SBIC Program Updates: SBA Proposes Technical Amendments to 2023 Reforms and Significant Change to Passive Business Rule

News

SBIC Program Updates: SBA Proposes Technical Amendments to 2023 Reforms and Significant Change to Passive Business Rule

15 February 2024

In July 2023, the U.S. Small Business Administration (SBA) released sweeping reforms to the Small Business Investment Company (SBIC) program. Many of those reforms were enacted through the Small Business Investment Company Investment Diversification and Growth final rule effective on August 17, 2023 (SBIC IDG Final Rule), which reduced barriers to program participation for new SBIC fund managers and funds investing in underserved communities and geographies, capital intensive investments, and technologies critical to national security and economic development.

On January 19, 2024, SBA released a direct final rule (referred to below as the “Proposed Rule”), which clarifies and provides technical updates to the earlier SBIC IDG Final Rule. This rule is slated to come into effect on March 4, 2024, without further action, unless significant comment is received by February 20, 2024.

The Proposed Rule introduces a series of technical amendments and clarifying updates. These include, but are not limited to, the following key areas, which will be discussed in greater detail in this client alert:

reducing structural challenges for SBICs investing in portfolio companies through holding companies and other passive entities;
modifying the requirements for subsequent SBIC applicants to participate in the expedited filing process;
resolving previous inconsistencies regarding “overline” limitation calculations;
clarifying rules for distributions and repayment of SBA leverage and fees for Accrual Debentures;
clarifying filing requirements for reinvestor SBICs; and
implementing various other technical corrections.