by David Gerogosian and Allen Greenberg, PEF Services, LLC
Competition for an SBIC license is at a high. The lure of cheap leverage that gooses investors’ returns has put the SBA in a position where it can be more choosy in selecting fund managers – a prerogative that the agency is not taking lightly.
Obtaining an SBIC license, while rewarding, is to say the least a time consuming process. It’s best to determine early on whether your team has a reasonable chance of obtaining a license before investing too much time and money. Here are just 5 factors that SBA typically looks for in those wishing to obtain a debenture license:
Teams consisting of 3 (or more) managers that have worked together generating realized positive returns in the upper quartile for its asset class for which the SBIC will be investing;
Careful attention to detail when preparing your MAQ (management assessment questionnaire), as this is the “blueprint” as you move forward in the assessment performed by SBA at this stage of the licensing process. Be sure that the details included on each person’s track record can be quantified. SBA will be doing significant due diligence. SBA will also be checking references and extending beyond those to others. Think of how you do your due diligence;
A solid business plan that builds from your prior experience that indicates how interest expense on SBA debentures can be currently paid and the principal ultimately repaid. This needs to be in sync with your PPM. Remember you are not just selling SBA leverage to your potential investors, you are selling yourselves to SBA as well. Too often we have seen questions raised at this early step in the process, not where you want to have to stop and explain what should be a clear message. For example, careful consideration needs to be paid to the amount of private capital that needs to be raised before a first closing. The SBA has recently denied licenses to fund managers who close on amounts lower than the minimum level stipulated in the PPM.;
A team that can support the management team in providing all SBA required filings and related information timely and accurately; and
A first rate presentation (first impressions count) by the management team for your initial meeting with SBA’s Investment Committee, setting forth the objectives of the Fund and how they fit into the SBA program. Everyone should be ready to answer questions as many will be asked. It shows the depth of the team .
Of course, many more criteria exist, but following these steps above will ensure that you give SBA the opportunity to see your team as one that they want in the program. Competition is stronger than ever. Follow the steps necessary to separate yourselves from the rest of the competition.