Small businesses are the backbone of the American economy, yet they often face the hardest time accessing long-term capital. To address this gap, Congress created the Small Business Investment Company (SBIC) program in 1958, allowing private funds to invest in small firms using leverage supported by the US Small Business Administration (SBA). The natural concern is whether a government-backed structure sacrifices returns in pursuit of policy goals. This study suggests otherwise. SBIC funds have historically provided returns that are competitive and often superior to comparable private market investments.
Performance of Small Business Investment Companies
- Brown, Hu, Robinson, and Volckmann
- Financial Analyst Journal, 2026
- A version of this paper can be found here here
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Key academic insights
SBIC funds generally outperform comparable private market peers
Using an augmented sample constructed from a high-response SBIA survey plus MSCI, Preqin and StepStone, the authors find that SBIC funds from 2000 to 2020 earn an average net IRR of 15.9% and an average MOIC of 2.2x. Relative to comparable private non-SBIC funds, the average excess performance is about 3.1% to 3.5% in IRR and about 0.7x in MOIC. The average performance is smaller, but still positive, which is important because it shows that the result is not just driven by a few monster funds.
The cleaner MSCI sample confirms the result, albeit with smaller magnitudes
Survey data may be biased upward because underperforming funds may be less likely to respond. Therefore, the authors isolate SBIC funds in the MSCI Private Capital Universe, where the data come from LPs rather than GPs. In that sample, excess performance remains positive. SBIC beat comparable non-SBIC peers by about 1.1% to 1.5% in IRR and roughly 0.5x to 0.6x in MOIC on average, with positive average performance as well. Sizes are lower than in the survey sample, but the direction survives.
SBICs also outperform public market benchmarks on average
Because the MSCI sample includes full cash flows, the authors calculate Kaplan-Schoar PMEs. For almost all SBIC categories, except for a very small subset of enterprises, the average and median PME are above 1.0, which means that they exceed the corresponding public market benchmark. Relative to comparable non-SBIC funds, SBIC PMEs are also generally stronger. This is an important result because it reframes SBICs as not only “good for policy” but competitive from an LP portfolio perspective.
Strategy matters. Small debt is the most consistent relative winner
On an absolute basis, equity-oriented SBICs post the highest raw returns. But compared to comparable peer funds, small debt funds stand out more clearly, especially in IRR. Equity funds also outperform, but with more dispersion and more influence from high-performing outliers. Venture capital appears weaker, which fits the program’s mixed historical experience with enterprise structures and previous policy designs.
More leverage helps, but only up to a point
The program’s signature feature is SBA (Small Business Administration) leverage, however the paper finds that maximum leverage is not always optimal. Funds with moderate leverage often outperform those using the highest leverage allowed. In particular, the best relative IRRs often occur at intermediate leverage ranges rather than at 2x maximum. This is a nice reminder that subsidized leverage is a tool, not magic powder.
Practical applications for investment advisors
The signature is more important than the label
SBIC is not a strategy. It is a fund structure with access to leverage, restrictions and tax features. Performance still varies materially by fund type, size and leverage. Advisers evaluating SBIC exposure should focus on strategy mix, manager quality and actual portfolio construction rather than just the SBIC label.
The discipline of size and leverage seems to matter
Larger SBIC funds tend to show better benchmark-adjusted results, and moderate leverage often looks better than maximum leverage. For allocators, this suggests caution about assuming that “more SBA leverage” automatically means “better economy.”
Small debt deserves more attention
If relative outperformance versus private market peers is the goal, small debt appears particularly compelling in this study. That doesn’t make it universally superior, but it does suggest that many allocators may be underestimating where the strongest risk-adjusted value can be placed in the SBIC ecosystem.
Treat poll-based results with healthy skepticism, then note that they still hold up
The authors are refreshingly clear about response bias and survival concerns. This is a feature, not a bug. The important point is that when they switch to the less biased MSCI sample, the central conclusion remains. Performance decreases, but does not disappear.
How to explain this to customers
“SBIC funds are private funds that can access SBA-backed leverage to invest in smaller U.S. businesses. You might expect this type of policy structure to come with lower returns, but this study finds the opposite. On average, SBIC funds have outperformed comparable private funds, and in the purest LP-sourced data, they also beat public market benchmarks that are not a particular SB point. Well-structured program targeting businesses the underserved appears to have created an investable segment that can work for both economic policy and private equity allocators.”
The most important chart from the paper
Results are hypothetical results and are NOT an indication of future results and do NOT represent returns actually achieved by any investor. Indices are not managed and do not reflect management or trading fees, and one cannot invest directly in an index.
ABSTRACT
We survey Small Business Investment Companies (SBICs) to conduct a new analysis of their performance. SBIC funds outperform comparable non-SBIC peers by about 2% to 3% as measured by internal rate of return and by about 0.3x to 0.7x as measured by multiples on invested capital, depending on the benchmark. To mitigate sample selection bias, we also examine SBICs in the MSCI Private Capital Universe data, which show similar but smaller performance. We analyze SBIC funds by fund strategy and amount of leverage used to provide a clear picture of risk-adjusted performance. We believe this is the first large sample analysis of SBIC returns.
Performance of Small Business Investment Companies originally published in Alpha Architect. Please read the Alpha Architect FINDINGS at your convenience.
