The federal government sponsors its own public venture capital organization through the Small Business Investment Corporation (SBIC) program. An SBIC is a privately owned and operated small business investment company that partners with the federal government to provide venture capital to small business. Using a combination of private funds and funds borrowed from the federal government, the SBICs provide equity capital, long-term loans (up to 20 years, with a possible 10-year extension), and management assistance to eligible small businesses. Loans and securities for less than five years are unusual and the cost of money on loans and debt securities is regulated by the Small Business Administration.
Like a VC firm, an SBIC is most commonly a source of financing for a fast-growing, existing business (rather than a startup) that needs a substantial amount of financing to keep up with its rapid expansion.
An SBIC must be federally licensed; however, almost anyone or any entity can be an SBIC owner if they have the minimum initial private capital of five million dollars and an SBA-approved full-time manager. Every SBIC is subject to annual financial reporting requirements and onsite compliance examinations by the SBA. Regulations control investment approvals and operating procedures. Most SBICs are owned by small groups of local investors, although commercial banks are often also owners.
SBICs operate like venture capital firms, although they may be more flexible in the terms of their investment arrangement. The SBIC may want to make an equity investment or may be interested simply in long-term lending on a fully secured basis. An SBIC is not permitted to control any small business on a permanent basis.
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There are hundreds of active SBICs. The SBA has offices located throughout the country and the agency staff will help locate your nearest SBIC. To reach your local SBA office, consult the telephone directory under "U.S. Government," or call the Small Business Answer Desk at 1-800-8ASK-SBA or go to www.sba.gov/regions/states.html |
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As far back as the early 1970s the SBA created a second category of government-operated small business investment companies, the Specialized Small Business Investment Company ("SSBIC"). They generally operate in the same manner as SBICs, but they can obtain additional government financial assistance by investing in, or loaning to, small businesses owned by people who are socially or economically disadvantaged.
Small Business Investment Corporations
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