For the past two decades, the Small Business Investment Company (SBIC) program (the SBIC Program) has primarily offered one type of government-guaranteed loan to private investment funds holding an SBIC license (SBICs): the “Standard SBIC Debenture.” This loan requires private funds to pay the U.S. Small Business Administration (SBA) interest semi-annually, which closely aligns with the cash flow patterns of mezzanine debt and private credit funds. As a result, the ecosystem of debt-focused SBICs has thrived. However, the SBIC Program has been less attractive to funds with equity-oriented strategies.

To address this gap, in July 2023, the SBA implemented the SBIC Investment Diversification and Growth Rule (the Rule). The Rule modernized structural aspects of the SBIC Program and introduced a new government-guaranteed loan: the “SBIC Accrual Debenture,” which is designed to match the cash flow patterns of equity-oriented strategies and therefore be more attractive to private funds investing in the equity of small businesses and startups.

On 14 February 2024, SBA Administrator Isabel Casillas Guzman announced two major milestones resulting from the Rule’s implementation:

1. The SBA approved the first SBIC Critical Technologies (SBICCT) fund applicant to raise private capital. This approval is a prerequisite for receiving an SBICCT License and obtaining a commitment of government-guaranteed funds from the SBA as part of its partnership with the U.S. Department of Defense.
2. The SBA approved the first SBA Accrual SBIC License, which enables the recipient fund to receive a government-guaranteed accrual fund commitment of up to $125 million to match private limited partner capital raised by the fund.