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Portfolio financing and reporting requirements
Quarterly and annual financial report
SBIC Licensees must submit Quarterly financial reports with respect to fund-level financials and portfolio company financings (Forms 468 and 1031). Form 468 is due within 45 days after the close of each quarter, commensurate with portfolio valuation due dates as finalized under §§ 107.503 and 107.650. Quarterly Form 468 is a “short” version of the Annual Form 468 to reduce the reporting burden while enabling transparency into program investment performance and improved monitoring. Annual Form 468 is due within 90 days of the close of the fiscal year end.
Portfolio financing report
For each financing of a small business, excluding guarantees, SBIC Licensees must submit a portfolio financing report within 30 days of the close of the quarter in which portfolio company financings occurred.
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.
Non-leveraged licensees may submit GAAP-compliant valuations.
Standard Debenture (semi-annual interest)
Standard Debentures are loans issued to SBIC Licensees at face value requiring semi-annual payment of interest on outstanding leverage. SBA guarantees all principal and unpaid interest. This type of debenture is designed to align with the cash flows of debt-oriented investment strategies and strategies with a recurring current pay component.
| Amount | Typically, no more than 2x the amount of private capital committed to the fund |
|---|---|
| Term | 10 years from date of each leverage draw and can be prepaid without penalty. Prepayments must be made in full and on scheduled, semi-annual payment dates. |
| Payment | 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. |
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Fees
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Commitment fee of 1% up front, a 2% draw-down fee at issuance, and a variable annual charge of up to 1.38% paid semi-annually. |
| Use of proceeds | Must be used exclusively for investments in small businesses, as defined by SBA and federal regulations. |
Accrual Debenture
Accrual Debentures are loans issued to SBIC Licensees at face value that accrue interest over a ten-year term, where SBA guarantees all principal and unpaid accrued interest. This type of debenture is designed to align with the cash flows of long-duration, equity-oriented investment strategies.
| Leverage Commitment Amount | For Accrual SBICs, up to 1.25x the amount of private capital committed to the fund. For Reinvestor (Fund-of-Funds) SBICs, up to 2x the amount of private capital committed |
|---|---|
| Term | 10 years from date of each leverage draw and can be prepaid when distributions are made to Private Investors. |
| Payment | Interest accrues over the term of the loan. Accrued interest and principal based on ratio to private capital are due upon a distribution event to private investors. |
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Fees
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Commitment fee of 1% up front, a 2% draw-down fee at issuance, and a variable annual charge of up to 1.38% paid semi-annually. |
| Use of proceeds | Only available to Accrual SBICs and Reinvestor SBICs. Must be used exclusively for investments in small businesses, as defined by SBA and federal regulations. |
SBA Leverage Commitments
An SBIC may request Leverage Commitments against SBA’s Total Intended Leverage Commitment by obtaining SBA's conditional commitment to guarantee debentures. Instructions are available in the commitment application instructions.
SBA Leverage Draws
An SBIC may draw down (call) against SBA's Leverage Commitment to guarantee debenture. Follow the draw application instructions.
Interest rates and other fees
| Base rate for cost of money calculations | Maximum interest rate is 19% for loans and 14% for debt investments in portfolio companies when the base rate is less than 8.125% |
|---|---|
| Commitment fee | 1% of commitment payable at the time of issuance |
| Draw fee | 2% of leverage drawn, withheld from the proceeds of the draw |
| Underwriter’s fee | 0.375% of leverage drawn, withheld from the proceeds of the draw (only for standard debentures) |
| 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) |
| Annual charge |
The annual charge is established each year and payable according to the same terms and conditions as the interest due on debentures. The minimum annual charge will be phased in:
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| Interim financing interest rate | Federal Home Loan Bank of Chicago’s Advance Rate 41 basis points, payable during the interim financing period for leverage drawn in between pooling dates (only for standard debentures). |
| Trust certificate interest rate | Rate on 10-Year Treasury Premium, rate is fixed at the time of each debenture pooling, payable semi-annually |
Regulatory examinations
The SBA Office of Investment and Innovation Examinations Division performs periodic remote and on-site examinations of SBICs every one to two years to monitor regulatory compliance with SBIC program statutory, regulatory and policy requirements. Examiners also ensure the accuracy of information SBICs submit to SBA.
The regulations governing examinations of SBICs, including fees, are set forth in 13 CFR 107.690-692.