This month, the U.S. Small Business Administration (SBA) released an updated SBIC TechNote 9: Guidance for Obtaining a Regulatory Exemption for “Overline” Investments, which supersedes its original release in April 2002. This update conforms TechNote 9 to certain 2009 regulatory and statutory changes that increased the overline limit for most small business investment company funds (SBIC Funds) to 30% from 20% of adjusted Regulatory Capital, as defined in 13 C.F.R. § 107.50.

When the SBA initially approved TechNote 9, SBIC Funds could exceed the overline limit without obtaining the SBA’s prior written regulatory exemption. Now, however, SBIC Funds that intend to finance or commit capital in excess of the heightened limit must obtain an exemption from the SBA, which will now be unlikely to grant such exemptions except in rare circumstances. Accordingly, SBIC Funds should plan to keep initial and follow-on investments within the increased limit.

To obtain a prior written regulatory exemption, the SBIC Fund Managers must demonstrate to the SBA’s satisfaction that (i) the exemption would not be contrary to the purposes of the Small Business Investment Act of 1958 as amended, (ii) the proposed action is fair and equitable, and (iii) the investment would advance the best interests of the SBIC Program. Please click here to view the SBA’s step-by-step summary of the procedures to obtain an exemption.