About SBICs
A Small Business Investment Company ("SBIC") is a privately owned and operated company that makes long-term investments in U.S.-based small business 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. At the end of fiscal year 2009, the SBA had over $7.6 billion invested in 315 funds, plus another $2.9 billion in outstanding commitments. Together with private capital topping $8.7 billion, the program totals over $16.8 billion in capital resources.
In fiscal year 2009, eight new SBIC licenses were granted and as of July 28, 2010, 13 new SBIC licenses had been granted in fiscal year 2010. Historically, the SBIC program has been open to granting licenses to existing fund structures, including business development companies ("BDCs"). In fact, the SBA has granted SBIC licenses to four wholly-owned subsidiaries of public BDCs.
The SBA presently provides financing to SBICs through the use of unsecured loans ("Debentures"). Debentures are unsecured loans 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 only invest in "small businesses," and must invest at least 25% of its invested funds in "smaller enterprises."
In connection with the American Recovery and Reinvestment Act of 2009 ("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).
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