By Rickie Houston CEPF®
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:
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
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