March 23, 2016
By Marty Teckler
Partner, Kelley Drye
Contributor, C-Suite Wednesday
C-Suite Wednesday — Why you Need to Start or Invest in an SBIC
“Banks and their holding companies and certain investment advisers can derive significant regulatory advantages from participating directly or indirectly in the SBIC Program whether or not Leverage is obtained.
For example, by owning or investing in SBICs, Banks and Federal savings associations (as well as their holding companies) have the ability to own indirectly more than 5% of the voting stock of small businesses in which the SBICs invest.
Banks and Federal savings associations which invest in SBIC’s, and their holding companies, also may receive dollar for dollar Community Reinvestment Act Credit for those investments.
In addition, the Regulations implementing the Gramm Leach Bliley Act (“GLB Act”) governing regulatory capital treatment for equity investments held by Banks and bank holding companies exempt bank related SBIC investments from capital charges otherwise mandated under the GLB Act so long as their value is less than 15% of tier one capital of the bank or bank holding company.
Also, ownership of a 15% or more equity interest in a small business by a bank affiliated SBIC will not give rise to a presumption under the GLB Act that the small business is an affiliate of the bank or bank holding company.
Finally, under the Dodd-Frank Act, ownership in a fund applying to be an SBIC is exempted from the general statutory prohibition regarding bank ownership of an equity interest in or sponsorship of a private equity fund, so long as the SBIC fund is licensed or has actually received permission from SBA to file an application to become an SBIC.
Also, advisers that advise only licensed SBICs, applicants that have received permission to file SBIC applications from SBA, or applicants that are affiliated with one or more licensed SBICs, are exempted from the requirements for advisers to register with the Securities and Exchange Commission otherwise imposed by the Dodd Frank Act on investment advisers to private equity funds.”