Frequently Asked Questions

What is an SBIC?
  • Small Business Investment Companies (SBIC) are investment funds licensed by the Small Business Administration. SBIC funds invest exclusively in American small businesses. SBICs can provide debt, equity, or a mix of both to small businesses. SBICs raise private capital, apply for a license, and if licensed as a “leveraged SBIC” are eligible to access leverage from the SBA at the fund level.

  • The law limits leverage to a ratio of 3:1 (SBIC Leverage to Private Capital), but as a practice SBA does not usually approve leverage above 2:1. By law, the SBIC Leverage must be provided and maintained at a zero-subsidy rate. The SBIC leverage has successfully maintained its zero-subsidy rate since Congress mandated the zero-subsidy rate in 1998.
Do the SBIC Trust Certificates for each debenture pool have an implied government guarantee or an explicit government guarantee?
  • The trust certificates for each debenture pool have an explicit guarantee with the full faith and credit of the United States.
What is the usual weighted average life of an SBIC debenture?  What is the prepayment speed?
  • There are no prepayment penalties for SBICs that pay off debentures fully prior to year 10. Given that SBA expects and often requires some leverage to be paid back prior to issuance of a new license, some levels of prepayments are common. SBA publishes the history of prepayments which can be found at this link: Debenture Prepayment Schedule.
What percentage of SBIC debentures are accelerated due to default?
  • SBA can accelerate payments for several reasons including financial default by the SBIC, regulatory violations by the SBIC, changes in key person(s) at the SBIC, etc.
Can SBICs refinance their outstanding debentures?
  • SBICs are generally limited in refinancing their own transactions with newer debentures if rates drop. 

  • However, there are hundreds of SBICs and there are no restrictions on an unrelated SBIC investing in a small business that has previously received SBIC capital from another source.
What is the cost of an SBIC loan extended to a small business?
  • SBICs are investing in an active market and are not concessionary capital. As such they are providing capital at market rates, but SBICs do have several limits on how much they can charge small businesses.  (See SBIC program regulations on “Cost of Money at 13 CFR 107.855). Straight debt is generally capped at 19%, but can be higher in the event of unusually high cost of debentures.  If the SBIC is receiving equity or warrants in the transaction then there is a lower Cost of Money limit of 14%, which again can be higher during periods of high interest rates.
How large are the pools of SBIC debentures and when are they offered for sale?
  • Currently, SBA offers SBIC debentures for sale twice a year (March and September) but offerings may occur more often.

  • The pool size varies based on the number of SBICs drawing leverage during any six-month period; however, the SBIC program has grown significantly since the 2008 financial crisis and recent offerings have exceeded $1 billion.
How are the underlying loans of leverage to SBICs structured?
  • SBICs are approved for a level of leverage at the time of their licensure. This leverage is generally limited to a ratio of 2:1 and limited to $175m (single fund) whichever is lower. 
  • SBICs do not draw all their leverage at once, but instead draw it as it is needed to deploy into their portfolio of small businesses.  These debentures are non-amortizing, non-recourse notes with no prepayment penalties.  Interest payments are due every six months and the rate is fixed once the debentures have been pooled and priced in the market.
Does the law limit the types of small businesses that an SBIC may invest in?
  • Yes. SBICs may invest exclusively in active American small businesses.

  • SBICs are prohibited from investing in businesses that are against public policy, which includes anything that is illegal or generally against the public interest (vice industries).  (See SBIC program regulations at 13 CFR 107.720.)

  • SBICs are prohibited from making investments that would contribute to higher unemployment.

  • Since SBICs are designed to provide long-term capital and create sustainable businesses, SBICs may not provide short term financings (less than 1 year) and may only invest in ongoing enterprises (no project finance or real estate development). 

  • SBICs may not control the small business for longer than 7 years without SBA’s approval for a longer hold.

  • SBICs are prohibited from putting prepayment penalties on investments into the small businesses. 
Is it possible for Congress to make legislative changes that could affect the various SBA programs?
  • Yes. Over the decades of its existence, Congress has made numerous reforms and improvements to the program. Congress can change any federal law.

  • Congress authorized the creation of the SBIC program in 1958. The program has been a success helping small businesses grow into icons of American business (Apple Computer, Intel, Federal Express, Costco, Tesla, Callaway Golf, and many, many more).
What are the eligibility criteria for an SBIC?
  • Getting an SBIC license is not easy. In order for SBA to issue an SBIC license, the government must review the character of the applicants (criminal, civil, and just plain character of the applicants). SBA will also perform an extensive review of the investment history of the team applying.  SBA requires an excellent investing history to make sure that debentures are likely to be paid back. SBA is also reviewing the investing history to make sure that the track record reflects a meaningful benefit to the small businesses that received investments. (See SBIC program regulations at 13 CFR 107.305.)
Does SBA Issue Preliminary Offering Circulars before SBIC debentures are offered for sale?
  • When the SBA approves a preliminary offering circular, we will publish it on this website. Past offering circulars are listed on this website: Offering Circulars – Debenture.
Where does the SBA publish information about the SBIC Program?
What other data is available about the SBIC program?
  • SBIC Investments are made exclusively into American small businesses across the country.  The historical geographical dispersion of the investments can be found here.
Where are SBIC Investments made?