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Hercules Capital Gets SBA Green Light Letter for SBIC License

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Zacks Equity Research
·3 min read
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Hercules Capital, Inc. HTGC received a “green light” letter from the Small Business Administration (“SBA”) to finalize its application process to obtain the license required to form and operate a third Small Business Investment Company (“SBIC”) subsidiary.

However, receiving a green light letter from the SBA does not necessarily ensure that the applicant will be granted an SBIC license. In fact, until now, Hercules Capital has not received any assurance from the SBA that it will receive the license.

Final approval of the license is expected by fourth-quarter 2020. Once Hercules Capital obtains the third SBIC license held by its subsidiaries, it will be able to access additional growth capital of $175 million of long-term debentures.

This will bring the company’s combined borrowing capacity through the SBIC program to $285.3 million of capital.

SBICs are privately-owned investment companies that supply equity and debt financing to small businesses. Small businesses that require startup capital can opt for SBICs as an alternative to venture capital firms.

Hercules Capital’s CEO, Scott Bluestein, stated, “We are extremely pleased to receive the ‘green light’ approval from the SBA. Our long-standing partnership with the SBIC program remains an important and strategic component to maintaining a highly liquid and diversified balance sheet and it provides us with further flexibility to be able to continue to support small and growth oriented businesses including those that are minority, women or veteran owned or managed.”

Bluestein added, “This third license will provide us with favorable long-term financing further enhancing our already strong liquidity position in a cost-effective manner.”

Notably, Hercules Capital received its first SBIC license in September 2006. The company received an exemption from the Securities and Exchange Commission that allows for the exclusion of SBIC leverage from BDC regulatory debt to equity limitations.

Hercules Capital is currently a small participant in a market with huge growth prospects. It continues to undertake efforts to improve originations. The efforts are expected to lead to an increase in expenses. Higher costs will likely hurt the bottom line to an extent. Nevertheless, given the expectation of growing demand for customized financing, the company’s top line is expected to be positively impacted.

Shares of Hercules Capital have lost 15.6% so far this year compared with the industry’s decline of 25.1%.

Currently, the company carries a Zacks Rank #3 (Hold).

A few better-ranked stocks from the finance space are mentioned below.

Merchants Bancorp’s MBIN current-year earnings estimates have moved upward by 11.9% over the past 60 days. The stock has appreciated 3.1% over the past six months. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GAIN Capital Holdings’ GCAP current-year earnings estimates have moved up significantly over the past 60 days. Further, the company’s shares have gained 45.3% over the past six months. At present, it carries a Zacks Rank of 2.

West Bancorporation’s WTBA current-year earnings estimates have moved up 13.9% over the past 60 days. The company’s shares have declined 19.1% over the past six months. At present, it sports a Zacks Rank of 1.

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Hercules Capital, Inc. (HTGC) : Free Stock Analysis Report
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