Under this proposed Regulations, the BSO anticipates that the administrative costs of the SBIC program will decrease over time as regulatory filing is simplified and duplicate data reporting for multiple submissions is reduced. In addition, the proposed Regulations include changes that reduce bureaucratic processes, such as approving SBIC`s total licensing commitment, reducing SBA approvals for certain conflicts of interest by creating additional safe havens, and approving GAAP assessments for non-leveraged licensees. The BSO believes that such changes will help it improve its response times and allow employees to focus on client relationships and tracking their funds. In revising the offering of SBIC debentures in two classes of debentures, „Debentures“ and „Accumulation Debentures“, offered to eligible SBIC licensees under 13 CFR 107.50, the SBA expects to have a minor impact on the grant for the SBIC Start Printed Page 63449 program. Currently, as part of its licensing process, the SBA reviews about 70 license applications each year and rejects 10-15% or 8-10 applications due to poor performance, negative diligence, and/or regulatory conflicts. These 70 applications represent the total number of annual licence applications for CICBs without leverage or debentures. Two-thirds of these applications are submitted by companies that have already obtained an SBIC licence for a subsequent authorised SBIC fund. The approximate total number of licences approved annually under the SBIC program is 25. In addition, state-regulated private equity funds must meet the requirements of the relevant federal regulators. Private equity funds must also comply with the terms of their investor agreements, such as a limited partnership agreement, and fulfill their fiduciary duty to their investors.
Based on these requirements, the SBA expects these licensed SBIC funds to continue to make investment decisions based on their fiduciary responsibility and the terms of their investor agreements, thereby limiting the risk to the SBA. Regulated SBIC licensees must comply with the business plan and investor agreements submitted to the SBA when operating an SBIC license. Licensees benefit from the fact that they are no longer required to file 1031 funding reports within 30 days of Section 107,640 funding, but at the end of each quarter, unless they are subject to enhanced oversight as noted above. This reduces paperwork and reporting overhead for SBIC licensees. As a result of this revision, the SBA plans to reduce the time small businesses have to access capital at critical times, which will help more small businesses grow and expand. In addition, it will reduce the administrative costs of the SBA. The term „equity investments“ means shares and investments as defined in § 107.50 that include common or preferred shares, limited partnerships, certain subordinated debt securities and warrants. The SBA recognises that venture capital and private equity transactions are evolving and is seeking public comment on the proposed changes to the „equity investments“ it should consider. These regulations set out the equipment and office requirements that CIBS require to operate under the program.
The current Regulation requires a personal computer with modem and internet access in accordance with point (a) and the need for a fax function in accordance with point (b). The BSO received comments from industry that these regulations were outdated. Some CISs stated that they purchase fax machines to ensure that this requirement is met. The objective of this regulation is to ensure that CIBs can properly communicate with the SBA, receive official correspondence, prepare and provide electronic reports, and request leverage. The proposed amendments would remove the modeman requirement in paragraph (a); abolish the obligation to fax referred to in point (b); and paragraph (a) to require CISs to have technologies to securely send and receive emails, scan documents, and prepare and submit electronic information and reports required by the SBA. This wording would allow for reasonable technological changes without the need to amend regulations. All OBICs are already using this technology in their day-to-day operations. This change should reduce the cost of the starting pressure page 63443 by eliminating unnecessary equipment. Similarly, under this proposed rule, the SBA seeks GAAP-compliant financial data related to valuations in the supplemental valuation reports on Form SBA 468, which are currently requested semi-annually. Under this proposed rule, the frequency of reporting would be increased from semi-annual to quarterly to complement the assessment data that CICBs are already required to report on the SBA`s Short Form 468 for quarterly reports. Many SBIC investors request GAAP valuations of SBICs, and the SBA understands that all or substantially all SBICs currently prepare such data under GAAP in addition to the SBA`s valuation guidelines applicable to Form SBA 468.
Therefore, the BSO anticipates that the addition of GAAP financial data will generally have minimal impact on the calculation of fee increases, as this information should already be made available to CISs in the normal course of business. While diversification does not guarantee profits, it ensures that the performance of an investment firm is not tied to a single company or industry. In addition to mutual funds, investors can use exchange-traded funds that track major stock market indices and industry sectors, allowing them to diversify their geographic and sector activities at a low cost. According to the Securities Institute of America, a diversified investment firm may not hold more than 5 per cent of its assets in a single security and not more than 10 per cent of the securities of a single issuer, pursuant to section 5(b)(1) of the Investment Company Act of 1940. Non-diversified investment companies are not subject to these restrictions. Investment companies invest in various securities such as cash, bonds and shares. Diversified investment companies, such as mutual funds, typically invest in multiple asset classes and securities within each class. Non-diversified investment firms typically invest in a particular asset class or sector, and in certain securities in each sector.
A fund that meets the requirements of the criteria described above at the end of a quarter does not lose its RIC status because of a difference between the value of its various investments and those requirements in a subsequent quarter, unless such difference exists immediately after the acquisition of a security or other asset and results in whole or in part from that acquisition.