[Federal Register Volume 79, Number 203 (Tuesday, October 21, 2014)]
[Rules and Regulations]
[Pages 62819-62824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-24803]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 107
RIN 3245-AG57
Small Business Investment Companies--Investments in Passive
Businesses
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: In this final rule, the U.S. Small Business Administration
(SBA) is revising the regulations for the Small Business Investment
Company (SBIC) program concerning investments in
[[Page 62820]]
passive businesses. SBICs are generally prohibited from investing in
passive businesses under the Small Business Investment Act of 1958, as
amended, as well as under SBIC program regulations. This final rule
modifies an exception that allows an SBIC to make an investment in a
passive small business that passes through the investment proceeds to
one or more subsidiaries, each of which must be a non-passive small
business. This modification allows an SBIC to structure an investment
utilizing two levels of passive small businesses as pass-through
entities under specific circumstances. The purpose of the modification
is to place SBICs on a more equal footing with their non-SBIC
counterparts in the venture capital and private equity sectors, in
which investments structured with two passive levels are not uncommon.
This final rule also includes several technical corrections.
Specifically, the final rule updates the regulations by replacing
obsolete Standard Industrial Classification (SIC) codes with their
equivalents under the North American Industrial Classification System
(NAICS); corrects erroneous paragraph cross-references; and modernizes
the options for meeting the record preservation requirements by
removing the reference to ``microfilm.''
DATES: This rule is effective November 20, 2014.
FOR FURTHER INFORMATION CONTACT: Theresa Jamerson, Office of Investment
and Innovation, (202) 205-7563, or Carol Fendler, Office of Investment
and Innovation, (202) 205-7559, or [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
The Small Business Investment Act of 1958, as amended, prohibits an
SBIC from making passive investments. Accordingly, SBA promulgated 13
CFR 107.720(b), which states as a general rule that an SBIC is not
permitted to finance a passive business. The regulation defines a
business as passive if: (1) It is not engaged in a regular and
continuous business operation; (2) its employees do not carry on the
majority of day-to-day operations, and the company does not exercise
day-to-day control and supervision over contract workers; or (3) the
business passes through substantially all financing proceeds to another
entity.
Prior to this final rule, Sec. 107.720(b) provided two exceptions
to the general prohibition that allow SBICs to employ certain
structures in which the direct recipient of financing is a passive
business, but the end recipient is an active business. The first
exception, identified in Sec. 107.720(b)(2), provided that an SBIC may
make an investment in a passive small business that passes through the
investment proceeds to one or more subsidiary companies, each of which
must be a non-passive small business. SBA defined a subsidiary company
as one in which the financed passive business directly owns at least 50
percent of the outstanding voting securities. The 50 percent ownership
requirement was promulgated in 1998 (63 FR 5859, February 5, 1998),
replacing an earlier provision that allowed a passive small business to
be financed only if it passed the financing proceeds through to a
wholly-owned small business subsidiary. In addressing comments
suggesting that SBA should drop the ownership requirement altogether,
the 1998 final rule stated, ``SBA believes that when a Licensee makes
an investment in a holding company which is unrelated to the Licensee
and is, in fact, a portfolio company, the requirement that proceeds be
passed through only to 50 percent-owned subsidiaries should remain.
This provision ensures that there is a significant relationship between
the financed passive business and the active businesses which
ultimately receive the proceeds, and that the passive business is not
functioning simply as a re-investor.'' The Small Business Investment
Act prohibits an SBIC from financing ``relenders or re-investors.''
The same final rule also established a second exception,
promulgated as Sec. 107.720(b)(3), which allows an SBIC organized as a
partnership to form, with SBA's prior approval, a passive wholly-owned
corporation, the sole purpose of which is to serve as a conduit for
financing provided to one or more eligible unincorporated small
businesses. An SBIC may form such a corporation only if a direct
financing of the small business would cause any of the SBIC's investors
to incur unrelated business taxable income (UBTI) under section 511 of
the Internal Revenue Code of 1986, as amended (26 U.S.C. 511). A
corporation formed for this purpose is one example of what is commonly
referred to as a ``blocker corporation'' to denote an entity that is
subject to Federal corporate income tax and is intended to shield an
investor from certain types of tax liability (most typically UBTI for a
tax-exempt investor or ``effectively connected income'' for a foreign
investor).
In promulgating Sec. 107.720(b)(3), SBA recognized that financing
proceeds flowing from an SBIC to its wholly-owned subsidiary (an
``Associate'' under Sec. 107.50) would technically represent a
prohibited conflict of interest under Sec. 107.730(a); the 1998 final
rule addressed this issue by specifically providing that funds invested
by an SBIC in a blocker corporation created under Sec. 107.720(b)(3)
would not constitute a violation of Sec. 107.730(a). Similarly, the
1998 final rule provided that an SBIC's 100 percent ownership of a
blocker corporation would not constitute a violation of Sec.
107.865(a), which limits SBIC control over a Small Business, but the
need for this provision was essentially eliminated by the relaxation of
the regulatory restrictions on control in 2002.
On December 23, 2013, SBA published a proposed rule (78 FR 77377)
to expand the holding company exception set out in Sec. 107.720(b)(2),
by modifying the definition of a subsidiary company to allow financing
proceeds to pass through a second passive business before reaching a
non-passive subsidiary. The proposed definition did not change the
requirement that a passive direct recipient of SBIC financing own at
least 50% of the active business that ultimately receives the proceeds
(or that the proceeds are used to acquire); rather it allowed for
indirect ownership through a second passive Small Business. The
preamble to the proposed rule discussed how this change would allow
SBICs to have greater flexibility in structuring transactions typically
employed by other private equity and venture firms. The proposed rule
also included several technical corrections.
SBA received one set of comments on the proposed rule. These are
discussed in the following section-by-section analysis.
II. Section-by-Section Analysis
A. Passive Business Rules
The proposed rule expanded the definition of subsidiary company in
Sec. 107.720(b)(2) to allow financing proceeds to pass through a
second passive business before reaching a non-passive subsidiary.
The commenter supported the expansion of the passive investment
exceptions and described transaction structures that the commenter
believed would be permitted under the proposed rule. SBA agrees with
the commenter that the proposed rule would allow SBICs to ``finance a
passive business to take advantage of the favorable tax treatment under
Internal Revenue Code Sec. 338(h)(10)'' and ``invest in an operating
company through two passive business holding companies, subject to
certain requirements.'' The preamble in
[[Page 62821]]
the proposed rule specifically discussed these two instances.
The commenter believed that the proposed rule would also allow an
SBIC to create a blocker corporation as one of the two permitted levels
of passive businesses under proposed Sec. 107.720(b)(2), for the
following purposes: (1) To shield tax exempt investors from receiving
unrelated business taxable income (UBTI) from an investment in a flow-
through entity; (2) to protect an SBIC's foreign investors from the
taxation imposed on income that is considered to be ``effectively
connected'' to a U.S. trade or business; and (3) in the case of an SBIC
that either is a BDC licensed under the Investment Company Act of 1940
or is owned by a parent BDC, to avoid jeopardizing the BDC's
qualification as a regulated investment company under the Internal
Revenue Code.
The commenter's interpretation of the proposed revision of Sec.
107.720(b)(2) is correct, provided the financing proceeds are passed
through only to one or more non-passive ``subsidiary companies'' as
defined in that section. Proposed Sec. 107.720(b)(2) did not specify
any purpose for which a passive entity may or may not be utilized.
Thus, SBA's view is that an investment that is otherwise eligible under
Sec. 107.720(b)(2) could include a passive entity that serves one of
the tax-avoidance purposes cited by the commenter. SBA reminds SBICs,
however, that Sec. 107.720(b)(2) does not permit any investment in
which the first-level passive entity does not own, either directly or
indirectly, at least 50 percent of the outstanding voting interests of
the active small business that ultimately receives the financing
proceeds.
Furthermore, it is important to note that the proposed rule did not
include any expansion of Sec. 107.720(b)(3), which governs the
formation and use of blocker corporations and which does not include
any percentage of ownership requirement comparable to the ``subsidiary
company'' requirement in Sec. 107.720(b)(2). SBA did not intend to
permit the formation and use of blocker corporations under Sec.
107.720(b)(3) for any purpose other than the avoidance of UBTI as
permitted by the existing regulation.
The commenter also suggested the following changes to further
liberalize permitted financings to passive businesses under Sec.
107.720(b):
(1) Revise Sec. 107.720(b)(2) to explicitly state that an SBIC may
``form and finance'' (rather than merely ``finance'') a passive
business.
(2) Eliminate the requirement for SBA prior approval to form a
blocker corporation under Sec. 107.720(b)(3).
(3) Revise Sec. 107.720(b)(3) to permit an SBIC to form a blocker
corporation to enable its foreign investors to avoid ``effectively
connected'' income.
(4) Further broaden Sec. 107.720(b)(2) to allow SBICs to structure
financings in which proceeds may pass through an unlimited number of
passive entities before reaching an eligible, non-passive small
business.
The final rule does not adopt these changes. For the reasons
discussed below, SBA may consider the first three suggestions for
future rulemaking, but is opposed to allowing investments to be
structured with more than two passive levels.
Regarding the suggestion to allow an SBIC to ``form'' a passive
holding company under Sec. 107.720(b)(2), SBA acknowledges that some
SBICs may already be providing financing to holding companies in which
they own a controlling equity interest, in compliance with the
provisions of existing Sec. Sec. 107.865 and 107.720. Thus, the
addition of ``form'' to Sec. 107.720(b)(2) may not represent a
significant change. However, SBA wishes to further evaluate this change
before proposing it in any future rulemaking.
SBA may consider the two suggested changes to Sec. 107.720(b)(3)
in future rulemaking provided that additional safeguards are included
to address SBA concerns regarding credit risk, specifically SBA's
ability to collect from SBICs that default on their debt to SBA. Even
under Sec. 107.720(b) as it existed prior to this final rule, SBA has
encountered three issues that affect its recoveries from defaulting
SBICs with assets that are held indirectly through a passive company:
(1) SBA's lack of access to the books and records of the passive
company; (2) fees and expenses charged at each level, diverting money
from the actual investment and returns; and (3) greater opportunity for
disproportionate distributions to entities other than the SBIC, thereby
reducing the funds available to repay SBA. SBA expects that any future
rulemaking to expand the permitted financing of passive businesses
(under either Sec. 107.720(b)(2) or (b)(3)) would include provisions
to address these concerns.
The commenter's suggestion to allow more than two levels of passive
holding companies under Sec. 107.720(b)(2) stated that ``the crucial
concept should be that the operating company receives substantially all
the proceeds that the SBIC is investing.'' While this concept is
perhaps valid with respect to the SBIC program's public policy
objectives, SBA believes that it would be problematic to implement in
practice, precisely because of the credit and oversight concerns cited
in the preceding paragraph. Even with potential new regulatory
protections that would address these concerns, SBA believes that
effective monitoring of transactions with multiple levels of passive
companies would require resources well beyond those available to the
Agency.
Despite its concerns about the potential risks associated with
investments structured with passive entities, SBA is finalizing this
rule at the request of SBICs so that they may participate in a broader
range of financing transactions from which small businesses will
benefit. SBA expects that SBICs will exercise due diligence and
appropriate monitoring to ensure that passive companies do not charge
excessive fees or expenses so that maximum funding is provided to the
active small business investment and returns to the SBIC are not
adversely affected. As previously noted in this preamble, SBA intends
to take into account its experience with such structures in future
rulemaking.
The commenter also noted a potential source of confusion in
proposed Sec. 107.720(b)(2)(ii). This section was intended to allow an
SBIC to route financing proceeds to an active small business through
two levels of passive holding companies, as long as the first holding
company owns at least 50 percent of the outstanding voting securities
of the active company. The commenter suggested that the stated
requirements for a minimum of 50 percent ownership at each level (i.e.,
the first passive holding company must own at least 50 percent of the
second, which must own at least 50 percent of the active company) could
be misinterpreted as requiring only 50% ownership at each level. This
incorrect reading could result in as little as 25 percent ownership of
the active company by the first passive holding company. The
commenter's suggestion was to delete the intermediate ownership
percentage requirements and retain only the requirement for at least 50
percent ownership of the active company by the first passive company.
SBA agrees with this clarification and has adopted it in the final
rule.
The commenter also noted that Sec. 107.720(b)(2)(i) and (ii)
define the 50 percent ownership requirement in terms of ``outstanding
voting securities''. The commenter suggested that SBA confirm that the
regulation encompasses both the ``securities'' of a corporation and the
``interests'' of a limited liability
[[Page 62822]]
company or limited partnership. SBA confirms that the regulation is
intended to refer to both ``securities'' and ``interests'' as described
by the commenter. SBA has retained the ownership requirement based on
``outstanding voting securities'' in the final rule to remain
consistent with other regulations (e.g., Sec. 107.865(a)) that
similarly refer to ``voting securities'' and are understood to include
interests of limited liability companies and limited partnerships.
B. Technical Changes to Regulations
SBA received one comment on the technical changes in the proposed
rule. The commenter noted that the proposed change to Sec. 107.720(c)
mistakenly reverses the descriptions of NAICS codes 531110 and 531120.
SBA has corrected this in the final rule. Otherwise, all of the
technical changes have been finalized as proposed, and additional
cross-references have been corrected in the final rule. SBA's section-
by-section explanation of the changes is repeated here as a convenience
to the reader.
Section 107.600--General Requirement of Licensee To Maintain and
Preserve Records
The record-keeping requirements applicable to SBICs are found
primarily in Sec. 107.600. This section enumerates various types of
records and the periods for which they must be preserved. The final
paragraph of the section, Sec. 107.600(c)(4), allows an SBIC to
substitute ``a microfilm or computer-scanned or generated copy'' for
any original paper record. The final rule modernizes this provision by
deleting the reference to ``microfilm'' as a preservation medium.
Section 107.720--Small Businesses That May Be Ineligible for Financing
Real Estate Businesses. Under the prior Sec. 107.720(c), an SBIC
was not permitted to finance ``any business classified under Major
Group 65 (Real Estate) or Industry No. 1531 (Operative Builders) of the
SIC Manual'' with exceptions provided for certain businesses that
provide services within the real estate industry (such as title
abstract companies). The ``SIC Manual'' refers to the Standard
Industrial Classification system formerly used by Federal statistical
agencies in classifying business establishments for the purpose of
collecting, analyzing, and publishing statistical data related to the
U.S. business economy. In 1997, the Federal government replaced the SIC
codes with the North American Industrial Classification System (NAICS).
The final rule updates 13 CFR 107.720(c) by replacing SIC codes
with their 2012 NAICS equivalents, which duplicate the previous general
prohibitions and permitted exceptions as closely as possible. The
following tables show each of the SIC codes referenced in the current
regulation and the NAICS code that SBA has replaced it with.
Crosswalk From SIC Codes to NAICS Codes
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Prohibited investments
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SIC Code NAICS Code
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6512 Operators of nonresidential 531120 Lessors of nonresidential buildings (except miniwarehouses).
buildings.
6513 Operators of apartment 531110 Lessors of residential buildings and dwellings.
buildings.
6514 Operators of dwellings other
than apartment buildings.
6515 Operators of residential mobile 531190 Lessors of other real estate property.
home sites.
6517 Lessors of railroad property.
6519 Lessors of real property, not
elsewhere classified.
6552 Land subdividers and 237210 Land subdivision.
developers, except cemeteries.
1531 Operative builders............. 236117 New housing for-sale builders.
236118 Residential remodelers.\1\
236210 Industrial building construction.\1\
236220 Commercial and institutional building construction.\1\
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\1\ An SBIC may not finance a Small Business classified under this code if such business is primarily engaged in
construction or renovation of properties on its own account rather than as a hired contractor.
Restricted Investments
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SIC Code NAICS Code
----------------------------------------------------------------------------------------------------------------
6531 Real estate agents and managers 531210 Offices of real estate agents and brokers.
(establishments primarily engaged 531311 Residential property managers.
in renting, buying, selling,
managing, and appraising real
estate for others).
531312 Nonresidential property managers.
531320 Offices of real estate appraisers.
531390 Other activities related to real estate.
Permitted only if business derives Permitted only if business derives at least 80% of its revenue from non-
at least 80% of its revenue from Affiliate sources.
non-Affiliate sources.
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Permitted Investments
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SIC Code NAICS Code
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6541 Title abstract offices......... 541191 Title abstract and settlement offices.
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The only SIC code in the previous regulation that did not
correspond directly to one or more NAICS codes is 1531, ``Operative
builders.'' The SIC Manual described this industry as consisting of
establishments primarily
[[Page 62823]]
engaged in the construction (including renovation) of single-family
houses and other buildings for sale on their own account rather than as
contractors. The industry included speculative builders and condominium
developers. The 2012 NAICS codes primarily use the term ``for-sale
builder'' to describe businesses engaged in construction or renovation
of buildings on their own account. However, except for those engaged in
new housing construction (NAICS code 236117), for-sale builders are
combined with contractors in three different NAICS codes, depending on
whether they are engaged in residential remodeling (NAICS code 236118),
manufacturing/industrial building construction (NAICS code 236210), or
commercial/institutional building construction (NAICS code 236220). The
final rule prohibits an SBIC from providing financing to a Small
Business classified under any of these three NAICS codes only if the
company is primarily engaged in construction or renovation of buildings
as a for-sale builder. Guidance provided by the United States Census
Bureau indicates that the key element of a for-sale builder is whether
a firm is engaged in construction on its own account, as opposed to
having been hired as a contractor. For example, the final rule permits
an SBIC to provide financing to a firm that primarily renovates or
builds additions to homes if the homeowners have contracted for the
firm's services. However, a firm that primarily acquires homes to
renovate and re-sell at its own risk is a ``for-sale remodeler'' that
would not be eligible for financing by an SBIC.
Section 107.1120--General Eligibility Requirements for Leverage, and
Section 107.1150--Maximum Amount of Leverage for a Section 301(c)
Licensee
The final rule corrects erroneous paragraph references in
Sec. Sec. 107.1120 and 107.1150, which set forth leverage eligibility
provisions for SBICs. Some of these erroneous references were not
identified in the proposed rule, but are nevertheless finalized in this
rule because they are merely corrections that do not substantively
change the subject regulations.
Compliance With Executive Orders 12866, 12988 and 13132, the Paperwork
Reduction Act (44 U.S.C. Ch. 35) and the Regulatory Flexibility Act (5
U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget has determined that this final
rule is not a ``significant'' regulatory action under Executive Order
12866. This is also not a ``major'' rule under the Congressional Review
Act, 5 U.S.C. 801, et seq.
Executive Order 12988
This action meets applicable standards set forth in section 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 presumptive effect.
Executive Order 13132
The rule does not have substantial direct effects on the States, or
the distribution of power and responsibilities among the various levels
of government. Therefore, for the purposes of Executive Order 13132,
Federalism, SBA determines that this final rule has no federalism
implications warranting the preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA
has determined that this final rule does not impose any new reporting
or recordkeeping requirements.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small non-profit businesses, and small local
governments. Pursuant to the RFA, when an agency issues a rule, the
agency must prepare an Initial Regulatory Flexibility Act (IRFA)
analysis which describes whether the impact of the rule will have a
significant economic impact on a substantial number of small entities.
However, section 605 of the RFA allows an agency to certify a rule, in
lieu of preparing an IRFA, if the rulemaking is not expected to have a
significant economic impact on a substantial number of small entities.
This final rule would affect all SBICs, of which there are currently
close to 300. SBA estimates that approximately 75% of these SBICs are
small entities. Therefore, SBA has determined that this final rule does
have an impact on a substantial number of small entities. However, SBA
has determined that the impact on entities affected by the rule is not
significant. The passive business provision provides SBICs with
additional flexibility to employ a transaction structure commonly used
by private equity or venture capital funds that are not SBICs.
SBA asserts that the economic impact of the rule, if any, is
minimal and entirely beneficial to small SBICs. Accordingly, the
Administrator of the SBA certifies that this final rule will not have a
significant impact on a substantial number of small entities.
List of Subjects in 13 CFR Part 107
Investment companies, Loan programs-business, Reporting and
recordkeeping requirements, Small businesses.
For the reasons stated in the preamble, the Small Business
Administration amends part 107 of title 13 of the Code of Federal
Regulations as follows:
PART 107--SMALL BUSINESS INVESTMENT COMPANIES
0
1. The authority citation for part 107 continues to read as follows:
Authority: 15 U.S.C. 681 et seq., 683, 687(c), 687b, 687d,
687g, 687m, and Pub. L. 106-554, 114 Stat. 2763; and Pub. L. 111-5,
123 Stat. 115.
Sec. 107.50 [Amended]
0
2. Amend Sec. 107.50 by removing the definition of ``SIC Manual''.
0
3. Revise Sec. 107.600(c)(4) to read as follows:
Sec. 107.600 General requirement for Licensee to maintain and
preserve records.
* * * * *
(c) * * *
(4) You may substitute a computer-scanned or generated copy for the
original of any record covered by this paragraph (c).
0
4. Amend Sec. 107.720 by revising paragraphs (b)(2) and (c)(1) and the
introductory text of paragraph (c)(2) to read as follows:
Sec. 107.720 Small Businesses that may be ineligible for financing.
* * * * *
(b) * * *
(2) Exception for pass-through of proceeds to subsidiary. You may
finance a passive business if it is a Small Business and it passes
substantially all the proceeds through to one or more subsidiary
companies, each of which is an eligible Small Business that is not
passive. For the purpose of this paragraph (b)(2), ``subsidiary
company'' means a company in which the Financed passive business
either:
(i) Directly owns at least 50 percent of the outstanding voting
securities; or
(ii) Indirectly owns at least 50 percent of the outstanding voting
securities (by directly owning the outstanding voting securities of
another passive Small Business that is the direct owner of the
[[Page 62824]]
outstanding voting securities of the subsidiary company).
* * * * *
(c) Real Estate Businesses. (1) You are not permitted to finance
any business classified under North American Industry Classification
System (NAICS) codes 531110 (lessors of residential buildings and
dwellings), 531120 (lessors of nonresidential buildings except
miniwarehouses), 531190 (lessors of other real estate property), 237210
(land subdivision), or 236117 (new housing for-sale builders). You are
not permitted to finance any business classified under NAICS codes
236118 (residential remodelers), 236210 (industrial building
construction), or 236220 (commercial and institutional building
construction), if such business is primarily engaged in construction or
renovation of properties on its own account rather than as a hired
contractor. You are permitted to finance a business classified under
NAICS codes 531210 (offices of real estate agents and brokers), 531311
(residential property managers), 531312 (nonresidential property
managers), 531320 (offices of real estate appraisers), or 531390 (other
activities related to real estate), only if such business derives at
least 80 percent of its revenue from non-Affiliate sources.
(2) You are not permitted to finance a Small Business, regardless
of NAICS classification, if the Financing is to be used to acquire or
refinance real property, unless the Small Business:
* * * * *
0
5. Amend Sec. 107.1120 by revising paragraphs (e) and (f) to read as
follows:
Sec. 107.1120 General eligibility requirements for Leverage.
* * * * *
(e) For any Leverage request pursuant to Sec. 107.1150(d)(2)(i),
certify that at least 50 percent (in dollars) of your Financings made
on or after the date of such request will be invested in Small
Businesses located in low-income geographic areas.
(f) For any Leverage request pursuant to Sec. 107.1150(d)(2)(ii),
certify that at least 50 percent (in dollars) of the Financings made by
each Licensee under Common Control on or after the date of such request
will be invested in Small Businesses located in low-income geographic
areas.
* * * * *
0
6. Amend Sec. 107.1150 by revising the first and second sentences of
the introductory text and paragraphs (d) introductory text, (d)(1)(iii)
and (iv), the first sentence of (d)(2), (e)(1), and (e)(2)(iii) and
(iv) to read as follows:
Sec. 107.1150 Maximum amount of Leverage for a Section 301(c)
Licensee.
A Section 301(c) 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. An Early Stage SBIC may have maximum
outstanding Leverage as set forth in paragraph (c) of this section. * *
*
* * * * *
(d) Additional Leverage based on investment in low-income
geographic areas. Subject to SBA's credit policies, you may have
outstanding Leverage in excess of the amounts permitted by paragraphs
(a) and (b) of this section in accordance with this paragraph (d). If
you were licensed before October 1, 2009, you may seek additional
Leverage under paragraph (d)(1) only. If you were licensed on or after
October 1, 2009, you may seek additional Leverage under paragraph
(d)(1) or (2), but not both. In this paragraph (d), ``low income
geographic areas'' are as defined in Sec. 108.50 of this chapter. Any
investment that you use as a basis to seek additional leverage under
this paragraph (d) cannot also be used to seek additional leverage
under paragraph (e) of this section.
(1) * * *
(iii) Subtract from your outstanding Leverage the lesser of
paragraph (d)(1)(i) or (ii).
(iv) If the amount calculated in paragraph (d)(1)(iii) is less than
the maximum leverage determined under paragraph (a) of this section,
the difference between the two amounts equals your additional Leverage
availability.
(2) Investment in Small Businesses located in low-income geographic
areas. This paragraph (d)(2) applies only to Licensees licensed on or
after October 1, 2009. * * *
* * * * *
(e) Additional Leverage based on Energy Saving Qualified
Investments in Smaller Enterprises. (1) Subject to SBA's credit
policies, if you were licensed on or after October 1, 2008, you may
have outstanding Leverage in excess of the amounts permitted by
paragraphs (a) and (b) of this section in accordance with this
paragraph (e). Any investment that you use as a basis to seek
additional Leverage under this paragraph (e) cannot also be used to
seek additional Leverage under paragraph (d) of this section.
* * * * *
(2) * * *
(iii) Subtract from your outstanding Leverage the lesser of
paragraph (e)(2)(i) or (ii).
(iv) If the amount calculated in paragraph (e)(2)(iii) is less than
the maximum Leverage determined under paragraph (a) of this section,
the difference between the two amounts equals your additional Leverage
availability.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2014-24803 Filed 10-20-14; 8:45 am]
BILLING CODE 8025-01-P