On November 17, 2022, the U.S. Small Business Administration (SBA) published an interim final rule in the Federal Register to make certain inflationary adjustments for the alternative size standards under the Small Business Investment Company (SBIC) program. The interim final rule became effective on December 19, 2022, but the SBA will accept public comments until January 17, 2023.
Under the SBIC program, SBIC funds may invest only in what the SBA defines as “Small Business Concerns.” Prior to this inflationary adjustment, Small Business Concerns generally included companies, together with their affiliates, with a tangible net worth of less than or equal to $19.5 million and average after-tax income in the prior two years of less than or equal to $6.5 million.
In its discussion in the rule’s release, the SBA found that inflation had increased by 23.22% since the alternative size standards were last adjusted for inflation in 2014. Therefore, following its inflationary adjustment methodology, the SBA increased the net worth and income limitations to $24 million and $8 million, respectively. The SBA noted that small businesses that had previously qualified under the alternative size standards may have lost their status based solely on inflation, and these inflationary adjustments are intended to reinstate their eligibility under the SBIC program
However, the SBA did not adjust for inflation the size standards related to the definition of “Smaller Enterprises” under the SBIC program. The SBA stated that those standards are set by statute and therefore are not subject to inflationary adjustments.
If you have any questions about the SBIC program and how the proposed rules may affect your business, please contact one of the authors.