What is an Impact Investment?
To obtain an Impact SBIC license, an applicant fund must commit to invest at least 50% of the total dollar amount of their investments into "impact investments." In addition to the standard requirement than any SBIC investment be made into a small business, SBA defines an impact investment using a place-based and a sector-based criterion.
Place-Based Impact Investments:
A place-based impact investment is made into a small business located in, or with at least 35% of its full-time employees at the time of the initial investment residing in a Low or Moderate Income ("LMI") area, a Rural area or an Economically-Distressed area. The definitions used to identify these areas are explained below.
Low or Moderate Income ("LMI") area:
An LMI area means any area located within a:
- HUBZone (as defined in 13 CFR 126.103)
- Urban Empowerment Zone or Urban Enterprise Community (U.S. Dept. of Housing & Urban Development)
- Rural Empowerment Zone or Rural Enterprise Community (U.S. Dept. of Agriculture)
- Area of Low Income or Moderate Income (Federal Financial Institutions Examination Council), or
- County with Persistent Poverty (Economic Research Service of the U.S. Dept. of Agriculture)
The SBA Impact Investment Initiative uses a definition of "rural area" developed for the U.S. Department of Agriculture's Business & Industry Loan Program. According to USDA regulations (7 CFR 1980.405), a "rural area" is any area other than:
- A city or town that has a population of greater than 50,000 inhabitants; and
- The urbanized area contiguous and adjacent to such a city or town, as defined by the U.S. Bureau of the Census using the latest decennial census of the United States.
The Rural Business-Cooperative Service maintains a mapping tool used to identify eligible "rural" areas.
Section 301 of the Public Works and Economic Development Act of 1965, as amended, 42 U.S.C. 3161 defines an economically-distressed area as having:
- a per capita income of 80% or less of the national average, or
- an unemployment rate that is, for the most recent 24 month period for which data are available, at least 1% greater than the national average unemployment rate.
The Federal Highway Administration maintains a mapping tool that identifies economically distressed areas.
Sector-Based Impact Investments
A sector-based impact investment is made into a small businesses active in industry sectors the Administration has identified as "national priorities." Currently, SBA has approved the education and clean energy sectors as qualifying for the Impact Initiative, with other sectors to be added over time.
Clean Energy Sector:
Clean energy impact investments include, but may not be limited to, those investments that are "energy-saving qualified investments" as defined by SBA regulations (13 CFR 107.50). These are financings that meet the qualifications listed below (terms with regulatory definitions are capitalized):
- are in the form of a Loan, Debt Security, or Equity Security; and
- are made to a Small Business that is primarily engaged in Energy Saving Activities. While SBA will make a determination at the time of the financing as to whether the Small Business is engaged in Energy Saving Activities, it will be presumed qualified if:
- The Small Business derived at least 50% of its revenues during its most recently completed fiscal year from Energy Saving Activities; or
- The Small Business will utilize 100% of the Financing proceeds received from the SBIC to engage in Energy Saving Activities.
Energy Savings Activities are defined, in detail, in the Definitions section of SBIC Program Regulations ((13 CFR 107.50).
No formal definition has been established to determine whether an investment qualifies as an education impact investment. SBA will work with the relevant federal government agencies, including its partners at the Department of Education, to determine both at the time of licensing and the time of financing whether an investment qualifies as an education impact investment.