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Catalog of Federal Domestic Assistance

Program Descriptions

59.011:  Small Business Investment Companies

Popular Name:  SBIC; SSBIC

Objectives:  To establish privately owned and managed investment companies, which are licensed and regulated by the U.S. Small Business Administration; to provide equity capital and long term loan funds to small businesses; and to provide advisory services to small businesses.

PROGRAM AND AWARD	FINANCIAL AND INFORMATION CONTACTS
ELIGIBILITY REQUIREMENTS	FINANCIAL AND ADMINISTRATIVE INFO.
APPLICATION AND AWARD PROCESS	INFORMATION CONTACTS
RELATED PROGRAMS	ASSISTANCE CONSIDERATIONS
PROGRAM ACCOMPLISHMENTS	POST ASSISTANCE REQUIREMENTS

59.011 ELIGIBILITY REQUIREMENTS:

Applicant Eligibility:  Any chartered small business investment company having a combined paid-in capital and paid-in surplus of not less than $3,000,000, having qualified management, and giving evidence of sound operation, and establishing the need for SBIC financing in the geographic area in which the applicant proposes to operate.

Beneficiary Eligibility:  Individual businesses (single proprietorship, partnership or corporation) which satisfy the established criteria of a small business. SSBICs beneficiary must also be a business owned and operated by socially or economically disadvantaged individuals.

Credentials/Documentation:  Investment company must be chartered as a corporation, limited partnership (with corporate general partner, individual general partner or limited liability company), or limited liability company. Determination is made as to need in area, general business reputation and character of proposed owners and management and probability of successful operations. All loans to small concerns shall be of such sound value, or so secured, as reasonably to assure repayment.

59.011 APPLICATION AND AWARD PROCESS:

Preapplication Coordination:  None. This program is excluded from coverage under E.O. 12372.

Application Procedure:  Request information and appropriate forms from SBA Central office. Complete application requirements and submit with a minimum application fee payment of $10,000 to SBA Central Office.

Award Procedure:  Applicant is notified by issuance of a license from the Investment Division of the Small Business Administration.

Deadlines:  None.

Range of Approval/Disapproval Time:  Average of 120 days.

Appeals:  Proponents may reapply at any time.

Renewals:  None.

Criteria for Selecting Proposals:  Not applicable.

Examples of Funded Projects:  Not applicable.

Range and Average of Financial Assistance:  SBIC and SSBIC Leverage: $50,000 to $90,000,000; $3,804,000.

59.011 RELATED PROGRAMS:

• 11.800 Basic Minority Business Development Centers;
• 59.005 Business Development Assistance to Small Business;
• 59.006 8(a) Business Development.

59.011 PROGRAM ACCOMPLISHMENTS:

59.011 FINANCIAL AND ADMINISTRATIVE INFO:

Federal Agency:  SMALL BUSINESS ADMINISTRATION

Type of Assistance:  Direct Loans; Guaranteed/Insured Loans; Advisory Services and Counseling.

Obligations:  (Loans) FY 99 $972,443,000; FY 00 est $1,400,000,000; and FY 01 est $2,400,000,000.

Budget Account Number:  73-1154-0-1-376.

Authorization:  Small Business Investment Act of 1958, as amended, Public Law 85-699, 15 U.S.C. 681 et seq.

Regulations, Guidelines, and Literature:  13 CFR Chapter I, Part 107.

59.011 INFO CONTACTS:

Regional or Local Office:  None.

Headquarters Office:  Associate Administrator for Investment, Investment Division, Small Business Administration, 409 Third Street, SW., Washington, DC 20416. Phone: (202) 205-6510. Use the same number for FTS.

(See Appendix IV for more contact info.)

59.011 ASSISTANCE CONSIDERATIONS:

Formula and Matching Requirements:  An SBIC or an SSBIC in good standing, with a demonstrated need for funds, may receive leverage based on its private capital. All SBICs and SSBICs may receive leverage of as much as 300 percent of its private funds. The maximum amount of leverage varies according to the SBIC's private capital. For private funds that do not exceed $15 million, maximum leverage is 300 percent of the private funds. For private capital over $15 million but not exceeding $30 million, leverage shall not exceed $45 million plus 200 percent of the amount over $15 million. If private capital is over $30 million, leverage shall not exceed $75 million plus 100 percent of the amount of private capital over $30 million, up to a maximum of $90 million. To obtain leverage, regular SBICs issue their debentures or participating securities which are guaranteed by SBA. Pools of the SBA-guaranteed debentures or participating securities are formed, and SBA-guaranteed participation certificates, representing an undivided interest in the pools, are sold to investors through a public offering. Under current procedures, regular SBIC debentures have a term of 10 years, and they provide for semi-annual interest payments and a lump-sum principal payment at maturity. Debentures may be prepaid with a penalty. The debenture rate is determined by a market conditions at the time of the sale. SSBICs, like regular SBICs, may issue their debentures for inclusion in the aforementioned guaranteed debenture pools and public offerings of the guaranteed participation certificates. SSBIC debentures have a term of 10 years and provide for semi-annual interest payments and a lump sum principal payment at maturity. Prepayment would incur a penalty. As with debentures, the rate on participating securities is based on the 10-year Treasury-yield curve. However, the participating security has a 15-year maximum term and provides for payment of dividends or interest and profit participation to SBA only when an SBIC has earnings, as defined by regulation. A unique feature of the participating securities is that SBA shares in the profits of the SBIC. SBBICs also may issue participating securities.

Length and Time Phasing of Assistance:  Not applicable.

Uses and Use Restrictions:  The investment companies provide management and financial assistance on a continuing basis to eligible small business concerns. Financial assistance is provided by making long-term loans to these small concerns, and/or by the purchase of debt or equity type securities issued by these firms. Emphasis is on providing assistance to the pioneering, innovating-type concerns developing new products, processes, and markets. Specialized investment companies organized/licensed under Section 301(d) of the authorizing statute (SSBICs) must restrict eligibility of small concerns financed by such investment companies to those owned and operated by individuals whose participation in the free enterprise system has been hampered by social or economic disadvantages. Debentures are issued by the SBIC and guaranteed by SBA for a term not to exceed 10 years, and participating securities for a 15-year maximum. All investment companies generally may not self-deal, take control, finance "big business," or invest over 20 percent (30 percent for SSBICs) of private capital in any single small concern.

59.011 POST ASSISTANCE REQUIREMENTS:

Reports:  Financial report (annual); program financing reports; any other report furnished stockholders.

Audits:  Annual audit by a certified public accountant and periodic examinations by SBA personnel.

Records:  Current financial records, minutes of meetings of stockholders, general partners, directors, executive committees, and time spent and charges made for management consulting services performed must be maintained for 6 years.