The U.S. Small Business Administration approved a license for Capital Southwest SBIC I, a wholly-owned subsidiary of Capital Southwest, to operate as a small business investment company (SBIC).

As an SBIC, Capital Southwest SBIC I will be subject to a variety of regulations and oversight by the SBA concerning, among other things, the size and nature of the companies in which it may invest as well as the structure of those investments. The license will allow Capital Southwest SBIC I to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA. SBA debentures are loans issued to an SBIC that have interest payable semi-annually and a 10-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread over U.S. treasury notes with 10-year maturities. Current statutes and regulations permit Capital Southwest SBIC I to borrow up to $175 million in SBA debentures.

“We are very pleased to have been approved for our first SBIC license, which has been a strategic priority for Capital Southwest since our transformation to a traditional middle market lender,” Bowen Diehl, president and CEO of Capital Southwest, said. “Our lower middle market strategy is a natural fit with the SBA’s mission of funding underserved markets, including businesses based in low to moderate income areas and businesses owned by minorities, women or veterans.”

“This license will provide us with attractively priced long-term financing, further diversifying our sources of capital and enhancing the flexibility of our balance sheet,” Michael Sarner, CFO of Capital Southwest, said.

Capital Southwest is an internally managed business development company with approximately $313 million in net assets as of Dec. 31, 2020. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $25 million investments across the capital structure, including first lien, unitranche, second lien, subordinated debt and non-control equity co-investments.