White House and SBA Announce Landmark Investments in Vital Small Businesses and Start-ups Through the SBIC Program
Throughout its 65-year-long history, SBA’s Small Business Investment Company (SBIC) program, has seeded, scaled, and sustained some of the most innovative and successful businesses in the world including Apple Computers, Tesla, and Intel, among many others.
The SBIC program catalyzed such success stories through a model of public-private partnership. SBA does not fund companies directly. Instead, SBA provides government-guaranteed loans to private investment funds who then in turn invest in a broad and diversified ‘basket’ of small businesses and startups. SBA’s loan comes in alongside private sector limited partner investment in SBIC-licensed funds. The loan increases capital available for investment in small businesses and startups and aligns financial incentives for limited partners to support investment in funds focused on America’s small businesses and startups.
For the past two decades, SBA has offered primarily one type of government-guaranteed loan to private funds holding an SBIC license, the ‘Standard SBIC Debenture’. This loan requires private funds to pay SBA interest on the loan semi-annually. This loan matches the cash flow patterns of mezzanine debt and private credit funds well and as a result, the ecosystem of debt-focused SBIC-licensed funds has thrived and continues to perform well and meet the debt-financing needs of many small businesses across the country. However, the mission and intent of Congress in establishing the SBIC program was and remains:
“To improve and stimulate the national economy in general and the small-business segment thereof in particular by establishing a program to stimulate and supplement the flow of private equity capital and long-term loan funds which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.”
SBA believes the Agency must meet the mission and intent of Congress, by broadening and diversifying the spectrum of investments to include equity-oriented strategies and expanding the network of SBIC program investors to meet the financing needs of small businesses struggling to access traditional sources of capital.
To fulfill this goal, SBA implemented policy and regulatory reforms to the SBIC program in July 2023 through the SBIC Investment Diversification and Growth Rule which modernized structural aspects of the SBIC program and introduced a new SBA government-guaranteed loan, the SBIC Accrual Debenture, designed to match the cashflow patterns of equity-oriented investment strategies thereby enabling SBA to license and provide loans to private funds investing equity into small businesses and startups to fuel their growth and expansion. The reforms are designed to increase and accelerate the flow of return-seeking private investment in small businesses and startups in underserved communities, capital-intensive industries, and technology areas critical to U.S. national security and economic development. Small businesses and startups in these communities, industries, and technologies are often capital-constrained and not sufficiently financed by private sector investment alone due to lack of access, duration of investment, risk/return profile, or magnitude of capital required.
On February 14, 2024, Administrator Guzman announced the first major milestones resulting from the SBIC program regulatory and policy reforms designed to accelerate private sector return-seeking investment in economic development and national security.
These milestones reflect the Biden Administration’s commitment to deliver reforms that expand the diversity of SBA agency investment partners and the small businesses and innovative startups that can now access investment capital to finance, start, scale, and sustain their growth.
The milestone announcements include:
- The first SBA-DOD SBIC Critical Technologies (SBICCT) fund applicant to receive approval to raise private capital, an approval necessary to subsequently receive an SBICCT License and obtain a commitment of government-guaranteed funds from SBA. The Green Light Approval is for Stifel North Atlantic, which intends to focus investments on improving domestic supply chain resiliency and agility by promoting the adoption and advancement of additive manufacturing (“AM”) production capabilities in lower-middle market businesses.
- The first SBA Accrual SBIC license approval and intended SBA government-guaranteed accrual fund commitment of up to $125 million as a match to private limited partner capital raised by the Accrual SBIC fund. This first license was approved on December 29, 2023, and will be managed by Pelion Ventures, a Salt Lake City, Utah-based early-stage technology venture capital firm focused on helping entrepreneurs turn early-stage concepts into tomorrow’s industry-leading companies.
These landmark announcements reflect a spectrum of investment strategies, stages, industries, and geographic investment focus that the Federal government can now amplify in capital-constrained and underserved markets because of the Biden Administration’s transformation of this longstanding public-private investment program.
New funds will only strengthen and diversify the SBIC program further increasing and accelerating investments in America’s small businesses and startups. Below is a snapshot of the scope of the SBIC program in FY23:
- Private Capital and Leverage for Active SBICs exceeds $42.6 billion.
- SBICs created or sustained an estimated 130,281 jobs.
- Financings to women-owned, minority-owned, and veteran-owned small businesses totaled $669.7 million, a 25.7% increase from FY22.
- SBA issued over $4.05 Billion in commitments to SBICs.
- SBIC program Subsidy Rate for FY 2023/4 remains Zero for Debentures for the 25th/ consecutive year.
Some of the SBIC program’s Small Business Success Stories Over the Years:
| America Online | Microcom |
| Amgen | Microtouch Systems, Inc. |
| Apple Computer | Nutrisytems |
| Bright Start, Inc. | Optical Data Systems |
| Build-a-Bear | Orbital Sciences Corp. |
| Callaway Golf Company | Peoplesoft, Inc. |
| Compaq, Inc. | Quiznos |
| Costco | Restoration Hardware |
| Cray Research | RF Power Products |
| Cutter & Buck | Sage Software |
| DoubleClick.com | Staples |
| Evergreen Solar, Inc. | Sun Microsystems |
| FedEx | Teradata Corp. |
| Fiserv | Tesla |
| Fusion Systems Corp. | Toast |
| Geotek Communications | Universal Health Services |
| Intel | Whole Foods |
| Kronos, Inc. | Wild Oats |
| MediFAX |
