About Small Business Investment Companies
A small business investment company (SBIC) is a privately owned and operated company that makes long-term investments in U.S.-based small businesses and is licensed by the U.S. Small Business Administration (SBA). The SBIC program was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. As of March 31, 2011, the SBA had over $6.6 billion invested in over 300 licensed funds, plus another $1.8 billion in outstanding commitments. Together with private capital committed to SBICs topping $8.6 billion, the program totals nearly $17 billion in capital resources. Historically, the SBIC program has granted licenses to existing fund structures, including business development companies (BDCs), and has granted SBIC licenses to a number of wholly owned subsidiaries of public BDCs.
The SBA presently provides financing to SBICs through the use of loans, or debentures. Debentures are issued by SBICs to the SBA that have interest payable semi-annually and ten-year maturities. The interest rate is established when issued and is based on the 10-year Treasury rate plus a market-driven spread. An SBIC may invest only in "small businesses," and must invest at least 25% of its invested funds in "smaller enterprises" as defined by the SBA.
In connection with the American Recovery and Reinvestment Act of 2009, (the Stimulus Bill), the leverage ceiling for the 2009 fiscal year has been set at the lesser of $150 million or 300% of such company's private capital. In addition, the Stimulus Bill allows for existing SBIC-licensed entities to obtain a second license and gain access to additional leverage of $75 million, for a maximum of $225 million combined SBIC leverage (subject to additional required capitalization of its second wholly owned SBIC subsidiary).
SBICs licensed on or after October 1, 2009 may elect to have maximum leverage of $175 million per SBIC and $250 million for two or more licenses under common control if it has invested at least 50% of its financings in low-income geographic areas and certifies that at least 50% of its future investments will be in low-income geographic areas.
As Congress continues to seek ways to stimulate the U.S. economy, additional increases in the available capital to SBICs have been discussed.
View "SBIC Subsidiaries".
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The Small Business Investor Alliance (SBIA) is the professional association for the Small Business Investment Company (SBIC) community and the middle market private equity industry. For over half a century SBIA has played a pivotal role in building and promoting a strong and profitable SBIC industry to better serve the growth-capital needs of America’s small businesses.
As more BDCs establish SBIC subsidiaries, SBIA has become more involved in the broader regulatory environment, and is actively working on behalf of its membership to improve the operating environment for those supporting the growth of U.S. small business.
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