Transformational Reforms by Biden-Harris Administration to Revitalize Public-Private Investment Initiative

Revamped Small Business Investment Company Program to Foster Emerging Fund Managers and Enhance Funding for Underserved Markets

WASHINGTON – In a significant move, Administrator Isabella Casillas Guzman has unveiled a comprehensive modernization of the U.S. Small Business Investment Company (SBIC) Program, a key component of President Biden’s Investing in America Agenda. The SBIC Investment Diversification and Growth Rule, set to take effect on August 17, 2023, represents a pivotal step toward boosting access to funding for small businesses, startups, and investment managers while fostering diversity within the ecosystem.

Administrator Guzman emphasized the role of SBIC-licensed funds in nurturing innovative enterprises and supporting the resilience of small businesses across the nation. She highlighted that this final rule will unlock untapped potential by strengthening, diversifying, and expanding the network of SBIC-licensed private funds. These efforts are geared towards addressing capital gaps in underserved markets, startups, and crucial U.S. industries with implications for national security.

The SBIC Investment Diversification and Growth Rule aims to tackle structural challenges that have historically impeded the flow of equity and growth-focused debt investments from SBIC-licensed funds to small businesses and startups in underserved communities, capital-intensive industries, and technology sectors vital to U.S. progress.

Key highlights of the rule include:

• Enabling long-duration and equity funds: Introduction of the “Accrual Debenture” instrument, aligning with the needs of longer-duration and equity-focused investment funds. These licensed funds, known as “Accrual SBICs,” will be eligible for enhanced leverage while not involving SBA in their profits.
• Enhanced program accessibility: Reduction of licensing fees for new program applicants, along with widened eligibility criteria for fund managers and investment strategies, promoting a more diverse group of participants in the SBIC program.
• Fund-of-Funds for increased access: Introduction of the “Reinvestor SBIC,” employing a fund-of-funds model to invest equity in underserved-focused funds, which in turn invest directly in small businesses and startups. These Reinvestor SBICs will be empowered by the Accrual Debenture instrument and higher leverage.
• Streamlined procedures: Reduction of hurdles for program participants and their investors, such as clearer financial commitment indications and streamlined valuation processes.
• Strengthened Controls: Implementation of changes to enhance risk management, including a formal Watchlist for early risk identification and reporting enhancements.
• Affiliation clarification: Clearing the definition of affiliation to unburden U.S. small businesses with SBIC investment from associated regulations, supporting greater flexibility for these businesses.

These changes reflect a visionary approach to revitalizing the SBIC Program. The administration’s aim is to collaborate with private investors in fueling critical sectors for national security and economic prosperity, ultimately fostering the growth of vital industries.

Since its inception in 1958, the SBIC Program has played a pivotal role in nurturing American businesses. With over 308 private funds covering various investment strategies and a collective asset base of over $40 billion, the SBIC program has been instrumental in generating economic growth, creating jobs, and supporting innovation.

Last year alone, SBICs invested a substantial $8 billion in more than 1,500 companies, contributing to the creation and sustenance of over 103,000 U.S. jobs. This underscores the program’s enduring impact on economic development and prosperity.

In summary, the Biden-Harris Administration’s strategic reforms to the SBIC Program mark a transformative step towards fueling innovation, supporting underserved communities, and driving economic growth across the nation.

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