Navigating the SBIC licensing process

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Cynthia Krus: Welcome, I’m Cynthia Krus, a partner at Eversheds Sutherland. Thank you for joining us for today’s webinar. So, let’s get started with our top ten. Sara, what type of information about the SBIC applicant is included in the Management Assessment Questionnaire, which is kind of like a gatekeeper questionnaire that people are familiar with in the investing world?

Sara Sabour Nasseri: That’s right. They’re really using the Management Assessment Questionnaire, or the MAQ, as a way to assess whether you have a qualified management team and whether there’s a good chance that your SBIC is going to operate profitably. The information requested in the MAQ can be separated into three buckets. The first is the narrative and business plan. In the narrative, they’re eliciting responses to very specific questions. They want to understand your investment strategy, your team, your investment portfolio management process, and questions around governance. You’re also providing your deal pipeline information—both historic and current—as well as a ten-year cash flow forecast model.

The second piece is information about the principals. These are the individuals who sit on the SBIC’s investment committee. They’re looking for detailed track record information, personal references, references for each portfolio company, and legal questionnaires for each principal.

The third piece is legal documentation—your LPA, management agreement, and deal pipeline list. The SBA has a model form of LPA that they expect applicants to use. Putting this all together can take someone a significant amount of time, maybe about a month of full-time effort.

Krus: Are there existing materials that can be gathered in advance before deciding whether to pursue an SBIC license?

Nasseri: Yes. One primary thing is to assess who’s going to be on your management team. Do you have at least two to three individuals with the investment strategy background that the SBA is looking for? Another important area is collecting your track record information and making sure it demonstrates the story you want to show for your SBIC. Producing that information can be a full-time job. The SBA offers a short-form track record template to help determine how many of your investments qualify as small businesses.

Krus: Paige, how is the MAQ submitted? Are there particular deadlines or a timeline for review?

Paige Spraker: The SBA has divided its year into filing batches. Ideally, applicants aim for one of the five windows: November 15, December 31, March 31, June 30, and September 30. The goal is for the SBA to review all applications submitted within a given window before moving to the next batch. This gives applicants a better sense of when they might expect comment letters.

Whether the platform has existing SBICs is another factor—subsequent fund applicants may qualify for a fast-track review if they meet certain criteria, such as a clean regulatory history and a consistent management team.

Historically, the application process was rolling, which created less clarity. The batching process has helped provide more predictability. Completeness is also important; more complete applications tend to rise to the top of the review queue.

Krus: Are all application materials submitted at once, or is the application process broken down?

Spraker: The application process is split into phases: the MAQ stage, the review period, the formal application, and the approval process. Once your MAQ is filed, you're assigned an investment analyst and legal counsel to review and conduct due diligence. You'll go through a comment process and back-and-forth with the SBA.

If you're approved, you're invited to an interview—these used to be in person, but many are now telephonic. After the interview and another assessment, the package moves up to the SBIC Licensing Committee and eventually the SBA Administrator.

Krus: Sara and Paige, thank you for your insights. And to our audience, thank you for joining us.