[Federal Register Volume 85, Number 190 (Wednesday, September 30, 2020)]
[Proposed Rules]
[Pages 61654-61659]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19432]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 107

RIN 3245-AG93


Regulatory Reform Initiative: Small Business Investment Company--
Regulatory Streamlining

AGENCY: U. S. Small Business Administration.

ACTION: Proposed rule.

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SUMMARY: The U.S. Small Business Administration (``SBA'' or ``Agency'') 
is proposing to remove from the Code of Federal Regulations (``CFR'') 
eighteen regulations that are no longer necessary because they are 
obsolete, inefficient or redundant. Many of the regulations SBA is 
proposing to remove apply to Specialized Small Business Investment 
Companies (``SSBICs'') licensed under the now-repealed Section 301(d) 
of the Small Business Investment Act of 1958, as amended, and certain 
other types of Small Business Investment Companies (``SBICs'') that SBA 
no longer licenses, such as Participating Securities SBICs and Early 
Stage SBICs. The removal of these regulations will assist the public by 
simplifying SBA's regulations in the CFR. In addition, SBA is proposing 
to amend its regulations, consistent with recent statutory changes, to 
increase the maximum amount of Leverage available to a single SBIC from 
$150 million to $175 million.

DATES: Comments must be received on or before November 30, 2020.

ADDRESSES: You may submit comments, identified by RIN: 3245-AG93, by 
any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail or Hand Delivery/Courier: Louis Cupp, New Markets 
Policy Analyst, Office of Investment and Innovation, U.S. Small 
Business Administration, 409 Third Street SW, Washington, DC 20416.
    SBA will post all comments on https://www.regulations.gov. If you 
wish to submit confidential business information (``CBI''), as defined 
in the User Notice at https://www.regulations.gov, please submit the 
information to Louis Cupp, New Markets Policy Analyst, Office of 
Investment and Innovation, Small Business Administration, 409 Third 
Street SW, Washington, DC 20416, or send an email to 
[email protected]. Highlight the information that you consider to be 
CBI and explain why you believe SBA should hold this information as 
confidential. SBA will review the information and make the final 
determination on whether it will publish the information.

FOR FURTHER INFORMATION CONTACT: Louis Cupp, New Markets Policy 
Analyst, 202-619-0511, [email protected].

SUPPLEMENTARY INFORMATION:

I. Background Information

A. Small Business Investment Company Program

    SBA's SBIC program is designed to enhance small business access to 
capital by stimulating and supplementing ``the flow of private equity 
capital and long-term loan funds which small-business concerns need for 
the sound financing of their business operations and for their growth, 
expansion, and modernization, and which are not available in adequate 
supply.'' Small Business Investment Act of 1958, as amended, 15 U.S.C. 
661, et seq. (the ``Act''). The SBIC program's primary objective is to 
``improve and stimulate the national economy in general and the small-
business segment thereof in particular.'' Id.
    SBICs are privately owned and managed investment funds, licensed 
and regulated by SBA, that use capital raised from private investors 
(what SBA generally refers to as ``Regulatory Capital'') to make equity 
and debt investments in qualifying small businesses. SBICs pursue 
investments in a broad range of industries, geographic areas, and 
stages of investment. SBA licenses many SBICs to issue SBA-guaranteed 
debentures (``Debentures''), an unsecured debt instrument, typically 
with a 10-year term, the repayment of which is guaranteed by SBA using 
the full faith and credit of the United States. SBA typically 
authorizes SBICs to issue Debentures up to a maximum of two times an 
SBIC's Regulatory Capital, but not to exceed $175 million per SBIC. 
Debentures are typically sold in public offerings twice a year. This 
process allows SBICs to borrow at favorable interest rates and 
increases the amount of investable capital available to SBICs to invest 
in small businesses.
    From the inception of the SBIC program to December 31, 2019, SBICs 
have invested approximately $103.5 billion in approximately 184,135 
financings to small businesses. In fiscal year 2019, SBICs invested 
$5.86 billion in 1,191 small businesses. As of December 31, 2019, there 
were a total of 299 licensed and operating SBICs with Regulatory 
Capital of approximately $17 billion. In addition, as of December 31, 
2019, SBA had guaranteed outstanding Debentures or had outstanding 
commitments to guarantee Debentures to SBICs in the approximate 
aggregate amount of $14.5 billion.

B. Part 107, Small Business Investment Companies

    SBA is proposing to remove from the CFR eighteen regulations that 
are no longer necessary, because the rules reflect statutes that have 
been repealed, do not have any current or future applicability, or are 
otherwise inefficient or unnecessary. Specifically, SBA is proposing to 
remove eight regulations relating to SSBICs (also referred to as 
``Section 301(d) Licensees''). Prior to 1996, Section 301(d) of the Act 
authorized SBA to issue licenses to SSBICs, which were required to 
invest ``solely in small business concerns which will contribute to a 
well-balanced national economy by facilitating ownership in such 
concerns by persons whose participation in the free enterprise system 
is hampered because of social or economic disadvantages[.]'' Section 
301(d) was repealed by Section 208(b)(3)(A) of Public Law 104-208, 
enacted September 30, 1996 (the ``Improvement Act of 1996''). Section 
208(b)(3)(B) of the Improvement Act of 1996 provided, ``[t]he repeal 
under subparagraph (A) shall not be construed to require the 
Administrator to cancel, revoke, withdraw, or modify any license issued 
under section 301(d) of the Small Business Investment Act of 1958 
before the date of enactment of this Act.'' As a result, no new SSBIC 
licenses have been issued since October 1, 1996, but existing SSBICs 
have been allowed to remain in the program. The Improvement Act of 1996 
also repealed the special kinds of financial assistance (``Subsidized 
Leverage'') that SBA previously made available to SSBICs under former 
Section 303(c) of the Act. Such Subsidized Leverage was previously 
available to SSBICs in the form of Debentures with an interest rate 
subsidy or certain types of preferred stock (``Preferred Securities'') 
with a specified dividend. Although Subsidized Leverage can no longer 
be issued, the Improvement Act of 1996 did not require SSBICs to prepay 
or redeem such Subsidized Leverage prior to its scheduled maturity. 
Approximately six SSBICs are currently operating, but no Subsidized 
Leverage

[[Page 61655]]

remains outstanding, so SBA proposes to remove the regulations related 
to Subsidized Leverage. The SSBICs remaining in the program will not be 
impacted by the changes proposed in this rule and, if eligible, those 
SSBICs may continue to apply to issue standard Debentures.
    SBA is proposing to remove four regulations relating to 
Participating Securities (as defined in 13 CFR 107.50) and SBICs that 
issued Participating Securities (``Participating Securities SBICs''). 
The fees payable by Participating Securities SBICs were not sufficient 
to cover the projected net losses of the Participating Securities 
program and no funds have been appropriated for this program for over 
15 years. As a result, since October 1, 2004, SBA has not been able to 
issue new commitments for Participating Securities. Approximately 25 
Participating Securities SBICs remain operating in the program, but the 
last Participating Securities issued by Participating Securities SBICs 
were required to be redeemed by February 2019. The changes proposed in 
this rule will not impact any licensed Participating Securities SBIC.
    SBA is proposing to remove two regulations relating to a category 
of SBICs created in 2012 by regulation, in which SBICs were required to 
invest at least fifty percent of their capital in early stage small 
businesses (``Early Stage SBICs''). The final rule (77 FR 25042, April 
27, 2012) defining this category of Early Stage SBICs stated that SBA's 
intent was to license Early Stage SBICs over a 5-year period (fiscal 
years 2012 through 2016). SBA published a rule on September 19, 2016 
(81 FR 64075) proposing to make the Early Stage SBIC initiative a 
permanent part of the SBIC program, but withdrew the proposed rule on 
June 11, 2018 (83 FR 26875) because, among other things, few qualified 
funds applied to the Early Stage SBIC initiative and the comments to 
the proposed rule did not demonstrate broad support for a permanent 
Early Stage SBIC program. SBA proposes to remove the licensing 
regulations related to Early Stage SBICs since SBA is no longer 
licensing these funds. The removal of these regulations will have no 
impact on the Early Stage SBICs remaining in the program.
    Finally, SBA is proposing to remove four regulations that are 
duplicative, redundant, or otherwise inefficient or unnecessary. In 
connection with this rulemaking, SBA proposes certain non-substantive 
amendments to other regulations to remove internal references to the 
removed regulations or make certain other clarifying changes. SBA is 
also proposing one clarifying change unrelated to the removal of these 
regulations, but which is required by amendments to the Act that 
occurred in 2018. SBA is proposing to increase the maximum amount of 
Leverage (as defined in 13 CFR 107.50) available to a single SBIC from 
$150 million to $175 million.

C. Comments Received in Response To Request for Information

    On August 15, 2017 (82 FR 38617), SBA published in the Federal 
Register a request for information seeking input from the public on 
identifying which of the Agency's regulations should be repealed, 
replaced, or modified because they are obsolete, unnecessary, 
ineffective, or burdensome. On October 13, 2017 (82 FR 47645), SBA 
extended the comment period. SBA has reviewed the comments submitted by 
the public in response to that request. Further, in an effort to obtain 
additional feedback from SBIC program stakeholders, SBA held a series 
of roundtables with SBICs, third-party service providers, and investors 
on May 22, 2018, July 17, 2018, and August 7, 2018, respectively.
    The comments SBA received addressed many aspects of the SBIC 
program and provided SBA with a better understanding of certain focus-
areas of the regulations that program participants and stakeholders are 
concerned about. In this rule, SBA is proposing to remove certain 
regulations that commenters suggested removing--e.g., certain 
Participating Securities SBIC and Early Stage SBIC regulations--and 
proposing to remove certain others, which SBA believes will have broad 
support among program participants. SBA understands that this 
rulemaking does not address all comments and suggestions SBA has 
received from the public. To that end, SBA is continuing to review the 
regulations in part 107, and those in part 121 that are applicable to 
the SBIC program, to determine which regulations SBA believes are most 
appropriate for removal, streamlining, clarification, or updating. Once 
that process is complete, SBA intends to propose certain additional 
changes to its regulations.

D. Executive Order 13771

    On January 30, 2017, President Trump signed Executive Order 13771, 
Reducing Regulation and Controlling Regulatory Costs, which, among 
other objectives, is intended to ensure that an agency's regulatory 
costs are prudently managed and controlled so as to minimize the 
compliance burden imposed on the public. For every new regulation an 
agency proposes to implement, unless prohibited by law, this Executive 
Order requires the agency to: (i) Identify at least two existing 
regulations that the agency can cancel; and (ii) use the cost savings 
from the cancelled regulations to offset the cost of the new 
regulation. SBA believes the removal of the regulations identified 
herein will make part 107 less confusing and less burdensome for the 
reader and quantifies the amount of cost savings that may result from 
this rulemaking in the Executive Order 13771 discussion in Section III 
below.

E. Executive Order 13777

    On February 24, 2017, the President issued Executive Order 13777, 
Enforcing the Regulatory Reform Agenda, which further emphasized the 
goal of the Administration to alleviate the regulatory burdens placed 
on the public. Under Executive Order 13777, agencies must evaluate 
their existing regulations to determine which ones should be repealed, 
replaced, or modified. In doing so, agencies should focus on 
identifying regulations that, among other things: Eliminate jobs or 
inhibit job creation; are outdated, unnecessary, or ineffective; impose 
costs that exceed benefits; create a serious inconsistency or otherwise 
interfere with regulatory reform initiatives and policies; or are 
associated with Executive Orders or other Presidential directives that 
have been rescinded or substantially modified. SBA has engaged in this 
process and has identified the regulations in this rulemaking as 
appropriate for removal in accordance with Executive Order 13777.

II. Section by Section Analysis

A. Section 107.50--Definition of Terms

    SBA is proposing to amend 13 CFR 107.50 to revise the definition of 
``Venture Capital Financing.'' Currently, this definition states that 
the term is as defined in 13 CFR 107.1160. SBA is proposing to remove 
13 CFR 107.1160, but needs to retain this definition in the regulations 
because other sections use the defined term. Therefore, SBA is 
proposing to move the current definition in 13 CFR 107.1160 to 13 CFR 
107.50. SBA is not proposing substantive changes to the definition.
    In addition, SBA is proposing to revise the definition of ``Early 
Stage SBIC'' in 13 CFR 107.50 to remove the reference to 13 CFR 
107.310, because SBA is proposing to remove that regulation. SBA is 
proposing to revise the definition to clarify that an Early Stage SBIC 
is one that was licensed in connection with SBA's Early Stage SBIC

[[Page 61656]]

initiative. SBA is also proposing to revise the definition to reference 
redesignated 13 CFR 107.1810(f)(10) rather than current 13 CFR 
107.1810(f)(11) but is not proposing any substantive changes to the 
definition.

B. Section 107.120--Special Rules for a Section 301(d) Licensee Owned 
by Another Licensee

    This regulation currently addresses the requirements for ownership 
of an SSBIC by another SBIC. SBA no longer licenses SSBICs and no SBIC 
has utilized the structure authorized under this regulation in the 
recent history of the program. Further, because Subsidized Leverage is 
no longer available to SSBICs, such a structure would provide little to 
no benefit to an SBIC, economic or otherwise. For that reason, SBA 
believes that no SBIC will seek to be structured in the form authorized 
under this regulation going forward and, accordingly, proposes to 
remove this section.

C. Section 107.160--Special Rules for Licensees Formed as Limited 
Partnerships

    This regulation currently provides for special rules applicable to 
SBICs formed as limited partnerships. SBA is not proposing substantive 
changes to this regulation. Rather, since this regulation contains a 
reference to a regulation that SBA is proposing to remove, 13 CFR 
107.460, SBA is proposing to amend subsection (d) of 13 CFR 107.160 
solely to remove this reference.

D. Section 107.250--Exclusion of Stock Options Issued by Licensee From 
Management Expenses

    This regulation currently provides that stock options issued by any 
SBIC are not considered compensation and do not count as part of an 
SBIC's management expenses. Substantially all SBICs are formed as 
limited partnerships, which do not issue stock options. Further, 
Management Expenses are expressly defined in current 13 CFR 107.520(a), 
and that definition does not include stock options. Accordingly, the 
few SBICs formed as corporations do not rely on current 13 CFR 107.250. 
SBA proposes to remove this section, because it is no longer necessary.

E. Section 107.310--When and How To Apply for Licensing as an Early 
Stage SBIC

    This regulation currently sets forth the application procedures for 
Early Stage SBIC applicants. As described above, SBA no longer licenses 
Early Stage SBICs. Therefore, SBA proposes to remove this section.

F. Section 107.320--Evaluation of Early Stage SBICs

    This regulation currently sets forth the special evaluation 
requirements for Early Stage SBIC applicants. Since SBA no longer 
licenses Early Stage SBICs, SBA is proposing to remove this section.

G. Section 107.460--Restrictions on Common Control or Ownership of Two 
(or More) Licensees

    This regulation currently provides that certain individuals and 
entities may not, without SBA's prior written approval, exercise 
control over, or have a greater than ten percent beneficial ownership 
interest in, two or more SBICs. This regulation is duplicative of the 
requirements in other SBA regulations. Specifically, sections 107.160, 
107.400, and 107.410 require SBA prior approval for any individual or 
entity to exercise control over, or have a greater than ten percent 
beneficial ownership interest in, any individual SBIC. Accordingly, 
this section is not necessary, and SBA proposes to remove it.

H. Section 107.585--Voluntary Decrease in Licensee's Regulatory Capital

    SBA does not propose substantive changes to this section but 
proposes to amend this section to remove internal references to 13 CFR 
107.1160 and 107.1170, which sections SBA is proposing to remove in 
this rulemaking.

I. Sections 107.830--Minimum Duration/Term of Financing and 107.840--
Maximum Term of Financing

    13 CFR 107.830 (Minimum duration/term of financing) and 13 CFR 
107.840 (Maximum term of Financing) each address the term of financing 
permissible in the SBIC Program--the minimum term and maximum term, 
respectively. SBA believes that having two regulations that address the 
same concept is inefficient. Accordingly, SBA is proposing to 
streamline these regulations by moving the substance of section 107.840 
into section 107.830 and proposes to remove section 107.840. SBA does 
not intend any substantive changes to the minimum or maximum term of 
financing permitted under the regulations.

J. Section 107.1120--General Eligibility Requirements for Leverage

    Subsection (d) of this regulation currently requires, in connection 
with any Leverage draw that would cause an SBIC and any other commonly 
controlled SBIC to have aggregate outstanding Leverage in excess of 
$150 million, that the SBIC drawing such Leverage certify that none of 
the commonly controlled SBICs has a condition of capital impairment. 
Consistent with the Small Business Investment Opportunity Act of 2017 
(Pub. L. 115-187, June 21, 2018), which increased the maximum amount of 
Leverage available to a single SBIC from $150 million to $175 million, 
SBA proposes to amend this regulation to revise the dollar amount from 
$150 million to $175 million. In addition, in connection with the 
proposed redesignation of certain regulations discussed below, SBA is 
proposing to amend a reference in subsection (k) of this regulation to 
refer to 13 CFR 107.1810(f)(10). SBA is not proposing any substantive 
changes to subsection (k).

K. Section 107.1140--Licensee's Acceptance of SBA Remedies Under 
Sec. Sec.  107.1800 Through 107.1820

    This regulation provides that all SBICs issuing Leverage after 
April 25, 1994, automatically agree to the terms and conditions in 
sections 107.1800 through 107.1820, as they exist at the time of 
issuance. The section is duplicative of 13 CFR 107.1800, 13 CFR 
107.1810 and 13 CFR 107.1820. SBA proposes to remove the section 
because it is unnecessary. For the avoidance of doubt, all outstanding 
Leverage remains subject to 13 CFR 107.1810 or 107.1820, as applicable.

L. Section 107.1150--Maximum Amount of Leverage for a Section 301(c) 
Licensee

    This regulation currently addresses the maximum amount of Leverage 
that SBICs other than SSBICs and Early Stage SBICs may draw. SBA is 
proposing three changes to this section. First, consistent with the 
Small Business Investment Opportunity Act of 2017 (Pub. L. 115-187, 
June 21, 2018), SBA proposes to amend this regulation to increase the 
maximum amount of Leverage available to a single SBIC from $150 million 
to $175 million. Second, SBA proposes to amend this regulation to make 
it expressly applicable to Section 301(d) Licensees. Currently, 13 CFR 
107.1160 (the regulation that applies to Subsidized Leverage for 
Section 301(d) Licensees) limits Section 301(d) Licensees to the 
maximum amount of non-Subsidized Leverage available to Section 301(c) 
licensees. Because SBA is proposing in this rulemaking to remove 13 CFR 
107.1160, SBA is proposing to amend 13 CFR 107.1150 to clarify that it 
applies to Section 301(d) Licensees. Third, SBA is proposing to remove 
13 CFR 107.1150(d)(2). Paragraph (d)(2) implemented Section 
303(b)(2)(C)(ii) of

[[Page 61657]]

the Act, which gave SBICs access to additional Leverage if they made at 
least fifty percent (in dollar amount) of their investments in low-
income geographic areas. See Public Law 111-5 (Feb. 17, 2009). When the 
maximum Leverage available under Section 303(b)(2)(A)(ii) of the Act to 
an individual SBIC and under Section 303(b)(2)(B) of the Act to SBICs 
under common control was increased to $175 million (Pub. L. 115-187, 
June 21, 2018) and $350 million (Pub. L. 114-113, Dec. 18, 2015), 
respectively, no corresponding change was made to Section 
303(b)(2)(C)(ii). As a result, the maximum Leverage limits set forth in 
that Section of the Act and the implementing regulation at 13 CFR 
107.1150(d)(2) are currently lower than the maximum amounts of Leverage 
available to all debenture SBICs. Paragraph (d)(2) of the regulation, 
therefore, is not necessary and SBA proposes to remove it.

M. Section 107.1160--Maximum Amount of Leverage for a Section 301(d) 
Licensee

    This regulation currently addresses Subsidized Leverage for Section 
301(d) Licensees. No Section 301(d) Licensee currently has any form of 
Subsidized Leverage outstanding, and, as a result of the Improvement 
Act of 1996 discussed above, no Section 301(d) Licensee is authorized 
to issue or draw Subsidized Leverage in the future. SBA proposes to 
remove this section because it is no longer necessary.

N. Section 107.1170--Maximum Amount of Participating Securities for Any 
Licensee

    This regulation addresses the maximum amount of Participating 
Securities an SBIC may issue. As discussed above, since October 1, 
2004, SBA has not been able to issue new commitments for Participating 
Securities. Because this section is no longer necessary, SBA proposes 
to remove it.

O. Sections 107.1400--107.1450 Preferred Securities Leverage--Section 
301(d) Licensees

    Sections 107.1400 through 107.1450 currently address Subsidized 
Leverage for Section 301(d) Licensees. No Section 301(d) Licensee 
currently has any form of Subsidized Leverage outstanding, and, as a 
result of the Improvement Act of 1996 discussed above, no Section 
301(d) Licensee is authorized to issue or draw Subsidized Leverage in 
the future. SBA proposes to remove these sections because they are no 
longer necessary.

P. Section 107.1585--Exchange of Debentures for Participating 
Securities

    This section currently addresses the requirements of an exchange of 
Debentures for Participating Securities. No Participating Securities 
will be issued in the future. This section, therefore, is obsolete, and 
SBA proposes to remove it.

Q. Section 107.1590--Special Rules for Companies Licensed on or Before 
March 31, 1993

    This regulation applies to SBICs licensed on or before March 31, 
1993, that apply to issue Participating Securities. No SBIC may apply 
to issue Participating Securities and this rule does not have any 
current applicability. SBA proposes to remove this section.

R. Section 107.1810--Events of Default and SBA's Remedies for 
Licensee's Noncompliance With Terms of Debentures

    SBA proposes to remove 13 CFR 107.1810(f)(9) in its entirety, which 
is an event of default based solely on the failure to satisfy the 
investment ratios required under 13 CFR 107.1160(c), a regulation which 
SBA is proposing to remove in this rulemaking.

S. Section 107.1820--Conditions Affecting Issuers of Preferred 
Securities and/or Participating Securities

    SBA is proposing to amend 13 CFR 107.1820(e)(9) to remove the 
events of default triggered by noncompliance with 13 CFR 107.1160, a 
regulation which SBA is proposing to remove in this rulemaking.

T. Section 107.1850--Exceptions to Capital Impairment provisions for 
Licensees With Outstanding Participating Securities

    This regulation currently provides for a forbearance period from 
application of SBA's capital impairment regulations for Participating 
Securities SBICs but only up to the first six years after the first 
issuance of Participating Securities. Since the last Participating 
Securities were required to be redeemed in February of 2019, this 
section has not applied to any SBIC for at least four years. This 
section is obsolete, and SBA proposes to remove it.

III. Compliance With Executive Orders 12866, 13771, 12988, and 13132, 
the Paperwork Reduction Act (44 U.S.C., Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

A. Executive Order 12866

    The Office of Management and Budget (``OMB'') has determined that 
this proposed rule does not constitute a significant regulatory action 
for purposes of Executive Order 12866 and is not a major rule under the 
Congressional Review Act, 5 U.S.C. 801, et seq.

B. Executive Order 13771

    This proposed rule is expected to be an Executive Order 13771 
deregulatory action with an annualized net savings of $16,694 and a net 
present value of $238,485, both in 2016 dollars. This rule would remove 
information that is redundant or about obsolete programs, which would 
reduce confusion around whether these programs still exist. In 
addition, SBA proposes to increase the maximum amount of Leverage 
available to a single SBIC from $150 million to $175 million, 
consistent with the Small Business Investment Opportunity Act of 2017 
(Pub. L. 115-187, June 21, 2018).
    There are currently 300 SBIC licensees in operation. These 
calculations assume that 20% of SBIC licensees (60) read the 
regulations per year and that they will save 4 hours each from reading 
less burdensome and less confusing regulations because they will no 
longer contain obsolete information. This time is valued at $75.57 per 
hour--the median wage of an attorney based on 2018 Bureau of Labor 
Statistics (``BLS'') data adding 30% more for benefits. This produces 
total savings per year of $18,137.
    In the first year this rule is published, it is expected that 25% 
of existing SBIC licensees (75) will read this Federal Register notice, 
which will take 2 hours to read. Assuming $75.57 per hour, the cost in 
the first year will be $11,336. This cost is not expected to continue 
into subsequent years.
    Quantifying the effect of an increase in the maximum amount of 
Leverage available to a single SBIC is difficult, but this will provide 
SBICs more flexibility and will be beneficial to these entities.
    Table 1 displays the costs and savings of this rule over the first 
two years it is published, with the savings and costs in the second 
year expected to continue into perpetuity. Table 2 presents the 
annualized net savings in 2016 dollars.

    Table 1--Schedule of Costs/(Savings) Over 2 Year Horizon, Current
                                 Dollars
------------------------------------------------------------------------
                                                  Savings       Costs
------------------------------------------------------------------------
Year 1........................................    240 hours    150 hours
                                                  ($18,137)      $11,336
Year 2........................................    240 hours      0 hours
                                                  ($18,137)           $0
------------------------------------------------------------------------


[[Page 61658]]


  Table 2--Annualized Savings in Perpetuity With 7% Discount Rate, 2016
                                 Dollars
------------------------------------------------------------------------
                                                               Estimate
------------------------------------------------------------------------
Annualized Savings.........................................    ($17,406)
Annualized Costs...........................................          712
Annualized Net Savings.....................................     (16,694)
------------------------------------------------------------------------

C. Executive Order 12988

    This action meets applicable standards set forth in Sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.

D. Executive Order 13132

    This proposed rule does not have federalism implications as defined 
in Executive Order 13132. It would not have substantial direct effects 
on the States, on the relationship between the national government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government, as specified in the Executive Order. 
As such it does not warrant the preparation of a Federalism Assessment.

E. Paperwork Reduction Act, 44 U.S.C., Ch. 35

    SBA has determined that this proposed rule does not affect any 
existing collection of information and does not propose any new 
collection of information.

F. Regulatory Flexibility Act, 5 U.S.C. 601-612

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (``RFA'') requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' that will ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.
    There are currently 300 SBIC licensees in operation and this rule 
can affect all SBIC licensees. This rule would remove regulations that 
are no longer necessary, because they are either redundant, inefficient 
or obsolete. These changes will afford these entities more certainty on 
how to operate their business in a regulated environment. The 
annualized net savings to these SBIC licensees is about $16,694 in 
current dollars or $56 per SBIC licensee, as quantified in 2016 dollars 
in the Executive Order 13771 discussion above. Quantifying the effect 
of an increase in the maximum amount of Leverage available to a single 
SBIC is difficult, but this will provide SBICs more flexibility and 
will be beneficial to these entities.
    Therefore, SBA hereby certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
SBA invites comments from the public on this certification.

List of Subjects in 13 CFR Part 107

    Investment companies, Loan programs-business, Reporting and 
recordkeeping requirements, Small businesses.

    Accordingly, for the reasons stated in the preamble, SBA proposes 
to amend 13 CFR part 107 as follows:

PART 107--SMALL BUSINESS INVESTMENT COMPANIES

0
1. The authority citation for part 107 is revised to read as follows:

    Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

0
2. Amend Sec.  107.50 by revising the definitions of ``Early Stage 
SBIC'' and ``Venture Capital Financing'' to read as follows:


Sec.  107.50  Definition of terms.

* * * * *
    Early Stage SBIC means a Section 301(c) Partnership Licensee, 
licensed pursuant to SBA's Early Stage initiative, in which at least 50 
percent of all Loans and Investments (in dollars) must be made to Small 
Businesses that are ``early stage'' companies at the time of the 
Licensee's initial Financing (see also Sec.  107.1810(f)(10)). For the 
purposes of this definition, an ``early stage'' company is one that has 
never achieved positive cash flow from operations in any fiscal year.
* * * * *
    Venture Capital Financing means an investment represented by common 
or preferred stock, a limited partnership interest, or a similar 
ownership interest; or by an unsecured debt instrument that is 
subordinated by its terms to all other borrowings of the issuer. A debt 
secured by any agreement with a third party is not a Venture Capital 
Financing, whether or not you have a security interest in any asset of 
the third party or have recourse against the third party. A Financing 
that originally qualified as a Venture Capital Financing will continue 
to qualify (at its original cost), even if you later must report it on 
SBA Form 468 under either Assets Acquired in Liquidation of Portfolio 
Securities or Operating Concerns Acquired.
* * * * *


Sec.  107.120  [Removed and Reserved]

0
3. Remove and reserve Sec.  107.120.
0
4. Amend Sec.  107.160(d) by revising the second sentence to read as 
follows:


Sec.  107.160  Special rules for Licensees formed as limited 
partnerships.

* * * * *
    (d) * * * The term Licensee, as used in Sec. Sec.  107.30 and 
107.680, includes all of the Licensee's Control Persons. * * *
* * * * *


Sec.  Sec.  107.250, 107.310, 107.320, and 107.460  [Removed and 
Reserved]

0
5. Remove and reserve Sec. Sec.  107.250, 107.310, 107.320, and 
107.460.
0
6. Amend Sec.  107.585 by revising the second sentence to read as 
follows:


Sec.  107.585  Voluntary decrease in Licensee's Regulatory Capital.

    * * * At all times, you must retain sufficient Regulatory Capital 
to meet the minimum capital requirements in the Act and Sec.  107.210, 
and sufficient Leverageable Capital to avoid having excess Leverage in 
violation of section 303 of the Act and Sec.  107.1150.
0
7. Amend Sec.  107.830 by revising the section heading, and paragraphs 
(a) and (c)(1) to read as follows:


Sec.  107.830  Duration/term of financing.

    (a) General rule. The duration/term of all your Financings must be 
for a minimum period of one year and the maximum term of any Loan or 
Debt Security Financing must be no longer than 20 years.
* * * * *
    (c) * * *
    (1) Term. The term for Loans and Debt Securities starts with the 
first disbursement of the Financing.
* * * * *


Sec.  107.840  [Removed and Reserved]

0
8. Remove and reserve Sec.  107.840.
0
9. Amend Sec.  107.1120 by revising paragraphs (d) and (k) to read as 
follows:


Sec.  107.1120  General eligibility requirements for Leverage.

* * * * *
    (d) For any Leverage draw that would cause you and any other 
Licensees under Common Control to have aggregate outstanding Leverage 
in excess of $175 million, certify that none of the Licensees has a 
condition of Capital Impairment. See also Sec.  107.1150(b).
* * * * *

[[Page 61659]]

    (k) If you are an Early Stage SBIC, certify in writing that in 
accordance with Sec.  107.1810(f)(10), at least 50 percent of the 
aggregate dollar amount of your Financings will be provided to ``early 
stage'' companies as defined under the definition of Early Stage SBIC 
in Sec.  107.50 of this part.


Sec.  107.1140  [Removed and Reserved]

0
10. Remove and reserve Sec.  107.1140.
0
11. Amend Sec.  107.1150 by:
0
a. Revising the section heading;
0
b. Revising the first sentence of the introductory paragraph;
0
c. Revising paragraph (a)(2);
0
d. Revising the second sentence of paragraph (b); and
0
e. Removing paragraph (d)(2).
    The revisions read as follows:


Sec.  107.1150  Maximum amount of Leverage. A Licensee, other than an 
Early Stage SBIC, may have maximum outstanding Leverage as set forth in 
paragraphs (a), (b), (d), and (e) of this section. * * *

    (a) * * *
    (2) $175 million.
    (b) * * * However, for any Leverage draw(s) by one or more such 
Licensees that would cause the aggregate outstanding Leverage to exceed 
$175 million, each of the Licensees under Common Control must certify 
that it does not have a condition of Capital Impairment. See also Sec.  
107.1120(d).
* * * * *


Sec.  Sec.  107.1160, 107.1170, 107.1400 through 107.1450, 107.1585, 
and 107.1590  [Removed and Reserved]

0
12. Remove and reserve Sec.  107.1160, 107.1170, 107.1400 through 
107.1450, 107.1585, and 107.1590.


Sec.  107.1810  [Amended]

0
13. Amend Sec.  107.1810 by removing paragraph (f)(9) and redesignating 
paragraphs (f)(10) through (f)(12) as (f)(9) through (f)(11).
0
14. Amend Sec.  107.1820 by revising paragraph (e)(9) to read as 
follows:


Sec.  107.1820  Conditions affecting issuers of Preferred Securities 
and/or Participating Securities.

* * * * *
    (e) * * *
    (9) Failure to meet investment requirements. You fail to make the 
amount of Equity Capital Investments required for Participating 
Securities (Sec.  107.1500(b)(4)), if applicable to you.
* * * * *


Sec.  107.1850  [Removed and Reserved]

0
15. Remove and reserve Sec.  107.1850.

Jovita Carranza,
Administrator.
[FR Doc. 2020-19432 Filed 9-29-20; 8:45 am]
BILLING CODE P