On Nov. 13, 2017, the Small Business Administration (SBA) published a new final rule that will increase licensing and examination fees for small business investment company (SBIC) applicants. This is the first time the SBA has increased fees for SBICs in over 20 years, and the new rule allows for perpetual, incremental increases based on inflation.
Background
When issuing its new rule, the SBA explained the application and examination fees set in 1996 (and as adjusted in 1997) were intended to completely cover the SBA’s costs and expenses. According to the SBA, current fees offset less than 40 percent of administrative expenses directly related to licensing, and less than a quarter of the SBA’s total expenses when accounting for overhead.
On Dec. 16, 2016, the SBA published a proposed rule and sought public comment on this issue before adopting its final rule. The final rule will take effect Dec. 13, 2017.
New Application Fees
SBA regulations divide SBIC licensing into two phases, an initial review phase and a final licensing phase. The new rules mandate an initial licensing fee of $10,000 for the first phase, due with the submission of the Management Assessment Questionnaire (MAQ).
However, beginning Dec. 13, 2017, the new rules will add a final licensing fee of $20,000 for the second phase. This fee increases by $5,000 on the first of October every year until it reaches a maximum of $35,000 in 2020, according to the table below.
| Time Period | Final Licensing Fee |
| Dec. 13, 2017, to Sept. 30, 2018 | $20,000 |
| Oct. 1, 2018, to Sept. 30, 2019 | $25,000 |
| Oct. 1, 2019, to Sept. 30, 2020 | $30,000 |
| Oct. 1, 2020, to Sept. 30, 2021 | $35,000 |
Beginning Oct. 1, 2021, subsequent increases will be determined by inflation.
Increased Examination Fees
The SBA (or its outside, third-party contractors) conducts examinations of all licensees to evaluate regulatory compliance. The SBA calculates this examination fee by starting with a base fee and adding a percentage of an applicant’s total assets (at cost). The SBA then adjusts this calculation with discounts or additional fees based on an applicant’s activities.
The previous minimum fee for funds with assets of $1.5 million or less was $3,500, and the maximum fee was $14,000 for funds with assets of more than $60 million. Now, the new minimum base fee is $6,000 plus .024 percent of a fund’s assets, regardless of the fund’s size, with a maximum of $26,000 for leveraged SBICs. These amounts increase annually until 2020, to a maximum of $44,000, according to the table below.
| Time Period (Based on the examination start date) | Minimum Base Fee | Maximum Base Fee (Non-Leveraged SBICs) | Maximum Base Fee (Leveraged SBICs) |
| Dec. 13, 2017, to Sept. 30, 2018 | $6,000 | $22,500 | $26,000 |
| Oct. 1, 2018, to Sept. 30, 2019 | $7,000 | $25,000 | $32,000 |
| Oct. 1, 2019, to Sept. 30, 2020 | $8,000 | $27,500 | $38,000 |
| Oct. 1, 2020, to Sept. 30, 2021 | $9,000 | $30,000 | $44,000 |
Beginning Oct. 1, 2021, subsequent increases will be determined by inflation.
Adjusted for Inflation
The final rule revises SBA regulations to adjust the application and examination fees annually to account for inflation, starting Oct. 1, 2021. The SBA will calculate its inflation adjustment using the Consumer Price Index for Urban Consumers, calculated by the U.S. Bureau of Labor and Statistics, using the national city average. The SBA will publish a notice in the Federal Register identifying the amount of the fee prior to such adjustments.
The private equity practice group at McGuireWoods is dedicated to keeping clients advised of new legislative and business developments as they occur. If you have any questions regarding these issues, please contact Mark A. Kromkowski (+1 312 849 8170), Bryan P. Bylica (+1 312 750 3617) or your primary attorney at McGuireWoods.