Small Business Investment Company (SBIC) Accrual Regulatory Amendments

<RULE> SMALL BUSINESS ADMINISTRATION <CFR>13 CFR Part 107</CFR> <RIN>RIN 3245-AI28</RIN> <SUBJECT>Small Business Investment Company (SBIC) Accrual Regulatory Amendments</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> U.S. Small Business Administration. <HD SOURCE="HED">ACTION:</HD> Direct final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The U.S. Small Business Administration (“SBA” or “Agency”) is publishing this direct final rule (DFR) to modify regulations to provide for a clarification in the Annual Charges assessed for Leverage between SBIC licenses and Accrual SBIC licenses. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective on January 20, 2026, without further action, unless significant adverse comment is received no later than January 5, 2026. If significant adverse comment is received, SBA will publish a timely withdrawal of the rule in the <E T="04">Federal Register</E> . </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by RIN: 3245-AI28, 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-2025-0168 or RIN 3245-AI28. • <E T="03">Mail or Hand Delivery/Courier:</E> Joshua Carter, 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 Van Eyl, 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-AI28 Direct Final 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. 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> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Policy:</E> Joshua Carter, Associate Administrator of the Office of Investment and Innovation, U.S. Small Business Administration, <E T="03">oii.policy@sba.gov,</E> 202-205-7159. 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 Van Eyl, 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 small business investment company (“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”). SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use capital raised from private investors 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 SBICs to issue SBA-guaranteed debentures (“Debentures”), typically with a ten year term, the repayment of which is guaranteed by SBA using the full faith and credit of the United States. On July 18, 2023, SBA issued a final rule (88 FR 46012) implementing a new and distinct type of Debenture (“Accrual Debenture”) designed to align with the cash flows of long-term, equity-oriented funds (“Accrual SBICs”). The issuance of Accrual Debentures is currently limited only to those SBICs approved as an Accrual SBIC and/or a Reinvestor SBIC. To be eligible for an Accrual SBIC license, an SBIC applicant must, among other things, demonstrate an investment strategy that is equity oriented. There are currently three types of Debentures available for investment funds that have received an SBIC license: a “Standard” Debenture, a “Discount” Debenture and an “Accrual” Debenture, each of which have different and distinct terms and conditions. As required by the Act and pursuant to 13 CFR 107.1130(d), in addition to a three percent (3%) Leverage fee (split between a Leverage commitment and a Leverage draw) SBICs are also required to pay an additional charge (“Annual Charge”) that is payable on the same terms and conditions as interest applicable to such Debentures. SBA is clarifying that SBICs issuing a standard Debenture or Discount Debenture and SBICs issuing an Accrual Debenture may be subject to separate Annual Charges within the permitted Annual Charge ceiling and floor as published in the existing regulations and subject to publication in the Federal Credit Supplement for each fiscal year. The Annual Charge for SBA Leverage (as defined in the Act) has been broken out by the type of instrument utilized ( <E T="03">e.g.,</E> Debentures, Participating Securities, etc.). Under this rulemaking, Annual Charges for different types of Debentures issued may differ as terms and conditions are different and distinct. The calculations of the Annual Charge are made to keep the SBIC program budget neutral and are included in the annually published Federal Credit Supplement which provides detailed information on federal loan programs, subsidy rates, and budgetary implications for federal credit activities. SBA publishes the Annual Charges on its website for each federal fiscal year of leverage commitments obligated to SBICs based on the type of Debenture issued. The Annual Charge is calculated on an annual basis to keep the SBIC program budget neutral and are subject to a ceiling not to exceed 1.38 percent per annum and a floor set pursuant to section 303(b) of the Act and 13 CFR 107.1130(d)(1). SBA is modifying 13 CFR 107.1130(d) to further clarify that SBICs issuing Accrual Debentures may be subject to an Annual Charge that may differ from SBICs issuing standard Debentures or Discount Debentures in order to keep the SBIC program budget neutral. SBA notes this will be consistent with the calculations performed and are included in the annual Federal Credit Supplement. <HD SOURCE="HD1">II. Justification for Publication as Direct Final Rule</HD> In general, SBA publishes a rule for public comment before issuing a final rule in accordance with the Administrative Procedure Act. 5 U.S.C. 553. The Administrative Procedure Act provides an exception to this standard rulemaking process, however, where an agency finds good cause to adopt a rule without prior public participation. 5 U.S.C. 553(b)(B). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest. SBA is publishing this rule as a direct final rule because public participation is unnecessary. SBA has determined this rulemaking as non-controversial as it provides clarification on the Annual Charge applicable to different Debenture types which have differing terms and conditions. This rule will be effective on the date shown in the <E T="02">DATES</E> section unless SBA receives significant adverse comment on or before the deadline for comments. Significant adverse comments are comments that provide strong justifications for why the rule should not be adopted or for changing the rule. SBA does not expect to receive any significant adverse comments because the accrual debenture program focuses on long-duration, equity- oriented investment strategies which differ than investment strategies implemented with standard licensed SBICs. SBA discussed the potential of distinct charges between accrual debenture and standard debenture instruments with existing licensed Accrual SBICs, which did not provide negative feedback. If SBA receives any significant adverse comments, it will publish a document in the <E T="04">Federal Register</E> withdrawing this rule before the effective date. If SBA receives no significant adverse comments, the rule will be effective 45 days after publication without further notice. As such, this rule is being implemented as a direct final rule. <HD SOURCE="HD1">III. Section by Section Analysis</HD> <HD SOURCE="HD2">A. Section 107.1130—Leverage Fees and Annual Charges</HD> This regulation identifies the fees and other charges associated with SBA-guaranteed Leverage. Paragraph (d) of 13 CFR 107.1130 identifies the Annual Charge (as defined in 13 CFR 107.50) applicable to SBICs with outstanding Debentures. SBA is modifying paragraph (d) of 13 CFR 107.1130 to clarify that SBA may calculate Annual Charges based on the type of Debentures issued ( <E T="03">e.g.,</E> Accrual Debentures and other Debentures). The Annual Charge rates by type of Debenture are designed to ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 17k characters. 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