[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR107.710]
[Page 53-54]
TITLE 13--BUSINESS CREDIT AND ASSISTANCE
CHAPTER I--SMALL BUSINESS ADMINISTRATION
PART 107_SMALL BUSINESS INVESTMENT COMPANIES--Table of Contents
Subpart G_Financing of Small Businesses by Licensees
Sec. 107.710 Requirement to finance smaller enterprises.
Your Portfolio must include Financings to Smaller Enterprises.
(a) Definition of Smaller Enterprise. A Smaller Enterprise means any
small business concern that:
(1) Both together with its Affiliates, and by itself, meets the size
standard of Sec. 121.201 of this chapter at the time of Financing for
the industry in which it is then primarily engaged; or
(2) Together with its affiliates has a net worth of not more than $6
million and average net income after Federal income taxes (excluding any
carry-over losses) for the preceding two years no greater than $2
million. If the applicant is not required by law to pay Federal income
taxes at the enterprise level, but is required to pass income through to
its shareholders, partners, beneficiaries, or other equitable owners,
the applicant's ``net income after Federal income taxes'' will be its
net income reduced by an amount computed as follows:
(i) If the applicant is not required by law to pay State (and local,
if any) income taxes at the enterprise level, multiply its net income by
the marginal State income tax rate (or by the combined State and local
income tax rates, as applicable) that would have applied if it were a
taxable corporation.
[[Page 54]]
(ii) Multiply the applicant's net income, less any deduction for
State and local income taxes calculated under paragraph (a)(2)(i) of
this section, by the marginal Federal income tax rate that would have
applied if the applicant were a taxable corporation.
(iii) Add the results obtained in paragraphs (a)(2)(i) and
(a)(2)(ii) of this section.
(b) Smaller Enterprise Financings--(1) General rule. At the close of
each of your fiscal years, for all Financings you extended since April
25, 1994, excluding Financings made in whole or in part with Leverage in
excess of $90,000,000, at least 20 percent (in total dollars) must have
been invested in Smaller Enterprises. If you were licensed after April
25, 1994, the 20 percent requirement applies to the Financings you
extended since you were licensed, excluding Financings made in whole or
in part with Leverage in excess of $90,000,000, plus any pre-licensing
investments approved by SBA for inclusion in your Regulatory Capital.
For purposes of this paragraph (b)(1), Leverage in excess of $90,000,000
includes aggregate Leverage over $90,000,000 issued by two or more
Licensees under Common Control. See also paragraph (d) of this section.
(2) Phase-in for new Licensees At the close of your first full
fiscal year after licensing, at least 10 percent of the total dollar
amount of the Financings you extended, including any pre-licensing
investments approved by SBA for inclusion in your Regulatory Capital,
must have been invested in Smaller Enterprises. At the close of each
fiscal year thereafter, you must meet the requirement in paragraph
(b)(1) of this section.
(c) Special requirement for certain leveraged Licensees. (1) This
paragraph (c) applies if you were licensed on or before September 30,
1996, and you issued Leverage after that date, and you have Regulatory
Capital of:
(i) Less than $10,000,000 if such Leverage included Participating
Securities; or
(ii) Less than $5,000,000 if such Leverage was Debentures only.
(2) At the close of each of your fiscal years, at least 50 percent
of the total dollar amount of the Financings you extended after
September 30, 1996 must have been invested in Smaller Enterprises.
(d) Special requirement for Leverage over $90,000,000. If you have
issued Leverage over $90,000,000 (including aggregate Leverage over
$90,000,000 issued by two or more Licensees under Common Control), at
the end of each of your fiscal years the cumulative Financings you
extended to Smaller Enterprises must equal at least:
(1) The dollar amount necessary to satisfy paragraph (b) of this
section; plus
(2) 100 percent of the amount of all Financings made in whole or in
part with Leverage over $90,000,000.
(e) Financing a change of ownership which results in the creation of
a Smaller Enterprises. The Financing of a change of ownership under
Sec. 107.750 which results in the creation of a Smaller Enterprise
qualifies as a Smaller Enterprise Financing.
(f) Non-compliance with this section. If you have not reached the
required percentage of Smaller Enterprise Financings at the end of any
fiscal year, then you must be in compliance by the end of the following
fiscal year. However, you will not be eligible for additional Leverage
until you reach the required percentage (see Sec. 107.1120(c) through
(e)).
[62 FR 11760, Mar. 13, 1997, as amended at 63 FR 5866, Feb. 5, 1998; 64
FR 70995, Dec. 20, 1999; 66 FR 30647, June 7, 2001]