- Significant money for investing in small businesses is coming the Magnolia State’s way.
Let’s say an entrepreneur has reasonable cash flow yet lacks significant assets to garner a traditional bank loan without collateral.
The advent of the long-awaited presence of an active Small Business Investment Company (SBIC) license in Mississippi will soon provide entrepreneurs with other funding options via a windfall of capital for small businesses.
The Lending Angle
The Truman Fund, launched by Ridgeland-based Twain Private Credit, may partner with banks to provide an uncollateralized mezzanine-type loan or provide funding for the entirety of the loan.
“Many small businesses in the southeast lack access to capital where traditional bank lending may be limited or when banks may not be in a position to lend for a variety of reasons,” said Wade Smith, managing partner and general counsel for Twain Private Credit, noting the Truman Fund was recently approved by the U.S. Small Business Administration (SBA). “Twain Private Credit has the resources and regulatory structure necessary to lend capital to these small businesses. Our lending structure is designed to offer more patient capital, longer repayment terms, and tailored solutions, so businesses can focus on growth rather than short-term financial constraints.”
In Mississippi, the approval of an SBIC allows the Truman Fund to access capital from the SBA, which can then be loaned or invested in local businesses. The industry focus includes logistics and distribution, manufacturing, energy, infrastructure, industrial equipment and emerging technologies.
The SBIC program, established in 1958 and managed by the SBA, is a highly competitive initiative designed to provide long-term capital to small businesses. The SBA commits up to $5 billion annually to provide low-cost loans to scale and enhance the risk-adjusted returns of private equity and private credit funds focused on investing in U.S. small businesses and startups.
Gaining approval for an SBIC license was an arduous process. Its approval signals a high level of confidence from the SBA in the Magnolia State’s economic environment and entrepreneurial ecosystem as well as Twain Private Credit’s ability to effectively manage and deploy capital.
“There hasn’t been a better time to invest in Mississippi,” said Governor Tate Reeves. “Our state’s economy is thriving, so it shouldn’t come as a surprise that the private sector wants to continue investing here. Mississippi’s small businesses are worthy of investment, and I’m glad to see they’ll have access to this additional capital.”
The Truman Fund will also target investments to fill the capital gap in neighboring states, like Oklahoma, Arkansas, Alabama, and Georgia, which do not have an actively investing SBIC.
How do entrepreneurs access SBIC funds?
“Twain Private Credit will engage in a standard due diligence process with each of its prospective small business clients,” explained Smith. “Beginning now, all a company needs to do is contact us and explain its needs, and we can work out the best path forward via debt, equity, et cetera, to meet its needs.”
The Investment Angle
A second component of the SBIC licensure involves attracting investors in the fund, such as banks and family offices. There is a higher return on investment due to the low cost of capital, CRA (Community Reinvestment Act) consideration, non-dilutive capital, and privileges that non-SBIC hedge or private equity funds do not enjoy, said Smith.
“The SBA will make available $2 of capital (in the form of debt) for every $1 of private capital raised from our limited partners,” said Smith. “The SBA only asks that its loan is repaid at low interest rates. The SBA doesn’t participate in the fund’s gains, so investors will benefit from their ownership in a leveraged fund, which should operate to boost the funds’ return profile.”
For example, an investor puts a sum of money into the fund as a limited partner. The fund will draw two times that money from the SBA and invest the total amount (investor funds + SBA funds) in small businesses in the form of debt or equity, explained Smith.
“As the fund realizes returns from its investments, the SBA debt is repaid, and the fund enjoys the remainder,” he said.
Twain Private Credit, Smith explained, is set up much like a typical private equity fund structure.
“Investors will participate as limited partners in the fund with a specified minimum return hurdle,” he said. “Any accredited investor interested in investing should contact us.”
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