The rule has been delayed due to the new administration’s regulatory freeze, but there is no reason to believe SBA has changed course on the rule’s appropriateness.
On January 26, the U.S. Small Business Administration (SBA) published a Notice, delaying the effective date of a recent Final Rule that was set to modify SBA’s regulations on the ability of a small business investment company (SBIC) to finance passive businesses. (See our previous Client Alert for a summary of this Final Rule). The Final Rule was scheduled to take effect on January 27, but the SBA has pushed this effective date to March 21 and invited additional public comment on the Final Rule. Comments must be received by February 19.
This delay and invitation for additional public comment is the result of a January 20 memorandum from the Assistant to the President and Chief of Staff, titled “Regulatory Freeze Pending Review,” which calls for agencies to postpone temporarily the effective date of any pending rules and to invite new public comment. These types of delays are fairly standard when there is a change in presidential administrations from one political party to another. We have no reason to believe there has been a change within SBA as to the appropriateness of the improvements made by the Final Rule. Significantly, the SBIC industry will now have an additional opportunity to provide comments on the Final Rule.
The Final Rule’s modifications to the passive business SBIC program regulations will not go into effect until March 21. Similarly, the Final Rule’s two technical changes that were unrelated to the passive business SBIC program regulations will not go into effect until March 21. However, the delay of these technical changes does not impact their effect under law because they either reflected SBA’s current oversight practices (in the case of allowing the minimum $5 million regulatory capital and $2.5 million leveragable capital requirements for SBICs to be less if the reductions are performed in accordance with an SBA-approved wind-up plan) or congressional legislation that had immediate effect (in the case of the increase in the maximum amount of SBA leverage available to SBICs under common control from $225 million to $350 million).
A more detailed description of the SBIC Program is available in Pepper Hamilton LLP’s "Description of the Small Business Investment Company Debenture Program."