DATE: February 23, 2004

SUBJECT: Small Business Administration (SBA); Long Term Financing Provided by Small Business Investment Companies

SOURCE: Federal Register, February 23, 2004, Vol. 69, No. 35, page 8097

AGENCIES: Small Business Administration (SBA)

ACTION: Direct Final Rule

SYNOPSIS: The SBA intends to bring its regulations concerning the Small Business Investment Company (SBIC) program into conformity with the Small Business Investment Corrections Act of 2000 (Public Law 106-554) by decreasing the minimum time for "long-term financing" from five years to one year.

EDITOR'S NOTE: The SBA's regulations that will be amended should this direct final rule go into effect are in Title 13 of the Code of Federal Regulations (CFR), Chapter 1, Small Business Administration, Part 107, Small Business Investment Companies.

SBA is modifying its SBIC regulations through use of a "direct final rule," which SBA reserves for rules it believes are noncontroversial. If SBA receives any adverse comments on a direct final rule, it withdraws the rule, considers the comments, then decides on the contents of a final rule.

SBA is publishing this regulation as a direct final rule because it merely conforms the regulations to the provisions of the Small Business Investment Corrections Act that became effective on December 21, 2000. SBA believes that this rule will not elicit any significant adverse comments.

DATES: This rule is effective on May 24, 2004, without further action unless adverse comment is received by March 24, 2004. If adverse comments are received, SBA will withdraw the rule.

ADDRESSES: Send adverse comments to Harry Haskins, Deputy Associate Administrator for Investment, U.S. Small Business Administration, 409 3rd Street, SW., Washington, DC 20416; or http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Carol Fendler, Director, Office of Licensing and Program Standards, Investment Division, Office of Capital Access, 202-205-7559, or be e-mail to carol.fendler@sba.gov.

SUPPLEMENTAL INFORMATION: SBA always interpreted the Small Business Investment Act (15 U.S.C. 681) as requiring SBICs to provide long term financing either in the form of loans or equity capital. Because the Small Business Investmetn Act did not define "long term," SBA had defined the term to mean a financing with a minimum term of five years. Accordingly, SBA promulgated regulations which require that loans and debt securities have a stated term of at least five years prior to maturity, subject to reasonable amortization requirements, and that equity securities be outstanding for at least five years before the issuing small business concern can be required to redeem them.

The Section 402 of the Small Business Investment Corrections Act added a new Section 103(17) to the Small Business Investment Act, and it overruled SBA's definition by defining "long term" to mean any period of time not less than one year. Therefore, this direct final rule will revise the following sections of the SBIC regulations to reflect the one-year financing term: Section 107.830, Minimum Duration/Term of Financing; Section 107.835, Exceptions to Minimum Duration/Term of Financing; Section 107.845, Maximum Rate of Amortization on Loans and Debt Securities; and Section 107.850, Restrictions on Redemption of Equity Securities.

EDITOR'S NOTE: The introduction of the direct final rule states, "It should be emphasized that the Corrections Act established one year as the minimum financing term, but did not affect an SBIC's ability to offer longer term financing. Under this rule, SBICs will continue to be able to structure investments with longer maturities to accommodate the varying financial needs of small businesses."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2004 by Panoptic Enterprises. All Rights Reserved.

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