2014 Government Regulations & Business Summit
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What does your growth-minded small business have in common with Apple? Not much, perhaps, but here’s one thing: The multigazillion dollar tech company got early funding from a unique type of investment firm called a Small Business Investment Company – and so could you.
SBICs are high-powered but low-profile backers of small businesses, pumping more than $4 billion into small, growing firms, as well as some early-stage startups in the past year alone. They’ve been around for 54 years (surprise!) but most capital-seeking small businesses and startup entrepreneurs have never heard of them. So what gives?
For one thing, SBICs deliberately fly below the radar to avoid being inundated with funding requests. But SBICs are still on the lookout for high-potential small businesses to invest in, and the amount of money available to small companies via this channel has skyrocketed 85 percent in the last two years, setting all-time records. Not only is this an increasingly important funding source, it’s also an innovative, time-tested structure that marries some of the best features of private-equity money with government guarantees.
In part, that’s because of how they’re structured. For one thing, SBICs are licensed and regulated by the U.S. Small Business Administration (SBA). And the money they invest in small businesses – through equity investments, loans or both – comes from purely private sources plus capital raised with the help of SBA guarantees.
The SBA backing has helped entice record levels of private capital to SBICs, and into small businesses – about $1 billion in the past 12 months. SBICs invest in a wide range of small-business types, including established firms with less than $1 million in revenue, as well as early-stage companies just under way. Because the SBA licenses them, SBICs must invest exclusively in small firms, with at least 25 percent of investments directed to businesses with under $2 million in after-tax income. Investments must be debt, equity or a combination of the two.
There’s a state-by-state directory of licensed SBICs on the SBA website at this address: www.sba.gov/content/sbic-directory. Or visit the main SBIC page at www.SBA.gov/INV and look for the “Small Business Owners & Entrepreneurs” section for more information and resources. That’s where you’ll find step-by-step guidance on seeking SBIC financing for your small business. •