The Small Business Investment Company Program

The Small Business Investment Company (SBIC) program was intended to stimulate and supplement the flow of private-equity capital and long-term loans to small businesses (independently operated, generally with assets not exceeding $9 million) for growth, expansion, and modernization. The government makes long-term loans to SBICs which are regulated and licensed by the Small Business Administration (SBA), charging interest at approximately its cost of borrowing, about 7 or 8 percent.

In spite of the government's large financial commitment to the program, only a select group of small businesses is being serviced. As of March 31, 1976, 277 SBICs had outstanding investments of about $569 million and about $467 million in federal loans outstanding. Equity-oriented SBICs consider investments according to risk and growth potential and set rigid investment criteria, while loan-oriented SBICs are primarily concerned with the borrower's ability to repay loans. The following factors restrict the usefulness of the program: it is smaller than it was in its formative years in number of investment companies and annual financings; few businesses get equity-type financing because of the preference of SBICs for larger small businesses with growth potential; such businesses can receive financing from private industry; private companies sometimes financed the same businesses as SBICs, usually with larger investments; much of the equity capital provided has come from bank-dominated SBICs--many of the companies have not used the loan funds; and SBICs often serve the same clientele as those of the SBA's 7(a) business loan program which has better terms for loans.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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