With capital scarce, venture capital and private equity firms are increasingly turning to the federal government’s Small Business Investment Co. (SBIC) program as a source of funding.
In fact, this may be one of the best times to apply for SBIC funding, since the economic stimulus bill increased the maximum amount of combined SBIC leverage to $225 million for affiliated funds, up from $137 million previously.
On Dec. 10, Thomson Reuters (publisher of PE Week) is hosting a webinar with a panel of experts to help guide investors through the application process and navigate the procedures.
More information about the webinar can be accessed on PE Week’s conference website, located at http://www.buyoutsconferences.com.
SBIC expert Chuck Morton, a partner at
Q: What makes the SBIC program appealing at this time?A: Given the state of the credit markets, any program that affords leverage to investors is attractive. The SBIC program does just that by providing money to privately organized and managed investment funds. New administrators at the SBA with private equity experience have also brought a sense of urgency to the program that is terrific.
Q: Is this a new program?A: No. The SBIC program has been around for more than 50 years. Since 1958, SBIC licensed funds have provided more than $55 billion to over than 106,000 companies across the country. Apple, Intel, Whole Foods and many other successful companies received early funding from the program.
Q: How do investment firms access the leverage provided by the SBA?A: There is a licensing process that funds must go through in order to be licensed. Once approved, the SBA provides up to three times the amount raised through private investors through low costs loans to the funds.
Q: Are there any downsides?A: Participating funds must comply with the regulatory construct of the program which prescribes, broadly, the size of investments, the types of companies into which the investments must be made and limits returns. There are also restrictions on the level of concentration in the fund and the level of control in any single investment.
Being certain to communicate effectively with the SBA is also important. That being said, in today’s world the hassles may be a small price to pay.
Q: Does the program influence how deals must be structured?A: While funds must be aware of the regulatory environment in which they exist, there is still broad latitude on deal structure and funds find it easy to structure deals to meet their needs. While the program may not be for every investor, it certainly is something worth considering.