Capital Investment Company

The year 1958 saw the formation of the Small Business Administration by the United States of America. This SBA was created with just one plan in mind-to help the small businesses to get their hands on required capitals for their businesses. The small businesses then use this capital obtained form the SBA to use in their investment on the business.

The SBA generates the money for the capital in various ways. Firstly the Small Business Administration trade the SBA Guaranteed certificates to other investors, from both the public and private sectors. The money generated in this manner is then distributed to the licensed companies who have registered themselves as Small Business Investment Companies, also known as SBIC. These companies then go on to use this capital to invest with the small business portfolios. The intention of these SBIC is to fuel up the movement of the equity capital (private) and also to provide the loans to other small businesses on a long term basis.

The small business investment companies are licensed through a meticulous program for licensing. Once they receive the license, they can be legally registered and known as the SBIC or the small business investment company. Though the name says small business, these small midgets contribute a whopping two thousand one hundred imitable businesses every year with capitals to base their investment on. The small business investment companies need to conform to certain factors before they can be considered as a SBIC. They not only need to get the license after the strict licensing procedures but also need to be under private management. They need to base their investments on small sized businesses. They will also require agreeing to be scrutinized by a regulatory audit on an annual basis.

Now the small business investment companies can cater only to the small businesses. To know about these small businesses, we need to understand that the companies are classified as small or big depending on the net worth of the companies considered on an annual basis. Taking this classification in to consideration, the small companies are those that have under eighteen million US dollars as their annual net worth, while the average income after deducting the tax income for the previous 2years should be lesser than six million. These small business investment companies finance around 50 per cent in the straight equity and around twenty five percent in straight debt and the other twenty five percent in debt with equity.