Private equity and other investment fund vehicles should consider examining the Small Business Administration’s (“SBA”) Small Business Investment Company (“SBIC”) program, which can help small funds obtain additional funds for investment into small businesses. This blog post aims to provide a concise overview of the SBIC program, its legal framework, and recent initiatives to promote diversity.
The SBIC program, authorized by the Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.), allows private investment funds to obtain SBA licensing and potentially access SBA-guaranteed leverage. The program’s regulations are codified in 13 CFR Part 107.
To become an SBIC, a fund must meet specific eligibility criteria:
- A minimum of $5 million in Regulatory Capital (13 CFR § 107.210(a))
- Qualified management with substantial investment experience (13 CFR § 107.210(b))
- A viable business plan for SBIC operations (13 CFR § 107.210(c))
- Private capital from a permitted source (13 CFR § 107.230)
The application process, outlined in 13 CFR § 107.300, involves submitting a Management Assessment Questionnaire (MAQ) and, if approved, a formal license application. The SBA evaluates applications based on management qualifications, operational prospects, and potential economic impact (13 CFR § 107.305).
Once licensed, SBICs must comply with various regulations, including:
- Investment restrictions (13 CFR § 107.700-107.760)
- Leverage limitations (13 CFR § 107.1100–107.1170)
- Ongoing reporting and compliance requirements (13 CFR § 107.500–107.692)
SBICs are subject to SBA examinations and potential enforcement actions for regulatory violations (13 CFR § 107.1200-107.1820).
For those interested in the SBIC program, it’s crucial to emphasize the complex regulatory landscape. The licensing process can be lengthy, often taking 12-18 months from initial application to approval. Applicants should be prepared for rigorous due diligence and ongoing compliance obligations.
In conclusion, the SBIC program offers significant opportunities for private investment funds, but navigating its legal and regulatory requirements demands careful attention. As the program evolves, particularly with new diversity initiatives, staying informed about potential policy changes or new regulations will be crucial for attorneys in this space.
This blog post provides a general overview and should not be considered legal advice. Always consult with a qualified attorney for specific legal guidance. We, at Burrell Law, are available to discuss SBICs or other business related legal topics during a consultation. Please use the form below to contact us!
