83 FR 26874 - Small Business Investment Company Program-Impact SBICs
SMALL BUSINESS ADMINISTRATION Federal Register Volume 83, Issue 112 (June 11, 2018)
Federal Register Volume 83, Issue 112 (June 11, 2018)
| Page Range | 26874-26875 | |
| FR Document | 2018-12031 |
[Federal Register Volume 83, Number 112 (Monday, June 11, 2018)] [Proposed Rules] [Pages 26874-26875] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-12031] ======================================================================= ----------------------------------------------------------------------- SMALL BUSINESS ADMINISTRATION 13 CFR Part 107 RIN 3245-AG66 Small Business Investment Company Program--Impact SBICs AGENCY: U.S. Small Business Administration. ACTION: Proposed rule; withdrawal. ----------------------------------------------------------------------- SUMMARY: The Small Business Administration (SBA) is withdrawing its proposed rule published on February 3, 2016. In the proposed rule, SBA would have defined a new class of small business investment companies (SBICs) that would seek to generate positive and measurable social impact in addition to financial return. With the creation of this class of ``Impact SBICs,'' SBA sought to expand the pool of investment capital available primarily to underserved communities and innovative sectors as well as support the development of America's growing impact investing industry. SBA is withdrawing the proposed rule because SBA has determined that the cost is not commensurate with the benefits. DATES: SBA is withdrawing the proposed rule published on February 3, 2016 (81 FR 5666) as of June 11, 2018. FOR FURTHER INFORMATION CONTACT: Theresa Jamerson, Office of Investment and Innovation, (202) 205-7563, [email protected]. SUPPLEMENTARY INFORMATION: I. Background Information SBA's efforts in the impact investing space began on April 7, 2011 through a policy letter (``Impact Policy''), which was subsequently updated on September 26, 2012 and September 25, 2014. The purpose of the Impact Policy was to license small business investment companies (``SBICs'') focused on generating both a positive and measurable social impact in addition to a financial return as ``Impact SBICs.'' Licensed Impact SBICs were expected to provide at least 50% of their financings in ``impact investments'' as defined by the Impact Policy. SBA published a Proposed Rule on February 3, 2016 (81 FR 5666) (the ``Proposed Rule'') to permanently define Impact SBICS and set forth regulations applicable to Impact SBICs with respect to licensing, leverage eligibility, fees, reporting and compliance requirements. The intent of the rule was to encourage qualified private equity fund managers with a focus on social impact to apply to the SBIC program. As part of the Proposed Rule, SBA would have provided the following three key benefits: (1) Impact SBIC applicants would have received a 60% discount on the licensing fee; (2) Impact SBICs would have received a 10% discount on the examination base fee; and (3) Impact SBICs could have simultaneously applied as an Early Stage SBIC not subject to the call and timing provisions identified under 13 CFR 107.300. Given these benefits, the proposed rule also imposed certain penalties if an Impact SBIC did not adhere to its impact strategy or the Impact SBIC rules. II. Reason for Withdrawal In determining whether to publish a final rule, SBA evaluated the results of the Impact Policy and the comments received in response to the Proposed Rule. In six years under the Impact Policy, few qualified funds applied to be licensed as Impact SBICs, and SBA licensed only nine Impact SBICs. SBA believes that many of these SBICs would have applied to the SBIC program [[Page 26875]] regardless of the existence of the Impact Policy. SBA determined that the cost of the Impact Policy was not commensurate with the benefits. On September 28, 2017, SBA provided notice to program stakeholders that SBA was cancelling the Impact Policy and would no longer accept applications to be licensed as an Impact SBIC on or after November 1, 2017. Although SBA proposed licensing and examination fee discounts to provide further incentives for Impact SBICs as part of the Proposed Rule, SBA received one comment that all SBICs should be treated similarly in fee structure and no discounts should be offered. Three comments stated that the discounts are too small to provide an incentive sufficient to result in the formation of Impact SBICs, although two of these commenters stated that they nonetheless appreciated the discount. Because Impact SBICs would have received certain benefits under the Proposed Rule, the Proposed Rule also identified penalties if an Impact SBIC failed to meet the requirements set forth in the rule, including failing to invest at least 50% of its financing dollars in impact investments and, for Impact SBICs using a Fund-Identified Impact Investment Strategy, failing to comply with certain specific measurement and reporting obligations. SBA received four comments stating that the Proposed Rule should not apply to Impact SBICs licensed prior to the effective date of any final rule, two comments stating that SBA should adjust the rules to reflect the policies under which the Impact SBICs were licensed, and one comment that suggested that existing Impact SBICs should be allowed the option to either complete their license under the relevant Impact Policy under which they were licensed or opt in to these new regulations. In reviewing these comments, SBA determined that finalizing the rule would not likely result in an increase in the number of Impact SBICs in the program and would likely result in fewer Impact SBIC applications than SBA received under the Impact Policy. Although SBA licensed two Impact SBICs in each of FY 2015 and FY 2016, after publication of the proposed rule, SBA did not license any Impact SBICs in FY 2017. SBA also considered costs in determining whether to withdraw the Proposed Rule. As noted in the Proposed Rule, due to the risk associated with this class of SBICs, and based on the amount of leverage SBA expected to allocate to the Impact SBIC program, the Proposed Rule was expected to increase the cost to all SBICs issuing SBA-guaranteed debentures by increasing the annual fee payable by all such SBICs by approximately 6.1 basis points. For an SBIC issuing $100 million in SBA-guaranteed debentures, this would equate to $61,000 per year. SBICs typically issue Debentures over a 4 to 6-year period (using multiple commitments) and begin paying back leverage as the fund harvests its investments. As a result, based on Debenture pools since 1992 that have been fully repaid, the average hold period is approximately 6 years, this would equate to $366,000 in total additional fees for the SBIC. If the SBIC held the leverage outstanding for its full ten-year term, this would equate to $610,000 for a single SBIC. Between FYs 2012 and 2017, SBA approved, on average, $2.28 billion aggregate debenture commitments per year. If an additional 6.1 basis point charge were in effect, SBICs would incur over $1.4 million per year in additional fees, or approximately $8.3 million over the average 6-year average holding period for SBIC debentures. This is capital that SBICs could otherwise deploy to small businesses. The withdrawal of the Proposed Rule has no effect on currently licensed Impact SBICs. Currently licensed Impact SBICs must continue to operate under the Impact Policy under which they were licensed (i.e., the Impact Policy issued in 2011, 2012 or 2014, as applicable). SBA will continue to follow SBA regulations and credit policies applicable to all SBICs with respect to approving leverage commitments and draws for Impact SBICs licensed with the intent of issuing SBA-guaranteed debentures. It should be noted that SBA allocated debentures for Impact SBICs in both FY 2018 and FY 2019 to accommodate existing Impact SBICs. SBA will determine the allocations of leverage for Impact SBICs for subsequent Fiscal Years after taking into account projected need by Impact SBICs in existence at that time. Executive Order 13771 The withdrawal of the NPRM qualifies as a deregulatory action under Executive Order 13771. See OMB's Memorandum titled ``Guidance Implementing Executive Order 13771, Titled `Reducing Regulation and Controlling Regulatory Costs' '' (April 5, 2017). Accordingly, for the reasons stated in the preamble, the Proposed Rule published at 81 FR 5666 on February 3, 2016, is withdrawn. Authority: 15 U.S.C. 634(b)(6). Dated: May 12, 2018. Linda E. McMahon, Administrator. [FR Doc. 2018-12031 Filed 6-8-18; 8:45 am] BILLING CODE 8025-01-P
![26874 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules
Transactional Billing Rate Schedule collect fees for particular types of records. In (f) Social Security Numbers and Tax
established by NARA. instances where records responsive to a Identification Numbers. Components may not
(e) Other statutes specifically providing for request are subject to a statutorily-based fee require requesters to provide Social Security
fees. The fee schedule of this section does not schedule program, the component will Numbers or Tax Identification Numbers in
apply to fees charged under any statute that inform the requester of the contact order to pay FOIA fees due.
specifically requires a component to set and information for that program.
TABLE 1 OF APPENDIX TO SUBPART A—FOIA FEE SCHEDULE
Type of request Type of charge Price
Commercial Requesters ...... Duplication charges ............ $0.05 per page.
When the component has to copy fragile records, the charge is $0.05 per page
plus the copying time involved, which includes the actual hourly salary rate of the
employee involved, plus 16% of the hourly salary rate.
Search charges .................. Actual hourly salary rate of employee involved, plus 16% of the hourly salary rate.
Review charges .................. Actual hourly salary rate of employee involved, plus 16% of the hourly salary rate.
Educational or Non-Com- Duplication charges ............ No charge for first 100 pages, then $0.05 per page.
mercial Scientific Request- When the component has to copy fragile records, the charge is $0.05 per page
ers. plus the copying time involved, which includes the actual hourly salary rate of the
employee involved, plus 16% of the hourly salary rate.
Search charges .................. Free.
Review charges .................. Free.
Representatives of the News Duplication charges ............ No charge for first 100 pages, then $0.05 per page.
Media. When the component has to copy fragile records, the charge is $0.05 per page
plus the copying time involved, which includes the actual hourly salary rate of the
employee involved, plus 16% of the hourly salary rate.
Search charges .................. Free.
Review charges .................. Free.
All Other Requesters ........... Duplication charges ............ No charge for first 100 pages, then $0.05 per page.
When the component has to copy fragile records, the charge is $0.05 per page
plus the copying time involved, which includes the actual hourly salary rate of the
employee involved, plus 16% of the hourly salary rate.
Search charges .................. No charge for first two (2) hours of search time, then actual hourly salary rate of
employee involved, plus 16% of the hourly salary rate.
Review charges .................. Free.
Dated: May 25, 2018. impact investing industry. SBA is applicable to Impact SBICs with respect
Stephen L. Censky, withdrawing the proposed rule because to licensing, leverage eligibility, fees,
Deputy Secretary. SBA has determined that the cost is not reporting and compliance requirements.
[FR Doc. 2018–11868 Filed 6–8–18; 8:45 am] commensurate with the benefits. The intent of the rule was to encourage
BILLING CODE 3410–P DATES: SBA is withdrawing the qualified private equity fund managers
proposed rule published on February 3, with a focus on social impact to apply
2016 (81 FR 5666) as of June 11, 2018. to the SBIC program. As part of the
SMALL BUSINESS ADMINISTRATION Proposed Rule, SBA would have
FOR FURTHER INFORMATION CONTACT:
provided the following three key
Theresa Jamerson, Office of Investment
13 CFR Part 107 benefits: (1) Impact SBIC applicants
and Innovation, (202) 205–7563,
would have received a 60% discount on
RIN 3245–AG66 theresa.jamerson@sba.gov.
the licensing fee; (2) Impact SBICs
SUPPLEMENTARY INFORMATION: would have received a 10% discount on
Small Business Investment Company
Program—Impact SBICs I. Background Information the examination base fee; and (3) Impact
SBICs could have simultaneously
AGENCY: U.S. Small Business SBA’s efforts in the impact investing applied as an Early Stage SBIC not
Administration. space began on April 7, 2011 through a subject to the call and timing provisions
ACTION: Proposed rule; withdrawal.
policy letter (‘‘Impact Policy’’), which identified under 13 CFR 107.300. Given
was subsequently updated on these benefits, the proposed rule also
SUMMARY: The Small Business September 26, 2012 and September 25, imposed certain penalties if an Impact
Administration (SBA) is withdrawing its 2014. The purpose of the Impact Policy SBIC did not adhere to its impact
proposed rule published on February 3, was to license small business strategy or the Impact SBIC rules.
2016. In the proposed rule, SBA would investment companies (‘‘SBICs’’)
have defined a new class of small focused on generating both a positive II. Reason for Withdrawal
business investment companies (SBICs) and measurable social impact in In determining whether to publish a
that would seek to generate positive and addition to a financial return as ‘‘Impact final rule, SBA evaluated the results of
daltland on DSKBBV9HB2PROD with PROPOSALS
measurable social impact in addition to SBICs.’’ Licensed Impact SBICs were the Impact Policy and the comments
financial return. With the creation of expected to provide at least 50% of their received in response to the Proposed
this class of ‘‘Impact SBICs,’’ SBA financings in ‘‘impact investments’’ as Rule. In six years under the Impact
sought to expand the pool of investment defined by the Impact Policy. Policy, few qualified funds applied to be
capital available primarily to SBA published a Proposed Rule on licensed as Impact SBICs, and SBA
underserved communities and February 3, 2016 (81 FR 5666) (the licensed only nine Impact SBICs. SBA
innovative sectors as well as support the ‘‘Proposed Rule’’) to permanently define believes that many of these SBICs would
development of America’s growing Impact SBICS and set forth regulations have applied to the SBIC program
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![Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26875
regardless of the existence of the Impact debentures by increasing the annual fee Dated: May 12, 2018.
Policy. SBA determined that the cost of payable by all such SBICs by Linda E. McMahon,
the Impact Policy was not approximately 6.1 basis points. For an Administrator.
commensurate with the benefits. On SBIC issuing $100 million in SBA- [FR Doc. 2018–12031 Filed 6–8–18; 8:45 am]
September 28, 2017, SBA provided guaranteed debentures, this would BILLING CODE 8025–01–P
notice to program stakeholders that SBA equate to $61,000 per year. SBICs
was cancelling the Impact Policy and typically issue Debentures over a 4 to 6-
would no longer accept applications to year period (using multiple SMALL BUSINESS ADMINISTRATION
be licensed as an Impact SBIC on or commitments) and begin paying back
after November 1, 2017. leverage as the fund harvests its 13 CFR Part 107
Although SBA proposed licensing and investments. As a result, based on RIN 3245–AG68
examination fee discounts to provide Debenture pools since 1992 that have
further incentives for Impact SBICs as been fully repaid, the average hold Small Business Investment Companies
part of the Proposed Rule, SBA received period is approximately 6 years, this (SBIC); Early Stage Initiative
one comment that all SBICs should be would equate to $366,000 in total
treated similarly in fee structure and no additional fees for the SBIC. If the SBIC AGENCY: U.S. Small Business
discounts should be offered. Three held the leverage outstanding for its full Administration.
comments stated that the discounts are ten-year term, this would equate to ACTION: Proposed rule; withdrawal.
too small to provide an incentive $610,000 for a single SBIC. Between FYs
sufficient to result in the formation of 2012 and 2017, SBA approved, on SUMMARY: The Small Business
Impact SBICs, although two of these average, $2.28 billion aggregate Administration (SBA) is withdrawing its
commenters stated that they nonetheless debenture commitments per year. If an proposed rule published on September
appreciated the discount. additional 6.1 basis point charge were in 19, 2016. SBA proposed making changes
Because Impact SBICs would have effect, SBICs would incur over $1.4 to its Early Stage Small Business
received certain benefits under the million per year in additional fees, or Investment Company (SBIC) initiative,
Proposed Rule, the Proposed Rule also approximately $8.3 million over the which was launched in 2012. SBA is
identified penalties if an Impact SBIC average 6-year average holding period withdrawing the proposed rule because
failed to meet the requirements set forth for SBIC debentures. This is capital that very few qualified funds applied to the
in the rule, including failing to invest at SBICs could otherwise deploy to small Early Stage SBIC initiative, the costs
least 50% of its financing dollars in businesses. were not commensurate with the results
impact investments and, for Impact and the comments to the proposed rule
SBICs using a Fund-Identified Impact The withdrawal of the Proposed Rule did not demonstrate broad support for a
Investment Strategy, failing to comply has no effect on currently licensed permanent Early Stage SBIC program.
with certain specific measurement and Impact SBICs. Currently licensed Impact
DATES: SBA is withdrawing the
reporting obligations. SBA received four SBICs must continue to operate under
proposed rule published on September
comments stating that the Proposed the Impact Policy under which they
19, 2016 (81 FR 64075) as of June 11,
Rule should not apply to Impact SBICs were licensed (i.e., the Impact Policy
2018.
licensed prior to the effective date of issued in 2011, 2012 or 2014, as
any final rule, two comments stating applicable). SBA will continue to follow FOR FURTHER INFORMATION CONTACT:
that SBA should adjust the rules to SBA regulations and credit policies Theresa Jamerson, Office of Investment
reflect the policies under which the applicable to all SBICs with respect to and Innovation, (202) 205–7563,
Impact SBICs were licensed, and one approving leverage commitments and theresa.jamerson@sba.gov.
comment that suggested that existing draws for Impact SBICs licensed with SUPPLEMENTARY INFORMATION:
Impact SBICs should be allowed the the intent of issuing SBA-guaranteed
I. Background Information
option to either complete their license debentures. It should be noted that SBA
under the relevant Impact Policy under allocated debentures for Impact SBICs In the Small Business Investment Act
which they were licensed or opt in to in both FY 2018 and FY 2019 to of 1958 (Act), Congress created the
these new regulations. In reviewing accommodate existing Impact SBICs. Small Business Investment Company
these comments, SBA determined that SBA will determine the allocations of (SBIC) program to ‘‘stimulate and
finalizing the rule would not likely leverage for Impact SBICs for supplement the flow of private equity
result in an increase in the number of subsequent Fiscal Years after taking into capital and long-term loan funds which
Impact SBICs in the program and would account projected need by Impact SBICs small-business concerns need for the
likely result in fewer Impact SBIC in existence at that time. sound financing of their business
applications than SBA received under operations and for their growth,
Executive Order 13771 expansion, and modernization, and
the Impact Policy. Although SBA
licensed two Impact SBICs in each of FY The withdrawal of the NPRM which are not available in adequate
2015 and FY 2016, after publication of qualifies as a deregulatory action under supply . . . .’’ 15 U.S.C. 661. Congress
the proposed rule, SBA did not license Executive Order 13771. See OMB’s intended that the program ‘‘be carried
any Impact SBICs in FY 2017. Memorandum titled ‘‘Guidance out in such manner as to insure the
SBA also considered costs in Implementing Executive Order 13771, maximum participation of private
determining whether to withdraw the Titled ‘Reducing Regulation and financing sources.’’ Id. In accordance
daltland on DSKBBV9HB2PROD with PROPOSALS
Proposed Rule. As noted in the Controlling Regulatory Costs’ ’’ (April 5, with that policy, the U.S. Small
Proposed Rule, due to the risk 2017). Business Administration (SBA) does not
associated with this class of SBICs, and invest directly in small businesses.
based on the amount of leverage SBA Accordingly, for the reasons stated in Rather, through the SBIC program, SBA
expected to allocate to the Impact SBIC the preamble, the Proposed Rule licenses and provides debenture
program, the Proposed Rule was published at 81 FR 5666 on February 3, leverage to SBICs. SBICs are privately-
expected to increase the cost to all 2016, is withdrawn. owned and professionally managed for-
SBICs issuing SBA-guaranteed Authority: 15 U.S.C. 634(b)(6). profit investment funds that make loans
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Document Created: 2018-11-02 11:58:45
Document Modified: 2018-11-02 11:58:45
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Proposed rule; withdrawal. | |
| Dates | SBA is withdrawing the proposed rule published on February 3, 2016 (81 FR 5666) as of June 11, 2018. | |
| Contact | Theresa Jamerson, Office of Investment and Innovation, (202) 205-7563, [email protected] | |
| FR Citation | 83 FR 26874 | |
| RIN Number | 3245-AG66 |
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