion from $225 mil ion. It also would have increased the SBIC
program’s authorization level to $4 bil ion from $3 bil ion.
On March 15, 2012, S.Amdt. 1833, the INVEST in America Act of 2012, was offered on the
Senate floor as an amendment in the nature of a substitute to H.R. 3606, the Jumpstart Our
Business Startups Act, which had previously passed the House. Two of the provisions in the
amendment proposed to encourage greater use of the SBIC program by (1) increasing the
maximum amount of outstanding SBA leverage available to two or more licenses under common
control to $350 mil ion from $225 mil ion and (2) increasing the SBIC program’s authorization
level to $4 bil ion from $3 bil ion. 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
bil , 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
Smal Businesses Act of 2012, would have, among other provisions, increased the SBIC
program’s authorization amount to $4 bil ion from $3 bil ion, increased the multiple
licenses/family of funds limit to $350 mil ion from $225 mil ion, and annual y adjusted the

134 H.R. 3854, the Small Business Financing and Investment Act of 2009, §401. Increased Investment from States; and
H.R. 5554, the Small Business Assistance and Relief Act of 2010, §591. Increased Investment from States.
135 H.R. 3854, §401. Increased Investment From States, §403. Revised Leverage Limitations For Successful SBICs, and
§408. Program Levels; and H.R. 5554, §591. Increased Investment from States, §593. Revised Leverage Limitations
for Successful SBICs, and §598. Program Levels.
136 T he White House, “Startup America Legislative Agenda,” at https://obamawhitehouse.archives.gov/sites/default/
files/uploads/startup_america_legislative_agenda.pdf.
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maximum outstanding leverage amount available to both individual SBICs and SBICs under
common control to account for inflation.
In addition, H.R. 6504, the Smal Business Investment Company Modernization Act of 2012,
which was passed by the House on December 18, 2012, would have increased the SBIC
program’s multiple licenses/family of funds limit to $350 mil ion from $225 mil ion.
During the 113th Congress, as mentioned previously, P.L. 113-76 increased the annual leverage
amount the SBA is authorized to provide to SBICs to $4 bil ion from $3 bil ion. In addition to
increasing the program’s authorization amount to $4 bil ion, S. 511, the Expanding Access to
Capital for Entrepreneurial Leaders Act (EXCEL Act) would have increased the program’s
multiple licenses/family of funds limit to $350 mil ion from $225 mil ion. S. 1285, would have,
among other provisions, also increased the program’s multiple licenses/family of funds limit to
$350 mil ion.
During the 114th Congress, P.L. 114-113, the Consolidated Appropriations Act, 2016, increased
the SBIC program’s multiple licenses/family of funds limit to $350 mil ion.137 In addition, H.R.
5968, the Smal Business Investment Opportunity Act of 2016, introduced on September 8, 2016,
and referred to the House Committee on Smal Business, would have increased the maximum
amount of leverage available to SBICs to 300% of the SBIC’s private capital (200% in practice)
or $170 mil ion, whichever is less, from the current maximum of 300% of the SBIC’s private
capital (200% in practice) or $150 mil ion, whichever is less.
During the 115th Congress, P.L. 115-187, the Smal Business Investment Opportunity Act of 2017,
increased the maximum amount of leverage for individual SBICs to $175 mil ion from $150
mil ion.
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 smal businesses.”138 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 mil ion, whichever is less, and $225 mil ion for multiple licensees under common
control” and increased “the maximum leverage amounts to $175 mil ion for single funds and
$250 mil ion for multiple funds under common control who are licensed after September 30,
2009, and invest 50% of their dollars in low income geographic areas.”139
As mentioned previously, P.L. 113-76 increased the annual leverage amount the SBA is
authorized to provide to SBICs to $4 bil ion from $3 bil ion, P.L. 114-113, the Consolidated
Appropriations Act, 2016, increased the SBIC program’s multiple licenses/family of funds limit

137 Previously, S. 552, the Small Business Investment Company Capital Act of 2015, and its House companion bill,
H.R. 1023, would have increased that limit to $350 million. T he Senate Committee on Small Business and
Entrepreneurship reported S. 552 on June 10, 2015. T he bill was placed on the Senate Legislative Calendar under
General Orders. T he House Committee on Small Business reported H.R. 1023 on June 25, 2015, and the House passed
it on July 13, 2015.
138 SBA, Fiscal Year 2011 Congressional Budget Justification and FY2009 Annual Performance Report, p. 52, at
https://www.sba.gov/sites/default/files/aboutsbaarticle/Congressional_Budget_Justification.pdf.
139 SBA, “SBA Project Plan, Section 505: SBIC Program Changes,” June 16, 2010 , at https://www.sba.gov/sites/
default/files/recovery_act_reports/sba_sbic_plan.pdf.
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to $350 mil ion, and P.L. 115-187, the Smal Business Investment Opportunity Act of 2017,
increased the maximum amount of leverage for individual SBICs to $175 mil ion.
Advocates of increasing the SBIC program’s leverage limits have argued that these actions are
necessary to help fil a perceived gap in the SBA’s “array of capital access programs.”140 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 smal firms from
accessing the capital necessary to fully realize their economic potential and assist in the national
economic recovery.141 On the other hand, others worry about the potential risk that an expanded
SBIC program has for the taxpayer, especial y if investments are targeted at startup and early
stage smal 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 Members of Congress have argued that the SBA should be provided additional resources to
assist smal businesses in acquiring capital necessary to start, continue, or expand operations and
create jobs.142 In their view, encouraging greater utilization of the SBIC program wil increase
smal 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 smal
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.

140 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.
141 U.S. Congress, House Committee on Small Business, Full Committee Hearing on Increasing Capital for Small
Business, 111th Cong., 1st sess., October 14, 2009, H. Doc. no. 111-051 (Washington: GPO, 2009), pp. 88-91; and Rep.
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.
142 Rep. 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; Sen. 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; T he White House, “ Remarks by the President on Job Creation and Economic
Growth,” December 8, 2009, at https://obamawhitehouse.archives.gov/realitycheck/the-press-office/remarks-president-
job-creation-and-economic-growth; and T he White House, “ Startup America Legislative Agenda,” at
https://obamawhitehouse.archives.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 downturn 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.143
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 smal business, promote economic growth,
and create jobs is to reduce business taxes and exercise federal fiscal restraint.144 For example,
Representative Sam Graves, then-chair of the House Committee on Smal Business, indicated in
the Smal Business Committee’s FY2013 “views and estimates” letter to the House Budget
Committee that the House Smal Business Committee supported an increase in the SBIC
program’s authorization to $4 bil ion from $3 bil ion. However, he indicated that the committee
opposed funding for the SBA’s early stage 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 wil
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 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.145
The House Committee on Smal Business’s FY2016 views and estimates letter reiterated the
committee’s opposition to the funding of these two initiatives.146

143 Sen. Olympia Snowe, “Jumpstart Our Business Startups Act,” remarks in the Senate, Congressional Record, vol.
158, no. 45 (March 19, 2012), p. S15845.
144 NFIB, “Government Spending: Small Businesses Have a Bottom Line-Government Should, T oo,” Washington, DC,
at https://www.nfib.com/content/issues/economy/government-spending-small-businesses-have-a-bottom-line-
government -should-too-49051/.
145 Rep. 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. Also, see U.S. Congress, House
Committee on Small Business, Markup of the Sm all Business Adm inistration Fiscal Year 2012 Budget, 112th Cong., 1st
sess., March 15, 2011, H.Hrg. 112-005 (Washington: GPO, 2011), pp. 4-21.
146 U.S. Congress, House Committee on Small Business, Organizational Meeting and SBA Views and Estimates for the
114th Congress, 114th Cong., 1st sess., February 12, 2015, H.Hrg. 114-002 (Washington: GPO, 2015), pp. 34 -35.
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As these quotations attest, congressional debate concerning the SBIC program has primarily
involved assessments of the ability of smal businesses to access capital from the private sector
and evaluations of the program’s risk, the effect of proposed changes on the program’s risk, and
the potential impact of the program’s risk on the federal deficit. Empirical analysis of economic
data can help inform debate concerning the ability of smal 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 “smal ” 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, typical y 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 mil ion 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 mil ion.147 Al 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.”148 P.L. 111-5 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 smal er
enterprises. A smal er enterprise is a company that, together with any affiliates, either has net
worth of no more than $6 mil ion and average after-tax net income for the preceding two years of
no more than $2 mil ion or meets the SBA’s size standard in the industry in which the applicant is
primarily engaged.149
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 mil ion) invested in smal er enterprises.150

147 SBA, “Small Business Size Standards: Inflation Adjustment to Monetary Based Size Standards,” 79 Federal
Register 33647-33669, June 12, 2014. T he 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 y ears 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, t he 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. T he 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. T he 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 C.F.R. §107.700; 13 C.F.R. §107.710; 13 C.F.R. §121.301(c)(1) and 13 C.F.R.
§121.301(c)(2).
148 SBA, “Small Business Investment Companies – Leverage Eligibility and Portfolio Diversification Requirements,”
74 Federal Register 33912, July 14, 2009.
149 13 C.F.R. §107.710.
150 13 C.F.R. §107.710.
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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 mil ion) 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.151
SBICs are not al owed 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 wil use the proceeds to acquire
farmland.152 In addition, SBICs may not provide funds for a smal business whose primary
business activity is deemed contrary to the public interest or if the funds wil be used substantial y
for a foreign operation.153
Small Business Application Process
Smal business owners interested in receiving SBIC financing can search for active SBICs using
the SBA’s SBIC directory.154 The directory provides contact information for al 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
mil ion and profitability at the time of financing).155
After locating a suitable SBIC, the smal business owner presents the SBIC a business plan that
addresses the business’s operations, management, financial condition, and funding requirements.
The typical business plan includes the following information:
 the name of the business as it appears on the official records of the state or
community in which it operates;
 the city, county, and state of the principal location and any branch offices or
facilities;
 the form of business organization and, if a corporation, the date and state of
incorporation;

151 SBA, “Small Business Investment Companies – Leverage Eligibility and Portfolio Diversification Requirements,”
74 Federal Register 33912, July 14, 2009.
152 13 C.F.R. §107.720. SBICs are generally prohibited from investing in passive businesses. SBIC program regulations
provide for two exceptions. T he first provides conditions under which an SBIC may structure an investment though up
to two levels of passive entities to make an investment in a nonpassive business that is a subsidiary of the passive
business directly financed by the SBIC. T he second enables a partnership SBIC, with SBA’s prior approval, to provide
financing to a small business through a passive, wholly owned C corporation, but only if a direct financing would cause
the SBIC’s investors to incur Unrelated Business T axable Income. A passive C corporation formed under the second
exception is commonly known as a blocker corporation. T he SBA has issued a proposed rule to expand and clarify the
use of SBIC passive business investment s. See SBA, “ Small Business Investment Companies; Passive Business
Expansion & T echnical Clarifications,” 80 Federal Register 60077-60082, October 5, 2015.
153 SBA, “Small Business Investment Companies; Passive Business Expansion & T echnical Clarifications,” pp. 60077-
60082.
154 SBA, “All SBIC Licensees by State,” at https://www.sba.gov/content/sbic-directory.
155 SBA, “All SBIC Licensees by State.”
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 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 the 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
smal est 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).156
Because SBICs typical y receive hundreds of business plans per year, the SBA recommends that
smal business owners seek a personal referral or introduction to the particular SBIC fund
manager being targeted to increase “the likelihood that the business plan wil be carefully
considered.”157 According to the Smal Business Investor Al iance, “a thorough study an SBIC
must undertake before it can make a final decision could take several weeks or longer.”158

156 Small Business Investor Alliance (formerly the Nat ional Association of Small Business Investment Companies),
“SBIC Financing: Step-by-Step,” Washington, DC.
157 SBA, “SBIC Program: Seeking Financing for your Small Business,” at https://www.sba.gov/offices/headquarters/
ooi/resources/4905.
158 Small Business Investor Alliance (formerly the National Association of Small Business Investment Companies),
“SBIC Financing: Step-by-Step,” Washington, DC.
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Author Information

Robert Jay Dilger

Senior Specialist in American National Government

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Congressional Research Service
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