By Anne Anquillare, Chief Executive Officer & President, PEF Services, LLC

Small Business Investment Companies (SBIC) are attractive investment funds, enabling GPs to access government leverage at low rates that enhance returns. But they also come with more complex administrative requirements, and those requirements are changing all the time.

Firms involved in the SBIC program must be prepared to keep pace with those changes, as the consequences for a failure to comply are significant.

Successfully administering an SBIC is a proactive effort, not a remedial one. By the time a deadline is missed or an error is discovered, it’s too late. At that point, your reputation with the regulator—and perhaps even with your investors—is on the line, and you may be facing disciplinary action.


Whether you choose to outsource SBIC fund administration to a third party or perform it in house, it’s important to know and apply best practices right from the start.

SBIC Fund Administration: Understanding the StakesEvery General Partner with an SBIC signs up for governance by SBA, a regulator with a long history (and memory) and significant power. If an issue arises, SBA remedies can range from assessing fines to limiting or shutting off access to leverage, which effectively puts two-thirds of the fund’s capital on hold. While the more extreme option is applied by SBA reluctantly (because it can hurt the fund, the portfolio companies, and the investors), fines are becoming more frequent.

More common are requests for additional information. When the information submitted is inconsistent or incomplete, SBA may make more frequent, ad hoc requests that eat into your back office resources and increase your operating costs. This also puts you in SBA’s crosshairs.

When SBA exerts these powers, it’s seldom caused by a firm intentionally circumventing the regulations. Most often, it’s a lack of awareness on the part of a GP that lacks experience in this type of fund strategy. It’s easy for new SBICs, or an existing SBIC that has had turnover in its back office, to overlook a specific requirement or miss a deadline. These firms may also take too much time in resolving an issue after being notified, and that can trigger even greater scrutiny and mistrust on the part of SBA.

Administrative issues can also impact investor relations. Investors in SBICs may not wield as much power as SBA, but they are becoming savvier when it comes to understanding their options and their legal rights, and they will not tolerate a lack of transparency or a lack of compliance.


SBICs—especially those that are leveraged—involve rigorous reporting requirements and tight deadlines.  General Partners with SBIC funds must collect and submit at least three times the amount of data in half the amount of time.

With this extra layer of complexity, the back office must be ready to take on a heavier task load related to compliance and reporting. Without the right processes in place, the potential for compliance failure is high.

    • Financial Statements: Preparing financial statements for an SBIC requires significantly more work. An SBIC must submit unaudited quarterly financial statements along with audited annual statements in SBA’s required format while adhering to SBA’s valuation guidelines and using SBA’s systems.
    • Compliance Exam: SBICs must also undergo an annual compliance exam and prepare additional forms in accordance with SBA requirements. Examiners have the authority to obtain and review a wide range of records, including SBA agency records, fund records (including books and the working papers of the firm’s independent public accountant), and records of portfolio and management companies.

While SBICs require more reporting and compliance, they are a rewarding and advantageous fund strategy that many General Partners have used to strengthen lower and middle market America and generate great returns for their investors. The key to success is to plan ahead and ensure that your firm has access to the essential capabilities and resources required to support the administration of this type of fund.

Whether you are considering the launch of an SBIC or have already launched one, reading this white paper, The Definitive Guide to SBIC Fund Administration, will help you determine whether you are ready to handle the additional administrative demands and maximize the benefits of this fund strategy.