Will SBICs Thrive Under Pressure?

So far, 2025 has been a year of surprises from Washington. Among the changes have been headcount reductions in the federal government, including a 43% workforce reduction in the Small Business Administration (SBA) driven by the cost cutting efforts of DOGE.

In 1958, just five years after the SBA itself was created, the Small Business Investment Company (SBIC) program was created to expand access to capital for small businesses. Through the program administered by the SBA, SBIC licensed private fund managers can leverage capital raised from private investors up to $2 in debt capital guaranteed by the federal government per $1 raised. With over 300 SBIC licensed funds now managing $30 billion, the program continues to enable investment into small businesses with nearly 200,000 small American companies having received SBIC investment since the program began.

Our firm has been investing in SBIC funds since 2010 with positive experiences. On behalf of client investors for whom they are suitable, we continue to be active in the SBIC arena with funds of multiple varieties. Long duration SBIC fund borrowings, called debentures, have advantaged interest rates which currently are near 5%. Such rates are advantageous as compared with debt available in the market. This can be a tailwind for SBIC funds provided a fund manager can avoid significant investment losses and remain compliant with program rules.

Investors in private equity and private credit funds which are SBIC licensed may ask whether their operations are under threat by new administrative priorities, or whether the program is at risk of being eliminated entirely. Some are intrigued to hear that the SBIC program operates entirely without taxpayer subsidy, funded instead by private investors who buy pooled SBIC debentures which are backed by the government’s guarantee. Because SBIC borrowings occur at the fund level with funds investing across multiple companies, isolated losses can first be offset by profits from other investments before private investors or taxpayer guaranteed funds are impacted.

While the SBIC program has enjoyed a long history of bipartisan support due to its job creation potential, the SBA’s rate of issuing licenses to SBIC fund manager applicants fluctuates. Following a backlog in recent years, the SBA has so far in 2025 issued 49 “green light” letters which precede its issuance of official licenses. Included in that group have been fund managers applying for new types of licenses which offer additional flexibility of SBIC repayment to accommodate investment strategies that naturally generate lower levels of current investment income.

While 2025 is far from over, and more surprises could lie ahead, we have been grateful to hear from our SBIC manager partners that the first half of 2025 has been somewhat business as usual when dealing with one small corner of the government. Hopefully the same remains true for the vast set of American small businesses in which SBICs invest.

Cam Simonds