SBICs are able to  borrow at favorable rates because SBA guarantees the loan obligations  (known as debentures) that SBICs make. Holders of SBIC licenses may own or operate a single SBIC or multiple  SBICs (sometimes referred to as multiple licenses under common  control). Multiple Licensees Controlled Most SBA Leverage and Shared Similar Characteristics with Single Licensees

		Multiple Licensees Controlled Most SBICs and SBA Leverage in 2014

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. 2). 5). Single and Multiple Licensees Had Largely Similar Characteristics

SBIC characteristics, including geographic distribution and management  demographics, were largely similar for single and multiple licensees,  according to our analysis. 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. Multiple Licensees Have Outperformed Single Licensees but Their Investments Have Similar Attributes across a Number of Measures

Multiple licensees, in the aggregate, demonstrated better investment  performance than single licensees from 2005 to 2014, according to our  analysis. We could not report on minority, women, and  veteran ownership of SBIC investments because the data were  unreliable, in part because SBA does not provide guidance to SBIC  licensees on how to collect and report this information. Multiple- and single-license SBICs invested in small businesses  representing a range of industries in 2014. More reliable data in this area would be consistent with SBA’s strategic  plan, which cites as a strategic priority of the SBIC program expanding  access to financial capital for minority-, women-, and veteran-owned  small businesses. The degree to which the SBIC  program’s performance can be attributed to SBA oversight is uncertain,  but several statutory requirements, regulations, and oversight  mechanisms—including licensing procedures, examinations, and  liquidation and asset recovery—seek to manage financial risk. Application and Licensing Processes

According to SBA, applicant screening, which occurs through the  application and licensing processes, is a key mechanism for managing  program risk. Other Factors May Influence Program Performance

While SBA has procedures designed to manage financial risk to  taxpayers from SBICs and their investments, the effect of SBA oversight  on financial performance would be difficult to measure because it cannot  easily be isolated from other internal and external factors, which include  program design, economic conditions, and the characteristics of the  SBICs and their investments. Recommendation for Executive Action

The Administrator of the Small Business Administration should direct the  Office of Investment and Innovation to provide clear and specific  guidance to SBIC licensees on how to collect and report data in Form  1031 on their investments in minority-, women-, and veteran-owned  businesses. In its response, SBA neither  agreed nor disagreed with the recommendation addressed to it and  provided technical comments, which we incorporated as appropriate. Appendix I: Objectives, Scope, and Methodology

The objectives of our report were to examine the (1) characteristics of  multiple-license Small Business Investment Companies (SBIC) compared  with single-license SBICs, (2) investment performance of multiple  licensees compared with single licensees and the attributes of the small  businesses in which SBICs invest, and (3) overall financial performance  of the SBIC program and the extent SBA manages the risk associated  with the program. For the SBIC debenture and participating securities  programs in particular, SBA provided these data for fiscal years 2003  through 2014 because 2003 was the year in which SBA started  separately reporting losses for these two programs.
Why GAO Did This Study

Under the SBIC program, SBA licenses privately owned and managed investment funds that provide capital to small businesses. SBICs use their own capital plus funds (known as leverage) that are borrowed at favorable rates because SBA guarantees the loan obligation, which is known as a debenture. Holders of SBIC licenses can manage a single SBIC (“single licensee”) or two or more SBICs (“multiple licensee”).
This report examines (1) the characteristics of single- and multiple-license SBICs, (2) the investment performance of single versus multiple licensees and the attributes of the small businesses in which they invest, and (3) the SBIC program's overall financial performance and the extent to which SBA manages program risk. GAO analyzed SBA data (generally covering from 2005-2014), policies, processes, and procedures and interviewed SBA staff, SBIC fund managers, and industry stakeholders, who were selected to represent a mix of SBIC characteristics and based on suggestions by various stakeholders.

What GAO Found

Small Business Investment Companies (SBIC) managed by entities holding multiple licenses controlled most Small Business Administration (SBA) leverage and shared similar characteristics with entities holding a single license. At the end of fiscal year 2014, multiple licensees controlled $5.2 billion of the $7 billion (about 74 percent) in outstanding debenture SBA leverage, compared to 2005, when they controlled 24 percent (see figure, left). SBIC characteristics, including geographic distribution and management demographics, were largely similar for single and multiple licensees.
Multiple licensees have demonstrated better aggregate investment performance than single licensees, although the investments have similar attributes. For example, from 2005 to 2014, 6 percent of multiple-license debenture SBICs were put into liquidation (typically because of excessive losses), compared with 39 percent of single-license SBICs (see figure, right). Both types of licensees invested in a roughly similar range of industries and geographic areas. Multiple-license SBICs were slightly more likely to invest in smaller enterprises or in low- or moderate-income areas. However, data on minority, women, and veteran ownership of SBIC investments are unreliable, in part because SBA does not provide guidance to SBIC licensees on how to collect and report this information. Providing such guidance would help improve the quality, consistency, and value of these data, which would help inform SBA's strategic priority of providing financial capital for underserved small businesses.
The SBIC program's financial performance has been relatively stable in recent years, although the degree to which program performance can be attributed to SBA oversight is unclear. For instance, most losses from 2003 to 2014 were incurred from SBICs remaining in the participating securities program (where SBA held an equity interest in SBICs), for which SBA stopped issuing new licenses in 2004 due to losses. The SBIC program's risk management mechanisms include the application and licensing processes, which are largely the same for single and multiple licensees, and requirements for private capital fundraising. SBA monitors SBICs through risk assessments of their financial condition; examinations assessing regulatory compliance; and, as necessary, liquidation to recover financial assets. The effect of SBA oversight on financial performance is difficult to measure, however, because it cannot easily be isolated from other internal and external factors, such as economic conditions.

What GAO Recommends

GAO recommends that SBA provide guidance to SBIC licensees on how to collect and report data on their investments in minority-, women-, and veteran-owned businesses. SBA neither agreed nor disagreed with this recommendation.