Small Business Investment Company (SBIC) Regulatory Amendments

<RULE> 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> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> On July 7, 2025, the U.S. Small Business Administration (“SBA” or “Agency”) published a notice of proposed rulemaking (“NPRM” or “proposed rule”) to revise the regulations for the Small Business Investment Company (“SBIC”) program 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”) and to remove certain barriers to investments in critical mineral extraction and processing and designated critical technologies. This final rule implements proposed regulatory changes as modified to address comments SBA received. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective February 2, 2026. </EFFDATE> <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> 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 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 ten 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. Notice of Proposed Rulemaking</HD> The Small Business Investment Act of 1958, as amended (the “Act”) declares that the policy of Congress and the purpose of the Act is to improve and stimulate the national economy in general and the small business segment thereof. The Act states the intention of Congress to provide “financial assistance under this Act, when practicable, priority accorded to small business concerns which lease or purchase equipment and supplies which are produced in the United States and “financial assistance provided hereunder shall not result in a substantial increase of unemployment in any area of the country.” Additionally, the Act authorizes the SBA Administrator “to prescribe regulations governing the operations of small business investment companies.” On July 7, 2025, SBA proposed changes to 13 CFR 107 (90 FR 29794) to remove eighteen 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 proposed to remove eight regulations relating to “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 consistent with the Improvement Act of 1996, the then-existing SSBIC licenses were not revoked. 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 proposed in the NPRM to remove the regulations related to Subsidized Leverage. The SSBICs remaining in the program will not be impacted by the changes finalized in this rule and, if eligible, those SSBICs may continue to apply to issue standard Debentures. SBA proposed 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 made in this rule will not impact any Participating Securities SBICs. SBA proposed to remove one regulation relating to a category of SBICs created by regulation in 2012 that were 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) that defined this category of Early Stage SBICs stated that SBA's intent was to license Early Stage SBICs over a five 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 for a permanent Early Stage SBIC program. In the NPRM, SBA proposed to remove the regulations related to the licensing of Early Stage SBICs, since SBA is no longer licensing these funds. The removal of these regulations will not impact Early Stage SBICs remaining in the program. SBA proposed to remove, or revise, thirty regulations and four definitions that are duplicative, redundant, or otherwise inefficient or unnecessary. In connection with this rulemaking, SBA proposed certain non-substantive amendments to thirteen regulations and two definitions to remove internal references to the removed regulations, streamline certain regulations addressing the same concept to improve efficiencies, or make certain other clarifying changes. SBA further proposed to remove three eligibility requirements for subsequent fund applicants operating an active SBIC license and further clarify through revision two eligibility requirements pe ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 61k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━