Edwards Wildman Client Advisory - SBICs No Longer Required to Get SBA Approval Prior to Effectuating Transfers of LP Interests


    The U.S. Small Business Administration (the “SBA”) recently simplified the approval process for those who wish to transfer a limited partnership (“LP”) interest of less than 10% of the total partnership interests in a small business investment company (“SBIC”). Previously, SBA pre-approval was required before any transfer of LP interest was made if the transferor wanted to be released from its obligations under the SBIC’s LP agreement.

    The SBA’s approval may now be sought post-transfer if all of the following five criteria are met:

    1. Transfers involve less than 10% ownership interest by the transferor; 
    2. Transfers do not result in ownership of 10% or more by the transferee; 
    3. The SBIC remains in compliance with all capital requirements outlined in 13 C.F.R. § 107.5851
    4. The SBIC has the SBA’s Model Limited Partnership Agreement (“Model LPA”) § 10.01(f), or similar provision, in its LP agreement2; and 
    5. The transfer is in compliance with all other provisions of the SBIC’s LP agreement.

    If all of the above are met, an SBIC must seek SBA approval post-transfer within 30 days of the transfer.

    If any of the above criteria are not satisfied, the SBIC must continue to seek the SBA’s prior approval of the transfer.

    Regardless of whether seeking SBA approval prior to or post-transfer, an SBIC must submit all of the following items to the SBA at the time of any approval request:

    1. Cover letter indicating the change(s) being made and whether the SBIC is seeking prior or post approval for the transfer. If seeking prior approval because the transfer involves more than a 10% ownership interest in the SBIC, the SBIC must indicate in the cover letter the percentage ownership interest being transferred. 
    2. Proof that the SBIC has the SBA’s Model LPA § 10.01(f), or similar provision, in its LP agreement. Or, if the LP agreement lacks the provision or acceptable similar provision, an SBA transfer certificate) signed by the transferor, transferee(s), and the SBIC must be provided. (If the SBIC is relying upon a similar provision to § 10.01(f), the applicable language must be sent to the SBA for approval prior to utilizing the post-approval process.) 
    3. Updated capital certificate reflecting the transfer. 
    4. Copy of the revised Schedule A to the SBIC’s LP agreement and signature page(s) from the LP agreement executed by the transferee(s) and its back-up investor(s) (if applicable). 
    5. Check for $200.00 if the transfer results in 10% or greater ownership by any limited partner.

    If you have questions regarding the new SBA transfer approval process or the SBIC program in general, please contact any of the attorneys listed on this page.

    113 C.F.R. § 107.585 regulates voluntary decreases in the SBIC’s Regulatory Capital (as defined in the SBIC Act).

    2Model LPA § 10.07(f) provides: “Any transferee of any interest in the Partnership by a transfer in compliance with this Section will become a substituted Partner under this Agreement upon delivery and execution of a counterpart of this Agreement, will have the same rights and responsibilities under this Agreement as its assignor and will succeed to the Capital Account and balances thereof.” While § 10.01(f) is not mandatory, most SBICs include it in their LP agreements.

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