Small Business Investment Companies

Small Business Investment Companies The Congress created the Small Business Investment Company Program in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. SBICs, licensed andregulated by the Small Business Administration, are privately owned and managed investment firms. They use their own funds, plus funds obtained by borrowing at favorable rates with an SBA guaranty and/or by selling their preferred stock to the SBA, to make venture-capital investments in small businesses. Virtually all SBICs are profit-motivated businesses. They provide equity capital, long-term loans, debt-equity investments and management assistance to qualifying small businesses. Their incentive is the chance to share in the success of the small business as it grows and prospers. The program makes funding available to all types of manufacturing, distribution and service industries. Many investment companies seek out small businesses with new products or services because of the strong growth potential of such firms. Some SBICs specialize in a particular field in which their management has special knowledge or competency. Most, however, consider a wide variety of investment opportunities. Eligibility You must meet the SBA's definition of "small" to be eligible for SBIC financing. In general, the SBA defines small businesses as companies whose net worth is $18 million or less and whose average net (after-tax) income for the preceding two years does not exceed $6 million. For some industries, the above standards are too low, and alternative size standards are used. In determining whether or not a business qualifies, the SBA considers its parent, subsidiaries and affiliates. Approaching an SBIC Do Research If you own or operate a small business and would like to obtain SBIC financing, you should first identify and investigate existing SBICs that may be interested in financing your company. You should also consider whether or not the SBIC can offer the management services you need. The SBA publishes a regularly updated directory of all current SBIC licenses. The amount of each SBIC's private capital and the amount of government leverage it has received are listed, as well as information on each SBIC's type of ownership and investment policy. This information is also available over the Internet and through SBA OnLine, the agency's electronic bulletin board. For access details, see "For More Information" at the end of this fact sheet. And Plan in Advance Determine your company's need well in advance - long before you will actually need the money. Research takes time and you will not want to be caught in a cash crunch. Prepare a Prospectus/Business Plan When you've identified the SBICs you think can best meet your financing needs, you'll need to prepare for a presentation. Your initial presentation will play a major role in your success in obtaining financing. It's up to you to demonstrate that an investment in your firm is worthwhile. The best way to achieve this is to present a detailed and comprehensive business plan, or prospectus. You should include, at a minimum, the following information about your business: Identification * Full legal name of the business * Type of entity (e.g., corporation, limited partnership, etc.), including date and state of incorporation, if applicable * City, county and state of the principal location and of any branch offices or facilities Product or Service * Description of the business, including the principal products sold or services provided * History of the development of the products and/or services during the past five years or since your business was started * Relative importance of each product or service to the volume of the business and to its profits Marketing * Detailed information about your business's customer base, including potential customers, and the percentage of gross revenue accounted for by your five largest customers * Marketing survey and/or economic feasibility study * Distribution system by which products or services are delivered to customers Competition * Competitive conditions for your industry, including your company's position relative to its largest and smallest competitors * Full explanation of your pricing policies Management * Brief resumes of managers and principal owners, including their ages, education and business experience * Banking, business and personal references for each manager and principal owner Financial Statements * Balance sheets and profit-and-loss statements for the last three fiscal years or from start-up * Monthly or quarterly projections of revenues, expenses and net earnings for the coming year, and annual forecasts for the next four years * Amount of funding you are requesting and the time requirement for the funds * Reasons for your request for funds and a description of the proposed uses * Benefits you expect your business to gain from the financing - for example, increases in revenues, cost reduction, productivity improvements Production Facilities and Property * Description of real and physical property and adaptability to new or existing business ventures * Description of technical aspects of production facilities For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information include: U.S. Small Business Administration * SBA District Offices * Small Business Development Centers (SBDCs) * Service Corps of Retired Executives (SCORE) * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call the following: SBA OnLine: electronic bulletin board - modem and computer required (800) 697-4636 (limited access) (900) 463-4636 (full access) (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) SBA Home Page: http://www.sba.gov SBA gopher: gopher://gopher.sba.gov File transfer protocol: ftp://ftp.sba.gov Telnet: telnet://sbaonline.sba.gov U.S. Business Advisor: http://www.business.gov You also may request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did you know the SBA ... * Has a portfolio guaranteeing over $27 billion in loans to 185,000 small businesses that otherwise would not have had such access to capital? * Guaranteed over 60,000 loans totaling $9.9 billion to America's small businesses in fiscal year 1995? * Last year extended management and technical assistance to nearly 1 million small businesses through its 950 Small Business Develop- ment Centers and 13,000 Service Corps of Retired Executives volunteers? * Provided more than 45,000 loans totaling $1.2 billion to disaster victims for residential, personal property, as well as business losses in fiscal year 1995? * Has 7,000 private sector lenders as partners providing their capital to small business? * Has increased its venture capital program with more private capital in the past two years than in the previous 15 years combined? * Provides loan guarantees and technical assistance to small business exporters through U.S. Export Assistance Centers in 15 cities? * Can respond to written small business questions through the U.S. Business Advisor on the Internet (http://www.business.gov)? Did you know that America's 22 million Small Businesses ... * Employ more than 50 percent of the private workforce, * Generate more than half of the nation's Gross Domestic Product, and * Are the principal source of new jobs? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0069 (8/96)