Henri Steenkamp

Recently, Saratoga Investment received its “green light” letter from SBA for a second license. If granted a second license, Saratoga would be able to use 2-to-1 leverage, lower cost of capital and favorable terms inherent in the SBIC program to grow our asset base by the allowed amount of $112.5 million. Additionally if approved, Saratoga would have access to an incremental source of long-term capital by permitting it to issue $75 million of additional SBA-guaranteed debentures–bringing the total of the two licenses to $225 million.


If your BDC is in the position to explore a second license, there are many benchmarks you must meet to move forward in the process. While these may come as obvious points to many in the sector, BDCs do get turned down for failing to meet the proper criteria. Before you face rejection, and face a mandatory minimum six-month waiting period to re-apply, consider these key points to see if your BDC matches up.

Consistent Operations

BDCs that receive approval are consistent across the board. If the first license uses a strategy focusing on the smaller, less competitive end of the market, your second fund should be in the same vein. A stark contrast in strategy is often going to result in a red flag during evaluation.

When it comes to operations, a clean record is mandatory. In the two full years of operating from your last issued SBIC license–the minimum required wait between the second fund request–the more spotless the record, the better. This includes having no outstanding regulatory violations one year from your filing date. In addition to any violations, the SBIC’s independent public accountant must conduct at least one clean audit opinion on your operations.

There are further criteria that need to be met for approval, but these are key points to consider before moving forward.

Consistent Management

While this may seem redundant from the previous point, your management will be scrutinized to an incredible degree on its own. Obviously, management needs to be qualified to handle the rigors of a second license, but their track record must be as close to perfect as possible. Their reputation in the industry, ethics, investment records and other reputation forming traits will all be examined thoroughly.

Their past is also up for judgement as prior investments face comparison to percentage terms and industry benchmarks. Those investments will then be examined to determine its contribution to the growth of revenues.

Beyond reputation, management’s core competency must be superb. The organization’s structure, compliance with regulations and the procedures to ensure proper checks and balances are just some of the questions you will see during the process.

Using these steps to begin your exploration phase will ensure you with a base for knowing what it takes to give you the smoothest evaluation process possible. The SBA website has more in-depth analysis for what you and your BDC will need as you move through the process.