Small Business Investment Company (SBIC) Regulatory Amendments

SMALL BUSINESS ADMINISTRATION <CFR>13 CFR Part 107</CFR> <RIN>RIN 3245-AI14</RIN> <SUBJECT>Small Business Investment Company (SBIC) Regulatory Amendments</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> U.S. Small Business Administration. <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The U.S. Small Business Administration (“SBA” or “Agency”) is proposing to modify or remove from the Code of Federal Regulations (“CFR”) regulations that are obsolete, inefficient, or otherwise unnecessarily impede the licensing of small business investment companies (“SBICs”). Many of the regulations SBA is proposing to remove apply to the repealed Section 301(d) of the Small Business Investment Act of 1958, as amended, and certain other types of SBICs that SBA no longer licenses, such as Participating Securities SBICs and Early Stage SBICs. The removal of these regulations will assist the public by simplifying SBA's regulations in the CFR. In addition, SBA is proposing to amend its regulations applicable to subsequent fund applicants in order to streamline the licensing process for such applicants. SBA also seeks to remove certain barriers to investments in critical mineral extraction and processing and designated critical technologies. In accordance with 5 U.S.C. 553(b)(4), a summary of this rule may be found <E T="03">https://www.regulations.gov.</E> </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before September 5, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by RIN: 3245-AI14, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments for Docket Number SBA-2025-0003. • <E T="03">Mail or Hand Delivery/Courier:</E> Frank Salomone, Associate Administrator for the Office of Investment and Innovation, U.S. Small Business Administration, 409 Third Street SW, Washington, DC 20416. SBA will post all comments on <E T="03">https://www.regulations.gov.</E> If you wish to submit confidential business information (“CBI”), as defined in the User Notice at <E T="03">https://www.regulations.gov,</E> please submit the information to Paul vanEyl, Director of Financial Policy, Office of Investment and Innovation, Small Business Administration, 409 Third Street SW, Washington, DC 20416, or send an email to <E T="03">oii.policy@sba.gov</E> with “RIN 3245-AI14 Proposed Rule” in the subject heading. Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review the information and make the final determination on whether it will publish the information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Policy:</E> Frank Salomone, Associate Administrator of the Office of Investment and Innovation, U.S. Small Business Administration, <E T="03">oii.policy@sba.gov,</E> 771-233-1782. This phone number may also be reached by individuals who are deaf or hard of hearing, or who have speech disabilities, through the Federal Communications Commission's TTY-Based Telecommunications Relay Service teletype service at 711. <E T="03">Regulatory Comments/</E> <E T="7462">Federal Register</E> <E T="03">Docket:</E> Paul vanEyl, Director of Financial Policy, Office of Investment and Innovation, U.S. Small Business Administration, <E T="03">oii.policy@sba.gov,</E> 202-257-5955. This phone number can also be reached by individuals who are deaf or hard of hearing, or who have speech disabilities, through the Federal Communications Commission's TTY-Based Telecommunications Relay Service teletype service at 711. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background Information</HD> <HD SOURCE="HD2">A. Small Business Investment Company Program</HD> SBA's SBIC program is designed to enhance small business access to capital by stimulating and supplementing “the flow of private equity capital and long-term loan funds which small-business concerns need for the sound financing of their business operations and for their growth, expansion, and modernization, and which are not available in adequate supply.” Small Business Investment Act of 1958, as amended, 15 U.S.C. 661, <E T="03">et seq.</E> (the “Act”). The SBIC program's primary objective is to “improve and stimulate the national economy in general and the small-business segment thereof in particular.” <E T="03">Id.</E> SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use capital raised from private investors (what SBA generally refers to as “Regulatory Capital”) to make equity and debt investments in qualifying small businesses. SBICs pursue investments in a broad range of industries, geographic areas, and stages of investment. SBA licenses many SBICs to issue SBA-guaranteed debentures (“Debentures”), typically with a 10-year term, the repayment of which is guaranteed by SBA using the full faith and credit of the United States. SBA typically authorizes SBICs to issue Debentures up to an amount not exceeding $175 million for individual SBICs and $350 million for SBICs under Common Control (as defined in 13 CFR 107.50). From the inception of the SBIC program to December 31, 2024, SBICs have invested approximately $139.2 billion in approximately 198,199 financings to small businesses. In fiscal year 2024, SBICs invested $7.26 billion in 1,014 small businesses. As of September 30, 2024, there were a total of 318 licensed and operating SBICs with total Regulatory Capital of approximately $25.7 billion. In addition, as of September 30, 2024, SBA had guaranteed outstanding Debentures or had outstanding commitments to guarantee Debentures to SBICs in the approximate aggregate amount of $21.1 billion. <HD SOURCE="HD2">B. Part 107, Small Business Investment Companies</HD> SBA is proposing to remove from the CFR seventeen regulations and two definitions that are no longer necessary, because the rules reflect statutes that have been repealed, do not have any current or future applicability, or are otherwise inefficient or unnecessary. Specifically, SBA is proposing to remove eight regulations relating to the “Subsidized Leverage,” which was formerly issued by Specialized Small Business Investment Companies (“SSBICs”) (also referred to as “Section 301(d) Licensees”). Prior to 1996, Section 301(d) of the Act authorized SBA to issue licenses to SSBICs, which were required to invest “solely in small business concerns which will contribute to a well-balanced national economy by facilitating ownership in such concerns by persons whose participation in the free enterprise system is hampered because of social or economic disadvantages[.]” Section 301(d) was repealed by Section 208(b)(3)(A) of Public Law 104-208, enacted September 30, 1996 (the “Improvement Act of 1996”). Section 208(b)(3)(B) of the Improvement Act of 1996 provided, “[t]he repeal under subparagraph (A) shall not be construed to require the Administrator to cancel, revoke, withdraw, or modify any license issued under section 301(d) of the Small Business Investment Act of 1958 before the date of enactment of this Act.” As a result, no new SSBIC licenses have been issued since October 1, 1996, but existing SSBICs have been allowed to remain in the program. The Improvement Act of 1996 also repealed the special kinds of financial assistance ( <E T="03">i.e.,</E> “Subsidized Leverage”) that SBA previously made available to SSBICs under former Section 303(c) of the Act. Such Subsidized Leverage was previously available to SSBICs in the form of Debentures with an interest rate subsidy or certain types of preferred stock known as “Preferred Securities” with a specified dividend. Although Subsidized Leverage can no longer be issued, the Improvement Act of 1996 did not require SSBICs to prepay or redeem such Subsidized Leverage prior to its scheduled maturity. Approximately five SSBICs are currently operating, but no Subsidized Leverage remains outstanding, so SBA proposes to remove the regulations related to Subsidized Leverage. The SSBICs remaining in the program will not be impacted by the changes proposed in this rule and, if eligible, those SSBICs may continue to apply to issue standard Debentures. SBA is proposing to remove three regulations and one definition relating to Participating Securities (as defined in 13 CFR 107.50) and SBICs that issued Participating Securities (“Participating Securities SBICs”). The fees payable by Participating Securities SBICs were not sufficient to cover the projected net losses of the Participating Securities program and no funds have been appropriated for this program in over 20 years. As a result, since October 1, 2004, SBA has not issued new commitments for Participating Securities. There are no Participating Securities SBICs operating in the program, and accordingly the changes proposed in this rule will not impact any Participating Securities SBICs. SBA is proposing to remove one regulation relating to a category of SBICs created in 2012 by regulation that required to invest at least fifty percent of their capital in early-stage small businesses (“Early Stage SBICs”). The final rule (77 FR 25042, April 27, 2012) defining this category of Early Stage SBICs stated that SBA's intent was to license Early Stage SBICs over a 5-year period (fiscal years 2012 through 2016). SBA published a rule on September 19, 2016 (81 FR 64075) proposing to make the Early Stage SBIC initiative a permanent part of the SBIC program, but withdrew the proposed rule on June 11, 2018 (83 FR 26875) because, among other things, few qualified funds applied to the Early Stage SBIC initiative and the comments to the proposed rule did not demonstrate broad support fo ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 57k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━