The Small Business Investment Company (SBIC) program sponsored by the U.S. Small Business Administration (SBA) successfully channeled more than $3 billion to over a thousand small businesses in 2012, setting a record for the most ever business fundings. In addition, 30 new funds were licensed in the past year. By delivering a record breaking year, the SBIC is not only helping to fuel small business growth in the United States, but it also points to the potential of impact investing for private investors.
What does the SBIC program have to do with impact investing trends? Essentially, the program has similar characteristics to the way some investors approach targeted investing for social benefit as well as market-rate financial returns. Given this distinct parallel, Ben Thornley, Director of Pacific Community Ventures, has detailed some of the insights the SBIC program can yield for investors. This includes the importance of size for investors, as SBIC funds with less than $25 million tend to underperform (in fact, the SBA has lost almost zero SBIC investments with over $17.5 million in private capital).
Also, Thornley points out that the SBIC’s activities have demonstrated that investment strategy matters, with the most successful funds being buyout funds. Finally, according to Thornley a double bottom line does not seem to undermine the financial performance of the fund, as according to the SBA there is no correlation between performance and the concentration of investment portfolios in communities that are considered low to moderate income.
Since 1958, the SBIC program has been capitalizing small businesses by way of publicly guaranteed leverage to privately owned and managed investment funds (with small businesses defined as having up to 500 employees or $21.5 million in revenue). Traditionally, the program supports business that are smaller (90 percent have less than $60 million of private capital), diverse, and outside more established private equity markets (specifically, in the West and Northeast).
This highly successful program is currently responsible for more than 300 SBA-licensed funds with over $18 billion in capital ($9.4 billion in private investments and $8.8 billion from SBA leveraged commitments). In addition, the SBIC application process has recently been streamlined, reduced from 15 months in 2009 to around 5 months.
Thornley, Ben. “Big Government. Big Impact. Big Data. Big Lessons.” The Huffington Post. 3/20/13.