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Impact Investment Fund Overview

The Impact Investment Fund was launched in early 2011 as part of a series of efforts across the federal government to support the growth and development of America’s impact investing industry.  Housed within SBA’s Small Business Investment Company (SBIC) Program, the Impact Fund makes roughly $200 million in federally-guaranteed leverage commitments available to SBICs that invest with impact.

In 2014, SBA announced an expansion of the Impact Investment Fund and published an update of its Impact Investment Fund Policy, which is available for download below.

Impact Investment Fund Policy

Goals of the Fund: Generating Impact and Developing an Industry

The primary goal of the Impact Fund is to help capitalize Impact SBICs that seek to (i) maximize financial return for their investors, and (ii) generate measurable social, environmental or economic impact.  However, the Impact Fund was also designed to help America's impact investing industry build the track record and measurement standards it needs to attract larger pools of capital.

The SBIC Program has a long history of driving much-needed capital to America’s underserved communities and its most innovative sectors.  Many of the country’s first venture capital funds were SBICs and went on to finance some of today’s most iconic brands, such as Apple, FedEx and Costco.  Yet, the SBIC Program’s impact extended far beyond the capital it helped channel to these small business success stories.  Much of the broader infrastructure on which America’s venture capital industry is built was first developed to support SBICs.

With the Impact Fund, SBA is seizing an opportunity help foster the development of another emerging and potentially transformative approach to small business financing.  Impact investors currently manage only a fraction of the funds flowing through global capital markets, largely because mainstream investors remain hesitant to participate.  With each new Impact SBIC licensed, SBA hopes to build evidence that market-rate returns and social, environmental or economic impact can be achieved in concert.

Overview of the Impact Investment Fund

Like their Standard SBIC peers, Impact SBICs are focused exclusively on financing U.S. small businesses, but they make an additional commitment to deploy at least 50% of their invested capital in “impact investments” (referred to below as the “50% investment commitment”). In recognition of their efforts to generate positive impact, SBA is committed to licensing Impact SBICs on an expedited basis.

The Impact Fund was designed to offer fund managers the flexibility they need to pursue a variety of impact strategies.  Impact SBICs have the option of pursuing two investment tracks:

  • SBA-Identified Impact Investments: Impact SBICs may pursue an investment strategy focused on making pre-approved, SBA-Identified impact investments organized around federal priority areas; or,
  • Fund-Identified Impact Investments: Impact SBICs may fulfill their 50% investment commitment by deploying capital in their own, Fund-Identified impact investments

Regardless of the track an Impact SBIC chooses, there are four fundamental aspects of successfully managing an Impact SBIC.  These are summarized in the tables below.  

  SBA-Identified Impact Investments
Qualify SBA makes a concerted effort to process Impact SBIC applications on an expedited basis.  However, Impact SBIC applicants are subject to the same application process and underwriting standards used to assess all SBIC applications.  
Define

Eligible SBA-Identified impact investments include investments in:

  • Underserved Communities
  • Rural communities
  • Energy-Savings investments, and
  • SBIR/STTR grant recipients

These and other pre-approved categories reflect SBA’s long-standing commitment to channel capital to America’s underserved communities and its most innovative sectors.

Report Using the standard reporting form all SBICs are required to file when making new financings (known as Form 1031), Impact SBICs will be expected to identify those financings that qualify as “impact investments” for the purposes of fulfilling their 50% investment commitment.    
Measure

No further measurement is required on the part of the Impact SBIC.

Based on the data provided in Form 1031, SBA will monitor the performance of each Impact SBIC in achieving its goals and will aggregate and report data on the performance of the Impact Fund overall.

 

  Fund-Identified Impact Investments
Qualify SBA makes a concerted effort to process Impact SBIC applications on an expedited basis.  However, Impact SBIC applicants are subject to the same application process and underwriting standards used to assess all SBIC applications.  
Define

During the licensing process, Impact SBIC applicants may submit a detailed description of their investment strategy and the “impact investment” definition they will use to identify investments used to meet the fund’s 50% investment commitment.

Impact SBICs choosing the Fund-Identified track must also indicate how they intend to meet the measurement requirements described below.

Report Using the standard reporting form all SBICs are required to file when making new financings (known as Form 1031), Impact SBICs will be expected to identify those financings that qualify as “impact investments” for the purposes of fulfilling their 50% investment commitment.   
Measure

Impact SBICs making Fund-Identified impact investments must obtain an assessment of their impact that meets the following requirements:

 

File Attachments: 
Attachments Size
SBA Impact Investment Fund Policy - September 2014 285Kb