Small Business Investment Company Program-Impact SBICs, 5666-5676 [2016-01986]
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economic developments suggest the absence
of notable risks to financial stability. Indeed,
for it to be most effective, the CCyB should
be deactivated or reduced in a timely
manner. This would reduce the likelihood
that advanced approaches institutions would
significantly pare their risk-weighted assets
in order to maintain their capital ratios
during a downturn.
The pace and magnitude of changes in the
CCyB will depend importantly on the
underlying conditions in the financial sector
and the economy as well as the desired
effects of the proposed change in the CCyB.
If vulnerabilities are rising gradually, then
incremental increases in the level of the
CCyB may be appropriate. Incremental
increases would allow banks to augment
their capital primarily through retained
earnings and allow policymakers additional
time to assess the effects of the policy change
before making subsequent adjustments.
However, if vulnerabilities in the financial
system are building rapidly, then larger or
more frequent adjustments may be necessary
to increase loss-absorbing capacity sooner
and potentially to mitigate the rise in
vulnerabilities.
The Board will also consider whether the
CCyB is the most appropriate of its available
policy instruments to address the financialsystem vulnerabilities highlighted by the
framework’s judgmental assessments and
empirical models. The CCyB primarily is
intended to address cyclical vulnerabilities,
rather than structural vulnerabilities that do
not vary significantly over time. Structural
vulnerabilities are better addressed though
targeted reforms or permanent increases in
financial system resilience. Two key factors
for the Board to consider are whether
advanced approaches institutions are
exposed—either directly or indirectly—to the
vulnerabilities identified in the
comprehensive judgmental assessment or by
the quantitative indicators that suggest
activation of the CCyB and whether advanced
approaches institutions are contributing—
either directly or indirectly—to these
highlighted vulnerabilities.
The Board, in setting the CCyB for
advanced approaches institutions that it
supervises, plans to consult with the OCC
and FDIC on their analyses of financialsystem vulnerabilities and on the extent to
which banking organizations are either
exposed to or contributing to these
vulnerabilities.
5. Communication of the U.S. CCyB With the
Public
The Board expects to consider at least once
per year the applicable level of the U.S.
CCyB. The Board will review financial
conditions regularly throughout the year and
may adjust the CCyB more frequently as a
result of those monitoring activities.
Further, the Board will continue to
communicate with the public in other
formats regarding its assessment of U.S.
financial stability, including financial-system
vulnerabilities. For example, the Board’s
biannual Monetary Policy Report to
Congress, usually published in February and
July, will continue to contain a section that
reports on developments pertaining to the
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stability of the U.S. financial system.12 That
portion of the report will be an important
vehicle for updating the public on how the
Board’s current assessment of financialsystem vulnerabilities bears on the setting of
the CCyB.
6. Monitoring of the Effects of the U.S. CCyB
The effects of the U.S. CCyB ultimately
will depend on the level at which it is set,
the size and nature of any adjustments in the
level, and the timeliness with which it is
increased or decreased. The extent to which
the CCyB may affect vulnerabilities in the
broader financial system depends upon a
complex set of interactions between required
capital levels at the largest banking
organizations and the economy and financial
markets. In addition to the direct effects, the
secondary economic effects could be
amplified if financial markets extract a signal
from the announcement of a change in the
CCyB about subsequent actions that might be
taken by the Board. Moreover, financial
market participants might react by updating
their expectations about future asset prices in
specific markets or broader economic activity
based on the concerns expressed by the
regulators in communications announcing a
policy change.
The Board will monitor and analyze
adjustments by banking organizations and
other financial institutions to the CCyB.
Factors that will be considered include (but
are not limited to) the types of adjustments
that affected banking organizations might
undertake. For example, it will be useful to
monitor whether a change in the CCyB leads
to observed changes in risk-based capital
ratios at advanced approaches institutions, as
well as whether those adjustments are
achieved passively through retained
earnings, or actively through changes in
capital distributions or in risk-weighted
assets. Other factors to be monitored include
the extent to which loan growth and spreads
on loans issued by affected banking
organizations change relative to loan growth
and loan spreads at banking organizations
that are not subject to the buffer. Another key
consideration in setting the CCyB and other
macroprudential tools is the extent to which
the adjustments by advanced approaches
institutions to higher capital buffers lead to
migration of credit market activity outside of
those banking organizations, especially to the
nonbank financial sector. Depending on the
amount of migration and which institutions
are affected, those adjustments could cause
the Board to favor either a higher or a lower
value of the CCyB.
The Board will also monitor information
regarding the levels of and changes in the
CCyB in other countries. The Basel
Committee on Banking Supervision is
expected to maintain this information for
member countries in a publically available
form on its Web site.13 Using that data in
conjunction with supervisory and publicly
12 For the most recent discussion in this format,
see box titled ‘‘Developments Related to Financial
Stability’’ in Board of Governors of the Federal
Reserve System, Monetary Policy Report to
Congress, July 2015, pp. 24–25.
13 BIS, Countercyclical capital buffer (CCyB),
www.bis.org/bcbs/ccyb/index.htm.
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available datasets, Board staff will be able to
draw not only upon the experience of the
United States but also that of other countries
to refine estimates of the effects of changes
in the CCyB.
By order of the Board of Governors of the
Federal Reserve System, December 21, 2015.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016–01934 Filed 2–2–16; 8:45 am]
BILLING CODE P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
RIN 3245–AG66
Small Business Investment Company
Program—Impact SBICs
U.S. Small Business
Administration.
ACTION: Notice of proposed rulemaking.
AGENCY:
In this proposed rule, the U.S.
Small Business Administration (SBA) is
defining a new class of small business
investment companies (SBICs) that will
seek to generate positive and
measurable social impact in addition to
financial return. With the creation of
this class of ‘‘Impact SBICs,’’ SBA is
seeking 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. This
proposed rule sets forth regulations
applicable to Impact SBICs with respect
to licensing, leverage eligibility, fees,
reporting and compliance requirements.
DATES: Comments on the proposed rule
must be received on or before March 4,
2016.
ADDRESSES: You may submit comments,
identified by RIN 3245–AG66, by any of
the following methods:
Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
Mail, Hand Delivery/Courier: Mark
Walsh, Associate Administrator for the
Office of Investment and Innovation,
U.S. Small Business Administration,
409 Third Street SW., Washington, DC
20416.
SBA will post comments on https://
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at https://www.regulations.gov,
please submit the information to Nate T.
Yohannes, Office of Investment and
Innovation, 409 Third Street SW.,
Washington, DC 20416. Highlight the
information that you consider to be CBI
SUMMARY:
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and explain why you believe this
information should be held confidential.
SBA will review the information and
make the final determination of whether
or not it will publish the information.
FOR FURTHER INFORMATION CONTACT: Nate
T. Yohannes, Office of Investment and
Innovation, (202) 205–6714.
SUPPLEMENTARY INFORMATION:
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I. Background Information
‘‘Impact investing’’ is a term used to
describe an investment approach that
combines the pursuit of financial return
with the goal of generating measurable
social, environmental or economic
impact. The term ‘‘social impact
investing’’ is often used synonymously
with the term impact investing, and
refers, collectively, to all types of impact
investing, including social,
environmental and economic. Impact
investors are active throughout the
capital markets, and though their
strategies may vary, according to the
Global Impact Investing Network, a nonprofit organization dedicated to
increasing the scale and effectiveness of
impact investing, impact investors share
three defining traits. First, impact
investors invest with the explicit
intention of generating a positive social
impact. This is in contrast to other types
of investors who attempt to avoid
generating negative social impacts or
who are entirely indifferent to the social
outcomes resulting from their
investments. Second, though their
return requirements vary, impact
investors are not grant providers and
always expect a return on their invested
capital. Finally, impact investors share
a commitment to measure the effect of
their investments on the employees,
customers and communities of the
companies in which they invest. See,
The Global Impact Investing Network,
About Impact Investing, https://www.
thegiin.org/cgi-bin/iowa/resources/
about/.
Impact investing currently constitutes
a small segment of global investment
activity. Each year, J.P. Morgan and the
Global Impact Investing Network
(‘‘GIIN’’) publish an annual survey of
leading impact investors. In their May
2015 findings, available at https://www.
thegiin.org/cgi-bin/iowa/resources/
research/662.html, 146 survey
respondents reported managing a
collective total of $60 billion in impact
investments. Compared with the $64
trillion in global assets under
management, a figure drawn from
PricewaterhouseCoopers’ (‘‘PwC’’) 2014
report Asset Management 2020: A Brave
New World, available at https://www.
pwc.com/gx/en/asset-management/
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publications/asset-management-2020-abrave-new-world.jhtml, impact
investments comprise a small fraction of
invested capital worldwide.
However, the size of the impact
industry belies both its growth potential
and that of the broader sustainable
finance sector. This is a sector focused
on ‘‘creating economic and social value
through financial models, products and
markets that are sustainable over time.’’
See, Center for Responsible Business,
Haas School of Business, University of
California Berkeley, Sustainable
Finance, https://responsiblebusiness.
haas.berkeley.edu/programs/sustainable
finance.html. The Forum for Sustainable
and Responsible Investment estimates
that U.S.-domiciled assets managed
using sustainable, responsible or impact
investing strategies increased by a
compound annual rate of 33% between
2012 and 2014. If that trend continues,
sustainable finance will continue to
outpace overall market growth.
According to the 2014 PwC report,
global AUM will grow at a compound
annual growth rate of just nearly 6
percent in coming years.
SBA’s formal efforts in the impact
investing space began on April 7, 2011,
when it announced the launch of the
SBIC program’s Impact Investing
Initiative (the ‘‘Initiative’’), building
upon SBA’s belief that targeting capital
investments into segments of the U.S.
economy where capital formation gaps
exist, such as small businesses located
in low-to-moderate income (‘‘LMI’’) and
other underserved areas, has the
potential to effect meaningful and
sustained economic development
impact in those areas. The Initiative
made available $1 billion in debenture
leverage, over the course of 5 years, to
SBICs that committed to deploy at least
50 percent of their total invested capital
in ‘‘impact investments.’’ Under the
Initiative, investments in small
businesses located in LMI areas,
economically-distressed areas and rural
areas generally qualified as impact
investments, as did investments in
small businesses active in the education
and clean energy sectors.
Since 2011, SBA has made several
changes to the Initiative in an effort to
enhance its effectiveness. Most recently,
in September 2014, SBA expanded the
scope of the Initiative and renamed it
the ‘‘Impact Investment Fund’’ to reflect
SBA’s commitment to extend its impact
investing efforts beyond the Initiative’s
initial 5-year term.
This rule follows from that
commitment and seeks to recognize,
within the SBIC program’s regulations,
the important role impact investors can
play in helping the SBIC program
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achieve its goal of providing capital and
long-term loan funds for the growth,
expansion and modernization of small
businesses.
II. Section by Section Analysis
§ 107.50—Definitions. SBA proposes
to add the defined terms ‘‘FundIdentified Impact Investment,’’ ‘‘Impact
Investment,’’ ‘‘Impact SBIC’’ and ‘‘SBAIdentified Impact Investment.’’
‘‘Fund-Identified Impact Investment,’’
‘‘Impact Investment,’’ and ‘‘SBAIdentified Impact Investment’’
The definition of ‘‘Impact
Investment’’ included in this proposed
rule consists of two categories, each of
which is also a defined term in the
proposed rule: (1) SBA-Identified
Impact Investments, which are
investments in geographic areas and
sectors of national priority that SBA
designates in notices published from
time to time on SBA’s SBIC program
Web site (www.sba.gov/inv); and (2)
Fund-Identified Impact Investments,
which are investments that meet an
SBIC’s own definition of an ‘‘Impact
Investment’’ and which an SBIC
applicant must propose and SBA must
approve during the licensing process, as
described in proposed § 107.331—
Evaluation and selection of Impact
SBICs.
‘‘Impact SBIC’’
The regulatory definition of an Impact
SBIC has several key points. First, an
Impact SBIC must be organized as a
limited partnership. Although the
current regulations permit other forms
of organization, the vast majority of
existing SBICs are limited partnerships.
SBA believes that having a degree of
uniformity in organizational structure
will facilitate a more timely and
efficient licensing process for Impact
SBICs.
Second, the ‘‘Impact SBIC’’
designation would apply only to SBICs
licensed under this rule as well as those
licensees designated as Impact SBICs
after the launch of the Initiative in 2011
and before the effective date of this rule.
Third, an Impact SBIC must invest at
least 50 percent of its financing dollars
in small business concerns that meet the
criteria set forth in the definition of
Impact Investment in this rule (referred
to hereafter as the ‘‘50 percent
requirement’’). SBA believes the 50
percent threshold indicates a significant
focus, while still giving Impact SBICs
flexibility in developing their portfolios.
Per the proposed rule, follow-on
investments in a portfolio company that
qualified as an ‘‘Impact Investment’’ at
the time of the SBIC’s initial financing
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would count towards the 50 percent
requirement.
An Impact SBIC may satisfy the 50
percent requirement exclusively
through SBA-Identified Impact
Investments or Fund-Identified Impact
Investments, but may also satisfy the 50
percent requirement through a
combination of these investments. Per
proposed § 107.331, SBA must approve
all Fund-Identified Impact Investment
definitions and strategies during the
licensing process, regardless of whether
such investments will be used to meet
all or only a portion of the 50 percent
requirement.
§ 107.301—Impact SBIC licensing fee
discount. This section proposes a 60%
reduction in the licensing fees Impact
SBIC applicants must pay under
§ 107.300. The discount is intended to
incentivize the formation of Impact
SBICs. Despite the fee reduction, SBA
will devote neither less time nor fewer
resources to the assessment of Impact
SBIC applications than it devotes to the
assessment of standard SBIC
applications.
However, § 107.301 would provide
that in the event an Impact SBIC
applicant were to ultimately be
approved for an SBIC license as
anything other than an Impact SBIC,
SBA would be entitled to recover the
value of any discounts the applicant
received prior to licensing. This
provision was added to cover cases in
which an applicant decides midprocess, with SBA permission, to seek a
standard SBIC license instead of an
Impact SBIC license. These types of
changes sometimes occur during the
fundraising process as fund managers
adjust to the expectations of private
capital providers. Although licensees
designated as Impact SBICs under the
Initiative would be eligible for fee
discounts as of the effective date of this
rule, SBA will not return any fees these
licensees paid prior to that date.
Finally, any Impact SBIC, whether
licensed under the Initiative or under
this rule, may submit a written request
to SBA seeking to convert to a standard
SBIC license. SBA would generally
expect to grant such a request, provided
that SBA recovers the value of any
discounts the licensee received.
§ 107.310—When and how to apply
for licensing as an Early Stage SBIC.
America’s impact investment industry
includes fund managers focused on
making equity investments in early
stage companies. In order to
accommodate these fund managers,
proposed § 107.310 permits applicants
to apply simultaneously for an Impact
SBIC and Early Stage SBIC license.
Further, such dual applicants will be
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permitted to submit their application at
any time and will not be subject to the
submission deadlines specified in Early
Stage Notices SBA may publish in the
Federal Register. However, those
applicants licensed as both Early Stage
and Impact SBICs will be subject to
every regulation pertaining to either
type of licensee.
§ 107.330—Evaluation and selection
of Impact SBIC license applicants
making SBA-Identified Impact
Investments. Impact SBIC license
applicants proposing to meet their
impact investment requirements
exclusively through SBA-Identified
Impact Investments will be evaluated
and selected based on the standards
outlined in § 107.305, which are used to
assess all SBIC applicants. In addition,
SBA will evaluate the managers’ skills
and experience in building and
managing a portfolio of impact
investments. However, an applicant’s
potential to generate social,
environmental or economic impact will
be considered relevant only to its
eligibility to participate in the SBIC
program as an Impact SBIC and will not
serve as a substitute for any of the
factors cited in § 107.305.
§ 107.331—Evaluation and selection
of Impact SBIC license applicants
making Fund-Identified Impact
Investments.
Under proposed § 107.331, Impact
SBIC license applicants seeking
approval to make Fund-Identified
Impact Investments will be subject first
and foremost to the evaluation process
and qualification standards outlined in
§ 107.305, which are used to assess all
SBIC applicants. An applicant’s
potential to generate social,
environmental or economic impact will
be considered relevant only to its
eligibility to participate in the SBIC
program as an Impact SBIC and will not
serve as a substitute for any of the
factors cited in § 107.305.
Using SBA Form 2181 (Applicant
Narrative), applicants will be expected
to provide definition(s) of the FundIdentified Impact Investments they
intend to make for the purposes of
complying with the requirement that 50
percent of the total dollar amount of
their financings be deployed in Impact
Investments. Applicants will also be
required to describe, using qualitative
and quantitative analysis, the expected
social, environmental or economic
impact of their proposed FundIdentified Impact Investments.
SBA will review any Fund-Identified
Impact Investment definition(s), along
with an applicant’s overall investment
strategy, in order to determine whether
the proposed definitions and strategy
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are consistent with SBA’s mission, as
well as the letter and spirit of the SBIC
program’s regulations. For instance, a
Fund-Identified Impact Investment
definition that targets financial
intermediaries would not be approved if
SBA determines it risks running afoul of
the regulatory prohibition on financing
‘‘relenders’’ or ‘‘reinvestors.’’
SBA will next determine whether the
applicant’s proposed Fund-Identified
Impact Investments are likely to yield a
positive impact when all the potential
social, environmental and economic
effects of the investments are
considered. SBA’s evaluation may
consider factors such as whether the
strategy will include investments in
Portfolio Concerns that increase services
to low income communities, engage in
environmentally sustainable business
practices or manufacture
environmentally sustainable products,
or that operate in industries of national
priority other than in the sectors
identified by SBA as an SBA-Identified
Impact Investment. The Agency
acknowledges that reaching a definitive
and objective conclusion regarding a
strategy’s overall impact may be
challenging. Impact is often described in
qualitative, rather than quantitative
terms. In anticipation of that challenge,
the proposed rule has been drafted to
mitigate the risk that SBA would be put
in the position of having to accept or
reject a proposed definition based solely
on a value judgment.
Applicants will be expected to make
reasonable arguments, supported by
convincing evidence, that their
proposed definitions can meet the
impact requirements of this rule. In this
regard, the process SBA will use to
evaluate proposed Fund-Identified
Impact Investment definitions differs
little from the process used to assess
fund manager qualifications. SBA will
use its standard due diligence tools,
including principal interviews and
reference calls, to test the strength of an
applicant’s proposal and the validity of
the evidence presented therein. Just as
a standard SBIC applicant might be
rejected for making unsubstantiated
track record claims, so too could a
Fund-Identified Impact Investment
definition be turned down if diligence
suggests it lacks credibility.
SBA takes a nuanced approach to its
licensing decisions and does not rely
solely on easy-to-measure financial
metrics. An applicant’s past financial
performance is always carefully
weighed against less tangible factors
such as the level of cohesion among the
proposed management team members;
the alignment of incentives between the
fund manager and private investors; and
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the quality of the proposed investment
strategy, among other variables.
SBA expects to receive few, if any,
Fund-Identified Impact Investment
definition proposals that are intended
solely to obtain the fee reduction
benefits of an Impact SBIC license. The
fee reductions in the proposed rule are
not material compared to the amount of
capital raised by an SBIC applicant, and
Impact SBIC licensees are subject to
enhanced regulatory reporting
requirements. Moreover, fund managers
that have expressed interest in SBA’s
impact investing efforts have, to-date,
all proposed strategies with clear
benefits and no obvious risk of yielding
negative effects. The following are
examples of the types of impact
investments being made in the market
today and which SBA anticipates
Impact SBICs applying under this
section may target:
• Healthcare companies that offer
affordable, high-quality services to
low-income consumers
• Education companies that provide
evidence-based, supplemental
learning services designed to enhance
student achievement
• Energy efficiency and sustainability
consulting firms
• Agricultural businesses that employ
humane and environmentally
sustainable farming practices
• Businesses that collect and reprocess
industrial waste for alternative use
• Alternative credit scoring firms that
enhance access to financial services
for low-income consumers
In addition to approving an
applicant’s proposed definition of a
Fund-Identified Impact Investment,
SBA must be satisfied with the
applicant’s impact measurement and
assessment plan, which an applicant
must submit in accordance with
proposed § 107.331(b). Under this
section, the applicant must outline its
plan to comply with proposed
§ 107.665, which requires Impact SBICs
making Fund-Identified Impact
Investments to obtain an assessment of
their impact (1) from an independent,
third-party assessment provider, (2)
using an SBA-approved impact
measurement standard, a list of which
SBA will publish on its Web site from
time to time, and (3) using an
assessment process that is both
transparent and comprehensive.
Impact measurement is a defining
characteristic of impact investors.
Without it, impact fund managers and
their capital providers face a much
bigger challenge in determining whether
their goal of generating positive social
impact has been met. Unfortunately,
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determining whether a fund has reached
its impact target is far more complicated
than evaluating its financial
performance. The process requires
establishing a standard by which the
targeted outcomes will be measured,
then crafting an evaluation framework
capable of weighing the resulting
measurements to yield an overall
assessment of impact.
With regard to measurement, the
proposed rule would require Impact
SBICs licensed under this section to
measure their impact using one of
several pre-approved measurement
standards. At the outset, SBA intends to
approve the use of the three sets of
standards listed below, although SBA
may approve additional standards as
they become more widely adopted by
the impact investing industry:
—The Impact Reporting and Investment
Standards (‘‘IRIS’’), an impact
evaluation framework created by
GIIN;
—The G4 Sustainability Reporting
Standards, produced by the Global
Reporting Initiative (‘‘GRI’’); and
—The standards produced and
maintained by the Sustainability
Accounting Standards Board
(‘‘SASB’’).
The purpose of these standards is to
establish a common language companies
and investors can use to report the
positive and negative impacts that result
from their activities. These standards
are part of a broader industry effort to
bring to impact measurement what the
Generally Accepted Accounting
Standards (‘‘GAAP’’) provide for
financial reporting. When comparing
the GAAP-compliant financial
statements of two different companies,
an investor can be confident the same
set of rules was used to report items
such as revenue, inventory and
operating cash flow in both statements.
GAAP does not provide guidance on
how to interpret the data, but it does
ensure consistency in reporting.
Impact measurement standards were
developed to offer the same proposition.
Consider the simple example of two
Impact SBICs, both of which are
pursuing similar strategies to create
high-wage jobs in a particular region. In
the absence of a measurement standard,
the tasks of defining a ‘‘job’’ and
calculating a ‘‘wage’’ are left to the
funds themselves, which leaves room
for methodological discrepancies. One
fund may include the value of benefits
in its calculation of wages, while the
other restricts its definition to direct
cash payments. An investor trying to
determine which fund has been more
effective in reaching its impact goal
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would have difficulty in this scenario.
Measurement standards help reduce
these definitional challenges. Were the
two funds to use IRIS metrics, for
instance, they could both rely on the
IRIS definition of a ‘‘full-time’’ or
‘‘permanent’’ employee and use the
method IRIS has established for
calculating the wages of those
employees.
The impact investing industry has yet
to coalesce around a single set of
measurement standards and may never
do so. However, the three standards
SBA intends to approve were selected,
in part, because of their prominence in
the industry and the flexibility they
provide for different types of impact
strategies. Of the three, IRIS is likely the
best-known and most widely used set of
standards. GRI has a focus on
sustainability, which may provide
environmentally focused Impact SBICs
additional flexibility. Finally, SASB’s
standards are designed primarily for
public corporations and may facilitate
reporting for Impact SBICs with
portfolio companies that are already
public or intend to go public.
With clear options available for the
measurement of impact, Impact SBICs
can turn to the second component of
SBA’s proposed evaluation system,
which deals with the assessment of
impact. As noted above, impact
measurement standards only provide
guidance on how to report impact data.
They are silent on how to interpret that
data. Returning to the example above,
the two fund managers may report IRIScompliant employee and wage data to
their investors, but an assessment
framework is needed to determine what
constitutes a ‘‘strong’’ level of
employment growth, what threshold
determines a wage is ‘‘high’’, or how to
weigh the growth in wages against the
growth in employment when evaluating
the funds’ overall impact.
As with financial performance, each
individual investor is empowered to
reach his or her own conclusions about
what constitutes ‘‘success’’ with regard
to impact. While numbers, such as an
internal rate of return, cannot be easily
manipulated by a fund manager,
investors could receive biased reports
on impact returns if a fund manager
were to selectively choose metrics and
the weighting associated with those
metrics. The use of independent and
transparent assessment systems not only
helps reduce the risk of selective
reporting, but it also promotes the use
of best practices across the industry.
For these reasons, SBA considers the
assessment component of its proposed
impact evaluation system critical to the
credibility of the program. Impact SBIC
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applicants seeking a license under this
section of the proposed rule must
identify the assessment providers they
expect to use to fulfill their reporting
requirements and describe the systems
those providers employ. Further, the
applicant must provide evidence that
each assessment provider is
independent, that the criteria and
weightings the providers use are
publicly available and that each
provider is capable of conducting a
comprehensive assessment of the
Impact SBIC’s impact. A comprehensive
assessment is one capable of evaluating
the social, environmental and economic
impacts of the applicant’s proposed
strategy.
One assessment system SBA has
already approved for use under its
current Impact Investment Fund policy
is the Global Impact Investment Ratings
System (‘‘GIIRS’’), a product of the nonprofit organization B Lab, which uses a
standard set of IRIS impact metrics.
GIIRS was created to bring to the impact
investment industry the kind of
consistent and comparable rating
reports traditional finance has had for
decades in the form of mutual fund
ratings or credit ratings. With each
investment fund they rate, B Lab staff
collects a standard set of IRIS impact
metrics from each company in the
portfolio. That data is then run through
the GIIRS assessment criteria, each of
which is assigned a specific weight. The
end result is a ratings report with an
overall impact score and scores for each
individual sub-component of the overall
assessment. Since each rating uses the
same set of core metrics, assessment
criteria and weightings, one investment
fund’s score can be compared to that of
another.
With each new Impact SBIC licensed
under this section, SBA will build a
portfolio of investment strategies and
impact reports that it hopes will help
guide future applicants to the program.
Both to facilitate that learning process
and to ensure program transparency,
Section 107.331(d) allows the Agency to
publish information about the
investment strategies and assessment
systems the Impact SBICs licensed
under this section have employed.
However, the provisions of paragraph
(d) will not release SBA from its
responsibility to protect the confidential
business information of its licensees.
SBA intends only to publish general
descriptions of the investment strategies
it has approved and will not reveal any
details that might compromise an
applicant or licensee’s confidential
business information. Similarly, the
Agency will make public the names of
assessment providers it has approved
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and descriptions of the assessment
systems those providers use, but will
not reveal the results of any individual
impact assessment.
§ 107.502—Representations to the
public. SBA is proposing to add new
paragraphs (b) and (c) to this section,
which would require Impact SBIC
license applicants and Impact SBICs to
identify themselves as impact
investment funds when marketing their
funds to prospective investors. This
requirement is meant to ensure that
investors are made aware that the
Impact SBIC applicant intends to
participate, or that a licensed Impact
SBIC is participating, in the SBIC
program as an Impact SBIC. Requiring
Impact SBICs to identify themselves as
such will also help deter applicants
whose sole interest in obtaining an
Impact SBIC license is to benefit from
the associated fee discounts.
§ 107.610—Required certifications for
Loans and Investments. Proposed new
paragraph (g) would provide for new
certifications by Impact SBICs and the
small businesses in which they make
Impact Investments, certifying the basis
for which each investment qualifies as
an Impact Investment. As with most of
the existing certifications in this section,
the Impact certifications would be
retained in the SBIC’s files and be
available for SBA’s review.
The paragraph would require different
levels of certification depending on the
type of Impact Investment. SBAIdentified Impact Investments will be
based on certifications from both the
Impact SBIC and its portfolio concerns;
Fund-Identified Impact Investments will
only require the certification of the
Impact SBIC. Since SBA-Identified
Impact Investments will be based on
definitions in federal regulation and
will generally depend on specific
statistics collected at the company level,
it is reasonable to expect the leaders of
those businesses to certify the accuracy
of their information. By contrast, FundIdentified Impact Investments may be
based on sector data or other
information outside the control of the
small business being financed.
Therefore, for Impact SBICs making
Fund-Identified Impact Investments, the
regulation places the full certification
burden on the Impact SBIC.
As noted above, per the proposed
rule, follow-on financings in Impact
Investments would count towards the
50 percent requirement, and therefore,
SBA will not require Impact SBICs to recertify the investment as part of a
follow-on financing. SBA believes that
requiring Impact SBICs to re-certify
their follow-on financings as Impact
Investments might deter them from
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making long-term capital commitments
out of concern that future financings
might not count towards the ‘‘50 percent
requirement.’’ Nonetheless, SBA is
soliciting comments from the public on
whether such follow-on investments
should count towards the 50 percent
requirement only if the Impact SBIC recertifies the investment as an Impact
Investment at the time a follow-on
investment is made.
§ 107.665—Measurement and
reporting requirements for Impact SBICs
making Fund-Identified Impact
Investments. This proposed section
would require Impact SBICs making
Fund-Identified Impact Investments to
obtain independent assessments of the
social, environmental and economic
impact of their investment strategy.
Unless the licensee obtains SBA
approval to do otherwise, these
assessments must be prepared in
manner consistent with the plan
approved during the licensing process.
Impact SBICs subject to this section
will face penalties if they fail to obtain
impact assessments, but SBA will
neither penalize nor reward an Impact
SBIC based solely on the results of those
impact assessments. One purpose of
permitting Impact SBICs to make FundIdentified Impact Investments is to
encourage innovative approaches to
social, environment and economic
challenges. Penalizing licensees that fail
to meet their impact goals, despite their
best efforts, would be
counterproductive. Instead, the Agency
trusts that successful fund managers
will earn their rewards in the market
place, using the strength of their
financial and social returns to attract
private capital. SBA will also look
favorably on subsequent Impact SBIC
applicants with a record of strong social
and financial performance. By contrast,
Impact SBICs with poor impact
assessments are more likely to face
difficulty raising private capital and
obtaining a subsequent Impact SBIC
license.
§ 107.693—Impact SBIC examination
fee discount. This new proposed section
would allow a 10% reduction in the
examination ‘‘base fee’’ that would
otherwise be applicable to Impact SBICs
under existing § 107.692. SBA will
devote neither less time nor fewer
resources to the examination of Impact
SBIC licensees as a result of this
discount. Under the proposed rule,
licensees designated as Impact SBICs
prior to the effective date of this rule
will be eligible for fee discounts on a
going-forward basis, but SBA will not
return fees already paid.
§ 107.1120—General eligibility
requirements for Leverage. Proposed
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new paragraph (l) would provide for a
new certification by Impact SBICs
seeking an SBA leverage commitment or
draw. The Impact SBIC would be
required to certify that it will invest at
least 50 percent of the aggregate dollar
amount of its financings in Impact
Investments, in compliance with the
Impact Investment and Impact SBIC
definitions in § 107.50. This prospective
certification is consistent with the other
certifications required by § 107.1120.
SBA intends to monitor Impact SBICs’
performance in making Impact
Investments to ensure that they are
making investments that meet this
requirement.
§ 107.1810—Events of default and
SBA’s remedies for Licensee’s
noncompliance with terms of
Debentures. SBA is proposing two
changes in this section that would apply
only to Impact SBICs. First, under
proposed § 107.1810(f)(13), it would be
an event of default if an Impact SBIC
fails to meet the requirement to invest
at least 50 percent of its financing
dollars in Impact Investments, as
defined in proposed § 107.50. If the
Impact SBIC fails to cure to SBA’s
satisfaction, SBA could invoke the
remedies in existing § 107.1810(g),
which includes the right to declare
outstanding debenture leverage
immediately due and payable. SBA
would generally not expect to invoke
such remedies if an Impact SBIC’s
failure to meet the 50 percent
requirement appears to be temporary.
Second, under proposed
§ 107.1810(f)(14), it would be an event
of default if an Impact SBIC licensed
under an SBA-approved plan to make
Fund-Identified Impact Investments
fails to obtain an acceptable
independent, third-party assessment to
measure the social, environmental or
economic impact of the fund’s Impact
Investment strategy within the time
frames required by proposed § 107.665.
If the Impact SBIC fails to cure to SBA’s
satisfaction, SBA could invoke the
remedies in existing § 107.1810(g),
which include the right to declare
outstanding debenture leverage
immediately due and payable.
§ 107.1940—Impact SBIC licensee
noncompliance with regulations. SBA
proposes creating in this new section a
series of actions the Agency may take
with respect to Impact SBICs that fail to
meet the 50 percent requirement and
Fund-Identified Impact SBICs that fail
to meet assessment requirements.
Regardless of whether an Impact SBIC
has outstanding leverage, if an event of
default would have been triggered under
proposed § 107.1810(f)(13) or (14), SBA
will have the authority, upon written
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notice, to take any or all of the following
actions: (1) Convert the licensee’s
Impact SBIC license to a standard SBIC
license (including, in SBA’s discretion,
requiring the licensee to notify its
private investors of the conversion); and
(2) require the licensee to return to SBA
up to the full dollar amount of any
licensing or examinations fee discounts
it has received prior to the date of the
written notice. However, SBA will be
authorized to take these actions only
after giving the licensee at least 15 days
to resolve its non-compliance and only
after the licensee fails to resolve its noncompliance within the time period
given.
SBA included these additional
remedies to address two areas of
concern. First, the events of default
proposed under § 107.1810(f) would
only apply to Impact SBICs with
outstanding leverage. As a result, Impact
SBICs that are licensed as non-leveraged
funds or those that pre-pay their
leverage in full would not be subject to
any remedies if they were to fall out of
compliance with the 50 percent
requirement or, as applicable, the
assessment requirement. Second, the fee
discounts proposed under this rule
generally reward Impact SBIC
applicants and licensees for future,
rather than past behavior. For instance,
an Impact SBIC will be eligible for a 60
percent discount on its licensing fee
based on its proposal to deploy at least
50 percent of its capital in Impact
Investments. Without the provisions
proposed under this section, SBA would
have limited authority to recover those
benefits or otherwise take action against
the fund if it fails to follow through on
that commitment.
Compliance With Executive Orders
12866, 12988, 13132, 13563, the
Paperwork Reduction Act (44 U.S.C.
Ch. 35) and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Executive Order 12866
The Office of Management and Budget
has determined that this rule is a
‘‘significant’’ regulatory action under
Executive Order 12866. The Regulatory
Impact Analysis is set forth below.
1. Need for Regulation
The Small Business Investment Act of
1958, as amended, established the SBIC
program to ‘‘stimulate and supplement
the flow of private equity capital and
long-term loan funds’’ to U.S.-based
small businesses. 15 U.S.C. 661. As part
of that effort, the Act contains several
provisions aimed at promoting the flow
of capital to several special categories of
small business, including those located
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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).
Over the past several years, SBA’s
focus on achieving these economic
development goals has yielded results,
but progress has come at a slower pace
than anticipated. Despite the recent
growth in the number of SBIC-financed
businesses located in LMI areas, which
rose from 216 in fiscal year (‘‘FY’’) 2012
to 229 in FY 2014, the program has yet
to return to the high level achieved in
FY 2011, during which SBICs financed
351 businesses located in LMI areas.
The LMI Debenture, a leverage
instrument meant to help facilitate these
types of investments, is rarely used.
Similarly, there has yet to be a single
draw of SBA’s Energy Savings
Debenture, which has been available
since 2012 to help finance small
businesses involved in reducing the use
of non-renewable energy sources.
The proposed rule was crafted to
enhance the SBIC program’s
effectiveness in channeling muchneeded capital to these and other
underserved segments of the U.S.
economy. From an overall economic
development perspective, SBA believes
that capital investments made into small
businesses located in LMI and other
underserved areas have the potential to
have the most meaningful and sustained
impact due to the capital formation gaps
in those areas.
2. Alternative Approaches to Regulation
SBA considered several alternatives to
the proposed regulation, each of which
will be discussed below. First, SBA
considered pursuing its impact
investment objectives solely through
existing policy initiatives. Based on
extensive feedback received from SBIC
fund managers, lower-middle market
industry representatives, impact
investment fund managers, impact
policy thought leaders and others, SBA
rejected this alternative. SBA’s existing
impact investing policies impose
additional burdens without providing
sufficient incentives to attract Impact
SBIC fund managers to the program.
Further, given that SBIC licensees have
operational lives of ten years or more,
the market will be reluctant to embrace
SBA’s impact investing efforts unless
the Agency demonstrates a lasting
commitment to the space by
promulgating regulations.
SBA faced a challenge in developing
a definition of an ‘‘Impact Investment’’
that dealt appropriately with the
subjectivity inherent in any nonfinancial measure of performance.
Initially, SBA considered restricting the
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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. The original
Impact Investment Initiative policy
launched in 2011 was structured in this
manner and was slow to attract
applicants. Given the nascence of the
impact investing industry, which
supports a diverse range of investment
strategies, SBA determined a more
accommodative approach would be
more effective.
The proposed 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. The Agency also
recognizes the complexities FundIdentified Impact Investments may
introduce to the SBIC licensing and
monitoring process.
SBA had to carefully consider the
bases on which it would approve an
Impact SBIC’s proposed Fund-Identified
Impact Investment definition. One
option the Agency considered was to
outline, as part of this regulation, a
series of sector-specific eligibility
requirements that Fund-Identified
Impact Investments would have to
satisfy. Working with colleagues at the
U.S. Department of Education, SBA staff
made an initial attempt at preparing
guidelines for investments in the
education sector but quickly discovered
the impracticality of the approach. Even
within a single sector, there exists such
a tremendous diversity of economic
activity that establishing requirements
specific-enough to be useful would
require an inordinate commitment of
time and resources.
An alternative approach would be to
remove SBA from the approval process
altogether and give Impact SBIC
applicants complete latitude to pursue
Fund-Identified Impact Investments of
their choice. Under this approach, SBA
would evaluate Impact SBICs using its
existing licensing process without any
additional consideration of the impactrelated aspects of the applicant’s
proposal. A key advantage of this
approach is that it would allow SBA to
fully cede the definitional challenge of
impact to fund managers and their
private investors. It would also ensure
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the program remains open to innovative
impact strategies.
SBA will always encourage applicants
to propose innovative investment
strategies, but the Agency must retain
the ability to review and approve
proposed Fund-Identified Impact
Investment definitions. Not only must
the Agency ensure that SBICs are
making investments that are consistent
with the letter and spirit of program
regulations, but it must also consider
the reputation of the SBIC program
within the private investor community.
The statute underlying the SBIC
program, known as the Small Business
Investment Act, makes clear that the
program should be implemented in a
manner that ‘‘insure[s] the maximum
participation of private financing
sources.’’ 15 U.S.C. 661. Were SBA to
ignore an applicant’s proposed FundIdentified Impact Investment
definitions, private impact investors
might take the Agency’s approach as a
signal of indifference to market
development.
In fact, the approach SBA has taken
reflects the Agency’s interest in not only
enhancing the impact of the SBIC
program, but also promoting industry
best practices. SBA is as concerned with
the process used to make FundIdentified Impact Investments as it is
with the outcomes of those investments.
Each Impact SBIC applicant will have
the burden of demonstrating, with
qualitative or quantitative analysis, that
its investment strategy will, in
aggregate, generate a measurable
positive impact. SBA staff will
supplement their evaluation of the
applicant’s analysis and its other
application materials with the results
obtained using the standard tools of due
diligence, such as interviews with the
management team, reference calls,
consultations with industry experts,
public record searches and other
research.
As long as a fund manager is qualified
and its definition does not run afoul of
the Agency’s mission, statutes,
regulations or policies, SBA intends to
give applicants substantial leeway in
defining their Fund-Identified Impact
Investments. The measurement and
assessment requirements of the
proposed rule ensure that even those
Impact SBICs that fail to meet their
targeted social returns will contribute to
market development. Measuring results,
good and bad, contributes to the
industry’s understanding of the
relationship between financial and
social returns and helps investors
identify the most talented managers.
SBA confronted two key questions as
it considered how to create a robust
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measurement and assessment process.
First, what means should SBA use to
assess the impact of Fund-Identified
Impact Investments? Second, what
consequences, if any, should Impact
SBICs face based on the result of their
impact assessments?
With regard to the first question, SBA
could have assumed the full burden of
evaluating each Fund-Identified Impact
Investment to determine its impact. This
alternative was rejected because SBA
staff lack sufficient time, resources and
expertise to properly evaluate the full
range of potential Fund-Identified
Impact Investments. A second
alternative was to leverage the expertise
of Impact SBIC fund managers
themselves and allow them to prepare
their own assessments. While it may be
appropriate to have Impact SBIC
applicants argue the merits of their
Fund-Identified Impact Investment
definitions during the licensing process,
SBA considered it imprudent to allow
Impact SBICs to evaluate their own
success.
The proposed rule instead requires
Impact SBICs to obtain independent,
third-party impact evaluations based on
industry-adopted standards. The use of
independent third parties helps reduce
the bias inherent in a fund’s own impact
evaluation and relieves SBA of the
potentially significant burden of
assessing a wide range of impact
investment strategies.
With regard to the second question,
SBA has chosen not to penalize
licensees based on the results of their
impact assessments. As noted above,
assessments provide private capital with
greater transparency regarding an
applicant’s track record of generating
impact. Given that most fund managers
seek to follow their first investment
vehicle with a second, the assessment
process itself creates sufficient risk that
investors will decline to invest in a
second fund. Accordingly, SBA does not
believe that an Impact SBIC should
incur regulatory penalties based on the
results of an impact assessment.
3. Potential Benefits and Costs
The proposed rule offers two primary
benefits to SBA and its stakeholders.
First, it offers the potential to enhance
the overall social, environmental and
economic impact of the SBIC program.
Existing SBICs already have tremendous
impact on America’s small business
economy. In FY 2014, SBICs together
invested nearly $5.5 billion in more
than 1,000 small business concerns,
helping them to grow and modernize
their operations. The introduction of
Impact SBICs will increase the portion
of those annual financings that are
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intentionally directed towards
economically-distressed communities
and companies taking innovative
approaches to social problems.
SBA also hopes the proposed rule will
support the development of the impact
investing industry more broadly. The
rule has been drafted to incorporate
impact investing best practices,
especially with regard to the
measurement and assessment of impact.
As more and more SBA- and FundIdentified Impact Investments are made,
the SBIC program will have more data
to contribute to the industry on the
balance between financial and social
performance.
In terms of costs, Impact SBICs are
anticipated to have an additional 3%
higher loss rate than regular SBICs, due
to the risks that may be associated with
Impact Investments contemplated under
the proposed rule. Although SBA is
targeting $200 million in commitments
per year in terms of licensing, the
number of Impact SBICs that SBA may
license or the amount of debenture
leverage commitments that may be
approved for Impact SBICs in any year
is subject to the limitations set forth in
annual appropriations acts or in other
statutes or regulations. In addition, both
newly licensed Impact SBICs and
previously licensed Impact SBICs have
the opportunity to receive new leverage
commitments in any year. The SBIC
program subsidy model for FY 2017 has
been formulated to reflect the provision
proposed in this rule that Impact SBICs
are allowed to be licensed as Early Stage
SBICs. Early Stage SBICs are expected to
have approximately a 10% higher loss
rate than regular SBICs. The resulting
fee of 34.7 basis points for FY 2017
remains well within historical ranges for
the SBIC Debenture annual fee.
Executive Order 12988
This action meets applicable
standards set forth in section 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
retroactive or presumptive effect.
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Executive Order 13132
The proposed rule will not have
substantial direct effects on the States,
or the distribution of power and
responsibilities among the various
levels of government. Therefore, for the
purposes of Executive Order 13132,
Federalism, SBA determines that this
proposed rule has no federalism
implications warranting the preparation
of a federalism assessment.
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Executive Order 13563
In drafting this proposed rule, SBA
considered the input of impact
investment industry experts on ways to
facilitate the growth of private-sector led
impact investing as a strategy to create
jobs and strengthen communities. With
the assistance of the White House Office
of Social Innovation and Civic
Participation, which included a White
House hosted event in June 2014 (see,
https://www.whitehouse.gov/blog/2014/
06/25/executive-actions-accelerateimpact-investing-create-jobs-andstrengthen-communities), SBA held
roundtable discussions with
representatives from endowments,
foundations, institutional asset
managers, high net worth individuals,
investment funds, standard SBICs,
existing Impact SBICs, not-for-profit
entities, banks, and other federal
government agencies. The roundtables
covered topics such as: (1) Increasing
the flow of private capital toward
sustainable business models; (2)
supporting private sector investment in
high-impact sectors and underserved
communities; (3) making innovative
impact enterprises investment-ready; (4)
removing regulatory barriers that keep
capital on the sidelines; and (5) growing
the impact economy through policy
interventions.
Paperwork Reduction Act, 44 U.S.C.
Ch. 35
SBA has determined that this
rulemaking proposes additional
reporting requirements as defined by the
Paperwork Reduction Act. Specifically,
as discussed above, all Impact SBICs
utilizing a Fund-Identified Impact
strategy would be required to submit to
SBA independent, third-party
evaluations of the impacts of such
investments. This proposed rule would
also codify two other reporting
requirements that are already imposed
on Impact SBICs based on the terms and
conditions of the Impact Investment
Fund established by SBA on April 11,
2011, as amended on September 25,
2014, available at https://www.sba.gov/
content/impact-investment-fundoverview. First, at the time of
application, Impact SBIC applicants are
currently required to outline in their
proposed investment strategy whether a
particular strategy is an ‘‘Impact
Investment.’’ This requirement is not
being changed by this rule; it is merely
being codified in the regulations.
Furthermore, this requirement is already
approved as part of SBA Form 2181,
Appendix 2 (OMB Control Number
3245–0062). Second, as part of reporting
on their portfolio financings, Impact
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SBICs are also currently required to
identify whether a completed financing
is an Impact Investment. Therefore, this
requirement is also not being imposed
for the first time by this rule but rather
merely being codified in the regulations.
To make it easier for SBICs to meet this
requirement, SBA recently proposed
adding two questions to the Portfolio
Financing Report (an existing
information collection approved under
OMB Control Number 3245–0078), to
enable Impact SBICS to specifically
identify whether a particular investment
qualifies as an SBA-Identified or Fund
Identified investment. This particular
change will be made in conjunction
with other revisions to Form 1031 as a
result of other amendments to the SBIC
program in the proposed rule, Small
Business Investment Companies;
Passive Business Expansion & Technical
Clarifications. (RIN: 3245–AG67) (80 FR
60077, October 5, 2015). The
description, number of respondents, and
the purpose of the information
collection that would be imposed by
this rule is discussed below with an
estimate of the annual reporting burden.
Included in the estimate is the time for
reviewing instructions, searching
existing data sources, gathering and
maintaining the data needed, and
completing and reviewing the
requirements for the collection of
information.
A. Impact Evaluations
Title: Independent, Third-Party
Impact Evaluations.
Summary: The proposed rule requires
Impact SBICs licensed to make FundIdentified Impact Investments to submit
two impact evaluations to SBA. Each
assessment must be completed by an
independent third-party based on
industry standards. One assessment is
due within two years of licensing, while
the second must be submitted between
the 5th and 7th year after licensing.
These independent evaluations are
required only of Impact SBICs that make
Fund-Identified Impact Investments.
Impact SBICs that restrict themselves to
SBA-Identified Impact Investments bear
no additional reporting burden beyond
what is required of all SBICs.
Description and Number of
Respondents: Only those Impact SBICs
licensed to make Fund-Identified
Impact Investments will be required to
complete this requirement.
Annual Estimated Number of
Responses: SBA estimates that it may
receive approximately 2 responses each
year based on an annual average of 6
Impact SBICs requiring assessments
during years 1–2 and again in years 5–
7 of their lifecycle.
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Estimated Annual Hour and Cost
Burden: Impact SBICs licensed to make
Fund-Identified Impact Investments will
be required to obtain an impact
evaluation and may incur costs. SBA
estimates that it may have
approximately 6 Impact SBICs making
Fund-Identified Impact Investments in
any given year. One independent
provider charges between $3,500 and
$7,500 for a full portfolio rating,
depending on the size of the fund and
the number of portfolio companies. Two
ratings completed at the maximum price
of $7,500 would require an Impact SBIC
to spend a total of $15,000 over the
course of its 10 year fund life. On an
annualized basis, the cost would be
$1,500 per year. The total annual cost
burden for the estimated 6 Impact SBICs
making Fund-Identified Impact
Investments is $9,000.
The hourly burden for these
respondents would be negligible, as the
assessment work would be completed
by an independent third-party. The total
time required to contact the provider
and initiate an assessment is estimated
at a total of 24 hours per assessment.
Impact SBICs subject to the third-party
assessment requirement must submit a
total of two assessments over the course
of their 10 year fund life. On an
annualized basis, these applicants each
will spend 4.8 hours per year. With an
estimated 6 Impact SBICs making FundIdentified Impact Investments in the
portfolio at any given time, the total
annual hourly burden is estimated at
28.8 hours.
calculates the annual fee each year
using historical data to assess the
appropriate fee to keep the program at
zero subsidy cost. Because SBA expects
Impact SBICs to be riskier than standard
SBICs, SBA adjusted the SBIC debenture
program budget formulation model
which determines the annual fee needed
to keep the debenture program at a zero
subsidy cost.
The projected leverage allocation to
Impact SBICs would increase the annual
fee charged to all SBICs seeking new
debenture commitments by
approximately 6.1 basis points. The
annual fee would remain in line with
historical levels. Since 2000, the annual
fee has ranged from a high of 100 basis
points (1 percent) to a low of 29 basis
points, with a 15-year median of 83
basis points. The annual fee for FY 2015
is approximately 74.2 basis points.
Although the cost will vary in the future
based on economic factors and
assumptions used to develop the annual
fee, SBA expects the fee to remain under
1 percent, comparable to historical
annual fees and below the statutory
maximum of 1.38 percent. Accordingly,
the Administrator of the SBA hereby
certifies that this rule will not have a
significant impact on a substantial
number of small entities. SBA welcomes
comment from members of the public
who believe there will be a significant
impact either on SBICs, or on
companies that receive funding from
SBICs.
Compliance With the Regulatory
Flexibility Act, 5 U.S.C. 601–612
When an agency promulgates a rule,
the Regulatory Flexibility Act requires
the agency to prepare an initial
regulatory flexibility analysis (IRFA)
which describes the potential economic
impact of the rule on small entities and
alternatives that may minimize that
impact. Section 605 of the RFA allows
an agency to certify a rule, in lieu of
preparing an IRFA, if the rulemaking is
not expected to have a significant
economic impact on a substantial
number of small entities.
This proposed rule would affect all
SBICs issuing debentures, of which
there are currently 193, most of which
are small entities. Therefore, SBA has
determined that this proposed rule
would have an impact on a substantial
number of small entities. However, SBA
has determined that the impact on
entities affected by the rule will not be
significant. SBA keeps the SBIC
program at a zero subsidy cost to
taxpayers by charging up front and
annual fees on its leverage. SBA
Investment companies, Loan
programs—business, Licensing fees,
Examination fees, Small businesses.
For the reasons stated in the
preamble, SBA proposes to amend part
107 of title 13 of the Code of Federal
Regulations as follows:
VerDate Sep<11>2014
17:55 Feb 02, 2016
Jkt 238001
List of Subjects in 13 CFR Part 107
PART 107—SMALL BUSINESS
INVESTMENT COMPANIES
1. The authority citation for part 107
is revised to read as follows:
■
Authority: 15 U.S.C. 681 et seq., 683,
687(c), 687b, 687d, 687g, 687m.
2. Amend § 107.50 by adding in
alphabetical order definitions of ‘‘FundIdentified Impact Investment,’’ ‘‘Impact
Investment,’’ ‘‘Impact SBIC’’ and ‘‘SBAIdentified Impact Investment’’ to read as
follows:
■
§ 107.50
Definition of terms.
*
*
*
*
*
Fund-Identified Impact Investment
means a Financing by an Impact SBIC
that meets the definition of an Impact
Investment proposed by the SBIC and
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Sfmt 4702
approved by SBA in writing at the time
of licensing, as described in § 107.331.
*
*
*
*
*
Impact Investment means an SBAIdentified Impact Investment or FundIdentified Impact Investment.
Impact SBIC means any Section
301(c) Partnership Licensee that must
make at least 50 percent of all of its
Loans and Investments (in dollars) in
Impact Investments and is designated by
SBA as an ‘‘Impact SBIC.’’
*
*
*
*
*
SBA-Identified Impact Investment
means a Financing that meets SBA’s
definition of an Impact Investment,
which SBA will publish from time to
time on its Web site and which will
include geographies and sectors of
national priority.
*
*
*
*
*
■ 3. Add § 107.301 to read as follows:
§ 107.301 Impact SBIC licensing fee
discount.
(a) All applicants seeking to be
licensed as an Impact SBIC will receive
a 60 percent discount, rounded to the
nearest one-hundred dollars, on any fees
to which they are subject under
§ 107.300.
(b) In the event an applicant seeking
to be licensed as an Impact SBIC is
licensed as anything other than an
Impact SBIC, SBA reserves the right to
recover, prior to licensing, the full
dollar amount of any licensing fee
discounts the applicant has received.
■ 4. In § 107.310, designate the existing
text as paragraph (a) and add paragraph
(b) to read as follows:
§ 107.310 When and how to apply for
licensing as an Early Stage SBIC.
*
*
*
*
*
(b) Impact SBIC applicants. An
applicant may elect to apply
simultaneously for licensing as both an
Early Stage SBIC and an Impact SBIC.
Such applicants may apply as described
in § 107.300 at any time and are not
subject to the submission deadlines set
forth in paragraph (a) of this section.
Applicants seeking a dual license must
comply with the regulations in this part
pertaining to Early Stage SBICs and
Impact SBICs, and to any requirements,
other than submission deadlines,
specified in the most recently published
Early Stage Notice in the Federal
Register.
■ 5. Add §§ 107.330 and 107.331 to read
as follows:
§ 107.330 Evaluation of Impact SBIC
license applicants.
SBA will evaluate each applicant
seeking to be licensed as an Impact SBIC
based on the same factors applicable to
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other license applicants, as set forth in
§ 107.305, with particular emphasis on
the managers’ skill and experience in
originating, evaluating, executing and
monitoring Impact Investments
consistent with the applicant’s
investment strategy.
mstockstill on DSK4VPTVN1PROD with PROPOSALS
§ 107.331 Evaluation of Fund-Identified
Impact Investments and measurement
plans.
If an applicant intends to qualify for
an Impact SBIC license based on
investments in Fund-Identified Impact
Investments, SBA will evaluate the
applicant’s proposed definition(s) of a
Fund-Identified Impact Investment and
its plan to comply with the
measurement and reporting
requirements of § 107.665, and will
approve the same in writing at the time
of licensing based the applicant’s
satisfaction of the following:
(a) Fund-Identified Impact
Investments. Using the submitted
application materials, any interviews
with the applicant’s management team,
the results of public record searches and
any other due diligence conducted by
SBA, SBA will assess the likelihood that
the applicant’s proposed investment
strategy and Fund-Identified Impact
Investment definition(s) will generate,
in the aggregate, beneficial social,
environmental or economic impacts.
SBA’s evaluation may consider factors
such as whether the strategy will
include investments in Portfolio
Concerns that increase services to low
income communities, engage in
environmentally sustainable business
practices or manufacture
environmentally sustainable products,
or that operate in industries of national
priority other than in the sectors
identified by SBA as an SBA-Identified
Impact Investment.
(b) Measurement and reporting plan.
During licensing, each applicant seeking
an Impact SBIC license under § 107.331
must identify the assessment provider(s)
and assessment system(s) it intends to
use in order to comply with the
requirements of § 107.665. Using the
submitted application materials, any
interviews with the applicant’s
management team, the results of public
record searches and any other due
diligence conducted by SBA, SBA will
assess the applicant’s proposed
measurement and reporting plan based
on the following factors:
(1) The applicant’s proposed
assessment system(s) must employ at
least one approved measurement
standard, from a list of approved
standards published by SBA on its Web
site from time to time.
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17:55 Feb 02, 2016
Jkt 238001
(2) The applicant’s proposed
assessment system must comply with
the following:
(i) The assessment system’s criteria
and weightings are publicly available;
and
(ii) The assessment system is capable
of producing an assessment of the
social, environmental and/or economic
effects of impact investments.
(3) The applicant’s proposed
assessment provider(s) must each be an
independent, third-party. An
assessment provider will not be
considered an independent third-party
if any of the following conditions exist
at the time of licensing or assessment:
(i) The assessment provider is an
Associate of the Impact SBIC or any of
its Portfolio Concerns; or
(ii) The assessment provider is
materially financed by an association
that represents the interests of the
specific industry in which the Impact
SBIC or its Portfolio Concerns are
engaged.
(c) Publication. SBA may periodically
publish on its Web site:
(i) General descriptions of impact
investment strategies pursued by Impact
SBICs licensed to make Fund-Identified
Impact Investments; and
(ii) Detailed descriptions of the
assessment systems SBA has approved
for use by Impact SBICs licensed to
make Fund-Identified Impact
Investments.
■ 6. In § 107.502, designate the existing
text as paragraph (a) and add paragraphs
(b) and (c) to read as follows:
§ 107.502
Representations to the public.
*
*
*
*
*
(b) Impact SBIC applicants must
declare their intention to apply for an
Impact SBIC license in any solicitation
to investors.
(c) Impact SBIC licensees must
indicate that they have obtained an
Impact SBIC license from SBA in any
solicitation to investors.
■ 7. Amend § 107.610 by adding
paragraphs (g) and (h) to read as follows:
§ 107.610 Required certifications for Loans
and Investments.
*
*
*
*
*
(g) For each SBA-Identified Impact
Investment:
(i) A certification by the concern,
dated as of the date of application for
SBIC financing, as to the basis for its
qualification as an Impact Investment;
and
(ii) A certification by the Impact SBIC,
made contemporaneously with the
certification of the concern, that the
concern qualifies as an Impact
Investment as of the date of the
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Sfmt 4702
5675
concern’s certification and the basis for
such qualification.
(h) For each Fund-Identified Impact
Investment, a certification by the Impact
SBIC, as of the date of the financing,
that the concern qualifies as a FundIdentified Impact Investment under the
definition(s) approved in writing by
SBA and the basis for such
qualification.
■ 8. Add § 107.665 to read as follows:
§ 107.665 Measurement and reporting
requirements for Impact SBICs making
Fund-Identified Impact Investments.
Impact SBICs that SBA approved in
writing to make Fund-Identified Impact
Investments must obtain an assessment
of their impact investment strategy from
an independent, third-party provider
within two years after licensing and
again between five and seven years after
licensing. Without prior written SBA
approval, the Impact SBIC may not use
an assessment system(s) or assessment
provider(s) different from those the
Impact SBIC identified and SBA
approved during the licensing process.
Each assessment must be submitted to
SBA within 30 days of its completion.
■ 9. Add § 107.693 to read as follows:
§ 107.693 Impact SBIC examination fee
discount.
An Impact SBIC will receive a 10%
discount on its examination base fee,
rounded to the nearest one-hundred
dollars, subject to the following:
(a) The discount will be calculated
based on the examination base as
determined prior to any adjustments
provided for under § 107.692.
(b) Impact SBICs also licensed as
Early Stage SBICs are entitled to any
additional discounts, but exempt from
any premium, that Early Stage SBICs
would otherwise be required to pay
under § 107.692.
■ 10. Amend § 107.1120 by adding
paragraph (l) to read as follows:
§ 107.1120 General eligibility requirements
for Leverage.
*
*
*
*
*
(l) If you are an Impact SBIC, certify
in writing that, in accordance with
§ 107.1810(f)(13), at least 50 percent of
the aggregate dollar amount of your
Financings will qualify as Impact
Investments defined in § 107.50.
■ 11. Amend § 107.1810 by adding
paragraphs (f)(13) and (14) to read as
follows:
§ 107.1810 Events of default and SBA’s
remedies for Licensee’s noncompliance
with terms of Debentures.
*
*
*
*
*
(f) * * *
(13) Failure by an Impact SBIC to
meet investment requirements. You are
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an Impact SBIC and, beginning on the
first fiscal quarter end when your
cumulative total Financings (in dollars)
are at least equal to your Regulatory
Capital, you have not made at least 50
percent of such Financings to Small
Businesses that at the time of your
initial Financing were Impact
Investments.
(14) Failure by an Impact SBIC to
meet assessment requirements. You are
an Impact SBIC making Fund-Identified
Impact Investments and you fail to
obtain an independent, third-party
assessment within two years of your
licensing date and, again, between five
and seven years from your licensing
date, pursuant to the requirements
under § 107.665.
*
*
*
*
*
■ 12. Add § 107.1940 to read as follows:
mstockstill on DSK4VPTVN1PROD with PROPOSALS
(a) For any occurrence (as determined
by SBA) of one or more of the events in
this paragraph (a), SBA may avail itself
of one or more of the remedies in
paragraph (b) of this section.
(1) Failure by an Impact SBIC to meet
investment requirements. You are an
Impact SBIC and, beginning on the first
fiscal quarter end when your cumulative
total Financings (in dollars) are at least
equal to your Regulatory Capital, you
have not made at least 50 percent of
such Financings to Small Businesses
that at the time of your initial Financing
were Impact Investments.
(2) Failure by an Impact SBIC to meet
assessment requirements. You are an
Impact SBIC making Fund-Identified
Impact Investments and you fail to
obtain an independent, third-party
assessment within two years of your
licensing date and, again, between five
and seven years from your licensing
date, pursuant to the requirements
under § 107.665.
(b) SBA may exercise any or all of the
following rights:
(1) Convert your Impact SBIC license
to a standard SBIC license (including, in
SBA’s discretion, requiring you to
promptly notify your investors of the
conversion); and
(2) Require you to refund to SBA up
to the full dollar amount of any
licensing or examination fee discounts
you have received prior to the date of
your written notice.
(c) SBA may invoke the remedies in
paragraph (b) of this section only if:
(1) It has given you at least 15 days
to cure the noncompliance;
(2) You fail to cure the
noncompliance to SBA’s satisfaction
within the allotted time.
17:55 Feb 02, 2016
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Editorial Note: This document was
received for publication by the Office of the
Federal Register on January 29, 2016.
[FR Doc. 2016–01986 Filed 2–2–16; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 71
[Docket No. FAA–2015–8060; Airspace
Docket No. 15–ASW–4]
Proposed Establishment of Class E
Airspace; Moriarty, NM
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
§ 107.1940 Impact SBIC licensee
noncompliance with regulations.
VerDate Sep<11>2014
Dated: October 7, 2015.
Maria Contreras-Sweet,
Administrator.
This action proposes to
establish Class E airspace at Moriarty,
NM. Controlled airspace is necessary to
accommodate new Standard Instrument
Approach Procedures developed at
Moriarty Airport, for the safety and
management of Instrument Flight Rules
(IFR) operations at the airport.
DATES: Comments must be received on
or before March 21, 2016.
ADDRESSES: Send comments on this
proposal to the U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590; telephone (202)
366–9826. You must identify FAA
Docket No. FAA–2015–8060; Docket
No.15–ASW–4, at the beginning of your
comments. You may also submit
comments through the Internet at
https://www.regulations.gov. You may
review the public docket containing the
proposal, any comments received, and
any final disposition in person in the
Dockets Office between 9:00 a.m. and
5:00 p.m., Monday through Friday,
except Federal holidays. The Docket
Office (telephone 1–800–647–5527), is
on the ground floor of the building at
the above address.
FAA Order 7400.9Z, Airspace
Designations and Reporting Points, and
subsequent amendments can be viewed
online at https://www.faa.gov/air_traffic/
publications/. For further information,
you can contact the Airspace Policy
Group, Federal Aviation
Administration, 800 Independence
Avenue SW., Washington, DC 29591;
telephone: 202–267–8783. The Order is
also available for inspection at the
SUMMARY:
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National Archives and Records
Administration (NARA). For
information on the availability of FAA
order 7400.9Z at NARA, call 202–741–
6030, or go to https://www.archives.gov/
federal_register/code_of_federalregulations/ibr_locations.html.
FAA Order 7400.9, Airspace
Designations and Reporting Points, is
published yearly and effective on
September 15.
FOR FURTHER INFORMATION CONTACT: Raul
Garza Jr., Central Service Center,
Operations Support Group, Federal
Aviation Administration, Southwest
Region, 10101 Hillwood Parkway, Fort
Worth, TX 76177; telephone: 817–222–
5874.
SUPPLEMENTARY INFORMATION:
Authority for This Rulemaking
The FAA’s authority to issue rules
regarding aviation safety is found in
Title 49 of the United States Code.
Subtitle I, Section 106 describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority. This rulemaking is
promulgated under the authority
described in Subtitle VII, Part A,
Subpart I, Section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority as it would
establish Class E airspace at Moriarty
Airport, Moriarty, NM.
Comments Invited
Interested parties are invited to
participate in this proposed rulemaking
by submitting such written data, views,
or arguments, as they may desire.
Comments that provide the factual basis
supporting the views and suggestions
presented are particularly helpful in
developing reasoned regulatory
decisions on the proposal. Comments
are specifically invited on the overall
regulatory, aeronautical, economic,
environmental, and energy-related
aspects of the proposal.
Communications should identify both
docket numbers and be submitted in
triplicate to the address listed above.
Commenters wishing the FAA to
acknowledge receipt of their comments
on this notice must submit with those
comments a self-addressed, stamped
postcard on which the following
statement is made: ‘‘Comments to
Docket No. FAA–2015–8060/Airspace
Docket No. 15–ASW–4.’’ The postcard
will be date/time stamped and returned
to the commenter.
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Agencies
[Federal Register Volume 81, Number 22 (Wednesday, February 3, 2016)]
[Proposed Rules]
[Pages 5666-5676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01986]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
RIN 3245-AG66
Small Business Investment Company Program--Impact SBICs
AGENCY: U.S. Small Business Administration.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: In this proposed rule, the U.S. Small Business Administration
(SBA) is defining a new class of small business investment companies
(SBICs) that will seek to generate positive and measurable social
impact in addition to financial return. With the creation of this class
of ``Impact SBICs,'' SBA is seeking 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. This proposed rule sets forth regulations
applicable to Impact SBICs with respect to licensing, leverage
eligibility, fees, reporting and compliance requirements.
DATES: Comments on the proposed rule must be received on or before
March 4, 2016.
ADDRESSES: You may submit comments, identified by RIN 3245-AG66, by any
of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail, Hand Delivery/Courier: Mark Walsh, Associate Administrator
for the Office of Investment and Innovation, U.S. Small Business
Administration, 409 Third Street SW., Washington, DC 20416.
SBA will post comments on https://www.regulations.gov. If you wish
to submit confidential business information (CBI) as defined in the
User Notice at https://www.regulations.gov, please submit the
information to Nate T. Yohannes, Office of Investment and Innovation,
409 Third Street SW., Washington, DC 20416. Highlight the information
that you consider to be CBI
[[Page 5667]]
and explain why you believe this information should be held
confidential. SBA will review the information and make the final
determination of whether or not it will publish the information.
FOR FURTHER INFORMATION CONTACT: Nate T. Yohannes, Office of Investment
and Innovation, (202) 205-6714.
SUPPLEMENTARY INFORMATION:
I. Background Information
``Impact investing'' is a term used to describe an investment
approach that combines the pursuit of financial return with the goal of
generating measurable social, environmental or economic impact. The
term ``social impact investing'' is often used synonymously with the
term impact investing, and refers, collectively, to all types of impact
investing, including social, environmental and economic. Impact
investors are active throughout the capital markets, and though their
strategies may vary, according to the Global Impact Investing Network,
a non-profit organization dedicated to increasing the scale and
effectiveness of impact investing, impact investors share three
defining traits. First, impact investors invest with the explicit
intention of generating a positive social impact. This is in contrast
to other types of investors who attempt to avoid generating negative
social impacts or who are entirely indifferent to the social outcomes
resulting from their investments. Second, though their return
requirements vary, impact investors are not grant providers and always
expect a return on their invested capital. Finally, impact investors
share a commitment to measure the effect of their investments on the
employees, customers and communities of the companies in which they
invest. See, The Global Impact Investing Network, About Impact
Investing, https://www.thegiin.org/cgi-bin/iowa/resources/about/.
Impact investing currently constitutes a small segment of global
investment activity. Each year, J.P. Morgan and the Global Impact
Investing Network (``GIIN'') publish an annual survey of leading impact
investors. In their May 2015 findings, available at https://www.thegiin.org/cgi-bin/iowa/resources/research/662.html, 146 survey
respondents reported managing a collective total of $60 billion in
impact investments. Compared with the $64 trillion in global assets
under management, a figure drawn from PricewaterhouseCoopers' (``PwC'')
2014 report Asset Management 2020: A Brave New World, available at
https://www.pwc.com/gx/en/asset-management/publications/asset-management-2020-a-brave-new-world.jhtml, impact investments comprise a
small fraction of invested capital worldwide.
However, the size of the impact industry belies both its growth
potential and that of the broader sustainable finance sector. This is a
sector focused on ``creating economic and social value through
financial models, products and markets that are sustainable over
time.'' See, Center for Responsible Business, Haas School of Business,
University of California Berkeley, Sustainable Finance, https://responsiblebusiness.haas.berkeley.edu/programs/sustainablefinance.html.
The Forum for Sustainable and Responsible Investment estimates that
U.S.-domiciled assets managed using sustainable, responsible or impact
investing strategies increased by a compound annual rate of 33% between
2012 and 2014. If that trend continues, sustainable finance will
continue to outpace overall market growth. According to the 2014 PwC
report, global AUM will grow at a compound annual growth rate of just
nearly 6 percent in coming years.
SBA's formal efforts in the impact investing space began on April
7, 2011, when it announced the launch of the SBIC program's Impact
Investing Initiative (the ``Initiative''), building upon SBA's belief
that targeting capital investments into segments of the U.S. economy
where capital formation gaps exist, such as small businesses located in
low-to-moderate income (``LMI'') and other underserved areas, has the
potential to effect meaningful and sustained economic development
impact in those areas. The Initiative made available $1 billion in
debenture leverage, over the course of 5 years, to SBICs that committed
to deploy at least 50 percent of their total invested capital in
``impact investments.'' Under the Initiative, investments in small
businesses located in LMI areas, economically-distressed areas and
rural areas generally qualified as impact investments, as did
investments in small businesses active in the education and clean
energy sectors.
Since 2011, SBA has made several changes to the Initiative in an
effort to enhance its effectiveness. Most recently, in September 2014,
SBA expanded the scope of the Initiative and renamed it the ``Impact
Investment Fund'' to reflect SBA's commitment to extend its impact
investing efforts beyond the Initiative's initial 5-year term.
This rule follows from that commitment and seeks to recognize,
within the SBIC program's regulations, the important role impact
investors can play in helping the SBIC program achieve its goal of
providing capital and long-term loan funds for the growth, expansion
and modernization of small businesses.
II. Section by Section Analysis
Sec. 107.50--Definitions. SBA proposes to add the defined terms
``Fund-Identified Impact Investment,'' ``Impact Investment,'' ``Impact
SBIC'' and ``SBA-Identified Impact Investment.''
``Fund-Identified Impact Investment,'' ``Impact Investment,'' and
``SBA-Identified Impact Investment''
The definition of ``Impact Investment'' included in this proposed
rule consists of two categories, each of which is also a defined term
in the proposed rule: (1) SBA-Identified Impact Investments, which are
investments in geographic areas and sectors of national priority that
SBA designates in notices published from time to time on SBA's SBIC
program Web site (www.sba.gov/inv); and (2) Fund-Identified Impact
Investments, which are investments that meet an SBIC's own definition
of an ``Impact Investment'' and which an SBIC applicant must propose
and SBA must approve during the licensing process, as described in
proposed Sec. 107.331--Evaluation and selection of Impact SBICs.
``Impact SBIC''
The regulatory definition of an Impact SBIC has several key points.
First, an Impact SBIC must be organized as a limited partnership.
Although the current regulations permit other forms of organization,
the vast majority of existing SBICs are limited partnerships. SBA
believes that having a degree of uniformity in organizational structure
will facilitate a more timely and efficient licensing process for
Impact SBICs.
Second, the ``Impact SBIC'' designation would apply only to SBICs
licensed under this rule as well as those licensees designated as
Impact SBICs after the launch of the Initiative in 2011 and before the
effective date of this rule.
Third, an Impact SBIC must invest at least 50 percent of its
financing dollars in small business concerns that meet the criteria set
forth in the definition of Impact Investment in this rule (referred to
hereafter as the ``50 percent requirement''). SBA believes the 50
percent threshold indicates a significant focus, while still giving
Impact SBICs flexibility in developing their portfolios. Per the
proposed rule, follow-on investments in a portfolio company that
qualified as an ``Impact Investment'' at the time of the SBIC's initial
financing
[[Page 5668]]
would count towards the 50 percent requirement.
An Impact SBIC may satisfy the 50 percent requirement exclusively
through SBA-Identified Impact Investments or Fund-Identified Impact
Investments, but may also satisfy the 50 percent requirement through a
combination of these investments. Per proposed Sec. 107.331, SBA must
approve all Fund-Identified Impact Investment definitions and
strategies during the licensing process, regardless of whether such
investments will be used to meet all or only a portion of the 50
percent requirement.
Sec. 107.301--Impact SBIC licensing fee discount. This section
proposes a 60% reduction in the licensing fees Impact SBIC applicants
must pay under Sec. 107.300. The discount is intended to incentivize
the formation of Impact SBICs. Despite the fee reduction, SBA will
devote neither less time nor fewer resources to the assessment of
Impact SBIC applications than it devotes to the assessment of standard
SBIC applications.
However, Sec. 107.301 would provide that in the event an Impact
SBIC applicant were to ultimately be approved for an SBIC license as
anything other than an Impact SBIC, SBA would be entitled to recover
the value of any discounts the applicant received prior to licensing.
This provision was added to cover cases in which an applicant decides
mid-process, with SBA permission, to seek a standard SBIC license
instead of an Impact SBIC license. These types of changes sometimes
occur during the fundraising process as fund managers adjust to the
expectations of private capital providers. Although licensees
designated as Impact SBICs under the Initiative would be eligible for
fee discounts as of the effective date of this rule, SBA will not
return any fees these licensees paid prior to that date.
Finally, any Impact SBIC, whether licensed under the Initiative or
under this rule, may submit a written request to SBA seeking to convert
to a standard SBIC license. SBA would generally expect to grant such a
request, provided that SBA recovers the value of any discounts the
licensee received.
Sec. 107.310--When and how to apply for licensing as an Early
Stage SBIC. America's impact investment industry includes fund managers
focused on making equity investments in early stage companies. In order
to accommodate these fund managers, proposed Sec. 107.310 permits
applicants to apply simultaneously for an Impact SBIC and Early Stage
SBIC license. Further, such dual applicants will be permitted to submit
their application at any time and will not be subject to the submission
deadlines specified in Early Stage Notices SBA may publish in the
Federal Register. However, those applicants licensed as both Early
Stage and Impact SBICs will be subject to every regulation pertaining
to either type of licensee.
Sec. 107.330--Evaluation and selection of Impact SBIC license
applicants making SBA-Identified Impact Investments. Impact SBIC
license applicants proposing to meet their impact investment
requirements exclusively through SBA-Identified Impact Investments will
be evaluated and selected based on the standards outlined in Sec.
107.305, which are used to assess all SBIC applicants. In addition, SBA
will evaluate the managers' skills and experience in building and
managing a portfolio of impact investments. However, an applicant's
potential to generate social, environmental or economic impact will be
considered relevant only to its eligibility to participate in the SBIC
program as an Impact SBIC and will not serve as a substitute for any of
the factors cited in Sec. 107.305.
Sec. 107.331--Evaluation and selection of Impact SBIC license
applicants making Fund-Identified Impact Investments.
Under proposed Sec. 107.331, Impact SBIC license applicants
seeking approval to make Fund-Identified Impact Investments will be
subject first and foremost to the evaluation process and qualification
standards outlined in Sec. 107.305, which are used to assess all SBIC
applicants. An applicant's potential to generate social, environmental
or economic impact will be considered relevant only to its eligibility
to participate in the SBIC program as an Impact SBIC and will not serve
as a substitute for any of the factors cited in Sec. 107.305.
Using SBA Form 2181 (Applicant Narrative), applicants will be
expected to provide definition(s) of the Fund-Identified Impact
Investments they intend to make for the purposes of complying with the
requirement that 50 percent of the total dollar amount of their
financings be deployed in Impact Investments. Applicants will also be
required to describe, using qualitative and quantitative analysis, the
expected social, environmental or economic impact of their proposed
Fund-Identified Impact Investments.
SBA will review any Fund-Identified Impact Investment
definition(s), along with an applicant's overall investment strategy,
in order to determine whether the proposed definitions and strategy are
consistent with SBA's mission, as well as the letter and spirit of the
SBIC program's regulations. For instance, a Fund-Identified Impact
Investment definition that targets financial intermediaries would not
be approved if SBA determines it risks running afoul of the regulatory
prohibition on financing ``relenders'' or ``reinvestors.''
SBA will next determine whether the applicant's proposed Fund-
Identified Impact Investments are likely to yield a positive impact
when all the potential social, environmental and economic effects of
the investments are considered. SBA's evaluation may consider factors
such as whether the strategy will include investments in Portfolio
Concerns that increase services to low income communities, engage in
environmentally sustainable business practices or manufacture
environmentally sustainable products, or that operate in industries of
national priority other than in the sectors identified by SBA as an
SBA-Identified Impact Investment. The Agency acknowledges that reaching
a definitive and objective conclusion regarding a strategy's overall
impact may be challenging. Impact is often described in qualitative,
rather than quantitative terms. In anticipation of that challenge, the
proposed rule has been drafted to mitigate the risk that SBA would be
put in the position of having to accept or reject a proposed definition
based solely on a value judgment.
Applicants will be expected to make reasonable arguments, supported
by convincing evidence, that their proposed definitions can meet the
impact requirements of this rule. In this regard, the process SBA will
use to evaluate proposed Fund-Identified Impact Investment definitions
differs little from the process used to assess fund manager
qualifications. SBA will use its standard due diligence tools,
including principal interviews and reference calls, to test the
strength of an applicant's proposal and the validity of the evidence
presented therein. Just as a standard SBIC applicant might be rejected
for making unsubstantiated track record claims, so too could a Fund-
Identified Impact Investment definition be turned down if diligence
suggests it lacks credibility.
SBA takes a nuanced approach to its licensing decisions and does
not rely solely on easy-to-measure financial metrics. An applicant's
past financial performance is always carefully weighed against less
tangible factors such as the level of cohesion among the proposed
management team members; the alignment of incentives between the fund
manager and private investors; and
[[Page 5669]]
the quality of the proposed investment strategy, among other variables.
SBA expects to receive few, if any, Fund-Identified Impact
Investment definition proposals that are intended solely to obtain the
fee reduction benefits of an Impact SBIC license. The fee reductions in
the proposed rule are not material compared to the amount of capital
raised by an SBIC applicant, and Impact SBIC licensees are subject to
enhanced regulatory reporting requirements. Moreover, fund managers
that have expressed interest in SBA's impact investing efforts have,
to-date, all proposed strategies with clear benefits and no obvious
risk of yielding negative effects. The following are examples of the
types of impact investments being made in the market today and which
SBA anticipates Impact SBICs applying under this section may target:
Healthcare companies that offer affordable, high-quality
services to low-income consumers
Education companies that provide evidence-based, supplemental
learning services designed to enhance student achievement
Energy efficiency and sustainability consulting firms
Agricultural businesses that employ humane and environmentally
sustainable farming practices
Businesses that collect and reprocess industrial waste for
alternative use
Alternative credit scoring firms that enhance access to
financial services for low-income consumers
In addition to approving an applicant's proposed definition of a
Fund-Identified Impact Investment, SBA must be satisfied with the
applicant's impact measurement and assessment plan, which an applicant
must submit in accordance with proposed Sec. 107.331(b). Under this
section, the applicant must outline its plan to comply with proposed
Sec. 107.665, which requires Impact SBICs making Fund-Identified
Impact Investments to obtain an assessment of their impact (1) from an
independent, third-party assessment provider, (2) using an SBA-approved
impact measurement standard, a list of which SBA will publish on its
Web site from time to time, and (3) using an assessment process that is
both transparent and comprehensive.
Impact measurement is a defining characteristic of impact
investors. Without it, impact fund managers and their capital providers
face a much bigger challenge in determining whether their goal of
generating positive social impact has been met. Unfortunately,
determining whether a fund has reached its impact target is far more
complicated than evaluating its financial performance. The process
requires establishing a standard by which the targeted outcomes will be
measured, then crafting an evaluation framework capable of weighing the
resulting measurements to yield an overall assessment of impact.
With regard to measurement, the proposed rule would require Impact
SBICs licensed under this section to measure their impact using one of
several pre-approved measurement standards. At the outset, SBA intends
to approve the use of the three sets of standards listed below,
although SBA may approve additional standards as they become more
widely adopted by the impact investing industry:
--The Impact Reporting and Investment Standards (``IRIS''), an impact
evaluation framework created by GIIN;
--The G4 Sustainability Reporting Standards, produced by the Global
Reporting Initiative (``GRI''); and
--The standards produced and maintained by the Sustainability
Accounting Standards Board (``SASB'').
The purpose of these standards is to establish a common language
companies and investors can use to report the positive and negative
impacts that result from their activities. These standards are part of
a broader industry effort to bring to impact measurement what the
Generally Accepted Accounting Standards (``GAAP'') provide for
financial reporting. When comparing the GAAP-compliant financial
statements of two different companies, an investor can be confident the
same set of rules was used to report items such as revenue, inventory
and operating cash flow in both statements. GAAP does not provide
guidance on how to interpret the data, but it does ensure consistency
in reporting.
Impact measurement standards were developed to offer the same
proposition. Consider the simple example of two Impact SBICs, both of
which are pursuing similar strategies to create high-wage jobs in a
particular region. In the absence of a measurement standard, the tasks
of defining a ``job'' and calculating a ``wage'' are left to the funds
themselves, which leaves room for methodological discrepancies. One
fund may include the value of benefits in its calculation of wages,
while the other restricts its definition to direct cash payments. An
investor trying to determine which fund has been more effective in
reaching its impact goal would have difficulty in this scenario.
Measurement standards help reduce these definitional challenges. Were
the two funds to use IRIS metrics, for instance, they could both rely
on the IRIS definition of a ``full-time'' or ``permanent'' employee and
use the method IRIS has established for calculating the wages of those
employees.
The impact investing industry has yet to coalesce around a single
set of measurement standards and may never do so. However, the three
standards SBA intends to approve were selected, in part, because of
their prominence in the industry and the flexibility they provide for
different types of impact strategies. Of the three, IRIS is likely the
best-known and most widely used set of standards. GRI has a focus on
sustainability, which may provide environmentally focused Impact SBICs
additional flexibility. Finally, SASB's standards are designed
primarily for public corporations and may facilitate reporting for
Impact SBICs with portfolio companies that are already public or intend
to go public.
With clear options available for the measurement of impact, Impact
SBICs can turn to the second component of SBA's proposed evaluation
system, which deals with the assessment of impact. As noted above,
impact measurement standards only provide guidance on how to report
impact data. They are silent on how to interpret that data. Returning
to the example above, the two fund managers may report IRIS-compliant
employee and wage data to their investors, but an assessment framework
is needed to determine what constitutes a ``strong'' level of
employment growth, what threshold determines a wage is ``high'', or how
to weigh the growth in wages against the growth in employment when
evaluating the funds' overall impact.
As with financial performance, each individual investor is
empowered to reach his or her own conclusions about what constitutes
``success'' with regard to impact. While numbers, such as an internal
rate of return, cannot be easily manipulated by a fund manager,
investors could receive biased reports on impact returns if a fund
manager were to selectively choose metrics and the weighting associated
with those metrics. The use of independent and transparent assessment
systems not only helps reduce the risk of selective reporting, but it
also promotes the use of best practices across the industry.
For these reasons, SBA considers the assessment component of its
proposed impact evaluation system critical to the credibility of the
program. Impact SBIC
[[Page 5670]]
applicants seeking a license under this section of the proposed rule
must identify the assessment providers they expect to use to fulfill
their reporting requirements and describe the systems those providers
employ. Further, the applicant must provide evidence that each
assessment provider is independent, that the criteria and weightings
the providers use are publicly available and that each provider is
capable of conducting a comprehensive assessment of the Impact SBIC's
impact. A comprehensive assessment is one capable of evaluating the
social, environmental and economic impacts of the applicant's proposed
strategy.
One assessment system SBA has already approved for use under its
current Impact Investment Fund policy is the Global Impact Investment
Ratings System (``GIIRS''), a product of the non-profit organization B
Lab, which uses a standard set of IRIS impact metrics. GIIRS was
created to bring to the impact investment industry the kind of
consistent and comparable rating reports traditional finance has had
for decades in the form of mutual fund ratings or credit ratings. With
each investment fund they rate, B Lab staff collects a standard set of
IRIS impact metrics from each company in the portfolio. That data is
then run through the GIIRS assessment criteria, each of which is
assigned a specific weight. The end result is a ratings report with an
overall impact score and scores for each individual sub-component of
the overall assessment. Since each rating uses the same set of core
metrics, assessment criteria and weightings, one investment fund's
score can be compared to that of another.
With each new Impact SBIC licensed under this section, SBA will
build a portfolio of investment strategies and impact reports that it
hopes will help guide future applicants to the program. Both to
facilitate that learning process and to ensure program transparency,
Section 107.331(d) allows the Agency to publish information about the
investment strategies and assessment systems the Impact SBICs licensed
under this section have employed.
However, the provisions of paragraph (d) will not release SBA from
its responsibility to protect the confidential business information of
its licensees. SBA intends only to publish general descriptions of the
investment strategies it has approved and will not reveal any details
that might compromise an applicant or licensee's confidential business
information. Similarly, the Agency will make public the names of
assessment providers it has approved and descriptions of the assessment
systems those providers use, but will not reveal the results of any
individual impact assessment.
Sec. 107.502--Representations to the public. SBA is proposing to
add new paragraphs (b) and (c) to this section, which would require
Impact SBIC license applicants and Impact SBICs to identify themselves
as impact investment funds when marketing their funds to prospective
investors. This requirement is meant to ensure that investors are made
aware that the Impact SBIC applicant intends to participate, or that a
licensed Impact SBIC is participating, in the SBIC program as an Impact
SBIC. Requiring Impact SBICs to identify themselves as such will also
help deter applicants whose sole interest in obtaining an Impact SBIC
license is to benefit from the associated fee discounts.
Sec. 107.610--Required certifications for Loans and Investments.
Proposed new paragraph (g) would provide for new certifications by
Impact SBICs and the small businesses in which they make Impact
Investments, certifying the basis for which each investment qualifies
as an Impact Investment. As with most of the existing certifications in
this section, the Impact certifications would be retained in the SBIC's
files and be available for SBA's review.
The paragraph would require different levels of certification
depending on the type of Impact Investment. SBA-Identified Impact
Investments will be based on certifications from both the Impact SBIC
and its portfolio concerns; Fund-Identified Impact Investments will
only require the certification of the Impact SBIC. Since SBA-Identified
Impact Investments will be based on definitions in federal regulation
and will generally depend on specific statistics collected at the
company level, it is reasonable to expect the leaders of those
businesses to certify the accuracy of their information. By contrast,
Fund-Identified Impact Investments may be based on sector data or other
information outside the control of the small business being financed.
Therefore, for Impact SBICs making Fund-Identified Impact Investments,
the regulation places the full certification burden on the Impact SBIC.
As noted above, per the proposed rule, follow-on financings in
Impact Investments would count towards the 50 percent requirement, and
therefore, SBA will not require Impact SBICs to re-certify the
investment as part of a follow-on financing. SBA believes that
requiring Impact SBICs to re-certify their follow-on financings as
Impact Investments might deter them from making long-term capital
commitments out of concern that future financings might not count
towards the ``50 percent requirement.'' Nonetheless, SBA is soliciting
comments from the public on whether such follow-on investments should
count towards the 50 percent requirement only if the Impact SBIC re-
certifies the investment as an Impact Investment at the time a follow-
on investment is made.
Sec. 107.665--Measurement and reporting requirements for Impact
SBICs making Fund-Identified Impact Investments. This proposed section
would require Impact SBICs making Fund-Identified Impact Investments to
obtain independent assessments of the social, environmental and
economic impact of their investment strategy. Unless the licensee
obtains SBA approval to do otherwise, these assessments must be
prepared in manner consistent with the plan approved during the
licensing process.
Impact SBICs subject to this section will face penalties if they
fail to obtain impact assessments, but SBA will neither penalize nor
reward an Impact SBIC based solely on the results of those impact
assessments. One purpose of permitting Impact SBICs to make Fund-
Identified Impact Investments is to encourage innovative approaches to
social, environment and economic challenges. Penalizing licensees that
fail to meet their impact goals, despite their best efforts, would be
counterproductive. Instead, the Agency trusts that successful fund
managers will earn their rewards in the market place, using the
strength of their financial and social returns to attract private
capital. SBA will also look favorably on subsequent Impact SBIC
applicants with a record of strong social and financial performance. By
contrast, Impact SBICs with poor impact assessments are more likely to
face difficulty raising private capital and obtaining a subsequent
Impact SBIC license.
Sec. 107.693--Impact SBIC examination fee discount. This new
proposed section would allow a 10% reduction in the examination ``base
fee'' that would otherwise be applicable to Impact SBICs under existing
Sec. 107.692. SBA will devote neither less time nor fewer resources to
the examination of Impact SBIC licensees as a result of this discount.
Under the proposed rule, licensees designated as Impact SBICs prior to
the effective date of this rule will be eligible for fee discounts on a
going-forward basis, but SBA will not return fees already paid.
Sec. 107.1120--General eligibility requirements for Leverage.
Proposed
[[Page 5671]]
new paragraph (l) would provide for a new certification by Impact SBICs
seeking an SBA leverage commitment or draw. The Impact SBIC would be
required to certify that it will invest at least 50 percent of the
aggregate dollar amount of its financings in Impact Investments, in
compliance with the Impact Investment and Impact SBIC definitions in
Sec. 107.50. This prospective certification is consistent with the
other certifications required by Sec. 107.1120. SBA intends to monitor
Impact SBICs' performance in making Impact Investments to ensure that
they are making investments that meet this requirement.
Sec. 107.1810--Events of default and SBA's remedies for Licensee's
noncompliance with terms of Debentures. SBA is proposing two changes in
this section that would apply only to Impact SBICs. First, under
proposed Sec. 107.1810(f)(13), it would be an event of default if an
Impact SBIC fails to meet the requirement to invest at least 50 percent
of its financing dollars in Impact Investments, as defined in proposed
Sec. 107.50. If the Impact SBIC fails to cure to SBA's satisfaction,
SBA could invoke the remedies in existing Sec. 107.1810(g), which
includes the right to declare outstanding debenture leverage
immediately due and payable. SBA would generally not expect to invoke
such remedies if an Impact SBIC's failure to meet the 50 percent
requirement appears to be temporary.
Second, under proposed Sec. 107.1810(f)(14), it would be an event
of default if an Impact SBIC licensed under an SBA-approved plan to
make Fund-Identified Impact Investments fails to obtain an acceptable
independent, third-party assessment to measure the social,
environmental or economic impact of the fund's Impact Investment
strategy within the time frames required by proposed Sec. 107.665. If
the Impact SBIC fails to cure to SBA's satisfaction, SBA could invoke
the remedies in existing Sec. 107.1810(g), which include the right to
declare outstanding debenture leverage immediately due and payable.
Sec. 107.1940--Impact SBIC licensee noncompliance with
regulations. SBA proposes creating in this new section a series of
actions the Agency may take with respect to Impact SBICs that fail to
meet the 50 percent requirement and Fund-Identified Impact SBICs that
fail to meet assessment requirements. Regardless of whether an Impact
SBIC has outstanding leverage, if an event of default would have been
triggered under proposed Sec. 107.1810(f)(13) or (14), SBA will have
the authority, upon written notice, to take any or all of the following
actions: (1) Convert the licensee's Impact SBIC license to a standard
SBIC license (including, in SBA's discretion, requiring the licensee to
notify its private investors of the conversion); and (2) require the
licensee to return to SBA up to the full dollar amount of any licensing
or examinations fee discounts it has received prior to the date of the
written notice. However, SBA will be authorized to take these actions
only after giving the licensee at least 15 days to resolve its non-
compliance and only after the licensee fails to resolve its non-
compliance within the time period given.
SBA included these additional remedies to address two areas of
concern. First, the events of default proposed under Sec. 107.1810(f)
would only apply to Impact SBICs with outstanding leverage. As a
result, Impact SBICs that are licensed as non-leveraged funds or those
that pre-pay their leverage in full would not be subject to any
remedies if they were to fall out of compliance with the 50 percent
requirement or, as applicable, the assessment requirement. Second, the
fee discounts proposed under this rule generally reward Impact SBIC
applicants and licensees for future, rather than past behavior. For
instance, an Impact SBIC will be eligible for a 60 percent discount on
its licensing fee based on its proposal to deploy at least 50 percent
of its capital in Impact Investments. Without the provisions proposed
under this section, SBA would have limited authority to recover those
benefits or otherwise take action against the fund if it fails to
follow through on that commitment.
Compliance With Executive Orders 12866, 12988, 13132, 13563, the
Paperwork Reduction Act (44 U.S.C. Ch. 35) and the Regulatory
Flexibility Act (5 U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget has determined that this rule
is a ``significant'' regulatory action under Executive Order 12866. The
Regulatory Impact Analysis is set forth below.
1. Need for Regulation
The Small Business Investment Act of 1958, as amended, established
the SBIC program to ``stimulate and supplement the flow of private
equity capital and long-term loan funds'' to U.S.-based small
businesses. 15 U.S.C. 661. As part of that effort, the 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).
Over the past several years, SBA's focus on achieving these
economic development goals has yielded results, but progress has come
at a slower pace than anticipated. Despite the recent growth in the
number of SBIC-financed businesses located in LMI areas, which rose
from 216 in fiscal year (``FY'') 2012 to 229 in FY 2014, the program
has yet to return to the high level achieved in FY 2011, during which
SBICs financed 351 businesses located in LMI areas. The LMI Debenture,
a leverage instrument meant to help facilitate these types of
investments, is rarely used. Similarly, there has yet to be a single
draw of SBA's Energy Savings Debenture, which has been available since
2012 to help finance small businesses involved in reducing the use of
non-renewable energy sources.
The proposed rule was crafted to enhance the SBIC program's
effectiveness in channeling much-needed capital to these and other
underserved segments of the U.S. economy. From an overall economic
development perspective, SBA believes that capital investments made
into small businesses located in LMI and other underserved areas have
the potential to have the most meaningful and sustained impact due to
the capital formation gaps in those areas.
2. Alternative Approaches to Regulation
SBA considered several alternatives to the proposed regulation,
each of which will be discussed below. First, SBA considered pursuing
its impact investment objectives solely through existing policy
initiatives. Based on extensive feedback received from SBIC fund
managers, lower-middle market industry representatives, impact
investment fund managers, impact policy thought leaders and others, SBA
rejected this alternative. SBA's existing impact investing policies
impose additional burdens without providing sufficient incentives to
attract Impact SBIC fund managers to the program. Further, given that
SBIC licensees have operational lives of ten years or more, the market
will be reluctant to embrace SBA's impact investing efforts unless the
Agency demonstrates a lasting commitment to the space by promulgating
regulations.
SBA faced a challenge in developing a definition of an ``Impact
Investment'' that dealt appropriately with the subjectivity inherent in
any non-financial measure of performance. Initially, SBA considered
restricting the
[[Page 5672]]
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. The original Impact Investment Initiative policy
launched in 2011 was structured in this manner and was slow to attract
applicants. Given the nascence of the impact investing industry, which
supports a diverse range of investment strategies, SBA determined a
more accommodative approach would be more effective.
The proposed 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 sub-set of
investments that meet existing regulatory criteria. The Agency also
recognizes the complexities Fund-Identified Impact Investments may
introduce to the SBIC licensing and monitoring process.
SBA had to carefully consider the bases on which it would approve
an Impact SBIC's proposed Fund-Identified Impact Investment definition.
One option the Agency considered was to outline, as part of this
regulation, a series of sector-specific eligibility requirements that
Fund-Identified Impact Investments would have to satisfy. Working with
colleagues at the U.S. Department of Education, SBA staff made an
initial attempt at preparing guidelines for investments in the
education sector but quickly discovered the impracticality of the
approach. Even within a single sector, there exists such a tremendous
diversity of economic activity that establishing requirements specific-
enough to be useful would require an inordinate commitment of time and
resources.
An alternative approach would be to remove SBA from the approval
process altogether and give Impact SBIC applicants complete latitude to
pursue Fund-Identified Impact Investments of their choice. Under this
approach, SBA would evaluate Impact SBICs using its existing licensing
process without any additional consideration of the impact-related
aspects of the applicant's proposal. A key advantage of this approach
is that it would allow SBA to fully cede the definitional challenge of
impact to fund managers and their private investors. It would also
ensure the program remains open to innovative impact strategies.
SBA will always encourage applicants to propose innovative
investment strategies, but the Agency must retain the ability to review
and approve proposed Fund-Identified Impact Investment definitions. Not
only must the Agency ensure that SBICs are making investments that are
consistent with the letter and spirit of program regulations, but it
must also consider the reputation of the SBIC program within the
private investor community. The statute underlying the SBIC program,
known as the Small Business Investment Act, makes clear that the
program should be implemented in a manner that ``insure[s] the maximum
participation of private financing sources.'' 15 U.S.C. 661. Were SBA
to ignore an applicant's proposed Fund-Identified Impact Investment
definitions, private impact investors might take the Agency's approach
as a signal of indifference to market development.
In fact, the approach SBA has taken reflects the Agency's interest
in not only enhancing the impact of the SBIC program, but also
promoting industry best practices. SBA is as concerned with the process
used to make Fund-Identified Impact Investments as it is with the
outcomes of those investments. Each Impact SBIC applicant will have the
burden of demonstrating, with qualitative or quantitative analysis,
that its investment strategy will, in aggregate, generate a measurable
positive impact. SBA staff will supplement their evaluation of the
applicant's analysis and its other application materials with the
results obtained using the standard tools of due diligence, such as
interviews with the management team, reference calls, consultations
with industry experts, public record searches and other research.
As long as a fund manager is qualified and its definition does not
run afoul of the Agency's mission, statutes, regulations or policies,
SBA intends to give applicants substantial leeway in defining their
Fund-Identified Impact Investments. The measurement and assessment
requirements of the proposed rule ensure that even those Impact SBICs
that fail to meet their targeted social returns will contribute to
market development. Measuring results, good and bad, contributes to the
industry's understanding of the relationship between financial and
social returns and helps investors identify the most talented managers.
SBA confronted two key questions as it considered how to create a
robust measurement and assessment process. First, what means should SBA
use to assess the impact of Fund-Identified Impact Investments? Second,
what consequences, if any, should Impact SBICs face based on the result
of their impact assessments?
With regard to the first question, SBA could have assumed the full
burden of evaluating each Fund-Identified Impact Investment to
determine its impact. This alternative was rejected because SBA staff
lack sufficient time, resources and expertise to properly evaluate the
full range of potential Fund-Identified Impact Investments. A second
alternative was to leverage the expertise of Impact SBIC fund managers
themselves and allow them to prepare their own assessments. While it
may be appropriate to have Impact SBIC applicants argue the merits of
their Fund-Identified Impact Investment definitions during the
licensing process, SBA considered it imprudent to allow Impact SBICs to
evaluate their own success.
The proposed rule instead requires Impact SBICs to obtain
independent, third-party impact evaluations based on industry-adopted
standards. The use of independent third parties helps reduce the bias
inherent in a fund's own impact evaluation and relieves SBA of the
potentially significant burden of assessing a wide range of impact
investment strategies.
With regard to the second question, SBA has chosen not to penalize
licensees based on the results of their impact assessments. As noted
above, assessments provide private capital with greater transparency
regarding an applicant's track record of generating impact. Given that
most fund managers seek to follow their first investment vehicle with a
second, the assessment process itself creates sufficient risk that
investors will decline to invest in a second fund. Accordingly, SBA
does not believe that an Impact SBIC should incur regulatory penalties
based on the results of an impact assessment.
3. Potential Benefits and Costs
The proposed rule offers two primary benefits to SBA and its
stakeholders. First, it offers the potential to enhance the overall
social, environmental and economic impact of the SBIC program. Existing
SBICs already have tremendous impact on America's small business
economy. In FY 2014, SBICs together invested nearly $5.5 billion in
more than 1,000 small business concerns, helping them to grow and
modernize their operations. The introduction of Impact SBICs will
increase the portion of those annual financings that are
[[Page 5673]]
intentionally directed towards economically-distressed communities and
companies taking innovative approaches to social problems.
SBA also hopes the proposed rule will support the development of
the impact investing industry more broadly. The rule has been drafted
to incorporate impact investing best practices, especially with regard
to the measurement and assessment of impact. As more and more SBA- and
Fund-Identified Impact Investments are made, the SBIC program will have
more data to contribute to the industry on the balance between
financial and social performance.
In terms of costs, Impact SBICs are anticipated to have an
additional 3% higher loss rate than regular SBICs, due to the risks
that may be associated with Impact Investments contemplated under the
proposed rule. Although SBA is targeting $200 million in commitments
per year in terms of licensing, the number of Impact SBICs that SBA may
license or the amount of debenture leverage commitments that may be
approved for Impact SBICs in any year is subject to the limitations set
forth in annual appropriations acts or in other statutes or
regulations. In addition, both newly licensed Impact SBICs and
previously licensed Impact SBICs have the opportunity to receive new
leverage commitments in any year. The SBIC program subsidy model for FY
2017 has been formulated to reflect the provision proposed in this rule
that Impact SBICs are allowed to be licensed as Early Stage SBICs.
Early Stage SBICs are expected to have approximately a 10% higher loss
rate than regular SBICs. The resulting fee of 34.7 basis points for FY
2017 remains well within historical ranges for the SBIC Debenture
annual fee.
Executive Order 12988
This action meets applicable standards set forth in section 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or presumptive effect.
Executive Order 13132
The proposed rule will not have substantial direct effects on the
States, or the distribution of power and responsibilities among the
various levels of government. Therefore, for the purposes of Executive
Order 13132, Federalism, SBA determines that this proposed rule has no
federalism implications warranting the preparation of a federalism
assessment.
Executive Order 13563
In drafting this proposed rule, SBA considered the input of impact
investment industry experts on ways to facilitate the growth of
private-sector led impact investing as a strategy to create jobs and
strengthen communities. With the assistance of the White House Office
of Social Innovation and Civic Participation, which included a White
House hosted event in June 2014 (see, https://www.whitehouse.gov/blog/2014/06/25/executive-actions-accelerate-impact-investing-create-jobs-and-strengthen-communities), SBA held roundtable discussions with
representatives from endowments, foundations, institutional asset
managers, high net worth individuals, investment funds, standard SBICs,
existing Impact SBICs, not-for-profit entities, banks, and other
federal government agencies. The roundtables covered topics such as:
(1) Increasing the flow of private capital toward sustainable business
models; (2) supporting private sector investment in high-impact sectors
and underserved communities; (3) making innovative impact enterprises
investment-ready; (4) removing regulatory barriers that keep capital on
the sidelines; and (5) growing the impact economy through policy
interventions.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
SBA has determined that this rulemaking proposes additional
reporting requirements as defined by the Paperwork Reduction Act.
Specifically, as discussed above, all Impact SBICs utilizing a Fund-
Identified Impact strategy would be required to submit to SBA
independent, third-party evaluations of the impacts of such
investments. This proposed rule would also codify two other reporting
requirements that are already imposed on Impact SBICs based on the
terms and conditions of the Impact Investment Fund established by SBA
on April 11, 2011, as amended on September 25, 2014, available at
https://www.sba.gov/content/impact-investment-fund-overview. First, at
the time of application, Impact SBIC applicants are currently required
to outline in their proposed investment strategy whether a particular
strategy is an ``Impact Investment.'' This requirement is not being
changed by this rule; it is merely being codified in the regulations.
Furthermore, this requirement is already approved as part of SBA Form
2181, Appendix 2 (OMB Control Number 3245-0062). Second, as part of
reporting on their portfolio financings, Impact SBICs are also
currently required to identify whether a completed financing is an
Impact Investment. Therefore, this requirement is also not being
imposed for the first time by this rule but rather merely being
codified in the regulations. To make it easier for SBICs to meet this
requirement, SBA recently proposed adding two questions to the
Portfolio Financing Report (an existing information collection approved
under OMB Control Number 3245-0078), to enable Impact SBICS to
specifically identify whether a particular investment qualifies as an
SBA-Identified or Fund Identified investment. This particular change
will be made in conjunction with other revisions to Form 1031 as a
result of other amendments to the SBIC program in the proposed rule,
Small Business Investment Companies; Passive Business Expansion &
Technical Clarifications. (RIN: 3245-AG67) (80 FR 60077, October 5,
2015). The description, number of respondents, and the purpose of the
information collection that would be imposed by this rule is discussed
below with an estimate of the annual reporting burden. Included in the
estimate is the time for reviewing instructions, searching existing
data sources, gathering and maintaining the data needed, and completing
and reviewing the requirements for the collection of information.
A. Impact Evaluations
Title: Independent, Third-Party Impact Evaluations.
Summary: The proposed rule requires Impact SBICs licensed to make
Fund-Identified Impact Investments to submit two impact evaluations to
SBA. Each assessment must be completed by an independent third-party
based on industry standards. One assessment is due within two years of
licensing, while the second must be submitted between the 5th and 7th
year after licensing. These independent evaluations are required only
of Impact SBICs that make Fund-Identified Impact Investments. Impact
SBICs that restrict themselves to SBA-Identified Impact Investments
bear no additional reporting burden beyond what is required of all
SBICs.
Description and Number of Respondents: Only those Impact SBICs
licensed to make Fund-Identified Impact Investments will be required to
complete this requirement.
Annual Estimated Number of Responses: SBA estimates that it may
receive approximately 2 responses each year based on an annual average
of 6 Impact SBICs requiring assessments during years 1-2 and again in
years 5-7 of their lifecycle.
[[Page 5674]]
Estimated Annual Hour and Cost Burden: Impact SBICs licensed to
make Fund-Identified Impact Investments will be required to obtain an
impact evaluation and may incur costs. SBA estimates that it may have
approximately 6 Impact SBICs making Fund-Identified Impact Investments
in any given year. One independent provider charges between $3,500 and
$7,500 for a full portfolio rating, depending on the size of the fund
and the number of portfolio companies. Two ratings completed at the
maximum price of $7,500 would require an Impact SBIC to spend a total
of $15,000 over the course of its 10 year fund life. On an annualized
basis, the cost would be $1,500 per year. The total annual cost burden
for the estimated 6 Impact SBICs making Fund-Identified Impact
Investments is $9,000.
The hourly burden for these respondents would be negligible, as the
assessment work would be completed by an independent third-party. The
total time required to contact the provider and initiate an assessment
is estimated at a total of 24 hours per assessment. Impact SBICs
subject to the third-party assessment requirement must submit a total
of two assessments over the course of their 10 year fund life. On an
annualized basis, these applicants each will spend 4.8 hours per year.
With an estimated 6 Impact SBICs making Fund-Identified Impact
Investments in the portfolio at any given time, the total annual hourly
burden is estimated at 28.8 hours.
Compliance With the Regulatory Flexibility Act, 5 U.S.C. 601-612
When an agency promulgates a rule, the Regulatory Flexibility Act
requires the agency to prepare an initial regulatory flexibility
analysis (IRFA) which describes the potential economic impact of the
rule on small entities and alternatives that may minimize that impact.
Section 605 of the RFA allows an agency to certify a rule, in lieu of
preparing an IRFA, if the rulemaking is not expected to have a
significant economic impact on a substantial number of small entities.
This proposed rule would affect all SBICs issuing debentures, of
which there are currently 193, most of which are small entities.
Therefore, SBA has determined that this proposed rule would have an
impact on a substantial number of small entities. However, SBA has
determined that the impact on entities affected by the rule will not be
significant. SBA keeps the SBIC program at a zero subsidy cost to
taxpayers by charging up front and annual fees on its leverage. SBA
calculates the annual fee each year using historical data to assess the
appropriate fee to keep the program at zero subsidy cost. Because SBA
expects Impact SBICs to be riskier than standard SBICs, SBA adjusted
the SBIC debenture program budget formulation model which determines
the annual fee needed to keep the debenture program at a zero subsidy
cost.
The projected leverage allocation to Impact SBICs would increase
the annual fee charged to all SBICs seeking new debenture commitments
by approximately 6.1 basis points. The annual fee would remain in line
with historical levels. Since 2000, the annual fee has ranged from a
high of 100 basis points (1 percent) to a low of 29 basis points, with
a 15-year median of 83 basis points. The annual fee for FY 2015 is
approximately 74.2 basis points. Although the cost will vary in the
future based on economic factors and assumptions used to develop the
annual fee, SBA expects the fee to remain under 1 percent, comparable
to historical annual fees and below the statutory maximum of 1.38
percent. Accordingly, the Administrator of the SBA hereby certifies
that this rule will not have a significant impact on a substantial
number of small entities. SBA welcomes comment from members of the
public who believe there will be a significant impact either on SBICs,
or on companies that receive funding from SBICs.
List of Subjects in 13 CFR Part 107
Investment companies, Loan programs--business, Licensing fees,
Examination fees, Small businesses.
For the reasons stated in the preamble, SBA proposes to amend part
107 of title 13 of the Code of Federal Regulations as follows:
PART 107--SMALL BUSINESS INVESTMENT COMPANIES
0
1. The authority citation for part 107 is revised to read as follows:
Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d, 687g,
687m.
0
2. Amend Sec. 107.50 by adding in alphabetical order definitions of
``Fund-Identified Impact Investment,'' ``Impact Investment,'' ``Impact
SBIC'' and ``SBA-Identified Impact Investment'' to read as follows:
Sec. 107.50 Definition of terms.
* * * * *
Fund-Identified Impact Investment means a Financing by an Impact
SBIC that meets the definition of an Impact Investment proposed by the
SBIC and approved by SBA in writing at the time of licensing, as
described in Sec. 107.331.
* * * * *
Impact Investment means an SBA-Identified Impact Investment or
Fund-Identified Impact Investment.
Impact SBIC means any Section 301(c) Partnership Licensee that must
make at least 50 percent of all of its Loans and Investments (in
dollars) in Impact Investments and is designated by SBA as an ``Impact
SBIC.''
* * * * *
SBA-Identified Impact Investment means a Financing that meets SBA's
definition of an Impact Investment, which SBA will publish from time to
time on its Web site and which will include geographies and sectors of
national priority.
* * * * *
0
3. Add Sec. 107.301 to read as follows:
Sec. 107.301 Impact SBIC licensing fee discount.
(a) All applicants seeking to be licensed as an Impact SBIC will
receive a 60 percent discount, rounded to the nearest one-hundred
dollars, on any fees to which they are subject under Sec. 107.300.
(b) In the event an applicant seeking to be licensed as an Impact
SBIC is licensed as anything other than an Impact SBIC, SBA reserves
the right to recover, prior to licensing, the full dollar amount of any
licensing fee discounts the applicant has received.
0
4. In Sec. 107.310, designate the existing text as paragraph (a) and
add paragraph (b) to read as follows:
Sec. 107.310 When and how to apply for licensing as an Early Stage
SBIC.
* * * * *
(b) Impact SBIC applicants. An applicant may elect to apply
simultaneously for licensing as both an Early Stage SBIC and an Impact
SBIC. Such applicants may apply as described in Sec. 107.300 at any
time and are not subject to the submission deadlines set forth in
paragraph (a) of this section. Applicants seeking a dual license must
comply with the regulations in this part pertaining to Early Stage
SBICs and Impact SBICs, and to any requirements, other than submission
deadlines, specified in the most recently published Early Stage Notice
in the Federal Register.
0
5. Add Sec. Sec. 107.330 and 107.331 to read as follows:
Sec. 107.330 Evaluation of Impact SBIC license applicants.
SBA will evaluate each applicant seeking to be licensed as an
Impact SBIC based on the same factors applicable to
[[Page 5675]]
other license applicants, as set forth in Sec. 107.305, with
particular emphasis on the managers' skill and experience in
originating, evaluating, executing and monitoring Impact Investments
consistent with the applicant's investment strategy.
Sec. 107.331 Evaluation of Fund-Identified Impact Investments and
measurement plans.
If an applicant intends to qualify for an Impact SBIC license based
on investments in Fund-Identified Impact Investments, SBA will evaluate
the applicant's proposed definition(s) of a Fund-Identified Impact
Investment and its plan to comply with the measurement and reporting
requirements of Sec. 107.665, and will approve the same in writing at
the time of licensing based the applicant's satisfaction of the
following:
(a) Fund-Identified Impact Investments. Using the submitted
application materials, any interviews with the applicant's management
team, the results of public record searches and any other due diligence
conducted by SBA, SBA will assess the likelihood that the applicant's
proposed investment strategy and Fund-Identified Impact Investment
definition(s) will generate, in the aggregate, beneficial social,
environmental or economic impacts. SBA's evaluation may consider
factors such as whether the strategy will include investments in
Portfolio Concerns that increase services to low income communities,
engage in environmentally sustainable business practices or manufacture
environmentally sustainable products, or that operate in industries of
national priority other than in the sectors identified by SBA as an
SBA-Identified Impact Investment.
(b) Measurement and reporting plan. During licensing, each
applicant seeking an Impact SBIC license under Sec. 107.331 must
identify the assessment provider(s) and assessment system(s) it intends
to use in order to comply with the requirements of Sec. 107.665. Using
the submitted application materials, any interviews with the
applicant's management team, the results of public record searches and
any other due diligence conducted by SBA, SBA will assess the
applicant's proposed measurement and reporting plan based on the
following factors:
(1) The applicant's proposed assessment system(s) must employ at
least one approved measurement standard, from a list of approved
standards published by SBA on its Web site from time to time.
(2) The applicant's proposed assessment system must comply with the
following:
(i) The assessment system's criteria and weightings are publicly
available; and
(ii) The assessment system is capable of producing an assessment of
the social, environmental and/or economic effects of impact
investments.
(3) The applicant's proposed assessment provider(s) must each be an
independent, third-party. An assessment provider will not be considered
an independent third-party if any of the following conditions exist at
the time of licensing or assessment:
(i) The assessment provider is an Associate of the Impact SBIC or
any of its Portfolio Concerns; or
(ii) The assessment provider is materially financed by an
association that represents the interests of the specific industry in
which the Impact SBIC or its Portfolio Concerns are engaged.
(c) Publication. SBA may periodically publish on its Web site:
(i) General descriptions of impact investment strategies pursued by
Impact SBICs licensed to make Fund-Identified Impact Investments; and
(ii) Detailed descriptions of the assessment systems SBA has
approved for use by Impact SBICs licensed to make Fund-Identified
Impact Investments.
0
6. In Sec. 107.502, designate the existing text as paragraph (a) and
add paragraphs (b) and (c) to read as follows:
Sec. 107.502 Representations to the public.
* * * * *
(b) Impact SBIC applicants must declare their intention to apply
for an Impact SBIC license in any solicitation to investors.
(c) Impact SBIC licensees must indicate that they have obtained an
Impact SBIC license from SBA in any solicitation to investors.
0
7. Amend Sec. 107.610 by adding paragraphs (g) and (h) to read as
follows:
Sec. 107.610 Required certifications for Loans and Investments.
* * * * *
(g) For each SBA-Identified Impact Investment:
(i) A certification by the concern, dated as of the date of
application for SBIC financing, as to the basis for its qualification
as an Impact Investment; and
(ii) A certification by the Impact SBIC, made contemporaneously
with the certification of the concern, that the concern qualifies as an
Impact Investment as of the date of the concern's certification and the
basis for such qualification.
(h) For each Fund-Identified Impact Investment, a certification by
the Impact SBIC, as of the date of the financing, that the concern
qualifies as a Fund-Identified Impact Investment under the
definition(s) approved in writing by SBA and the basis for such
qualification.
0
8. Add Sec. 107.665 to read as follows:
Sec. 107.665 Measurement and reporting requirements for Impact SBICs
making Fund-Identified Impact Investments.
Impact SBICs that SBA approved in writing to make Fund-Identified
Impact Investments must obtain an assessment of their impact investment
strategy from an independent, third-party provider within two years
after licensing and again between five and seven years after licensing.
Without prior written SBA approval, the Impact SBIC may not use an
assessment system(s) or assessment provider(s) different from those the
Impact SBIC identified and SBA approved during the licensing process.
Each assessment must be submitted to SBA within 30 days of its
completion.
0
9. Add Sec. 107.693 to read as follows:
Sec. 107.693 Impact SBIC examination fee discount.
An Impact SBIC will receive a 10% discount on its examination base
fee, rounded to the nearest one-hundred dollars, subject to the
following:
(a) The discount will be calculated based on the examination base
as determined prior to any adjustments provided for under Sec.
107.692.
(b) Impact SBICs also licensed as Early Stage SBICs are entitled to
any additional discounts, but exempt from any premium, that Early Stage
SBICs would otherwise be required to pay under Sec. 107.692.
0
10. Amend Sec. 107.1120 by adding paragraph (l) to read as follows:
Sec. 107.1120 General eligibility requirements for Leverage.
* * * * *
(l) If you are an Impact SBIC, certify in writing that, in
accordance with Sec. 107.1810(f)(13), at least 50 percent of the
aggregate dollar amount of your Financings will qualify as Impact
Investments defined in Sec. 107.50.
0
11. Amend Sec. 107.1810 by adding paragraphs (f)(13) and (14) to read
as follows:
Sec. 107.1810 Events of default and SBA's remedies for Licensee's
noncompliance with terms of Debentures.
* * * * *
(f) * * *
(13) Failure by an Impact SBIC to meet investment requirements. You
are
[[Page 5676]]
an Impact SBIC and, beginning on the first fiscal quarter end when your
cumulative total Financings (in dollars) are at least equal to your
Regulatory Capital, you have not made at least 50 percent of such
Financings to Small Businesses that at the time of your initial
Financing were Impact Investments.
(14) Failure by an Impact SBIC to meet assessment requirements. You
are an Impact SBIC making Fund-Identified Impact Investments and you
fail to obtain an independent, third-party assessment within two years
of your licensing date and, again, between five and seven years from
your licensing date, pursuant to the requirements under Sec. 107.665.
* * * * *
0
12. Add Sec. 107.1940 to read as follows:
Sec. 107.1940 Impact SBIC licensee noncompliance with regulations.
(a) For any occurrence (as determined by SBA) of one or more of the
events in this paragraph (a), SBA may avail itself of one or more of
the remedies in paragraph (b) of this section.
(1) Failure by an Impact SBIC to meet investment requirements. You
are an Impact SBIC and, beginning on the first fiscal quarter end when
your cumulative total Financings (in dollars) are at least equal to
your Regulatory Capital, you have not made at least 50 percent of such
Financings to Small Businesses that at the time of your initial
Financing were Impact Investments.
(2) Failure by an Impact SBIC to meet assessment requirements. You
are an Impact SBIC making Fund-Identified Impact Investments and you
fail to obtain an independent, third-party assessment within two years
of your licensing date and, again, between five and seven years from
your licensing date, pursuant to the requirements under Sec. 107.665.
(b) SBA may exercise any or all of the following rights:
(1) Convert your Impact SBIC license to a standard SBIC license
(including, in SBA's discretion, requiring you to promptly notify your
investors of the conversion); and
(2) Require you to refund to SBA up to the full dollar amount of
any licensing or examination fee discounts you have received prior to
the date of your written notice.
(c) SBA may invoke the remedies in paragraph (b) of this section
only if:
(1) It has given you at least 15 days to cure the noncompliance;
(2) You fail to cure the noncompliance to SBA's satisfaction within
the allotted time.
Dated: October 7, 2015.
Maria Contreras-Sweet,
Administrator.
Editorial Note: This document was received for publication by
the Office of the Federal Register on January 29, 2016.
[FR Doc. 2016-01986 Filed 2-2-16; 8:45 am]
BILLING CODE 8025-01-P