NATIONAL ASSOCIATION OF SMALL BUSINESS INVESTMENT COMPANIES (NASBIC)

The National Association of Small Business Investment Companies (NASBIC) is an organization of companies (SBICs) that have been specially licensed under the Small Business Investment Act of 1958, overseen by the Small Business Administration (SBA), to provide funding to start-up companies. NASBIC's primary concern, however, is with providing representation before government on behalf of the SBIC industry. The association is located in Washington, DC, and its Web site is at www.nasbic.org .

According to NASBIC, the several thousand SBICs operating in the United States and Puerto Rico are privately organized and managed financial institutions that invest capital in small independent businesses. They differ from venture capital firms in that they are licensed by the Small Business Administration. In exchange for investing only in small businesses, the SBA helps SBICs qualify for governmentinsured long-term loans. SBICs have complete control over their own lending policies and investment choices and are not bound by government regulation to make capital available to any particular type of business or business owner. The SBICs currently operating hold a combined $6 billion in assets under management. Among the companies that began with funding from an SBIC are Apple Computer, Federal Express, Outback Steakhouse, America Online, and Intel. According to the NASBIC, "since 1958, the SBIC program has provided approximately $13 billion of long-term debt and equity capital to approximately 80,000 small U.S. companies, with more than $1.6 billion invested in 1996."

SSBICs, or Special Small Business Investment Companies, are identical to SBICs except in the respect that they tend to concentrate their lending in the area of socially and economically disadvantage entrepreneurs. However, all SBICs may consider applicants from all backgrounds.

FACTORS IN APPROACHING AN SBIC

NASBIC reports that small business owners contemplating a pitch to an SBIC should be mindful of the following considerations.

1. Amount of capital your business will need—SBIC policies differ and many have specific ranges they are willing to lend within.
2. Decide whether your business will be better served by a straight loan, an equity investment, or another kind of financing—SBICs offer different options, but these are not often found under the same roof.
3. Your business's industry—Some SBICs choose to lend only to businesses in a particular area, due to the expertise of the SBIC's officers or directors.
4. Geography—Although SBICs may operate regionally or even nationally, it is wise to look into the closest suitable SBIC, because they tend to lend to businesses in their general locale.

Seekers of financing should also note that SBICs may consider working in conjunction with one another other to provide pooled capital if a special case merits a departure from standard policy, so no one company should be immediately ruled out.

REQUIREMENTS Your business qualifies as a "small business" according to NASBIC parameters if it has a net worth under 18 million dollars and average after tax earnings of less than $6 million for the past two years. If your business fails these tests, it may qualify under employment or annual sales parameters.

When presenting your business to an SBIC for consideration, business owners must provide a business plan that includes information on every aspect of your operation, including detailed descriptions of the product or service and the facilities; an explanation of your customer base and distribution system; a description of your business's competition; an account of all key personnel and their qualifications; and financial statements, such as balance sheets and revenue projections. The ultimate acceptance or denial process will take a few weeks, although an indication will be made immediately of general interest or lack thereof.

When considering all sources of funding, a small business owner should weigh the appropriateness of each source with his or her needs. The wide variety of funding options provide many choices, with only a small number, perhaps, that will be suitable. Small Business Investment Companies provide a unique offering in that they have the security of the government behind them, but the flexibility of a private firm.

FURTHER READING:

Barlas, Stephen. "Something Ventured." Entrepreneur. July 2000.

Beltz, Cynthia A. Financing Entrepreneurs . Aei Press, 1994. Entrepreneur Magazine Guide to Raising Money . John Wiley & Sons, 1997.

Flanagan, Lawrence. Raising Capital: How to Write a Financing Proposal . Psi Research-Oasis Press, 1994.

Gillis, Tom S. Guts & Borrowed Money: Straight Talk for Starting & Growing Your Small Business . Bard Press, 1997.

Janecke, Ron. "The National Association of Small Business Investment Companies." St. Louis Business Journal. November 1, 1999.

Ross, Duncan M., and Andrew Godley. Banks, Networks, and Small Firm Finance. Frank Cass & Co., 1996.