When public leverage supports private investment, an additional company in the chain raises a straightforward stewardship question: does the money reach the business the program is meant to serve? SBA's rule published December 28, 2016 answers through conditions on passive intermediaries in the Small Business Investment Company program. The general prohibition remains, with exceptions rather than unrestricted permission. [2016-31291]

The final requires eligible non-passive destinations and applicable ownership conditions. Substantially all proceeds means at least 99 percent after permitted fees and reimbursements, while total fees across the financing cannot exceed those allowed for direct financing. These provisions give substance to accountability: the number of legal entities should not, by itself, justify charging another full set of fees. [2016-31291]

The 2015 proposal sought wider blocker use without prior SBA approval but paired that flexibility with reporting. Its proposed certification concerned unrelated business taxable income and effectively connected income for foreign investors. The final also accommodates a defined income problem for regulated investment companies and permits corporate-taxed LLC blockers. That evolution reflects specific eligibility choices, not a moral endorsement of every tax-sensitive structure. [2015-25232][2016-31291]

The final retains certification and SBA information access, with January 27, 2017 stated for effectiveness. A separate $350 million ceiling applies to leverage for SBICs under common control, not to each beneficiary. The two records belong to one agency process and demonstrate no realized benefit. An ethical assessment can welcome workable financing routes while still asking whether their documented operation serves eligible businesses without unnecessary extraction. [2016-31291][2015-25232]

Source documents

  1. Small Business Investment Companies: Passive Business Expansion and Technical Clarificationshttps://www.govinfo.gov/content/pkg/FR-2016-12-28/html/2016-31291.htm
  2. Small Business Investment Companies; Passive Business Expansion & Technical Clarificationshttps://www.govinfo.gov/content/pkg/FR-2015-10-05/html/2015-25232.htm