Content
Reporting requirements
Annual financial report
For each fiscal year, you must submit to the U.S. Small Business Administration (SBA) financial statements and supplementary information prepared on SBA Form 468 (for corporate or for a partnership). You must file Form 468 on or before the last day of the third month following the end of your fiscal year. All funds with a leverage commitment are also required to file an interim quarterly Form 468.
Form 468 must be audited by an independent public accountant that meets SBA standards. The accountant must carry at least $1 million of Errors and Omissions insurance or be self-insured and have a net worth of at least $1 million.
Submit all filings of Form 468 electronically to SBA’s Office of Investment and Innovation.
Your annual filing of SBA Form 468 must also include an assessment of the economic impact of each financing, specifying the full-time equivalent jobs created or retained, and the impact of the financing on the revenues and profits of the business and on taxes paid by the business and its employees. You must file this information on or before the last day of the fifth month following the end of your fiscal year.
Portfolio financing report
For each financing of a small business, excluding guarantees, you must submit a portfolio financing report on SBA form 1031 within 30 days of the closing date.
Valuation report
You must determine the value of your loans and investments. You must report these valuations to SBA within 90 days of the end of the fiscal year in the case of annual valuations, and within 30 days following the close of other reporting periods. You must report material adverse changes in valuations at least quarterly, within 30 days following the close of the quarter.
You must also submit any of the following documents to SBA:
- Reports to owners
- Documents filed with the Securities and Exchange Commission
- Litigation reports
- Notification of criminal charges
The regulations governing reporting requirements for SBICs are set forth in 13 CFR 107.630-680.
Accounting and valuation standards
Appendix 14 provides guidance to SBICs on accounting policies and procedures, financial reporting to SBA, and selection of an auditor. It also contains guidelines for independent public accountants engaged to conduct annual audits of SBICs.
Appendix 15 describes the policies and procedures which SBICs must follow in valuing their loans and investments. It also provides the techniques and standards which are generally applicable to such valuations.
Appendix 16 provides for two-digit number designations for major categories under which accounts are listed, and three-digit number designations for individual general ledger accounts.
Funding the SBIC program
Once licensed, an SBIC can apply for a commitment from SBA to provide a specific amount of leverage over the course of several years. When the fund is ready to make an investment, it can request a draw down on that commitment.
For each takedown, the SBIC issues a debenture, a debt security that entitles its holder to receive interest and a balloon principal payment over a certain period of time. There are two types of debentures: standard and discounted.
Standard debenture
The most common financing option SBICs use are standard debentures, which are non-amortizing debt securities. Standard debentures are structured as follows:
|
Amount |
Typically, no more than two times the amount of private capital committed to the fund (in some cases, SBA may allow up to three times) |
|
Term |
10 years but can be prepaid without penalty. Prepayments must be made in full and on scheduled, semi-annual payment dates. |
|
Payments |
Interest payments made on a semi-annual basis. The interest rate is fixed within six months of issuance at a premium over the 10-year U.S. Treasury Note. |
|
Fees |
Commitment fee of 1% up front, a 2% draw-down fee at issuance, and a variable annual charge of less than 1% paid semi-annually. |
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Use of proceeds |
Must be used exclusively for investments in small businesses, as defined by SBA and federal regulations. |
Discounted debenture
The discounted debenture is a debt security with a payment schedule that differs substantially from the standard debenture. There are two types of discounted debentures, Low-to-Moderate Income (LMI) and Energy Saving. Proceeds from these debentures may be used only for investments in specific types of small businesses.
|
Amount |
May have the same face value amounts as standard debentures but are issued at a discount. Gradually accrete to face value over 5 years. |
|
Term |
5 or 10 years, with no penalties for prepayment. Prepayments must be made in full, on semi-annual payment dates and not before the end of a one-year lockout period. |
|
Payment |
No interest payments on discounted debentures with maturities of 5 years. For discounted debentures issued with maturities of 10 years, interest is due on a semi-annual basis during the last 5 years of the term only. The interest rate is fixed within six months of issuance of the note. |
|
Fees |
Commitment fee of 1% up front, a 2% draw-down fee at issuance, and a variable annual charge of around 1% paid semi-annually. |
|
Use of proceeds |
Must be used exclusively for investments in small businesses located in “low-to-moderate income areas” or businesses involved in “qualifying energy-savings activities.” |
LMI debenture
An SBIC that issues an LMI debenture must use the proceeds to make an LMI Investment. The SBIC must invest in a small business that has at least 50% of its employees or tangible assets located in an LMI Zone, or in which at least 35% of the full-time employees have primary residences in an LMI Zone.
LMI Zone means any area located within a HUBZone, an Urban Empowerment Zone or Urban Enterprise Community, a Rural Empowerment Zone or Rural Enterprise Community, an area of low Income or moderate income, or a county with persistent poverty.
Use the online calculator to estimate the rates you may be charged using an LMI debenture.
Energy Saving debenture
An SBIC that issues an Energy Saving debenture must use the proceeds to make an Energy Saving Qualified Investment. Such an investment can only be made by an SBIC licensed after September 30, 2008.
The SBIC must invest in a small business that’s primarily engaged in business activities that reduce the use or consumption of nonrenewable energy sources. Lastly, the investment must be in the form of a loan, a debt security, or an equity security.
How to reserve SBA leverage
An SBIC that wants to reserve leverage by obtaining SBA's conditional commitment to guarantee debentures must follow the commitment application instructions.
How to draw leverage
An SBIC that wants to draw against SBA's commitment to guarantee debenture leverage must follow the draw application instructions.
Examinations
The SBA Office of Examinations performs periodic on-site examinations of SBICs in order to determine if SBICs are complying with regulations. Examiners also ensure the accuracy of the information that SBICs submit to SBA.
The regulations governing SBA examinations of SBICs, including fees, are set forth in 13 CFR 107.690-692.
Interest rates and other fees
| Base rate for cost of money calculations | Maximum interest rate is 19% for loans and 14% for debt securities when the base rate is less than 8.125% |
|
Commitment fee |
1% of commitment payable at the time of issuance |
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Draw fee |
2% of leverage drawn, withheld from the proceeds of the draw |
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Underwriter’s fee |
0.375% of leverage drawn, withheld from the proceeds of the draw (only for standard debentures) |
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Selling agent fee |
0.05% of leverage drawn, withheld from the proceeds of the draw (only for standard debentures) |
| Interest rates and other fees | Trustee fee 0.01% of leverage drawn, withheld from the proceeds of the draw (only for standard debentures) |
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1.38% or less, established each year and payable according to the same terms and conditions as the interest due on debentures |
|
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Interim financing interest rate |
LIBOR+30, payable during the interim financing period for leverage drawn in between pooling dates (only for standard debentures) |
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Rate on 10-Year Treasury + Premium, rate is fixed at the time of each debenture pooling, payable semi-annually |
Contact us
202-205-6510
sbic@sba.gov