Locke Lord QuickStudy: 2015 SBIC Annual Recertification of Institutional Investor Status

Locke Lord LLP
June 5, 2015
On June 4, 2015, the U.S. Small Business Administration (SBA) issued Memorandum #1 – 2015, Annual Recertification, regarding annual recertification of the Institutional Investors of Small Business Investment Companies (SBICs).  The Investment Division of the SBA requires certain SBICs to recertify the status of all limited partners classified as Institutional Investors on an annual basis.  Recertifications are required each year from SBICs with outstanding SBA leverage, outstanding SBA leverage commitments or both.  

Because the unfunded portion of an Institutional Investor’s commitment to an SBIC is included when calculating Regulatory Capital, the SBA has determined that it is necessary to take steps on a regular basis to ensure all Institutional Investors remain qualified for that designation.  If limited partners are no longer qualified, the SBIC’s Regulatory Capital must be adjusted accordingly and a new Capital Certificate must be filed with the SBA.

An SBIC’s level of Regulatory Capital has a direct bearing on its operations including its capital impairment ratio, over-line limitation, management fee calculation, leverage commitment eligibility, etc.  Misstatements of Regulatory Capital can be a violation of Federal law and may subject violators to criminal prosecution and civil penalties.

SBICs may accomplish the annual recertification of the status of their investors by submitting to their SBA Operations Analyst either:

OPTION 1:  A fully executed Capital Certificate which reflects any revisions in its Institutional Investors and/or Regulatory Capital, or 
OPTION 2:  A letter certifying that a review of unfunded commitments of Institutional Investors has occurred and that no changes are required in the Capital Certificate most recently filed by the SBIC with the SBA.

SBICs licensed between October 1, 2014 and September 30, 2015, do not need to recertify until 2016.

Based on the level of Regulatory Capital reflected on the last Capital Certificate submitted to the SBA by an SBIC, the SBIC must recertify according to the following schedule:

Unfunded Commitment Range
Filing Schedule  From  To
June 30, 2015
$20,000,000  More than $20,000,000
July 31, 2015
August 31, 2015
September 30, 2015
October 31, 2015
November 30, 2015

Should you have any questions about the recertification process, please contact any of the attorneys listed to the right.