Summary: The Small Business Administration's (SBA) Small Business Investment Company (SBIC) Program was intended to stimulate and supplement the flow of private-equity capital and long-term loans to small business. SBIC's are privately operated investment companies that are authorized to make equity investments in small businesses. In spite of the Federal Government's large financial commitment to the program and the benefits to some small firms, only a select group of small businesses are being serviced. These are usually larger firms with the greatest growth potential. Equity-oriented SBIC's are profit-motivated and consider investments according to risk and growth potential, whereas loan-oriented SBIC's are more concerned with the ability to repay loans. Some factors restricting the usefulness of the program are: there has been a decrease in the number of investment companies participating and financings made; few businesses get equity-type financing; a private industry provides equity financing to the same type of businesses; banks have made equity investments otherwise prohibited by law; and SBIC's serve the same clientele as those of the SBA 7(A) program which offers better loan conditions. Before further funding is provided for the program, it should be reviewed and justified by the SBA.
