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SBA expands regulations on passive investments
Kirill Abbakumov   on Wednesday, September 20, 2017 at 12:00:00 am

The U.S. Small Business Administration (SBA) is withdrawing the final rule concerning Small Business Investment Company (SBIC) investments in passive businesses that was published on December 28, 2016, and is replacing it with a new final rule. This final rule expands SBIC permitted investments in passive businesses and includes new reporting and other requirements for passive investments. This rule also makes a few minor technical amendments.

SBICs are generally prohibited from investing in passive businesses under the Act. Prior to this final rule, the previous SBIC program regulations provided for the two exceptions that allowed an SBIC to structure an investment utilizing a passive small business as a pass-through through a holding company exemption and blocker corporation exemption.

SBA is withdrawing the final rule published on December 28, 2016, and is replacing it with a new final rule that expands permitted investments in passive businesses, provides further clarification with regard to investments in such businesses, and adds certain requirements to improve SBA's ability to monitor such investments. The rule also includes a conforming change to the regulations regarding the amount of leverage available to SBICs under common control to be consistent with the Consolidated Appropriations Act of 2016 (H.R. 2029), which increased the maximum amount of such Leverage from $225 million to $350 million.