SBIC: Small Business Investment Company
1. What's a Small Business Investment
Company (SBIC)?
2. Who is This Good For?
3. When is This The Best Choice For
Me?
4. Tips For Getting The Money.
5. Ingredients You'll Need on
Hand.
6. Watch Out For...
7. Web Links.
1.What is a SBIC?
Small Business Investment Companies, affiliated with the
Small Business Administration, channel private investors' money,
sometimes combined with some government money or government guarantees,
to small, fast-growing companies. They enjoy unique status under
federal securities law, as they encourage more private money to
go to smaller companies. Currently, there are 271 SBICs nationwide
with $3.5 billion in private funds and $1 billion in government
money to lend.
2. Who is This Good For?
While there are some general-purpose SBIC's, some focus on a particular
industry, geographic area, type of borrower, women, or minorities.
Some industries sponsor SBIC's to encourage innovation.
3. When is This The Best Choice For
Me?
When you can qualify. SBICs differ in the nature of companies
they will invest in, size of investment, stage of company, and so
on. Otherwise they bring some of the same concerns as venture
capital companies
When you don't mind dealing with bureaucrats; with an investment
from a SBIC you may need to fill out more forms, meet more requirements,
and put up with a government representative from time-to-time. Often
SBIC funds open the door to more traditional financing, such as
a line of credit.
4. Tips For Getting The Money
Start close to home; most SBICs prefer to work with local businesses.
Aim for an SBIC within 300 miles of your company.
Use your status as a minority or woman-owned business to locate
programs for you through the Minority Enterprise Small Business
Investment Company.
SBICs offer both debt and equity financing, and some specialize
in smaller loans. Decide what financing blend is right for you,
and screen out the SBIC's that don't match your needs.
5. Ingredients You'll Need
on Hand
- A Business Plan.
- Basic financial
package
- Proof that you meet any requirements of the specific SBIC.
- If you are a minority or woman-owned company, you'll have to
document that a minority or woman owns and controls at least 51
percent of the firm.
- Possibly, proof that your product is original work not in violation
of existing patents or copyrights.
6. Watch Out For...
All those cooks. Your relationship with the government
agency or industry lender may appear to be a quasi-partnership.
Your product or process will have to benefit them directly for their
investment in you to pay off (in their minds), which may crimp your
development style.
Limited future options. The SBIC may have limited amounts
of money they can invest and not be able to help you in future rounds
of financing to grow your business larger. On the other hand, the
investor may want right of first refusal to fund future rounds of
financing, limiting your ability to take the company public or even
to get additional private investors.
7. Web Links
The
SBA's site
Small business resources and guidance for applying for SBA-backed
loans.
Small Business
Advancement Center
National research, training, and information center operated
by the SBA
American Economic
Development Council
Go here for a list of affiliated and regional business development
organizations.
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