Small Business Investment Companies offer private funding to new and existing small to medium businesses. These SBICs acknowledge that supporting the growth of private small businesses is essential to the growth of the United States economy as a whole because small businesses provide so many jobs. SBICs receive backing by the federal government through the United States Small Business Administration, which not only licenses individual small business investment companies but also regulates them.

Once you decide to seek SBIC financing, you must find out if you qualify. Businesses reporting income less than $18 million and less than $6 million in after tax income probably qualify. The next step is to make a conservative assessment of how much SBIC funding you’ll need. This depends in large part on whether you are starting a new business or expanding the one you already have. As you consider SBIC services, make sure you don’t leave one stone unturned in planning your new venture.

1. Research SBIC services to determine whether and how it can help your new or existing business.

2. Determine whether you qualify for SBIC financing by contacting an SBIC representative.

3. Deal with an SBIC that focuses on your particular industry.

Action Steps
The best contacts and resources to help you get it done

Get more information on the SBIC program in general

Your business intuition reminds you that financing programs can sound too good to be true. Play it safe by getting accurate information on SBIC law and qualifying criteria from reliable sources before you commit to financing from an SBIC.

I recommend: The U.S. Small Business Administration has been part of the federal government since 1953. The investment division of the SBA seeks to help create jobs and stimulate the economy by providing private investment to small businesses. Research the concept behind the SBIC program in general. In addition, access the website for the National Association of Small Business Investment Companies for more facts about the concept of the SBIC so you can decide whether SBIC financing is right for you. Check out the Association’s website for success stories from companies that have received SBIC financing.

Contact an SBIC to see if you qualify for funding

Speak directly with an SBIC professional who will explain the company's approval process and individual investment policy.

I recommend: Alvarez and Marshal, based in New York, has provided financial support to small businesses since 1983. Publicly owned Capital Southwest Corporation and privately owned Petra Capital Partners support small business development throughout the Untied States and have an impressive portfolio of customers representing diverse industries such as electronic manufacturing, construction, architecture, banking, web-based concerns, healthcare and oil.

Find a specialized small business investment company

These SBIC's prefer to focus on certain industries and may even set size requirements for companies they invest in.

I recommend: Hamilton BioVentures invests in biopharmaceutical and life science technology companies. Argosy Partners concentrates on financing East Coast-based manufacturing firms with a minimum of $10 million in revenue. Advantage Capital Partners focus on the telecommunications industry. It maintains offices in 10 states throughout the country and welcomes you to submit your business plan online.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  It may help to contact a professional finance 'coach' who has experience in applying for loans from participating-securities SBIC companies and who can guide you through the approval process.

Small businesses requiring growth capital in the tough-to-find $250,000-to-$5 million range can turn to the Small Business Administration's Small Business Investment Company (SBIC) program. The SBA licenses SBICs – privately organized and managed venture-capital firms – to make loans exclusively to small companies. The financing isavailable to:

1. Small businesses only, defined by the SBA as those with a net worth of $18 million or less and with after-tax earnings of $6 million or less for the past two years.
2. Nearly every type of business.
3. Businesses owned by social or economically disadvantaged entrepreneurs, through Specialized Small Business Investment Companies (SSBICs) investing only in these types of businesses.

Action Steps
The best contacts and resources to help you get it done

Choose debt or equity

SBICs and SSBICs use their own capital plus funds raised through the SBA to make equity capital and long-term loans. Debenture SBICs focus on more mature companies, providing debt or debt-with-equity loans. Participating-securities SBICs are able to invest in younger companies with pure equity investments.

I recommend: Get the detailed rules from the SBA.

Craft your pitch

SBICs will expect to see a detailed business plan laying out your strategy and your financials.

I recommend: The National Association of Small Business Investment Companies' guide for entrepreneurs walks you through the application process.

Contact an SBIC or SSBIC

They're located throughout the country, but they differ in dollar limits of financing, investment policies, and preferences for certain types of and locations of businesses.

I recommend: SBICs and SSBICs can be found through the SBA and the National Association of Small Business Investment Companies.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Although SBICs and SSBICs have their own investment criteria, they make exceptions in some cases.
• •  There is no rule about how long it should take an SBIC or SSBIC to decide on an application, so it's wise to determine your company's needs and to research SBICs long before you'll need the money.
• •  Financing is tailored to meet the needs of the business and the SBIC.