Small Business Investment Companies FRBSF Community Investments (pdf, 62 kb)
Lawrence Mondschein, CRA Funding, LLC
SBICs are privately-owned venture capital funds licensed by the Small Business Administration (SBA) to invest in the long-term debt and equity securities of small businesses. These businesses possess generally less than $18 million in net assets or $6 million in annual net income and are represented in a variety of industries such as manufacturing, services and wholesale trade. The SBA provides “financial assistance” to SBICs by purchasing securities from them on terms which are related to the cost of funds to the U.S. Government. These low-cost funds, or “leverage,” augment the private capital invested in the SBIC and may represent up to 66 percent of the capitalization of an SBIC. The amount and attractive terms of this leverage have the potential to substantially increase the financial returns to private investors. As of March 1999, there were a total of 332 SBICs licensed to operate with a total of almost $10 billion in capital committed both from private sources and the SBA.