Small Business Investment Companies (SBIC Funds) interested in applying to the U.S. Small Business Administration’s (SBA) Start-Up American Impact Investment SBIC Initiative will be placed on an expedited licensing track and have received additional guidance from the SBA.
Impact Investment Fund Commitment
SBA will commit $1 billion to SBIC Funds that are later stage/mezzanine private equity funds that invest growth capital in impact investments. Impact Investment SBIC Funds may be eligible for SBA-guaranteed debenture leverage of up to three times their private capital, subject to a maximum debenture ceiling per Impact Investment (as of the date of this memorandum, $80 million) and the following additional restrictions:
- SBA will license qualified applicants as Impact Investment SBIC Funds through fiscal year 2016.
- SBA will begin issuing debenture leverage commitment to Impact Investment SBIC Funds in 2012.
- In 2012, SBA will issue no more than $150 million in debenture leverage commitments, and will issue no more than $200 million in debenture leverage commitments each year thereafter, on a first-come first-served basis, until SBA has issued an aggregate amount of $1 billion in debenture leverage to Impact Investment SBIC Funds.
- SBA will commit no more than one tier of debenture leverage to any Impact Investment SBIC Fund in a single fiscal year. One year following SBA’s commitment for a single tier of debenture leverage, the Impact Investment SBIC Fund may apply for an additional tier of leverage subject to the debenture ceiling.
- Impact Investment SBIC Funds are not eligible for debenture leverage commitment other than through the Impact Investment Initiative.
Impact Investment Fund Requirements
An Impact Investment SBIC Fund must deploy at least 50% of the total dollar amount of its investments into Impact Investments, which target areas of critical national priority and may be either place-based or sector-based. Place-based impact investments require that the small business company targeted for investment must be located in, or with at least 35% of its full-time employees at the time of initial investment residing in, low or moderate income (LMI) areas or economically distressed areas (EDAs). Sector-based impact investments required that the small business company targeted for investment operate in sectors SBA has identified as national priorities, which currently includes only clean energy and education.
Those SBIC Funds interested in applying to the Impact Investment Initiative will be placed on an expedited licensing track. The Phase I Initial Review of the business plan and management qualifications will be completed within 60 days of the submission of a complete MAQ. Firms that do not adhere to the business plan submitted in Phase I may not be eligible for subsequent debenture leverage commitments from SBA.
Following the Phase I review, if SBA issues a green light letter to an applicant designated as an Impact Investment Fund, the applicant may choose to be listed on the Impact Investment Applicant/ SBIC Fund list that is distributed to institutional investors interested in participating in the Impact Investment Initiative.
Please note that if an Impact Investment Fund applicant determines for any reason during the expedited licensing process that it prefers to be considered for licensing as a standard SBIC Fund and not an Impact Investment SBIC Fund, it will be returned to the Phase I review and will restart the process under regular processing. SBA’s goal is to complete its review of qualified Impact Investment SBIC license applications within 90 days.
To view the SBA’s entire memorandum on this additional guidance, please click here.
Private Equity Practice Group
The Private Equity Practice Group at McGuireWoods LLP is dedicated to keeping clients advised of new legislative and business developments as they occur. If you have any questions regarding these issues, please feel free to contact Mark A. Kromkowski (312.849.8170), Bryan P. Bylica (312.750.3617), your primary attorney at McGuireWoods LLP, or any of the authors.