Overview of SBIC Program
The partners have extensive experience with the SBIC program. As an SBIC, Providence would be able to leverage capital raised from private investors with government-guaranteed debt obtained through the program.
As an SBIC, for every $1 of capital raised from limited partners, Providence would receive up to $2 of inexpensive SBA leverage. For illustration purposes, if Providence raised $75 million of private capital, it could receive up to $150 million of leverage from the SBA which would equate to a total fund size of $225 million.
SBIC Benefits to Limited Partners
As an SBIC, up to two-thirds of Providence’s capital (SBA leverage) would be required to pay debt service on the SBIC debentures at the rates dictated by the federal government. As of September 2022, the SBIC debenture was priced at 4.262% (10-year fixed rate).
LP Return Enhancement
The limited partners benefit from this low-cost SBA leverage, since the profits generated above the SBIC debt service are shared with the private investors. According to the SBA, “Since 1998, SBICs that benchmark in the top half of private equity have delivered a 5 to 10 point boost in the IRR delivered to LPs as a result of SBA leverage.”