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SBA RIN: 3245-AG66 Publication ID: Fall 2016 
Title: Small Business Investment Company (SBIC) Program - Impact SBICs 

This rule will establish a regulatory structure for the SBIC Programs Impact Investment Fund, which is currently being implemented through a policy memorandum to interested applicants. The rule would establish in the regulations a new type of SBIC license called the Impact SBIC license and will include application and examination fee considerations to incentivize Impact Investment Fund participation. Impact SBICs may also be able to access Early Stage leverage on the same terms as Early Stage SBICs without applying through the Early Stage call process defined in 107.310. This will allow Impact SBICs with early stage strategies to apply for the program. The new license will be available to investment funds that meet the SBIC Programs licensing qualifications and commit to invest at least 50 percent of their invested capital in impact investments as defined in the rule. The rule would also outline reporting and performance measures for licensed funds to maintain Impact Investment Fund designation. The goal of the Impact Investment Fund is to support small business investment strategies that maximize financial returns while also yielding enhanced social environmental or economic impacts as part of the SBIC Programs overall effort to supplement the flow of private equity and long-term loan funds to small businesses whose capital needs are not being met.

Agency: Small Business Administration(SBA)  Priority: Other Significant 
RIN Status: Previously published in the Unified Agenda Agenda Stage of Rulemaking: Final Rule Stage 
Major: No  Unfunded Mandates: No 
CFR Citation: 13 CFR 107   
Legal Authority: 15 U.S.C. 681   
Legal Deadline:  None

Statement of Need:

SBA originally announced the launch of the SBIC program’s Impact Investing Initiative (Initiative) on April 7, 2011, with a commitment of $1 billion in debenture leverage over a 5-year period to SBICs that committed to deploy at least 50% of their total invested capital in small businesses located in low-to-moderate income areas, economically-distressed areas and rural areas, as well as small businesses active in the education and clean energy sectors.  Subsequently, SBA made several changes to the Initiative in 2014, including renaming the Initiative the Impact Investment Fund, and expanding its scope to reflect SBA’s commitment beyond the initial 5-year term. This rule follows that commitment by providing a permanent framework within the SBIC program’s regulations, highlighting the important role of impact investing by supporting the development of America’s growing impact investing industry, and seeking to expand the pool of investment capital available to underserved communities and innovative sectors.  The rule requires an Impact SBIC to invest at least 50% of its total invested capital in one or both categories of impact investment: (1) SBA-identified impact investments, which are investments in small businesses located in geographic areas and sectors of national priority designated by SBA, such as Low and Moderate Income Zones; and (2) fund-identified impact investments, which are investments that meet an SBIC’s own definition, subject to SBA’s approval, of an Impact Investment, such as small businesses operating in the clean energy, education and/or healthcare sectors.  The rule will encourage the creation of Impact SBICs by providing certain application and examination fee discounts to these funds.  

Summary of the Legal Basis:

The policy goal of the Small Business Investment Act of 1958, 15 U.S.C. 661 et seq., is to stimulate and supplement the flow of private equity capital and long-term loan funds to the nation’s small businesses for the sound financing of their growth, expansion, and modernization. The Small Business Investment Act contains several provisions aimed at promoting the flow of capital to several special categories of small business, including those located in low income geographic areas, those engaged in energy-saving activities and smaller businesses, 15 U.S.C. 683(b)(2)(C), 683(b)(2)(D), 683(d). The rule was crafted to enhance the SBIC program’s effectiveness in channeling much-needed capital to small businesses operating in these and other underserved areas and sectors of the U.S. economy.


SBA considered several alternatives to the regulation, including continuing its impact investment objectives solely through existing policy initiatives.  However, those policy initiatives did not provide sufficient incentives to attract Impact SBIC fund managers to the program. Moreover, SBA determined that it must demonstrate a lasting commitment to the Initiative by promulgating regulations. In addition, SBA considered restricting the definition of an Impact Investment to financings that meet requirements already outlined in federal regulations, such as Energy-Savings Investments, LMI Investments or investments in rural areas. These investments are aligned with federal policy priorities and are easy to define and monitor, but SBA determined a more accommodative approach would be more effective. The rule has been drafted to allow Impact SBIC applicants to make SBA-identified impact investments, which target federal priority areas, or make fund-identified impact investments that align with their own definitions of impact.  This approach expands the reach of SBA’s impact investing efforts beyond the limited subset of investments that meet existing regulatory criteria and promotes freedom of choice for impact fund managers to pursue an impact investing strategy based on their own definition of Impact Investment. 

Anticipated Costs and Benefits:

The rule will result in an approximate 6.1 basis point increase in the annual charge paid by all SBICs with outstanding leverage and will include de minimis additional oversight costs to SBA in monitoring the additional reporting requirements that Impact SBICs must comply with.  The rule benefits SBA by encouraging SBICs to deploy capital to small businesses operating in geographic areas and sectors of national priority designated by SBA, and SBA expects that it will result in increased financings to small businesses taking innovative approaches in, among others, the educational, clean energy and healthcare sectors.  As a corollary benefit, the rule will support the development of the impact investing industry more broadly by incorporating impact investing best practices, especially with regard to the measurement and assessment of impact.


None identified.

Action Date FR Cite
NPRM  02/03/2016  81 FR 5666   
NPRM Comment Period End  03/04/2016 
Final Rule  02/00/2017 
Additional Information: Included in SBA's Retrospective Review under Executive Orders 13563 and 13610.
Regulatory Flexibility Analysis Required: Yes  Government Levels Affected: None 
Small Entities Affected: Businesses  Federalism: No 
Included in the Regulatory Plan: Yes 
RIN Data Printed in the FR: Yes 
Agency Contact:
Nate T. Yohannes
Senior Advisor, Office of Investments
Small Business Administration
409 Third Street SW.,
Washington, DC 20416
Phone:202 205-6714