The 411 on the Small Business Investment Company (SBIC) Program

By Jennifer Weinhart, Senior Policy Advisor, Engine Advocacy & Foundation

What is the SBIC program?

The SBIC program, administered by the Small Business Administration (SBA), is a fund-of-funds investment program created to improve small business access to venture capital. The program helps to supplement private equity flowing to qualifying small businesses and startups by issuing debt, including to venture capitalists and private equity funds that are licensed as SBICs, who in turn invest in American businesses. Private investment capital is matched by SBA leverage, borrowed at favorable rates, and guaranteed by the SBA. The funds are managed and controlled privately and provide support to small businesses in a number of ways including through equity investment, debt-equity investment, and long term loans.

There are two main types of SBICs — leveraged, or debenture SBICs, or unleveraged SBICs. For debenture SBICs, licensed SBICs can leverage $2 dollars in government backed debt for every $1 of privately raised capital. They are able to secure a maximum leverage of the lesser of $175 million or up to 3 times the amount of regulatory capital, but not more than $350 million. Debenture SBICs must have a minimum private capital investment of at least $5 million. The debentures have a 10-year maturity period and have a semiannual interest payment. Debenture SBICs typically do not invest in early stage companies.

Non-leveraged SBICs, on the other hand, do not obtain leverage from the SBA, but they are licensed by the SBA and must only invest in American businesses. Banks can invest institutional capital in non-leveraged SBICs which comes with certain benefits.

Why does the SBIC program matter to startups?

The program, which operates at no cost to taxpayers, enables more capital to flow to startup founders. Though the SBA does not directly invest in small businesses, through implementing the SBIC program, the program increases the amount of capital funds are able to invest in American businesses. Some SBICs specialize, focusing funds in certain fields or geographic areas. The SBIC program has also in the past focused on deploying capital to early stage startups or in underserved businesses, but Impact Investment SBICs and Early Stage SBICs are no longer accepting new applicants. Improving access to capital for underrepresented founders is critical to our startup ecosystem.

What is on the horizon?

Policy conversations have regularly popped up discussing ways to improve the program and make it better serve underserved founders and early stage startups. From increasing the amount of leverage available to SBICs, to establishing a micro-class SBIC to bring in more diverse funders (and in turn fund more diverse startups), many are interested in improving the program.

Recently, SBA Administrator Isabella Casillas Guzman announced proposed reforms to the SBIC program with a goal of increasing access, improving diversity amongst the SBIC network and portfolio, and reducing financial barriers to the program. The potential reforms also include proposals to reduce the barriers to entry for new private fund managers and private funds with a focus on small businesses and startups — particularly those in underserved communities — as well as a proposal to create an alternative to the traditional debenture SBIC model.

Providing feedback on the proposed rule is one opportunity for the innovation ecosystem to highlight how the program can better serve the startup ecosystem. Embracing diversity in the ecosystem leads to more and better innovation and better outcomes. And diversity within the U.S.’ investment ranks, is a critical component for diversity amongst startup founders.

The proposed changes suggested by the SBA could provide more opportunity for diversity within the innovation ecosystem. But it is also important to consider how the ecosystem is currently structured. When smaller funds can become licensed, smaller businesses have an increased opportunity for funding which boosts access to equity investments for underrepresented founders. Comments on the proposed rule are due December 19, 2022. Contact if you’re interested in participating or learning more.

Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues.



Engine is the voice of startups in government. We are a nonprofit that supports entrepreneurship through economic research, policy analysis, and advocacy.

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Engine is the voice of startups in government. We are a nonprofit that supports entrepreneurship through economic research, policy analysis, and advocacy.