The Small Business Administration's (SBA's) Small Business
Investment Company (SBIC) Program is designed to enhance small
business access to venture capital by stimulating and supplementing
"the flow of private equity capital and long term loan funds which
small business concerns need for the sound financing of their
business operations and for their growth, expansion, and
modernization, and which are not available in adequate supply."
Facilitating the flow of capital to small businesses to stimulate
the national economy was, and remains, the SBIC program's primary
objective. At the end of FY2012, there were 301 privately owned and
managed SBICs licensed by the SBA, providing financing to small
businesses with private capital the SBIC has raised (regulatory
capital) and funds the SBIC borrows at favorable rates (leverage)
because the SBA guarantees the debenture (loan obligation). SBICs
pursue investments in a broad range of industries, geographic
areas, and stages of investment. Some SBICs specialize in a
particular field or industry, while others invest more generally.
Most SBICs concentrate on a particular stage of investment (i.e.,
startup, expansion, or turnaround) and geographic area. The SBA is
authorized to provide up to $3 billion in leverage to SBICs
annually. The SBIC program has invested or committed about $18.2
billion in small businesses, with the SBA's share of capital at
risk about $8.8 billion. In FY2012, the SBA committed to guarantee
$1.9 billion in SBIC small business investments, and SBICs provided
another $1.3 billion in investments from private capital, for a
total of more than $3.2 billion in financing for 1,094 small
businesses. Some Members of Congress, the Obama Administration, and
small business advocates argue that the program should be expanded
as a means to stimulate economic activity, create jobs, and assist
in the national economic recovery. Others worry that an expanded
SBIC program could result in loses and increase the federal
deficit. In their view, the best means to assist small business,
promote economic growth, and create jobs is to reduce business
taxes and exercise federal fiscal restraint. Some Members have also
proposed that the program target additional assistance to startup
and early stage small businesses, which are generally viewed as
relatively risky investments but also as having a relatively high
potential for job creation. In an effort to target additional
assistance to newer businesses, the SBA has established, as part of
the Obama Administration's Startup America Initiative, a $1 billion
early stage debenture SBIC initiative (up to $150 million in
leverage in FY2012, and up to $200 million in leverage per fiscal
year thereafter until the limit is reached). Early stage debenture
SBICs are required to invest at least 50% of their investments in
early stage small businesses, defined as small businesses that have
never achieved positive cash flow from operations in any fiscal
year. This publication describes the SBIC program's structure and
operations, including two recent SBA initiatives, one targeting
early stage small businesses and one targeting underserved markets.
It also examines several legislative proposals to increase the
leverage available to SBICs and to increase the SBIC program's
authorization amount to $4 billion.
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