Small business investment companies (SBICs) are Small Business Administration-licensed and regulated companies that provide funding to small businesses in certain sectors. These companies rely on both internal funds and government funds to invest in small businesses, but they have to follow several regulations in order to maintain their SBA status.
What is a Small Business Investment Company (SBIC)?
A small business investment company (SBIC) is a privately-owned company that funds small businesses through debt and equity investments. The SBIC typically uses its own capital, along with funds borrowed with SBA guarantee, to lend to small businesses, according to the SBA. SBICs are licensed and regulated by the SBA.
The SBA says it doesn’t invest directly into SBICs, though; instead, the SBA offers the funding to qualified investment firms with certain industry expertise. These SBICs then distribute the funds to small businesses. SBIC loans can range from $25,000 to $10 million.
Requirements for Small Business Investment Companies (SBICs)
The SBA has established several regulations to which SBICs must adhere . SBICs must invest:
- 75% of total capital in U.S. small businesses, defined as having the following:
- No more than 49% of employees overseas
- Less than $19.5 million of tangible net worth
- Less than $6.5 million of after-tax net income averaged over the previous two years
- At least 25% of total capital in U.S. smaller enterprises, defined as having the following:
- No more than 49% of employees overseas
- Less than $6 million of tangible net worth
- Less than $2 million of after-tax net income averaged over the previous two years
SBICs can’t invest in more than 10% of investable capital in any one business, nor can they invest in U.S. small businesses that have more than 49% of their employees overseas. SBICs also can’t invest in real estate, re-lenders and project finance, according to the SBA.
Bottom Line
SBICs offer financing to small businesses through debt and equity investments. These investment firms aid small businesses with their own capital, but they also use borrowed funds from the federal government. If you’re a small business in need of funding, you may qualify if at least 51% of your employees and assets are based in the U.S., your company is an SBA-defined small business and you’re in an eligible industry.
Tips for Small Businesses During Times of Economic Crisis
- If your business has been hit hard during the pandemic, you may be able to take advantage of several financial relief programs. The government and the SBA have established multiple programs to help small businesses recover. See what’s available in our review of the coronavirus relief for businesses.
- A financial advisor can help you navigate tough times. If you’re not sure where to begin, SmartAsset’s free financial advisor matching tool can help. The tool connects you with up to three advisors in your area.
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