For small businesses that are looking to grow to the next level, it can be difficult to find a way to raise the capital to support that growth. However, if you have decided that you do want to seek out investors, then it might be worth considering seeking financing from a SBIC. First, you need to be sure that you are eligible, which means that your small business meets the requirements of a small business. This would mean that its net worth is less than $18 million and the last two years have only had a net income of $6 million or less. The individual SBIC investment fund may also have additional requirements. Please keep in mind that any of the SBA personnel are not permitted to make referrals on behalf of small businesses seeking SBIC financing. Here are three tips for approaching an SBIC for financing or investment.
Research SBICs
After determining that your business does fit the definition of a small business, you need to research the SBICs to find the one that best fits your particular business needs. Some of the points to consider include:
Additionally, you need to make sure that the SBIC is still actively investing. After all, most SBICs stop investing roughly five years after they receive their SBIC license. There are three sources where you can search for active SBICs, including the SBIC Directory on the SBA website; Small Business Investor Alliance; and National Association of Investment Companies. Additionally, the SBICs typically have a website where you can find out more information about their investment strategy and even some of the companies that they have already invested in.
Prepare a Business Plan
For most businesses, a business plan is a road map to address where the business is going and how they are going to get there. It may include overall goals, financial data and information about your specific niche. In order to keep your business plan working effectively, it should be updated on at least an annual basis. By doing so, you will be ready to approach the SBIC. They will often ask for a business plan so they can use it to assist in evaluating whether or not they are going to offer your business financing.
If you have started your business, but did not complete a business plan or if you are unsure if your business plan is formatted properly, then it is important to consider finding an individual or company that can assist you in making sure that it is done appropriately.
Presenting Your Business Plan
Once you have completed your business plan, you are now in a position to present it to the SBIC that you have identified from your research. However, there are a few points to remember. One is that these SBICs typically receive hundreds of these business plans on an annual basis. Therefore, you will not get far if you just email in your business plan or make a call to the office and hope to get an appointment.
A qualified introduction is often the best way to make progress with an SBIC. So it is important to talk with accountants, attorneys, executives in your industry and other business colleagues to establish the right connection to an SBIC. With such an introduction, you have a much better chance of having your business plan reviewed for potential financing.
You are also the person who knows your business best. Therefore, if they have any questions, you want to be sure to represent your business well. Also, look at your business plan as if you were an outsider who didn’t know your business. Does it properly answer a potential investor’s questions? Does it give them the financial information that they will need to evaluate the health of your business’ finances?
Another option is to have someone not immediately involved in your business read through the plan and give you their feedback. It can allow you to make any necessary corrections prior to giving your business plan to any potential investors, such as an SBIC.
Overall, this can be a valid method to find the investment capital necessary to allow you to take your business to the next level in terms of growth and expansion. So it is important to do your research and find the right SBIC for your business, but at the same time, you need to be prepared to work to find a contact for an introduction to move your request forward.
Patrick O'Hara, EA