SBA Expands Access to SBIC Leverage

May 20, 2009

In an effort to respond to the current market conditions including the inability of many small businesses to obtain financing, the Small Business Administration (SBA) has made temporary changes to its Debenture Leverage requirements.

As of May 14, 2009, the Office of Investment will accept commitment applications for Debenture Leverage with debt service plans that demonstrate the ability to service the semi-annual interest payments from any source including the Debenture Leverage itself; provided that such debt will only be used to provide follow-on financings for portfolio companies that were initially financed prior to December 31, 2008.

Those SBIC Funds that intend to use Debenture Leverage to make initial investments in new portfolio companies will still be required to demonstrate the ability to service the interest from sources other than Debenture Leverage.

All commitment applications will be reviewed by the Associate Administrator for Investment according to the current standard operating procedures. In most cases, applications will be submitted for review within forty-five days of receipt by the SBA.

The SBA expects the Office of Investment to review this measure every six months to determine whether it continues to be appropriate for the market.

This temporary change when combined with a difficult fundraising environment and the permanent changes made to the SBIC Program pursuant to the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) have made the SBIC Program an attractive opportunity for many large and middle market private equity funds.

The Private Equity group at McGuireWoods LLP is dedicated to keeping our clients advised of new legislative and business developments as they occur. If you have any questions regarding these issues, please feel free to contact your primary attorney at McGuireWoods LLP or the authors.

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