NMVC

Application, Formation, & Operation

 

How do I apply for participation in the NMVC program?
Interested applicants should continue checking the NMVC program website for updates on the second application round,, the rules and regulations for the program, and the new application forms and related exhibits.  Currently, SBA plans to announce the second round in the Fall of 2002.  Until then, interested applicants can look at the application materials from the first round to get an idea of the questions and time commitments that will be asked of them.

 

Are there any fees associated with an application?
NMVCC and SSBIC applicants must pay a one-time grant issuance fee of $5,000, due in advance at the time of application submission.  SBA will refund the fee to applicants not selected.

 

What are the qualifications to apply for designation as a NMVCC?

In order to be eligible to apply for designation as an NMVCC, an applicant must:

  • Be a new for-profit entity formed after December 21, 2000.  It may be organized as a partnership, a limited liability company, or a corporation. It may be a newly formed subsidiary of an existing for-profit, non-profit, or governmental entity.
  • Have a management team with demonstrated experience in community development finance and/or relevant venture capital finance.
  • Have a primary mission of economic development of one or more LI areas.
  • Have specific LI areas identified in which it intends to direct its activities.
  • Have management and ownership diversity.
  • Commit to raising investment capital (minimum $5 million) from sources other than an agency of the Federal government.
  • Commit to raising grant matching resources equal to at least 30 percent of its capital from sources other than SBA. 

 

What are the qualifications for SSBICs to apply for NMVC operational assistance grants?

In order to be eligible to apply, an SSBIC must:

  • Intend to raise new capital after December 21, 2000. 
  • Intend to raise grant matching resources equal to at least 30 percent of its newly raised capital from any source other than SBA.
  • Have a viable plan for how it intends to use the requested grant funds to provide operational assistance to smaller enterprises located in LI areas.

 

Do the proposed LI areas have to be contiguous?

No.  However, there should be some common sense approach to the areas proposed (for example, defined by city or state boundaries, or regionally defined through common economic factors).  Applicants should be as specific as possible in their reasoning for directing their activities to the specific group of LI areas they propose.  Applicants should address the management team’s ability and the costs necessary to properly service investments in the proposed areas in the context of the overall economic viability of the fund.

 

How do I find the specific LI areas I want to target?

SBA has developed some special mapping software to help you determine if an address or area is an LI area.  The SBA LI locator allows anyone to type in an address, city, county or state and determine the LI area status and eligibility, and create maps that will be necessary for the application process. (See also Area Map)

 

Must low-income individuals fill jobs created by low-income investments made by NMVCCs and SSBICs?

No.  There are no requirements concerning the jobs that must be created by those investments.  However, one of the purposes of the NMVC program is to encourage NMVCCs and SSBICs to make investments that, among other things, will result in sustainable jobs for residents of low-income communities.  As part of its selection process, SBA will evaluate the potential economic and community development  impact of an applicant's proposed investment and operational assistance activities on LI areas.

 

Is there any requirement that the capital invested in an NMVCC come from investors located in the same geographic area in which the NMVCC is located or where the NMVCC intends to focus its activities?

No, there is no requirement concerning the geographic source of capital or of matching resources for operational assistance grant funds.

 

Can banking institutions invest capital in an NMVCC or SSBIC, and if so, would those investments be eligible under the requirements of the Community Reinvestment Act (CRA)?

The NMVC legislation authorizes national banks, member banks of the Federal Reserve System, insured nonmember banks, and Federal savings associations to invest in NMVC companies.  Federally insured institutions that are required to meet CRA standards currently can receive CRA credit for investments in NMVCCs and SSBICs. 

 

 

If an applicant proposes an NMVCC under a particular structure, such as an LLC, but after submission of an application, needs to change to another structure, such as an LP, would SBA then deny admission to the program at the conditional or final approval stage?

No.  SBA understands that investors may dictate the structure of a fund.   However, NMVC applicants that SBA has conditionally approved must have a committed, legal structure in place by the time they submit their legal documentation package in anticipation of final approval.

 

Does the NMVCC management team have to have prior SBIC experience?

No.  SBA will evaluate the quality of the management team's prior investment experience regardless of when and where it was obtained.

 

Can the partners of an NMVCC also apply for an SBIC license?

Yes, side-by-side funds would be permissible, but the management team of each would have to be able to focus on the investment and administrative demands of each of the respective funds to ensure that the public policy objectives of each program are met.  SBA would consider any such application for an SBIC license separately, under existing procedures, policies, and regulations governing the SBIC program.  SBA's selection of an NMVCC managed by a particular group of partners will have no affect on whether or not SBA grants an SBIC license to an applicant managed by that same group of partners.

 

What limitations are imposed on an NMVCC's investment activities?

At least 80% of the businesses in which an NMVCC makes investments must be smaller enterprises located in LI areas and must have received equity capital investments.  In addition, 80% of the investments an NMVCC makes (in total dollars) must be equity capital investments in smaller enterprises located in LI areas.

A "smaller enterprise," as defined in 13 CFR 108.50, is a small business concern that:

  • has $6 million net worth and an average after-tax income not exceeding $2 million for the preceding 2 years, or
  • meets SBA's size standards based on revenue or employment criteria.

 "Equity capital investments," as defined in 13 CFR 108.50, are investments in the forms of:

  • common or preferred stock
  • limited partnership interests
  • options, warrants, or similar equity instruments
  • subordinated debt with equity features as long as the debt is not amortized and provides for interest payments contingent upon and limited to the extent of earnings

 A smaller enterprise located in an LI area is a concern whose  "principal office" is located in an LI area.

  • The "principal office" of a small business concern, as defined in 13 CFR 108.50, is that office of the portfolio company, as of the date the investment is made, where the greatest number of the concern's employees at any one location perform their work.  When determining the principal office of businesses in the service and construction industries, exclude from consideration the concern's employees who perform the majority of their work at job-site locations.

 

What limitations are imposed on an SSBIC's investment activities?

An SSBIC receiving an operational assistance grant must use 100% of its increase in regulatory capital, raised in connection with its application for that grant, to make equity capital investments in smaller enterprises located in LI areas.

 

Can a current venture capital fund be rolled over into an NMVCC?

No.  An NMVCC must be a new entity formed after December 21, 2000.  Cash from previously formed funds may be contributed to the NMVCC, but non-cash assets may not be contributed and be considered capital.

 

How much time does a conditionally approved NMVCC have to raise its capital and grant matching resources?

To become a finally approved NMVCC, a conditionally approved NMVCC has 18 months from the date on which it is designated as such to raise its required regulatory capital and operational assistance grant matching resources.

 

May an NMVCC applicant or an SSBIC applicant raise more or less regulatory capital and/or grant matching resources than originally requested in its application?

NMVCC applicants and SSBIC applicants may raise only the amounts of regulatory capital and grant matching resources proposed in their applications.  SBA will be selecting applicants for conditional approval based on SBA's consideration of the applications as submitted, including the amounts of regulatory capital and grant matching resources stated in the application.  Applicants will not be allowed, in effect, to change their applications after initial submission, by changing the amounts of regulatory capital and grant matching resources they raise.  If an applicant raises more or less regulatory capital or grant matching resources than stated in its application, SBA will not finally approve that applicant. 

The NMVC regulations do not preclude applicants from using additional capital it wishes to raise for a separate fund, which could be a co-investor, side-by-side fund, and/or SBIC.

 

How does SBA provide leverage once a NMVCC decides to make an investment?

NMVCCs will draw down leverage in the same fashion as an SBIC would through a mechanism referred to as "just-in-time" funding.  Bimonthly, SBA will consider applications submitted by NMVCCs for draw.  If SBA approves a company's draw application, the company then can obtain funds upon 24 hours advance notice to SBA.  SBA will require the NMVC firm to use its private capital in tandem with leverage.

 

Can an NMVCC invest in a passive business?

NMVC regulations generally do not allow NMVCCs to make investments in passive businesses or pass-through investments.  SBA may approve a pass-through of investment proceeds to a subsidiary under certain circumstances.