The Small Business Investment Act of 1958, as amended, created the SBIC program to facilitate the flow of capital to small businesses and stimulate the economy. Under the program, which is operated by SBA’s Office of Investment and Innovation, SBA does not make direct investments in small businesses but partners with privately owned and managed SBICs that provide financing to qualifying small businesses. This financing consists of private capital that the SBIC has raised and SBA’s financial assistance through the SBIC program. SBICs are able to borrow at favorable rates because SBA guarantees the loan obligations (known as debentures) that SBICs make. When an SBIC is ready to make an investment, in addition to using private capital, it may draw down on SBA’s leverage by issuing a debenture with a repayment schedule for principal and interest. SBICs also may use their leverage and private capital to pay for operating expenses. Entities applying for an SBIC license must raise the needed capital for an investment fund. The fund develops its own strategy for making investments in small businesses, offering loans, purchasing equity, or both. Generally, applicants must raise a minimum of $5 million of private capital to establish an SBIC. As seen in figure 1, SBA typically provides $2 of government-guaranteed leverage for every $1 of private capital an SBIC has raised from private investors. These investors can include university endowments, insurance companies, banks, high-net-worth individuals, and pension funds. Holders of SBIC licenses may own or operate a single SBIC or multiple SBICs (sometimes referred to as multiple licenses under common control). An SBIC can be organized as a corporation, limited partnership, or limited liability company. Most SBICs are owned by relatively small groups of local investors, although some are wholly or partially owned by commercial banks. A few SBICs are corporations with publicly traded stock. SBICs can invest in small businesses with tangible net worth not in excess of $19.5 million and with an average of not more than $6.5 million in net worth after federal tax income over the previous 2 fiscal years at the time of investment. In fiscal year 2014, SBA committed to guarantee $2.55 billion in SBIC small business investments. The Consolidated Appropriations Act, 2014, increased the annual amount that SBA was authorized to provide to SBICs from $3 billion to $4 billion. However, according to SBA, the SBIC program operates on a “zero-subsidy” basis at no cost to taxpayers, and requires no annual appropriations from Congress. To recoup expenses from any defaults and keep the program at zero subsidy, SBA charges SBICs various fees. These include a 1 percent fee on the leverage commitment, a 2 percent fee when drawing against this leverage commitment, and an annual charge against the outstanding leverage balance. By statute, the annual charge may not exceed 1.38 percent, and historically it has never exceeded 1 percent, according to SBA. In addition, SBA is allowed by statute to charge licensing and examination fees to recoup administrative costs associated with these activities. Overall, the SBIC program’s administrative expenses as a share of the SBA leverage (including commitments) declined from 0.24 percent in 1999 to 0.16 percent in 2013, according to SBA, which noted that the program has grown in recent years without a corresponding increase in administrative resources. Currently, there are three types of debenture SBIC licenses. The Standard Debenture License has a broad investment mandate with few restrictions on an SBIC’s strategy or capital allocation. The Impact Investment License requires that at least 50 percent of the fund’s invested capital be deployed into investments that have a social, environmental, or economic impact. The Early Stage SBIC license is designed to attract investment fund managers with experience supporting companies in the earliest stages of growth. In addition to the debenture program, the participating securities program, which started in 1994, helped fund SBICs through the issuance of preferred equity interests, called participating securities. On October 1, 2004, SBA stopped issuing new commitments because, according to the agency, the program experienced significant losses due to flaws in the participating securities instrument that were magnified as investments in technology startup and early stage small businesses lost much of their value in the early 2000s. According to SBA, the profit participation and fees paid for participating securities leverage were no longer sufficient to cover the projected net losses, and Congress did not appropriate any additional funds for the program. SBA continued to honor its existing commitments to the remaining participants as of 2016. About seventy percent (130 of 187) of debenture SBICs—the most common SBIC fund type—were managed by 69 multiple licensees in 2014, according to our analysis. The other 57 debenture SBICs were managed by single licensees (see fig. 2). The proportion of debenture SBICs managed by multiple licensees has sharply increased, rising from about 20 percent in 2005 to about 70 percent in 2014. At the same time, the number of single-license debenture SBICs generally decreased. Although the number of debenture SBICs grew from 2005 through 2014, the number of SBICs overall—including participating securities SBICs, specialized SBICs, bank-owned SBICs, and nonleveraged SBICs— declined during that time frame (see fig. 3). This decrease was commensurate with the declining number of participating securities SBICs, the majority of which were managed by single licensees. SBA stopped issuing new commitments for participating securities after 2004, as noted earlier, and in each year since then several participating securities SBICs left the program. Nearly three-quarters of multiple-license SBICs in operation in 2014 were debenture SBICs, compared with just under 50 percent of single-license SBICs (see table 1). For all SBIC fund types, the amount of SBA leverage held by multiple licensees increased every year from 2005 to 2014 but generally fell for single licensees (see fig. 4). This decline was commensurate with the phasing out of the participating securities program. In 2014, multiple licensees controlled nearly three-quarters of the leverage issued by SBA—multiple-license SBICs held more than $5.6 billion in leverage and single-license SBICs held more than $2.1 billion. For debenture SBICs specifically, multiple licensees also increased their share of total SBA leverage during 2005–2014 (see fig. 5). These SBICs held about 24 percent of SBA leverage in 2005, but about 74 percent of the approximately $7 billion in SBA leverage in 2014. During the period from 2009 to 2014, the maximum amount of SBA leverage available to multiple licensees was $225 million, but few multiple licensees used, or approached, that amount. Our analysis of SBA data found that from 2009 to 2014, no more than 2.8 percent of multiple licensees reached the then-applicable $225 million leverage limit— including leverage drawn and SBA commitments—in any year. Moreover, few multiple licensees had come close to reaching the maximum amount in that period—for example, no more than 5.7 percent of multiple-license SBICs drew (or had commitments to draw) more than 85 percent of the leverage limit during this time frame. From 2005 to 2008, when the leverage limit for multiple licensees ranged from $124.4 million to $137.1 million, no more than 3.2 percent of multiple-license SBICs appeared to have reached the leverage limit (including commitments). The Small Business Investor Alliance and some SBIC fund managers told us they believed the leverage limit nonetheless has a significant effect because it deters some SBIC managers who want to substantially grow their fund over the long-term from continuing to participate in the program. SBIC characteristics, including geographic distribution and management demographics, were largely similar for single and multiple licensees, according to our analysis. For example, although there were some differences in their concentrations among states, the extent of geographic distribution of multiple- and single-license debenture SBICs was roughly similar in 2014. Both types of SBICs were concentrated in several states in 2014 (see fig. 6), with the single-license debenture SBICs significantly more heavily concentrated in New York. Multiple-license debenture SBICs were located in more states (27) overall than single-license debenture SBICs (19) in 2014. Within states, both multiple- and single- license SBICs showed some concentrations in certain cities and regions in 2014—particularly New York City, Chicago, San Francisco, and the Silicon Valley area. SBA does not routinely collect information on the number of minority or female SBIC managers or those SBICs located in low- or moderate- income areas, but at our request, the agency asked its operations analysts—who are responsible for overseeing and supporting a portfolio of SBICs—to provide estimates of these numbers for SBICs in their purview. SBA officials told us that because this was an informal survey, they could not make any representation about the completeness or accuracy of the information. Although the data have limitations, the survey showed the following characteristics among the 290 SBICs in operation as of July 2014: Minority SBIC managers. An estimated 10 percent or less of both multiple-license and single-license SBICs had at least one minority SBIC manager who was American Indian or Alaska Native, Asian, Black or African American, Hispanic or Latino, or Native Hawaiian or other Pacific Islander. Female SBIC managers. About 6 percent of multiple-license SBICs and 11 percent of single-license SBICs were estimated to have at least one female SBIC manager. SBICs in low- or moderate-income areas. Slightly more than 12 percent of both multiple- and single-license SBICs were estimated to be located in such areas.