Small business investment companies (SBICs) exist to supply equity capital, longterm loans and management assistance to qualifying small businesses.
The privately owned and operated SBICs use their own capital and funds borrowed from the U.S. Small Business Administration (SBA) to provide financing to small businesses in the form of equity securities and longterm loans. SBICs are profitseeking organizations that select small businesses to be financed within rules and regulations set by SBA. Specialized SBICs (SSBIC) are a particular type of SBIC that provide assistance solely to small businesses owned by socially or economically disadvantaged persons.
SBICs invest in a broad range of industries. Some SBICs seek out small businesses with new products or services because of the strong growth potential of such firms. Some SBICs specialize in the field in which their management has special competency. Most SBICs, however, consider a wide variety of investment opportunities.
Only firms defined by SBA as small are eligible for SBIC financing. The SBA defines a company as small when its net worth is $18.0 million or less, and its average net (after tax) income for the preceding two years does not exceed $6.0 million. For businesses in industries for which the above standards are too low, alternative size standards are available. In determining whether a business qualifies, all of the business's parents, subsidiaries and affiliates are considered.
Approaching an SBIC
1. Research the SBICs
If you own or operate a small business and would like to obtain SBIC financing, you should first identify and investigate existing SBICs that may be interested in financing your company. Use this directory as a first step in learning as much as possible about SBICs in your state, or in other areas important to your company's needs. In choosing an SBIC, consider the types of investments it makes, how much money is available for investment and how much might be available in the future. You should also consider whether the SBIC can offer you management services appropriate to your needs.
2. Plan in Advance
You should determine your company's needs and research SBICs well in advance-long before you will actually need the money. Your research will take time, as will the SBIC's research of your business.
3. Prepare a Business Plan
When you've identified the SBICs you think are best suited to provide financing for your company, you will need to prepare a presentation. Your initial presentation will play a major role in your success in obtaining financing. It is up to you to demonstrate that an investment in your firm is worthwhile. The best way to show worth is by presenting a detailed and comprehensive business plan or prospectus that includes, at a minimum, the following information:
Identification
The name of the business as it appears on the official records of the state or community in which it operates.
The city, county, and state of the principal location and any branch offices or facilities.
The form of business organization, and if a corporation, the date and state of incorporation.
Product or Service
A description of the business performed, including the principal products sold or services rendered.
A history of the general development of the products and/or services during the past five years (or since inception).
Information about the relative importance of each principal product or service to the volume of the business and to its profits.
Product Facilities and Property
Description of real and physical property and adaptability to other business ventures.
Description of the technical attributes of production facilities.
Marketing
Detailed information about your business's customer-base, including potential customers. Indicate the percentage of gross revenue generated by your five largest customers.
A marketing survey and/or economic feasibility study.
A description of the distribution system by which you provide products or services.
Competition
A descriptive summary of the competitive conditions in the industry in which your business is engaged, including your concern's position relative to its largest and smallest competitors.
A full explanation and summary of your business's pricing policies.
Management
Brief resumes of the business's management personnel and principal owners including their ages, education, and business experience.
Banking, business, and personal references for each member of management and for the principal owners.
Financial Statements
Balance sheets and profit and loss statements for the last three fiscal years or from your business's inception.
Detailed projections of revenues, expenses, and net earnings for the coming year.
A statement of the amount of funding you are requesting and the time requirement for the funds.
The reasons for your request for funds and a description of the proposed uses.
A description of the benefits you expect your business to gain from the financing: improvement in financial position, expense reduction, increase in efficiency, and any other information that may be pertinent to your particular business.
Information courtesy of the Small Business Administration.
