The Small Business Administration (SBA) does more than guarantee small business loans to provide the flow of capital to entrepreneurs, it also has partnerships with private investors that finance businesses through its Small Business Investment Company (SBIC) Program. The SBA is implementing a series of policy changes that promise to broaden access to the fund and strengthen the impact of SBIC’s, including the Impact Investment Fund.
“As head of the SBA, my main goal is to increase access to capital for our nation’s entrepreneurs, especially to our underserved communities,” says Administrator Maria Contreras-Sweet in a statement. “This expansion of the Impact Investment Fund today puts more capital into the hands of entrepreneurs, while offering impact investors a tremendous platform to reach small business owners with innovative ideas.”
The SBA launched the Impact Fund in 2011 as a five-year, $1 billion pilot initiative to capitalize investment funds that seek both financial and social return. This announcement reaffirms SBA’s commitment to Impact Fund investing beyond 2016. The agency will continue to allocate roughly $200 million of its $4 billion annual investment authority to Impact SBIC’s investing in underserved areas and sectors of national priority. The detailed policy memo that outlines this new commitment can be found at www.sba.gov/inv/impact.
In addition to extending the Impact Investment Fund, SBA has introduced policy changes based on extensive consultation with SBIC Program stakeholders and experts in the impact investment industry. The major changes include that advanced manufacturing businesses are now eligible. Currently, Impact SBICs must invest 50% of their capital in businesses located in underserved communities, the education sector, or the clean energy sector. The new policy will add advanced manufacturing to the list of recognized sectors and allow businesses that have received Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) grants to become eligible for impact investments.
The SBA anticipates licensing a few new Impact SBICs by the end of the year. These funds will join the two existing Impact SBICs, Michigan Growth Capital Partners and SJF Ventures III. Together they manage more than $182 million in assets and have invested in 17 companies that collectively employ about 1,500 people.
The 290 funds in the SBIC Program portfolio, which collectively manage $21.5 billion in assets, are already focused on increasing investment flows to sectors and regions where capital formation gaps are widest. Last year, about one-quarter of the American small businesses SBICs financed were owned by minorities, women, and veterans – or conducted business in HUBZones, which are rural or distressed urban areas, and other Competitive Opportunity Gaps.