What Is a Small Business Investment Company (SBIC)?

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A little-known program within the Small Business Administration (SBA) is the Small Business Investment Company (SBIC) program. This program might help you get financing for your small business. 

An SBIC  is a private lending company which is licensed and regulated by the. SBICs offer venture capital financing to higher-risk small businesses and SBIC loans are guaranteed by the SBA. An added advantage of SBICs for small businesses is that, in addition to funding small business growth and more jobs, SBICs offer management expertise and assistance to companies. 

SBICs are privately owned and managed investment funds, licensed and regulated by the SBA. These companies use their own capital, along with funds borrowed with an SBA guarantee, to invest in qualifying small businesses. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and capital investments in small businesses. The SBA matches SBIC funds at the rate of $2 for every $1 the SBIC puts in. 

The SBA says: 

Over the past five years, the program has channeled more than $21 billion of capital to more than 6,400 U.S. small businesses spanning a variety of industries across the country.

The mission of the SBIC program is:

stimulating and supplementing the flow of private equity capital and long term loan funds for the sound financing, growth, expansion and modernization of small business operations while insuring the maximum participation of private financing sources.

Typical SBIC Funding

A typical SBIC loan ranges from $250,000 to $10 million, with an interest rate between 9% and 16%. Some SBIC funding is in the form of equity (ownership) in a business. An SBIC may decide to invest in your business in exchange for a share of ownership in your company. Typical investments range from $100,000 to $5 million.

One thing you should know about SBIC funding is that it can come with control over your business. In return for giving money to a small business, the SBIC is allowed to control that business for up to 7 years. That control might be different in each situation, so if you proceed with an application to an SBIC, do ask about how they might want to exercise control over your business. 

Qualifying for SBIC Financing

 To qualify for financing from an SBIC your business must meet the following criteria

  • You must be a "small business" as defined by the SBA: "businesses with a tangible net worth of less than $18 million AND an average of $6 million in net income or less over the previous two years at the time of investment."
  • Your business cannot engage in foreign activities, and
  • Your business cannot be a "prohibited business" (re-lenders or re-investors; passive businesses; most real estate businesses; farmland; project financings, or businesses contrary to the public interest.)

Getting Started With an SBIC

The SBA describes the steps in finding an SBIC: 

  1. You can find a list of investors to research. Look for SBICs to find one whose investment goals fit with your small business plans. Check to make sure that the SBIC you want is likely to be investing at this time. You can get a list downloaded to an Excel file. Look for SBICs in your state first; many are local investors and they want to support local businesses and the local economy. 
  2. Create a business plan for your meeting with an SBIC. 
  3. Present your business plan and proposal for SBIC financing. Before you present a plan, get information on the specific SBIC you want to approach, and try to establish a connection with that company. 

It's perfectly acceptable to present your business plan to more than one SBIC at a time.

What If My Business Doesn't Qualify for SBIC Investment? 

You may still be eligible for one of a number of SBA loan programs, including their signature 7(a) loan.