SBIA has been working with the Small Business Administration (SBA) for several years on ways to improve the SBIC program so that it better serves the public while also making it easier and less expensive to operate an SBIC Fund. SBA is now formally moving forward with the first of several major changes to the SBIC program.
SBA will be accepting comments from the public (not just SBICs) until December 19. To be clear, this proposal is not final and is still open to modification, which is why it is critical to engage your trade association so that we speak with a thoughtful and consistent voice. The SBA’s proposal is a good faith effort to make improvements, avoid “overregulating,” and expand economic opportunities to more small businesses. Good faith does not mean perfection and we will help to make improvements.
SBIA is the collective voice of the SBIC industry, both GPs and LPs. SBIA is going to be coordinating and accepting your thoughts so that we can offer constructive feedback to SBA that is fully analyzed for both the short and long term consequences of the proposed rulemaking. (Register below to join the first industry call on Tuesday, October 25).
Most of the proposed changes (formal proposal attached below) will be welcomed by SBICs and LPs. Some of the proposals are left as open questions for the industry to opine on because SBA has not decided on the best way forward. A handful of the changes may be controversial. We need your view on all of them.
The clear focus of the proposal is to support and sustain the existing “core” SBIC program. However, the proposal also lays out major expansions in the program. These will need a close review to make sure both SBIA and the SBA understand the long term implications of them. For example, the proposed regulations envision a new growth-equity-oriented SBIC Accrual Debenture License that uses a new form of debenture. The proposed regulations also envision the ability for “funds of funds” and “re-lenders” to access debenture leverage to invest into conventional funds that are serving SBIC-eligible businesses. There is a movement to GAAP in several areas and new performance reporting.
To be clear:
- This is a regulatory proposal that is subject to change.
- You can and should read the proposal because it will affect every current and future SBIC fund.
- Once finalized, regulations have the force of law.
- Congress does not have a formal role here and can only force changes by changing the underlying law (which takes years).
- You should participate in SBIA’s engagement sessions to make sure we can be an effective voice for you.
- Constructive comments are most likely to be adopted.
- Some new issues may be added with SBIA comments.
- SBA will be having their own listening sessions.
- Historically government tends to “cherry pick” comments from their listening sessions that validate their proposal even if the view is only from a single GP or LP, so it is critical to work with SBIA so we fully represent the entire membership with a strong, unified voice.
- SBA will have its own separate listening sessions for different groups (GPs, LPs, Lawyers, Accountants, small funds, BDCs, etc.).
SBIA will hold its first call for the industry on the proposal next Tuesday, October 25 at 2:30pm Eastern Time. To participate, please register at the link below.
