Description of the Small Business Investment Company Debenture Program - April 2019

A Small Business Investment Company (SBIC) is a privately owned and operated company that makes long-term investments in American small businesses and is licensed by the United States Small Business Administration (SBA). The principal reason for a firm to become licensed as an SBIC is access to financing (Leverage) provided by SBA. In addition, banks and Federal savings associations (as well as their holding companies) have the ability to own or to invest in SBICs and thereby to own indirectly more than 5 percent of the voting stock of a small business,1 and can receive Community Reinvestment Act credit for SBIC investments. Banks and their holding companies are permitted to invest in SBICs under the regulations implementing the “Volcker Rule” pursuant to the Dodd-Frank Act. They also receive exemptions from certain capital charge regulations and lending “affiliation” rules under the Gramm-Leach-Bliley Act. A business seeking a U.S. Government contract that is a set aside for small businesses does not lose its status as a small business by reason of a control investment by an SBIC. Many Business Development Companies (BDCs) also have formed SBIC “subsidiaries” as part of their business strategies.