The Small Business Investment Company (SBIC) loan program was created in 1958 to fill the gap between the capital needs of small businesses and the availability of the capital. The aim of this program, which is a part of the U.S Small Business Administration (SBA), is to provide equity capital, long term loans and management assistance to small businesses which qualify for the same.
The SBICs are privately owned and operated, and make use of their own capital and funds borrowed from SBA to finance small businesses which require equity securities and long term loans. SBICs are profit-seeking organizations and they determine which small businesses meet the rules and regulations of SBA before they can provide financing to these businesses. There are also Specialized SBICs, or SSBICs, which are SBICs that provide financing only to small businesses that are owned by socially or economically disadvantaged persons.
Usually SBICs invest in a wide range of industries, although small businesses with new products or services may be preferred by some SBICs because of their high growth potential. Some SBICs choose to concentrate in the fields in which their management has special competency. Overall, most SBICs will invest in a wide variety of opportunities.
Steps to obtaining financing from the Small Business Investment Company loan program:
- Identify and investigate existing SBICs that might be interested in financing your business. Use the SBIC directory to learn all you need to know about the SBICs in your state, and even in other areas.
- When choosing an SBIC, you must take into consideration the types of investments it makes, how much money is currently available for investment and how much will be available in the future.
- Consider whether the SBIC is capable of offering you management services that suit your needs.
- You must determine whether the SBA defines your business as ‘small’, as only such businesses are eligible for financing from SBIC.
SBIC program offers equity investment and not debt financing. What this means is that unlike debt financing which involves a loan that must be repaid on certain established terms, an equity investment will see an investment company buy a piece of your business. The investors then become co-owners in your business. As such, the terms of the investment are agreed upon by the investor and the company, which means for the SBIC there are no standards terms as may be the case with debt financing/loan programs.
As with most government lending programs, a business must be prepared for completing extensive paperwork and a long delay between application, approval and funding. For this reason, many business seek a business term loan, revenue based financing or a merchant cash advance to meet short-term working capital needs. At Imperial Advance, we can often get you approved and funded from $1,000 to $1,000,000 within 24 hours. Most transactions take 3-5 business days.