On July 2, 2013, the U.S. Small Business Administration (SBA) clarified how Small Business Investment Companies (SBIC funds) report their portfolio valuations. The recently issued TechNote 4 replaces the TechNote 4 that was issued in July 1998.

SBIC funds are required to prepare, document and report the valuations of loans and investments in accordance with the valuation guidelines issued by SBA. These valuations must be submitted semi-annually for leveraged SBIC funds and annually for non-levered SBIC funds.

TechNote 4 provides a detailed summary of items that need to be submitted annually and semi-annually. First, SBIC Form 468 and its schedules are required to be submitted electronically. Second, SBIC funds are required to identify material adverse changes, defined as a decrease of more than 20 percent in the asset value of any individual portfolio security since the end of the immediately prior fiscal year, excluding changes due to repayment of principal by the portfolio concern, to their portfolio securities. The materiality threshold had previously been 10 percent. Third, SBIC valuation meeting minutes signed by each director or general partner should be uploaded as a PDF into SBA’s web-based system, with the original signature page mailed to SBA. Finally, a statement by the SBIC’s independent public accountant on the SBIC’s audited annual financial statement indicating that the valuations were prepared in accordance with the SBIC’s approved valuation policy should uploaded as a PDF into SBA’s web-based system, with the original signature page mailed to SBA.

TechNote 12 provides further clarification regarding specific valuation issues and the use of third-party valuation contractors. In addition, if SBA has questions or concerns with any portfolio valuation, SBA may require additional information on a case-by-case basis.

Each SBIC should review TechNote 4 to ensure it complies with its ongoing reporting requirements.