Small Business Investment Companies

To establish privately owned and managed investment companies, which are licensed and regulated by the U.S.

Small Business Administration; to provide equity capital and long term loan funds to small businesses; and to provide advisory services to small businesses.



Agency - Small Business Administration

The Small Business Administration maintains and strengthens the nation's economy by aiding, counseling, assisting and protecting the interests of small businesses and by helping families and businesses recover from national disasters.

Website Address

http://www.sba.gov



Program Accomplishments

As of September 2007, the SBA portfolio of active companies was composed of 369 SBICs with capital resources of $18.6 billion.

Uses and Use Restrictions

The investment companies provide management and financial assistance on a continuing basis to eligible small business concerns.

Financial assistance is provided by making long-term loans to these small concerns, and/or by the purchase of debt or equity type securities issued by these firms.

Emphasis is on providing assistance to the pioneering, innovating-type concerns developing new products, processes, and markets.

Specialized investment companies organized/licensed under former Section 301(d) of the authorizing statute (SSBICs) must restrict eligibility of small concerns financed by such investment companies to those owned and operated by individuals whose participation in the free enterprise system has been hampered by social or economic disadvantages.

Debentures and participating securities are issued by the SBIC and guaranteed by SBA for a term not to exceed ten years.

All investment companies generally may not self-deal, finance "big business," or invest over 20 percent (30 percent for SSBICs) of private capital in any single small concern.

Eligibility Requirements

Applicant Eligibility

Any chartered small business investment company having private capital of not less than $3,000,000 (for those choosing to not receive leverage from SBA) or $5 million (for those receiving leverage from SBA), having qualified management, and giving evidence of sound operation, and establishing the need for SBIC financing in the geographic area in which the applicant proposes to operate.

Beneficiary Eligibility

Individual businesses (single proprietorship, partnership or corporation) which satisfy the established criteria of a small business. SSBICs beneficiary must also be a business owned and operated by socially or economically disadvantaged individuals.

Credentials/Documentation

An investment company must be chartered as a corporation, limited partnership (with individuals, corporation, partnership, or limited liability company as general partner), or limited liability company. Determination is made as to need in area, general business reputation and character of proposed owners and management and probability of successful operations. All loans to, or investments in, small concerns shall be of such sound value as reasonable to assure repayment.

Aplication and Award Process

Preapplication Coordination

None.

This program is excluded from coverage under E.O.

12372.

Application Procedures

Request information and appropriate forms from SBA's Investment Division. Complete application requirements and submit with required application fee to SBA's Investment Division.

Award Procedures

Applicant is notified by issuance of a license from the Investment Division of the Small Business Administration.

Deadlines

None.

Authorization

Small Business Investment Act of 1958, as amended, Public Law 85-699, 15 U.S.C. 681 et seq.

Range of Approval/Disapproval Time

Average of 180 days.

Appeals

Proponents may reapply at any time.

Renewals

None.

Assistance Considerations

Formula and Matching Requirements

An SBIC or an SSBIC in good standing, with a demonstrated need for funds, may receive leverage based on its private capital. An SBIC or SSBIC may receive leverage of as much as 300 percent of its private funds. The maximum amount of leverage varies according to the SBIC's private capital. The maximum amount of leverage is currently $130,600,000. This amount is adjusted annually for increases in the Consumer Price Index. To obtain leverage, SBICs issue their debentures or participating securities which are guaranteed by SBA. Pools of the SBA-guaranteed debentures or participating securities are formed, and SBA-guaranteed participation certificates, representing an undivided interest in the pools, are sold to investors through a public offering. Under current procedures, regular SBIC debentures have a term of 10 years, and they provide for semi-annual interest payments and a lump-sum principal payment at maturity. Debentures may be prepaid with a penalty during the first five years of their term or without penalty thereafter. The debenture rate is determined by market conditions at the time of the sale. As with debentures, the rate on participating securities is based on the 10-year Treasury-yield curve. However, the participating security provides for payment of dividends or interest and profit participation to SBA only when an SBIC has earnings, as defined by regulation. A unique feature of the participating securities is that SBA shares in the profits of the SBIC.

Length and Time Phasing of Assistance

Not applicable.

Post Assistance Requirements

Reports

Financial report (annual); program financing reports; any other report furnished to stockholders.

Audits

Annual audit by a certified public accountant and periodic examinations by SBA personnel.

Records

Current financial records, minutes of meetings of stockholders, general partners, directors, executive committees, and time spent and charges made for management consulting services performed must be maintained for 6 years.

Financial Information

Account Identification

73-1154-0-1-376.

Obigations

SBIC Debenture Guarantees: FY 07 $707,470,000; FY 08 $3,000,000,000; and FY 09 $3,000,000,000. Administrative Expenses: FY 07 $4,382,000; FY 08 5,195,000; and FY 09 $5,377,000.

Range and Average of Financial Assistance

SBIC and SSBIC Leverage: $50,000 to $130,600,000. Average: $19,300,000.

Regulations, Guidelines, and Literature

13 CFR Chapter I, Part 107.

Information Contacts

Regional or Local Office

None.

Headquarters Office

Associate Administrator for Investment, Investment Division, Small Business Administration, 409 Third Street, S.W., Washington, DC 20416. Telephone: (202) 205-6510. Use the same number for FTS.

Criteria for Selecting Proposals

None.



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