Jay Dilger Senior Specialist in American National Government
Small Business Administration’s (SBA’s) Small Business Investment Company
(SBIC) Program is designed to enhance small business access to venture
capital by stimulating and supplementing “the flow of private equity
capital and long term loan funds which small business concerns need for
the sound financing of their business operations and for their growth, expansion,
and modernization, and which are not available in adequate supply.”
Facilitating the flow of capital to small businesses to stimulate the
national economy was, and remains, the SBIC program’s primary objective.
At the end of FY2011, there were 299 privately owned and managed SBICs licensed
by the SBA participating in the SBIC program, providing financing to small
businesses with private capital the SBIC has raised (called regulatory
capital) and with funds the SBIC borrows at favorable rates (called
leverage) because the SBA guarantees the debenture (loan obligation). SBICs
pursue investments in a broad range of industries, geographic areas, and
stages of investment. Some SBICs specialize in a particular field or
industry, while others invest more generally. Most SBICs concentrate on a
particular stage of investment (i.e., startup, expansion, or turnaround) and geographic
The SBA is authorized to provide up to $3 billion in leverage to SBICs
annually. The SBIC program has invested or committed about $17.1 billion in
small businesses, with the SBA’s share of capital at risk about $8.3
billion. In FY2011, the SBA guaranteed $1.8 billion in SBIC small business
investments, and SBICs provided another $1.0 billion in investments from
private capital, for a total of more than $2.8 billion in financing for
1,339 small businesses.
Some Members of Congress and small business advocates have argued that the SBIC
program should be expanded as a means to stimulate economic activity,
create jobs, and assist in the national economic recovery. For example, S.
2136, a bill to increase the maximum amount of leverage permitted under
title III of the Small Business Investment Act of 1958, would increase the
program’s authorization to $4 billion from $3 billion. Others worry about the
potential risk an expanded SBIC program has for increasing the federal
deficit. In their view, the best means to assist small business, promote
economic growth, and create jobs is to reduce business taxes and exercise
federal fiscal restraint.
Some Members and small business advocates have also proposed that the program
target additional assistance to startup and early stage small businesses,
which are generally viewed as relatively risky investments but also as
having a relatively high potential for job creation. The SBA, in an effort
to target additional assistance to newer businesses, recently established, as
part of the Administration’s Startup America Initiative, a $1 billion
early stage debenture SBIC initiative (up to $150 million in leverage in
FY2012, and up to $200 million in leverage per fiscal year thereafter
until the limit is reached). Early stage debenture SBICs are required to invest
at least 50% of their investments in early stage small businesses, defined
as small businesses that have never achieved positive cash flow from
operations in any fiscal year.
This report describes the SBIC program’s structure and operations, including
two recent SBA initiatives, one targeting early stage small businesses and
one targeting underserved markets. It also examines legislative proposals
to increase the leverage available to SBICs (e.g., H.R. 3219, the Small
Business Investment Company Modernization Act of 2011) and to increase the SBIC program’s
authorization amount to $4 billion.
Document available via e-mail as a pdf file or in paper form.
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