Eligible Impact Investments

Impact SBICs, like all SBICs, maintain an exclusive focus on financing U.S. small businesses in need of capital.  However, they make an additional commitment to deploy at least 50% of their invested capital in “impact investments.”  To accommodate the wide variety of impact investment strategies fund managers may pursue, Impact SBICs have the flexibility of meeting this 50% investment requirement by making SBA-Identified impact investments or their own Fund-Identified impact investments.

SBA-Identified Impact Investments:



Fund-Identified Impact Investments

SBA-Identified Impact Investments:

In keeping with long-standing federal priorities, SBA’s Impact Investment Fund has identified a series of investments that will help channel capital to underserved communities and innovative sectors.  The definitions of these “place-based” and “sector-based” investments are outlined in detail below:

Place-Based Investments:

Investments in Low-or-Moderate Income (LMI) Enterprises located in LMI Zones:

An LMI Enterprise is a small business that has:

  1. At least 50% of its employees or tangible assets located in LMI Zone(s), or in which,
  2. At least 35% of the full-time employees have primary residences in LMI Zone(s)

In either case, the determination is made at the time of the SBIC financing.

An LMI Zone means any area located within a:

Qualified Low-Income Community Investments (QLICIs) located in Low-Income Communities (LICs):

The definition of a Qualified Low-Income Community Investment (QLICI) is provided in the regulations governing the U.S. Treasury Department’s New Markets Tax Credit Program [26 CFR 1.45D-1(d)].  Impact SBICs that make QLICIs should refer to the regulation for guidance.  Please be aware that where the QLICI regulation conflicts with the regulations governing the SBIC Program, the SBIC Program regulations shall govern.  An abridged, summary description of the QLICI rule is provided below: 

There are four different types of investments or activities that can qualify as a QLICI.  The most relevant type to Impact SBICs is defined as “a capital or equity investment in, or loan to, any qualified active low-income community business.”

The term “qualified active low-income community business” generally means a trade or business that meets the following criteria:

  1. At least 50% of the total gross income of the business is derived from the active conduct of the business within any low-income community;
  2. At least 40% of the use of the tangible property of such entity is within any low-income community;
  3. At least 40% of the services performed for this business by its employees are performed in a low-income community;
  4. Less than 5% of the average of the aggregate unadjusted bases of the property of the business is attributable to collectibles, other than collectibles that are held primarily for sale to customers in the ordinary course of business; and,
  5. Less than 5% of the average of the aggregate unadjusted bases of the property of the business is attributable to “nonqualified financial property.”

More information about the New Markets Tax Credit Program and the QLICI definition is available in the New Markets Tax Credit Audit Technique Guide.

Rural Areas:

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.  Select the link to “Business Programs” under the “Property Eligibility” header in the navigation bar on the left-side of the page.  A new page will load in your browser.  Select the link provided above the first list on the page, which begins with the Business and Industry Guaranteed Loans (B&I Gura.) program.

Economically-Distressed 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 provides supplemental guidance on the determination of EDAs on their website.  For data on unemployment rates, please refer to the Bureau of Labor Statistics at the Department of Labor.


Sector-Based Investments:


Clean energy impact investments are 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:
    1. The Small Business derived at least 50% of its revenues during its most recently completed fiscal year from Energy Saving Activities; or
    2. The Small Business will utilize 100% of the Financing proceeds received from the SBIC to engage in Energy Saving Activities.

SBIR/STTR Grant recipients:

Investments in small businesses that have received SBIR/STTR grant funds are considered eligible impact investments.  Eleven federal agencies participate in the SBIR program and five of the eleven participate in the STTR program. These grant-based programs are highly competitive and are designed to encourage domestic small businesses to engage in Federal Research and Federal Research & Development that have the potential for commercialization. Stimulating technological innovation, meeting the nation’s research needs and increasing private-sector commercialization of discoveries drives America’s competitiveness via broad and inclusive small business participation. More information is available at: www.sbir.gov.


Fund-Identified Impact Investments:

During the licensing process, Impact SBICs may request SBA approval to pursue their own, unique impact investment strategy.  SBA is particularly interested in working with fund managers and fund investors focused on several areas of national priority: clean energy, education and advanced manufacturing. 

Regardless of the strategy selected, applicants intending to make Fund-Identified impact investments must complete each of the requirements below:

1) Obtain Approval for Fund-Identified Impact Investments

Using Appendix 2 of SBA Form 2181 – Narrative, Impact SBIC applicants must provide the following information as part of their application if they wish to make Fund-Identified impact investments:

a.     Identify the social, environmental or economic area(s) the fund intends to target;

b.     Provide a detailed definition of what the fund will consider an “impact investment” for the purposes of fulfilling their commitment to deploy at least 50% of their invested capital in impact investments.  The definition should describe the characteristics or business activities that will make an investee eligible for an impact investment; and,

c.     Explain how the fund intends to meet the measurement and reporting requirements described below

SBA will evaluate this information as part of the Impact SBIC licensing process.  An Impact SBIC applicant’s strategy may not be approved if SBA determines it is inconsistent with the goals of the Impact Investment Fund.  However, these applicants may still be awarded a Standard SBIC license if they meet the SBIC Program’s minimum licensing qualifications.

Once an Impact SBIC is licensed, SBA expects the fund to invest according to their stated strategy.  SBA may remove the Impact SBIC label from any Impact SBIC that has not made, as determined by SBA, a good faith effort towards fulfilling their commitment to invest at least 50% of their invested capital in impact investments.    

2) Declare Intention to Pursue Fund-Identified Impact Strategy

In any private placement memoranda or other offering materials, Impact SBICs intending to make Fund-Identified impact investments must identify themselves as pursuing an impact investment strategy.  The strategy described in these materials should be consistent with the one presented to SBA during the licensing process.

3) Measure Results

In line with impact industry best practice, SBA requires Impact SBICs making Fund-Identified impact investments to obtain independent, third-party assessments of the social, environmental or economic impact they have generated.  Detailed information on the assessment requirement is available in the [Impact Measurement] section.


Sectors of National Priority

While Impact SBICs are free to propose any Fund-Identified impact investment strategy they choose during the licensing process, SBA has identified several sectors of national priority it encourages fund managers to consider:

  1. Clean Energy: Investments that facilitate improvements in energy efficiency or the use of renewable resources.
  2. Education: Investments in small businesses offering products or services that facilitate improvements in student outcomes or teacher effectiveness at the K-12 or post-secondary levels.
  3. Advanced Manufacturing

Advanced Manufacturing: An Introduction

Advanced Manufacturing is a priority across the federal government and SBA encourages fund managers with expertise in this field to consider applying for an Impact SBIC license.  The Advanced Manufacturing Partnership, a working group of the President’s Council of Advisors on Science and Technology, provides a great deal of information about this critical sector of our economy.  Provided below is a brief overview of what constitutes an advanced manufacturing investment:

Investments into manufacturing activities, defined by the North American Industry Classification Standards as the mechanical, physical or chemical transformation of materials, substances or components into new products, in one of the following areas:

  1. Commercialization of new manufacturing technologies: Investments that advance the domestic commercialization of new manufacturing technologies or manufacture technology products originating from the systematic application of scientific or technical knowledge.
  2. Commercialization of federal research investments in manufacturing: Investments that advance the domestic commercialization of manufacturing technologies or technology products that received federal research investment, including:
    1. Technologies developed by recipients of awards and/or grants from the Small Business Innovation Research Program (SBIR), the Small Business Technology Transfer Program (STTR), and/or the National Network for Manufacturing Innovation Institutes (NNMI).
    2. Technologies originating from federal labs and research institutes and/or developed with the support of federal research grants or funding.
  3. First commercial production capabilities in manufacturing: Investments in the first commercial production processes and/or facilities to scale the domestic production of new manufacturing technologies or technology products. To qualify, an investment must meet the following criteria:
    1. The investment must be in the receiving company’s first commercial scale venture for a given new technology product or technology process.
    2. The production must be located in the United States.