Question: Can I Get Funding Through a Small Business Investment Company?
Small Business Investment Companies (SBIC's) are private equity lenders or venture capital firms that fund businesses (primarily start-ups) by investing directly in the business. These SBIC's are regulated by the Small Business Administration and the SBA provides leverage (similar to guarantees to commercial lenders) to encourage the SBIC's to invest.
Answer:
To get equity funding from a Small Business Investment Company (SBIC), your business must meet certain criteria or be in a particular industry or area.
- Size
The SBIC Program only allows investment in "small" companies. A company is defined as “small” when its net worth is $18.0 million or less and its average after tax net income for the prior two years does not exceed $6.0 million. All of the company’s subsidiaries, parent companies and affiliates are considered in determining the size standard and for certain industries alternative size standards may apply.
- Type of Investment
SBICs may not invest in the following: other SBICs, finance and investment companies or finance-type leasing companies, unimproved real estate, companies with less than 51% of their assets and employees in the United States, passive or casual businesses (those not engaged in a regular and continuous business operation), or companies which will use the proceeds to acquire farm land. SBICs may not provide funds for a small concern whose primary business activity is deemed contrary to the public interest.
- Other Considerations
Some SBICs invest in a particular field or industry in which their management has expertise, while others invest more generally. Most SBICs concentrate on a particular stage of investment (i.e. start-up, expansion or turnaround) and identify a geographic area in which to focus. The form of SBA funding that a particular SBIC uses can vary and will have an impact on the type of investments they can make.
How and Where to Apply to an SBIC
- Identify and Contact Potential SBIC's
Use the SBIC directory on the SBA website to find SBIC's in your state or area that might be potential investors.
- Prepare a Business Plan
Presenting a comprehensive business plan that details your venture and its chance of success is even more important for an SBIC than for a traditional loan.
- Get a Reference
The SBA says:
Note that the average SBIC receives hundreds of business plans per year. Entrepreneurs can benefit greatly from a personal referral or introduction to the particular SBIC fund manager being targeted. A qualified introduction by a business professional increases the likelihood that your business plan will be carefully considered. Talk to accountants, attorneys, executives in your industry and other business colleagues to arrange an introduction. Of course, you can always submit your business plan directly if you are unable to find a qualified referral.
