No Hot Air

Finding the SBICs that utilize participating securities is both easy and challenging. Here's the easy part: Go to the SBA Web site (www.sba.gov). Navigate your way through the "Financing" button to the "Invest-SBIC" section of the site, where you can find a directory of operating SBICs. They're conveniently listed by state and in one catch-all listing.

Now comes the tricky part: how to identify the SBIC firms which traffic in participating securities. The best first step is to focus on firms whose stated investment policies are listed as equity. It's a challenge, because many investment firms view a long-term loan subordinate to, say, other loans (i.e., the other loans get paid out first in a liquidation) as a form of equity. And still other investment firms view mak-ing a loan with so-called equity kickers, where the lender also gets options to purchase stock, as a form of equity investing.

What does it all mean? Well, the landscape is certainly muddled-and entrepreneurs who aren't careful can end up wasting time on lenders when what they really need is an equity investor, who can be more patient and who doesn't have to rely on immediate cash flow. Once you've isolated candidates, narrowing them down is the easy part. Simply ask the firm if it utilizes participating securities and if it can make straight equity investments.


David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business (Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public and is a member of the National Advisory Committee for the SBA.

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