Nmvc Reg's

§ 107.1920

13 CFR Ch. I (1–1–06 Edition)
Subpart C—Qualifications for the NMVC
Program

of any succeeding breach of such term
or provision or condition.
§ 107.1920 Licensee’s application for
exemption from a regulation in this
part 107.
You may file an application in writing with SBA to have a proposed action
exempted from any procedural or substantive requirement, restriction, or
prohibition to which it is subject under
this part, unless the provision is mandated by the Act. SBA may grant an
exemption for such applicant, conditionally or unconditionally, provided
the exemption would not be contrary
to the purposes of the Act. Your application must be accompanied by supporting evidence which demonstrates
to SBA’s satisfaction that:
(a) The proposed action is fair and equitable; and
(b) The exemption requested is reasonably calculated to advance the best
interests of the SBIC program in a
manner consonant with the policy objectives of the Act and the regulations
in this part.
§ 107.1930 Effect of changes in this
part 107 on transactions previously
consummated.

ORGANIZING A NMVC COMPANY
108.100 Business form.
108.110 Qualified management.
108.120 Economic development primary mission.
108.130 Identified Low Income Geographic
Areas.
108.140 SBA approval of initial Management
Expenses.
108.150 Management and ownership diversity requirement.
108.160 Special rules for NMVC Companies
formed as limited partnerships.
CAPITALIZING A NMVC COMPANY
108.200 Adequate capital for NMVC Companies.
108.210 Minimum capital requirements for
NMVC Companies.
108.230 Private Capital for NMVC Companies.

Subpart D—Application and Approval
Process for NMVC Company Designation
108.300 When and how to apply for designation as a NMVC Company.
108.310 Contents of application.
108.320 Contents of comprehensive business
plan.
108.330 Grant issuance fee.

The legality of a transaction covered
by the regulations in this part is governed by the regulations in this part in
effect at the time the transaction was
consummated, regardless of later
changes. Nothing in this part bars SBA
enforcement action with respect to any
transaction consummated in violation
of provisions applicable at the time,
but no longer in effect.

108.340 Evaluation and selection—general.
108.350 Eligibility and completeness.
108.360 Evaluation criteria.
108.370 Conditional approval.
108.380 Final approval as a NMVC Company.

PART 108—NEW MARKETS VENTURE
CAPITAL (‘‘NMVC’’) PROGRAM

CHANGES IN CONTROL OR OWNERSHIP OF NMVC
COMPANY

Subpart A—Introduction to Part 108
Sec.
108.10 Description of the New Markets Venture Capital Program.
108.20 Legal basis and applicability of this
part 108.
108.30 Amendments to Act and regulations.
108.40 How to read this part 108.

Subpart B—Definition of Terms Used in This
Part 108
108.50

Definition of terms.

Subpart E—Evaluation and Selection of
NMVC Companies

Subpart F—Changes in Ownership,
Structure, or Control

108.400 Changes in ownership of 10 percent
or more of NMVC Company but no
change of Control.
108.410 Changes in Control of NMVC Company (through change in ownership or
otherwise).
108.420 Prohibition on exercise of ownership
or Control rights in NMVC Company before SBA approval.
108.430 Notification to SBA of transactions
that may change ownership or Control.
108.440 Standards governing prior SBA approval for a proposed transfer of Control.
108.450 Notification to SBA of pledge of
NMVC Company’s shares.

102

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00112

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

Pt. 108
REPORTING REQUIREMENTS FOR NMVC
COMPANIES

RESTRICTIONS ON COMMON CONTROL OR OWNERSHIP OF TWO OR MORE NMVC COMPANIES

108.460 Restrictions on Common Control or
ownership of two (or more) NMVC Companies.
CHANGE IN STRUCTURE OF NMVC COMPANY
108.470 SBA approval of merger, consolidation, or reorganization of NMVC Company.

Subpart G—Managing the Operations of a
NMVC Company

108.630 Requirement for NMVC companies
to file financial statements and supplementary information with SBA (SBA
Form 468).
108.640 Requirement to file portfolio financing reports (SBA Form 1031).
108.650 Requirement to report portfolio
valuations to SBA.
108.660 Other items required to be filed by
NMVC Company with SBA.
108.680 Reporting changes in NMVC Company not subject to prior SBA approval.
EXAMINATIONS OF NMVC COMPANIES BY SBA
FOR REGULATORY COMPLIANCE

GENERAL REQUIREMENTS
108.500 Lawful operations under the Act.
108.502 Representations to the public.
108.503 NMVC Company’s adoption of an approved valuation policy.
108.504 Equipment and office requirements.
108.506 Safeguarding the NMVC Company’s
assets/Internal controls.
108.507 Violations based on false filings and
nonperformance of agreements with
SBA.
108.509 Employment of SBA officials.
MANAGEMENT AND COMPENSATION
108.510 SBA approval of NMVC Company’s
Investment Adviser/Manager.
108.520 Management Expenses of a NMVC
Company.
CASH MANAGEMENT BY A NMVC COMPANY
108.530 Restrictions on investments of idle
funds by NMVC Companies.
BORROWING BY NMVC COMPANIES FROM NONSBA SOURCES
108.550 Prior approval of secured third-party
debt of NMVC companies.
VOLUNTARY DECREASE IN REGULATORY
CAPITAL
108.585 Voluntary decrease in NMVC Company’s Regulatory Capital.

Subpart H—Recordkeeping, Reporting,
and Examination Requirements for
NMVC Companies

108.690 Examinations.
108.691 Responsibilities of NMVC Company
during examination.
108.692 Examination fees.

Subpart I—Financing of Small Businesses
by NMVC Companies
DETERMINING THE ELIGIBILITY OF A SMALL
BUSINESS FOR NMVC FINANCING
108.700 Compliance with size standards in
part 121 of this chapter as a condition of
Assistance.
108.710 Requirement to finance Low-Income
Enterprises.
108.720 Small Businesses that may be ineligible for financing.
108.730 Financings which constitute conflicts of interest.
108.740 Portfolio diversification (‘‘overline’’
limitation).
108.760 How a change in size or activity of a
Portfolio Concern affects the NMVC
Company and the Portfolio Concern.
STRUCTURING NMVC COMPANY’S FINANCING OF
ELIGIBLE SMALL BUSINESSES
108.800 Financings in the form of equity interests.
108.820 Financings in the form of guarantees.
108.825 Purchasing securities from an underwriter or other third party.
LIMITATIONS ON DISPOSITION OF ASSETS

RECORDKEEPING REQUIREMENTS FOR NMVC
COMPANIES

108.885 Disposition of assets to NMVC Company’s Associates.

108.600 General requirement for NMVC Company to maintain and preserve records.
108.610 Required certifications for Loans
and Investments.
108.620 Requirements to obtain information
from Portfolio Concerns.

108.900 Fees for management services provided to a Small Business by a NMVC
Company or its Associate.

MANAGEMENT SERVICES AND FEES

103

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00113

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.10

13 CFR Ch. I (1–1–06 Edition)
COMPUTATION OF NMVC COMPANY’S CAPITAL
IMPAIRMENT

Subpart J—SBA Financial Assistance for
NMVC Companies (Leverage)
GENERAL INFORMATION ABOUT OBTAINING
LEVERAGE
108.1100 Type of Leverage and application
procedures.
108.1120 General eligibility requirement for
Leverage.
108.1130 Leverage fees payable by NMVC
Company.
108.1140 NMVC Company’s acceptance of
SBA remedies under § 108.1810.
MAXIMUM AMOUNT OF LEVERAGE FOR WHICH A
NMVC COMPANY IS ELIGIBLE
108.1150 Maximum amount of Leverage for a
NMVC Company.
CONDITIONAL COMMITMENTS BY SBA TO
RESERVE LEVERAGE FOR A NMVC COMPANY
108.1200 SBA’s Leverage commitment to a
NMVC Company’application procedure,
amount, and term.
108.1220 Requirement for NMVC Company to
file financial statements at the time of
request for a draw.
108.1230 Draw-downs by NMVC Company
under SBA’s Leverage commitment.
108.1240 Funding of NMVC Company’s draw
request through sale to third-party.
FUNDING LEVERAGE BY USE OF SBA
GUARANTEED TRUST CERTIFICATES (‘‘TCS’’)
108.1600 SBA authority to issue and guarantee Trust Certificates.
108.1610 Effect of prepayment or early redemption of Leverage on a Trust Certificate.
108.1620 Functions of agents, including Central Registration Agent, Selling Agent
and Fiscal Agent.
108.1630 SBA regulation of Brokers and
Dealers and disclosure to purchasers of
Leverage or Trust Certificates.
108.1640 SBA access to records of the CRA,
Brokers, Dealers and Pool or Trust assemblers.

108.1830 NMVC Company’s Capital Impairment definition and general requirements.
108.1840 Computation of NMVC Company’s
Capital Impairment Percentage.

Subpart L—Ending Operations as a NMVC
Company
108.1900 Termination of participation as a
NMVC Company.

Subpart M—Miscellaneous
108.1910 Non-waiver of SBA’s rights or
terms of Leverage security.
108.1920 NMVC Company’s application for
exemption from a regulation in this part
108.
108.1930 Effect of changes in this part 108 on
transactions previously consummated.
108.1940 Procedures for designation of additional Low-Income Geographic Areas

Subpart N—Requirements and Procedures
for Operational Assistance Grants to
NMVC Companies and SSBICs
108.2000 Operational Assistance grants to
NMVC Companies and SSBICs.
108.2001 When and how SSBICs may apply
for Operational Assistance grants.
108.2002 Eligibility of SSBICs to apply for
Operational Assistance grants.
108.2003 Grant issuance fee for SSBICs.
108.2004 Contents of application submitted
by SSBICs.
108.2005 Contents of plan submitted by
SSBICs.
108.2006 Evaluation and selection of SSBICs.
108.2007 Grant award to SSBICs.
108.2010 Restrictions on use of Operational
Assistance grant funds.
108.2020 Amount of Operational Assistance
grant.
108.2030 Matching requirements.
108.2040 Reporting and recordkeeping requirements.
AUTHORITY: 15 U.S.C. 689–689q.
SOURCE: 66 FR 28609, May 23, 2001, unless
otherwise noted.

MISCELLANEOUS
108.1700 Transfer by SBA of its interest in a
NMVC Company’s Leverage security.
108.1710 SBA authority to collect or compromise its claims.
108.1720 Characteristics of SBA’s guarantee.

Subpart K—NMVC Company’s
Noncompliance With Terms of Leverage
108.1810 Events of default and SBA’s remedies for NMVC Company’s noncompliance with terms of Debentures.

Subpart A—Introduction to Part
108
§ 108.10 Description of the New Markets Venture Capital Program.
The New Markets Venture Capital
(‘‘NMVC’’) Program is a developmental
venture capital program for the purpose of promoting economic development and the creation of wealth and

104

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00114

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.50

job opportunities in low-income geographic areas and among individuals
living in such areas. SBA selects and
then enters into participation agreements with selected newly formed venture capital companies, and provides
leverage in the form of debenture guarantees to such companies to allow
them to make equity capital investments in smaller enterprises located in
low-income geographic areas. SBA also
awards grants to such companies and
to Specialized Small Business Investment Companies so that they can provide operational assistance to such
smaller enterprises in connection with
such investments.
§ 108.20 Legal basis and applicability
of this part 108.
The regulations in this part implement Part B of Title III of the Small
Business Investment Act of 1958, as
amended (15 U.S.C. 661 et seq.). All
NMVC Companies must comply with
all applicable SBA regulations, accounting guidelines and valuation
guidelines for NMVC Companies, available from SBA.
§ 108.30 Amendments to Act and regulations.
A NMVC Company is subject to all
provisions of the Act and parts 108 and
112 of title 13 of the Code of Federal
Regulations.
§ 108.40 How to read this part 108.
(a) Center headings. All references in
this part to SBA forms, and instructions for their preparation, are to the
current issue of such forms (available
from Investment Division, SBA). Center headings are descriptive and are
used for convenience only. They have
no regulatory effect.
(b) Capitalizing defined terms. Terms
defined in § 108.50 have initial capitalization in this part 108.
(c) ‘‘You.’’ The pronoun ‘‘you’’ as
used in this part 108 means a NMVC
Company unless otherwise noted.

Subpart B—Definition of Terms
Used in This Part 108
§ 108.50 Definition of terms.
The following definitions apply to
this part 108:

Act means the Small Business Investment Act of 1958, as amended (15 U.S.C.
661 et seq.).
Affiliate or Affiliates has the meaning
set forth in § 121.103 of this chapter.
Applicant means any entity submitting an application to SBA for designation as a NMVC Company under this
part.
Articles mean articles of incorporation or charter for a Corporate NMVC
Company, the partnership agreement
or certificate for a Partnership NMVC
Company, and the operating agreement
or other organizational documents for
a LLC NMVC Company.
Assistance or Assisted means Financing of or management services rendered to a Small Business by or
through a NMVC Company pursuant to
the Act and this part.
Associate of a NMVC Company means
any of the following:
(1)(i) An officer, director, employee
or agent of a Corporate NMVC Company;
(ii) A Control Person, employee or
agent of a Partnership NMVC Company;
(iii) A managing member of a LLC
NMVC Company;
(iv) An Investment Adviser/Manager
of any NMVC Company, including any
Person who contracts with a Control
Person of a Partnership NMVC Company to be the Investment Adviser/
Manager of such NMVC Company; or
(v) Any Person regularly serving a
NMVC Company on retainer in the capacity of attorney at law.
(2) Any Person who owns or controls,
or who has entered into an agreement
to own or control, directly or indirectly, at least 10 percent of any class
of stock of a Corporate NMVC Company or 10 percent of the membership
interests of an LLC NMVC Company,
or a limited partner’s interest of at
least 10 percent of the partnership capital of a Partnership NMVC Company.
However, neither a limited partner in a
Partnership NMVC Company nor a
non-managing member in an LLC
NMVC Company is considered an Associate if such Person is an entity Institutional Investor whose investment in

105

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00115

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.50

13 CFR Ch. I (1–1–06 Edition)

the Partnership, including commitments, represents no more than 33 percent of the capital of the NMVC Company and no more than five percent of
such Person’s net worth.
(3) Any officer, director, partner
(other than a limited partner), manager, agent, or employee of any Associate described in paragraph (1) or (2) of
this definition.
(4) Any Person that directly or indirectly Controls, or is Controlled by, or
is under Common Control with, a
NMVC Company.
(5) Any Person that directly or indirectly Controls, or is Controlled by, or
is under Common Control with, any
Person described in paragraphs (1) and
(2) of this definition.
(6) Any Close Relative of any Person
described in paragraphs (1), (2), (4), and
(5) of this definition.
(7) Any Secondary Relative of any
Person described in paragraphs (1), (2),
(4), and (5) of this definition.
(8) Any concern in which—
(i) Any person described in paragraphs (1) through (6) of this definition
is an officer; general partner, or managing member; or
(ii) Any such Person(s) singly or collectively Control or own, directly or indirectly, an equity interest of at least
10 percent (excluding interests that
such Person(s) own indirectly through
ownership interests in the NMVC Company).
(9) Any concern in which any Person(s) described in paragraph (7) of this
definition singly or collectively own
(including beneficial ownership) a majority equity interest, or otherwise
have Control. As used in this paragraph
(9), ‘‘collectively’’ means together with
any Person(s) described in paragraphs
(1) though (7) of this definition.
(10) For the purposes of this definition, if any Associate relationship described in paragraphs (1) through (7) of
this definition exists at any time within six months before or after the date
that a NMVC Company provides Financing, then that Associate relationship is considered to exist on the date
of the Financing.
(11) If any NMVC Company has any
ownership interest in another NMVC
Company, the two NMVC companies
are Associates of each other.

Capital Impairment has the meaning
set forth in § 108.1830(b).
Central Registration Agent or CRA
means one or more agents appointed by
SBA for the purpose of issuing TCs and
performing the functions enumerated
in § 108.1620 and performing similar
functions for Debentures funded outside the pooling process.
Close Relative of an individual means:
(1) A current or former spouse;
(2) A father, mother, guardian, brother, sister, son, daughter; or
(3) A father-in-law, mother-in-law,
brother-in-law, sister-in-law, son-inlaw, or daughter-in-law.
Commitment means a written agreement between a NMVC Company and
an eligible Small Business that obligates the NMVC Company to provide
Financing (except a guarantee) to that
Small Business in a fixed or determinable sum, by a fixed or determinable future date. In this context
the term ‘‘agreement’’ means that
there has been agreement on the principal economic terms of the Financing.
The agreement may include reasonable
conditions precedent to the NMVC
Company’s obligation to fund the commitment, but these conditions must be
outside the NMVC Company’s control.
Common Control means a condition
where two or more Persons, either
through ownership, management, contract, or otherwise, are under the Control of one group or Person. Two or
more NMVC companies are presumed
to be under Common Control if they
are Affiliates of each other by reason of
common ownership or common officers, directors, or general partners; or
if they are managed or their investments are significantly directed either
by a common independent investment
advisor or managerial contractor, or by
two or more such advisors or contractors that are Affiliates of each other.
This presumption may be rebutted by
evidence satisfactory to SBA.
Community
Development
Finance
means debt and equity-type investments in low-income communities.
Conditionally Approved NMVC Company means a company that—
(1) Has applied for participation as a
NMVC Company, and
(2) SBA has conditionally approved
to participate in the NMVC program

106

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00116

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.50

for a specified period of time not to exceed two years, subject to the company
fulfilling the requirements to be a
NMVC Company within that specified
period of time.
Control means the possession, direct
or indirect, of the power to direct or
cause the direction of the management
and policies of a NMVC Company or
other concern, whether through the
ownership of voting securities, by contract, or otherwise.
Control Person means any Person that
controls a NMVC Company, either directly or through an intervening entity. A Control Person includes:
(1) A general partner of a Partnership
NMVC Company;
(2) Any Person serving as the general
partner, officer, director, or manager
(in the case of a limited liability company) of any entity that controls a
NMVC Company, either directly or
through an intervening entity;
(3) Any Person that—
(i) Controls or owns, directly or
through an intervening entity, at least
10 percent of a Partnership NMVC
Company or any entity described in
paragraphs (1) or (2) of this definition;
and
(ii) Participates in the investment
decisions of the general partner of such
Partnership NMVC Company;
(4) Any Person that controls or owns,
directly or through an intervening entity, at least 50 percent of a Partnership NMVC Company or any entity described in paragraphs (1) or (2) of this
definition.
Corporate NMVC Company. See definition of NMVC Company in this section.
Debentures means debt obligations
issued by NMVC companies pursuant to
section 355 of the Act and held or guaranteed by SBA.
Debt Securities are instruments evidencing a loan with an option or any
other right to acquire Equity Securities in a Small Business or its Affiliates, or a loan which by its terms is
convertible into an equity position.
Consideration must be paid for all options that you acquire.
Developmental Venture Capital means
capital in the form of Equity Capital
Investments in Smaller Enterprises
made with a primary objective of fos-

tering economic development in LowIncome Geographic Areas.
Distribution means any transfer of
cash or non-cash assets to SBA, its
agent or Trustee, or to partners in a
Partnership NMVC Company, or to
shareholders in a Corporate NMVC
Company, or to members in an LLC
NMVC Company. Capitalization of Retained Earnings Available for Distribution constitutes a Distribution to the
NMVC Company’s non-SBA partners,
shareholders, or members.
Equity Capital Investments means investments in the form of common or
preferred stock, limited partnership interests, options, warrants, or similar
equity instruments, including subordinated debt with equity features if such
debt provides only for interest payments contingent upon and limited to
the extent of earnings. Equity Capital
Investments must not require amortization. Equity Capital Investments
may be guaranteed by one or more
third parties; however, neither Equity
Capital Investments nor such guarantee may be collateralized or otherwise secured. Investments classified as
Debt Securities are not precluded from
qualifying as Equity Capital Investments. Equity Capital Investments
may provide for royalty payments only
if the royalty payments are based on
the earnings of the concern.
Equity Securities means stock of any
class in a corporation, stock options,
warrants, limited partnership interests
in a limited partnership, membership
interests in a limited liability company, or joint venture interests.
Financing or Financed means outstanding financial assistance provided
to a Small Business by a NMVC Company, whether through:
(1) Loans;
(2) Debt Securities;
(3) Equity Securities;
(4) Guarantees; or
(5) Purchases of securities of a Small
Business through or from an underwriter (see § 108.825).
Guaranty Agreement means the contract entered into by SBA which is a
guarantee backed by the full faith and
credit of the United States Government as to timely payment of principal
and interest on Debentures and SBA’s

107

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00117

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.50

13 CFR Ch. I (1–1–06 Edition)

rights in connection with such guarantee.
Includible Non-Cash Gains means
those non-cash gains (as reported on
SBA Form 468) that are realized in the
form of Publicly Traded and Marketable securities or investment grade
debt instruments. For purposes of this
definition, investment grade debt instruments means those instruments
that are rated ‘‘BBB’’ or ‘‘Baa’’, or better, by Standard & Poor’s Corporation
or Moody’s Investors Service, respectively. Non-rated debt may be considered to be investment grade if a NMVC
Company obtains a written opinion
from an investment banking firm acceptable to SBA stating that the nonrated debt instrument is equivalent in
risk to the issuer’s investment grade
debt.
Institutional Investor means:
(1) Entities. Any of the following entities if the entity has a net worth (exclusive of unfunded commitments from
investors) of at least $1 million, or such
higher amount as is specified in this
paragraph (1). (See also § 108.230(c)(4)
for limitations on the amount of an Institutional
Investor’s
commitment
that may be included in Private Capital.)
(i) A State or National bank, trust
company, savings bank, or savings and
loan association.
(ii) An insurance company.
(iii) A 1940 Act Investment Company
or Business Development Company
(each as defined in the Investment
Company Act of 1940, as amended (15
U.S.C. 8a–1 et seq.).
(iv) A holding company of any entity
described in paragraph (l)(i), (ii) or (iii)
of this definition.
(v) An employee benefit or pension
plan established for the benefit of employees of the Federal government, any
State or political subdivision of a
State, or any agency or instrumentality of such government unit.
(vi) An employee benefit or pension
plan (as defined in the Employee Retirement Income Security Act of 1974,
as amended (Public Law 93–406, 88 Stat.
829), excluding plans established under
section 401(k) of the Internal Revenue
Code of 1986 (26 U.S.C. 401(k)), as
amended).

(vii) A trust, foundation or endowment exempt from Federal income taxation under the Internal Revenue Code
of 1986, as amended.
(viii) A corporation, partnership or
other entity with a net worth (exclusive of unfunded commitments from investors) of more than $10 million.
(ix) A State, a political subdivision of
a State, or an agency or instrumentality of a State or its political subdivision.
(x) An entity whose primary purpose
is to manage and invest non-Federal
funds on behalf of at least three Institutional Investors described in paragraphs (l)(i) through (l)(ix) of this definition, each of whom must have at
least a 10 percent ownership interest in
the entity.
(xi) Any other entity that SBA determines to be an Institutional Investor.
(2) Individuals. (i) Any of the following individuals if he/she is also a
permanent resident of the United
States:
(A) An individual who is an Accredited Investor (as defined in the Securities Act of 1933, as amended (15 U.S.C.
77a-77aa)) and whose commitment to
the NMVC Company is backed by a letter of credit from a State or National
bank acceptable to SBA.
(B) An individual whose personal net
worth is at least $2 million and at least
ten times the amount of his or her
commitment to the NMVC Company.
The individual’s personal net worth
must not include the value of any equity in his or her most valuable residence.
(C) An individual whose personal net
worth, not including the value of any
equity in his or her most valuable residence, is at least $10 million.
(ii) Any individual who is not a permanent resident of the United States
but who otherwise satisfies paragraph
(2)(i) of this definition provided such
individual has irrevocably appointed
an agent within the United States for
the service of process.
Investment Adviser/Manager means
any Person who furnishes advice or assistance with respect to operations of a
NMVC Company under a written contract executed in accordance with the
provisions of § 108.510.

108

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00118

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.50

Lending Institution means a concern
that is operating under regulations of a
state or Federal licensing, supervising,
or examining body, or whose shares are
publicly traded and listed on a recognized stock exchange or NASDAQ and
which has assets in excess of $500 million; and which, in either case, holds
itself out to the public as engaged in
the making of commercial and industrial loans and whose lending operations are not for the purpose of financing its own or an Associate’s sales
or business operations.
Leverage means financial assistance
provided to a NMVC Company by SBA
through the guaranty of a NMVC Company’s Debentures, and any other SBA
financial assistance evidenced by a security of the NMVC Company.
Leverageable Capital means Regulatory Capital, excluding unfunded
commitments.
LLC NMVC Company. See definition
of NMVC Company in this section.
Loan means a transaction evidenced
by a debt instrument with no provision
for you to acquire Equity Securities.
Loans and Investments means Portfolio securities, assets acquired in liquidation of Portfolio securities, operating concerns acquired, and notes and
other securities received, as set forth
in the Statement of Financial Position
of SBA Form 468.
Low-Income Enterprise means a Smaller Enterprise that, as of the time of the
initial Financing, has its Principal Office located in a Low-Income Geographic Area.
Low-Income Geographic Area (‘‘LI
Area’’) means—
(1) Any population census tract (or in
the case of an area that is not tracted
for population census tracts, the equivalent county division, as defined by the
Bureau of the Census of the United
States Department of Commerce for
purposes of defining poverty areas), if—
(i) The poverty rate for that census
tract is not less than 20 percent;
(ii) In the case of a tract—
(A) That is located within a metropolitan area, 50 percent or more of the
households in that census tract have
an income equal to less than 60 percent
of the area median gross income; or
(B) That is not located within a metropolitan area, the median household

income for such tract does not exceed
80 percent of the statewide median
household income; or
(C) As determined by the Administrator in accordance with § 108.1940 of
this part, a substantial population of
Low-Income Individuals reside, an inadequate access to investment capital
exists, or other indications of economic
distress exist in that census tract; or
(2) Any area located within—
(i) A Historically Underutilized Business Zone (‘‘HUBZone’’) as defined in
section 3(p) of the Small Business Act
and 13 CFR 126.103;
(ii) An Urban Empowerment Zone or
Urban Enterprise Community (as designated by the Secretary of the United
States Department of Housing and
Urban Development); or
(iii) A Rural Empowerment Zone or
Rural Enterprise Community (as designated by the Secretary of the United
States Department of Agriculture).
Low-Income Individual means an individual whose income (adjusted for family size) does not exceed—
(1) For metropolitan areas, 80 percent
of the area median income; and
(2) For nonmetropolitan areas, the
greater of—
(i) 80 percent of the area median income, or
(ii) 80 percent of the statewide nonmetropolitan area median income.
Low-Income Investment means an Equity Capital Investment in a Low-Income Enterprise.
Management Expenses has the meaning set forth in § 108.520.
NAICS Manual means the latest issue
of the North American Industrial Classification System Manual, prepared by
the Office of Management and Budget,
and available from the U.S. Government Printing Office, Superintendent
of Documents, P.O. Box 371954, Pittsburgh, Pa., 15250–7954.
New Markets Tax Credit program
means the tax credit created by the
Consolidated Appropriations Act of
2001, Public Law 106–554 (114 Stat.
2762A), enacted December 21, 2000, to be
implemented by the Internal Revenue
Service, United States Department of
Treasury.
New Markets Venture Capital Company
or NMVC Company means a corporation
(Corporate NMVC Company), a limited

109

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00119

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.50

13 CFR Ch. I (1–1–06 Edition)

partnership organized as required by
§ 108.160 (Partnership NMVC Company),
or a limited liability company (LLC
NMVC Company) that—
(1) Has been granted final approval
by SBA under § 108.380, and
(2) Has entered into a Participation
Agreement with SBA. For certain purposes, the Entity General Partner of a
Partnership NMVC Company is treated
as if it were a NMVC Company (see
§ 108.160(a)).
1940 Act Company means a NMVC
Company which is registered under the
Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.).
1980 Act Company means a NMVC
Company which is registered under the
Small Business Investment Incentive
Act of 1980 (Public Law 96–447, 94 Stat.
2275).
Operational Assistance means management, marketing, and other technical
assistance that assists a Small Business with its business development.
Original Issue Price means the price
paid by the purchaser for securities at
the time of issuance.
Participation Agreement means an
agreement between SBA and a company to which SBA has granted final
approval under § 108.380, that—
(1) Details the company’s operating
plan and investment criteria; and
(2) Requires the company to make investments in Smaller Enterprises at
least 80 percent of which Smaller Enterprises are located in LI Areas.
Partnership NMVC Company. See definition of NMVC Company in this section.
Person means a natural person or
legal entity.
Pool means an aggregation of SBA
guaranteed Debentures approved by
SBA.
Portfolio means the securities representing a NMVC Company’s total
outstanding Financing of Smaller Enterprises. It does not include idle funds
or assets acquired in liquidation of
Portfolio securities.
Portfolio Concern means a Small Business Assisted by a NMVC Company.
Principal Office means the location
where the greatest number of the concern’s employees at any one location
perform their work. However, for those
concerns whose ‘‘primary industry’’

(see 13 CFR 121.107) is service or construction (see 13 CFR 121.201), the determination of principal office excludes
the concern’s employees who perform
the majority of their work at job-site
locations to fulfill specific contract obligations.
Private Capital has the meaning set
forth in § 108.230.
Publicly Traded and Marketable means
securities that are salable without restriction or that are salable within 12
months pursuant to Rule 144 (17 CFR
230.144) of the Securities Act of 1933, as
amended, by the holder thereof, and
are of a class which is traded on a regulated stock exchange, or is listed in the
Automated Quotation System of the
National Association of Securities
Dealers (NASDAQ), or has, at a minimum, at least two market makers as
defined in the relevant sections of the
Securities Exchange Act of 1934, as
amended (15 U.S.C. 77b et seq.), and in
all cases the quantity of which can be
sold over a reasonable period of time
without having an adverse impact upon
the price of the stock.
Regulatory Capital means Private
Capital, excluding any portion of Private Capital that is designated as
matching resources in accordance with
§ 108.2030(b)(3).
Relevant Venture Capital Finance
means Equity Capital Investments in
small businesses in low-income communities or benefiting low-income
communities.
Retained Earnings Available for Distribution means Undistributed Net Realized Earnings less any Unrealized Depreciation on Loans and Investments
(as reported on SBA Form 468), and
represents the amount that a NMVC
Company may distribute to investors
(including SBA) as a profit Distribution, or transfer to Private Capital.
SBA means the Small Business Administration, 409 Third Street, SW.,
Washington, DC 20416.
Secondary Relative of an individual
means:
(1) A grandparent, grandchild, or any
other ancestor or lineal descendent
who is not a Close Relative;
(2) An uncle, aunt, nephew, niece, or
first cousin; or

110

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00120

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.110

(3) A spouse of any person described
in paragraph (1) or (2) of this definition.
Small Business means a small business
concern as defined in section 103(5) of
the Act (including its Affiliates), and
which meets the criteria applicable to
the Small Business Investment Company program as set forth in part 121 of
this chapter.
Small Business Investment Company
(SBIC) means a Licensee, as that term
is defined in § 107.50 of this chapter.
Smaller Enterprise means any Small
Business that:
(1) Together with its Affiliates has a
net worth of not more than $6.0 million
and average net income after Federal
income taxes (excluding any carry-over
losses) for the preceding two years no
greater than $2.0 million; or
(2) Both together with its Affiliates,
and by itself, meets the size standard
of § 121.201 of this chapter at the time
of Financing for the industry in which
it is then primarily engaged.
Specialized Small Business Investment
Companies (SSBICs) means any Small
Business Investment Company that—
(1) Invests solely in small business
concerns that contribute to a well-balanced national economy by facilitating
ownership in such concerns by persons
whose participation in the free enterprise system is hampered because of social or economic disadvantages; and
(2) Was licensed under section 301(d)
of the Small Business Investment Act,
as in effect before September 30, 1996.
Trust means the legal entity created
for the purpose of holding guaranteed
Debentures and the guaranty agreement related thereto, receiving, holding and making any related payments,
and accounting for such payments.
Trust Certificate Rate means a fixed
rate determined at the time Debentures are pooled.
Trust Certificates (TCs) means certificates issued by SBA, its agent or
Trustee and representing ownership of
all or a fractional part of a Trust or
Pool of Debentures.
Trustee means the trustee or trustees
of a Trust.
Undistributed Net Realized Earnings
means Undistributed Realized Earnings
less Non-cash Gains/Income, each as reported on SBA Form 468.

Unrealized Appreciation means the
amount by which a NMVC Company’s
valuation of each of its Loans and Investments, as determined by its Board
of Directors or General Partner(s) in
accordance with NMVC Company’s
valuation policies, exceeds the cost
basis thereof.
Unrealized Depreciation means the
amount by which a NMVC Company’s
valuation of each of its Loans and Investments, as determined by its Board
of Directors or General Partner(s) in
accordance with NMVC Company’s
valuation policies, is below the cost
basis thereof.
Unrealized Gain (Loss) on Securities
Held means the sum of the Unrealized
Appreciation and Unrealized Depreciation on all of a NMVC Company’s
Loans and Investments, less estimated
future income tax expense or estimated
realizable future income tax benefit, as
appropriate.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68502, Nov. 12, 2002]

Subpart C—Qualifications for the
NMVC Program
ORGANIZING A NMVC COMPANY
§ 108.100 Business form.
A NMVC Company must be a newly
formed for-profit entity or, subject to
§ 108.150, a newly formed for-profit subsidiary of an existing entity. It must be
organized under State law solely for
the purpose of performing the functions and conducting the activities
contemplated under the Act. It may be
organized as a corporation (‘‘Corporate
NMVC Company’’), a limited partnership (‘‘Partnership NMVC Company’’),
or a limited liability company (‘‘LLC
NMVC Company’’).
§ 108.110 Qualified management.
An Applicant must show, to the satisfaction of SBA, that its current or
proposed management team is qualified and has the knowledge, experience,
and capability in Community Development Finance or Relevant Venture
Capital Finance, necessary for investing in the types of businesses contemplated by the Act, the regulations
in this part and its business plan. In
determining whether an Applicant’s

111

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00121

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.120

13 CFR Ch. I (1–1–06 Edition)

current or proposed management team
has sufficient qualifications, SBA will
consider information provided by the
Applicant and third parties concerning
the background, capability, education,
training and reputation of its general
partners, managers, officers, key personnel, and investment committee and
governing board members. The Applicant must designate at least one individual as the official responsible for
contact with SBA.
§ 108.120 Economic development primary mission.
The primary mission of a NMVC
Company must be economic development of one or more LI Areas.
§ 108.130 Identified Low Income Geographic Areas.
A NMVC Company must identify the
specific LI Areas in which it intends to
make Developmental Venture Capital
investments and provide Operational
Assistance under the NMVC program.
§ 108.140 SBA approval of initial Management Expenses.
A NMVC Company must have its
Management Expenses approved by
SBA at the time of designation as a
NMVC Company. (See § 108.520 for the
definition of Management Expenses.)
§ 108.150 Management and ownership
diversity requirement.
(a) Diversity requirement. You must
have diversity between management
and ownership in order to be a NMVC
Company. To establish diversity, you
must meet the requirements in paragraphs (b) and (c) of this section.
(b) Percentage ownership requirement.
No Person or group of Persons who are
Affiliates of one another may own or
control, directly or indirectly, more
than 70 percent of your Regulatory
Capital or your Leverageable Capital.
(c) Non-affiliation requirement. At
least 30 percent of your Regulatory
Capital and Leverageable Capital must
be owned and controlled by three Persons unaffiliated with your management and unaffiliated with each other,
whose investments are significant in
dollar and percentage terms as determined by SBA. Such Persons must not
be your Associates (except for their

status as your shareholders, limited
partners or members) and must not
Control, be Controlled by, or be under
Common Control with any of your Associates. A single ‘‘acceptable’’ Institutional Investor may be substituted for
two or three of the three investors who
are otherwise required. The following
Institutional Investors are ‘‘acceptable’’ for this purpose:
(1) Entities whose overall activities
are regulated and periodically examined by state, Federal or other governmental authorities satisfactory to
SBA;
(2) Entities listed on the New York
Stock Exchange;
(3) Entities that are publicly-traded
and that meet both the minimum numerical listing standards and the corporate governance listing standards of
the New York Stock Exchange:
(4) Public or private employee pension funds;
(5) Trusts, foundations, or endowments, but only if exempt from Federal
income taxation; and
(6) Other Institutional Investors satisfactory to SBA.
(d) Voting requirement. The investors
required for you to satisfy diversity
may not delegate their voting rights to
any Person who is your Associate, or
who Controls, is Controlled by, or is
under Common Control with any of
your Associates, without prior SBA approval.
(e) Requirement to maintain diversity.
You must maintain management-ownership diversity while you are a NMVC
Company. If, at any time, you no
longer have the required managementownership diversity, you must:
(1) Notify SBA within 10 days; and
(2) Re-establish diversity within six
months.
[66 FR 28609, May 23, 2001; 66 FR 32894, June
19, 2001]

§ 108.160 Special rules for NMVC Companies formed as limited partnerships.
(a) Entity General Partner. (1) A general partner which is a corporation,
limited liability company or partnership (an ‘‘Entity General Partner’’)

112

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00122

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.230

shall be organized under state law solely for the purpose of serving as the general partner of one or more NMVC companies.
(2) SBA must approve any person who
will serve as an officer, director, manager, or general partner of the Entity
General Partner. This provision must
be stated in an Entity General Partner’s Certificate of Incorporation, operating agreement, limited partnership
agreement or other similar governing
instrument.
(3) An Entity General Partner is subject to the same examination and reporting requirements as a NMVC Company under sections 361 and 362 of the
Act. The restrictions and obligations
imposed upon a NMVC Company by
§§ 108.1810, 108.30, 108.410 through 108.450,
108.470, 108.500, 108.510, 108.585, 108.600,
108.680, 108.690 through 108.692, and
108.1910 apply also to an Entity General
Partner of a NMVC Company.
(4) The general partner(s) of your Entity General Partner(s) will be considered your general partner.
(5) If your Entity General Partner is
a limited partnership, its limited partners may be considered your Control
Person(s) if they meet the definition
for Control Person in § 108.50.
(b) Other requirements for Partnership
NMVC Companies. If you are a Partnership NMVC Company:
(1) You must have a minimum duration of 10 years or two years following
the maturity of your last-maturing Leverage security, whichever is longer.
After 10 years, if all Leverage has been
repaid or redeemed and all amounts
due SBA, its agent, or Trustee have
been paid, the Partnership NMVC Company may be terminated by a vote of
your partners;
(2) None of your general partner(s)
may be removed or replaced by your
limited partners without prior written
approval of SBA;
(3) Any transferee of, or successor in
interest to, your general partner shall
have only the rights and liabilities of a
limited partner pending SBA’s written
approval of such transfer or succession;
and
(4) You must incorporate all the provisions in this paragraph (b) in your
limited partnership agreement.

(c) Obligations of a Control Person. All
Control Persons are bound by the disciplinary provisions of sections 365 and
366 of the Act and by the conflict-of-interest rules under § 108.730. The term
NMVC Company, as used in §§ 108.30,
108.460, and 108.680, includes all of the
NMVC Company’s Control Persons. The
conditions specified in § 108.1810 and
§ 108.1910 apply to all general partners.
(d) Liability of general partner for partnership debts to SBA. Subject to section
365 of the Act, your general partner is
not liable solely by reason of its status
as a general partner for repayment of
any Leverage or debts you owe to SBA
unless SBA, in the exercise of reasonable investment prudence, and with regard to your financial soundness, determines otherwise prior to the purchase or guaranty of your Leverage.
(e) Special Leverage requirement. Before your first issuance of Leverage,
you must furnish SBA with evidence
that you qualify as a partnership for
tax purposes, either by a ruling from
the Internal Revenue Service or by an
opinion of counsel.
CAPITALIZING A NMVC COMPANY
§ 108.200 Adequate capital for NMVC
Companies.
You must meet the requirements of
§§ 108.200–108.230 in order to qualify for
designation as a NMVC Company and
to receive Leverage.
§ 108.210 Minimum capital requirements for NMVC Companies.
You must have Regulatory Capital of
at least $5,000,000 and Leverageable
Capital of at least $500,000 to become a
NMVC Company.
§ 108.230 Private
Companies.

Capital

for

(a) General. Private Capital means
the contributed capital of a NMVC
Company, plus unfunded binding commitments by Institutional Investors
(including commitments evidenced by
a promissory note) to contribute capital to a NMVC Company.
(b) Contributed capital. For purposes
of this section, contributed capital
means the paid-in capital and paid-in
surplus of a Corporate NMVC Company, the members’ paid-in capital of a

113

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00123

Fmt 8010

NMVC

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.300

13 CFR Ch. I (1–1–06 Edition)

LLC NMVC Company, or the partners’
paid-in capital of a Partnership NMVC
Company, in each case subject to the
limitations in paragraph (c) of this section.
(c) Exclusions from Private Capital.
Private Capital does not include:
(1) Funds borrowed by a NMVC Company from any source.
(2) Funds obtained through the
issuance of Leverage.
(3) Funds obtained directly from any
Federal agency or department.
(4) Any portion of a commitment
from an Institutional Investor with a
net worth of less than $10 million that
exceeds 10 percent of such Institutional
Investor’s net worth.
(5) A commitment from an investor if
SBA determines that the collectability
of the commitment is questionable.
(d) Limitations on including non-cash
capital contributions in Private Capital.
Private Capital does not include capital contributions in a form other than
cash, except as provided in this paragraph (d). Subject to SBA’s prior approval, Private Capital may include
payments made on behalf of an Applicant or Conditionally Approved NMVC
Company before the Applicant or Conditionally Approved NMVC Company
becomes a NMVC Company for organizational expenses and Management Expenses incurred by the Applicant or the
Conditionally Approved NMVC Company prior to its becoming a NMVC
Company.
(e) Contributions with borrowed funds.
You may not accept any capital contribution made with funds borrowed by
a Person seeking to own an equity interest (whether direct or indirect, beneficial or of record) of at least 10 percent of your Private Capital. This exclusion does not apply if:
(1) Such Person’s net worth is at
least twice the amount borrowed; or
(2) SBA gives its prior written approval of the capital contribution.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68502, Nov. 12, 2002]

Subpart D—Application and Approval Process for NMVC
Company Designation
§ 108.300 When and how to apply for
designation as a NMVC Company.
(a) Notice of Funds Availability
(‘‘NOFA’’). SBA will publish a NOFA in
the FEDERAL REGISTER, advising potential applicants of the availability of
funds for the NMVC program. An entity may then submit an application for
designation as a NMVC Company.
When submitting its application, an
Applicant must comply with both these
regulations and any requirements specified in the NOFA, including submission deadlines. The NOFA may specify
limitations, special rules, procedures,
and restrictions for a particular funding round.
(b) Application form. An Applicant
must apply for designation as a NMVC
Company using the application packet
provided by SBA. Upon receipt of an
application, SBA may request clarifying or technical information on the
materials submitted as part of the application.
§ 108.310 Contents of application.
Each Applicant must submit a complete application, including the following:
(a) Amounts. The Applicant must indicate—
(1) The specific amount of Regulatory
Capital it proposes to raise (which
amount must be at least $5,000,000); and
(2) The specific amount of binding
commitments for contributions in cash
or in-kind it proposes to raise, and/or
an annuity it proposes to purchase, in
accordance with the requirements of
§ 108.2030, as its matching resources for
its Operational Assistance grant award
(the aggregate of which must be not
less than $1,500,000 or 30 percent of the
Regulatory Capital it proposes to raise
under paragraph (a)(1) of this section,
whichever is greater).
(b) Comprehensive business plan. The
Applicant must submit a comprehensive business plan covering at least a
five-year period, addressing the specific
items described in § 108.320, and which
demonstrates that the Applicant has
the capacity to operate successfully as
a NMVC Company.

114

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00124

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.320

(c) New Markets Tax Credit program.
Applicant must address if and to what
extent it intends to conform its activities to the New Markets Tax Credit
laws. If Applicant plans to seek a New
Markets Tax Credit, Applicant also
must state the amount of tax credit allocation it intends to seek.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68502, Nov. 12, 2002]

§ 108.320 Contents of comprehensive
business plan.
(a) Executive summary. The executive
summary must include a description
of—
(1) The Applicant;
(2) Its strategy for how it proposes to
make successful Developmental Venture Capital investments in identified
LI Areas;
(3) The markets in the LI Areas it
proposes to serve; and
(4) How it intends to work with community organizations in and be accountable to the residents of identified
LI Areas in order to facilitate its Developmental Venture Capital investments.
(b) Capacity, skills, and experience of
the management team. An Applicant
must provide information generally as
to the background, capability, education, reputation and training of its
general partners, managers, officers,
key personnel, investment committee
and governing board members. The Applicant also must provide information
specifically on these individuals’ qualifications and reputation in the areas of
Community Development Finance and/
or Relevant Venture Capital Finance,
including the impact of these individuals’ activities in these areas.
(c) Market analysis. An Applicant
must provide an analysis of the LI
Areas in which it intends to focus its
Developmental Venture Capital investments and Operational Assistance to
Smaller Enterprises, demonstrating
that the Applicant understands the
market and the unmet capital needs in
such areas and how its activities will
meet these unmet capital needs
through Developmental Venture Capital investments and will have a positive economic impact on those areas.
The analysis must include a description of the extent of the economic dis-

tress in the identified LI Areas. An Applicant also must analyze the extent of
the demand in such areas for Developmental Venture Capital investments
and any factors or trends that may affect the Applicant’s ability to make effective Developmental Venture Capital
investments.
(d) Operational capacity and investment strategies. An Applicant must submit information concerning its policies
and procedures for underwriting and
approving its Developmental Venture
Capital investments, monitoring its
portfolio, and maintaining internal
controls and operations.
(e) Regulatory Capital. An Applicant
must include a detailed description of
how it plans to raise its Regulatory
Capital. An Applicant must discuss its
potential sources of Regulatory Capital, the estimated timing on raising
such funds, and the extent of the expressions of interest to commit such
funds to the Applicant.
(f) Plan for providing Operational Assistance. An Applicant must describe
how it plans to use its grant funds to
provide Operational Assistance to
Smaller Enterprises in which it will
make Developmental Venture Capital
investments. Its plan must address the
types of Operational Assistance it proposes to provide, and how it plans to
provide the Operational Assistance
through the use of licensed professionals, when necessary, either from its
own staff or from outside entities.
(g) Matching resources for Operational
Assistance grant. An Applicant must include a detailed description of how it
plans to obtain binding commitments
for cash or in-kind contributions, and/
or to purchase an annuity, to match
the funds requested from SBA for the
Applicant’s
Operational
Assistance
grant. If it proposes to obtain commitments for cash and in-kind contributions, it also must estimate the ratio
of cash to in-kind contributions (in no
event may in-kind contributions exceed 50 percent of the total contributions). Applicant must discuss its potential sources of matching resources,
the estimated timing on raising such
funds, and the extent of the expressions
of interest to commit such funds to the

115

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00125

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.330

13 CFR Ch. I (1–1–06 Edition)

Applicant. Potential sources of matching resources must satisfy the requirements in § 108.2030(b)(1).
(h) Projected amount of investment in
LI Areas. An Applicant must describe
the amount of its total Regulatory
Capital and Leverage that it proposes
to invest in Smaller Enterprises located in LI Areas, as compared to the
amount that it proposes to invest in
Small Businesses located outside of LI
Areas.
(i) Projected impact. An Applicant
must describe the criteria and economic measurements to be used to
evaluate whether and to what extent it
has met the objectives of the NMVC
program. It must include:
(1) A description of the extent to
which it will concentrate its Developmental Venture Capital investments
and Operational Assistance activities
in identified LI Areas;
(2) An estimate of the social, economic, and community development
benefits to be created within identified
LI Areas over the next five years or
more as a result of its activities;
(3) A description of the criteria to be
used to measure the benefits created as
a result of its activities;
(4) A discussion about the amount of
such benefits created that it will consider to constitute successfully meeting the objectives of the NMVC program.
(j) Affiliates and business relationships.
Applicant must submit information regarding the management and financial
strength of any parent or holding entity, affiliated firm or entity, or any
other firm or entity essential to the
success of the Applicant’s business
plan.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68503, Nov. 12, 2002]

§ 108.330

Grant issuance fee.

An Applicant must pay to SBA a
grant issuance fee of $5,000. An Applicant must submit this fee in advance,
at the time of application submission.
If SBA does not select an Applicant as
a Conditionally Approved NMVC Company or designate an Applicant as a
NMVC Company, SBA will refund this
fee to the Applicant.

Subpart E—Evaluation and
Selection of NMVC Companies
§ 108.340 Evaluation
general.

and

selection—

SBA will evaluate and select an Applicant to participate in the NMVC
program solely at SBA’s discretion,
based on SBA’s review of the Applicant’s application materials, interviews or site visits with the Applicant
(if any), and background investigations
conducted by SBA and other Federal
agencies. SBA’s evaluation and selection process is intended to—
(a) Ensure that Applicants are evaluated on a competitive basis and in a
fair and consistent manner;
(b) Take into consideration the
unique proposals presented by Applicants;
(c) Ensure that each Applicant that
SBA designates as a NMVC Company
can fulfill successfully the goals of its
comprehensive business plan; and
(d) Ensure that SBA selects Applicants in such a way as to promote Developmental Venture Capital investments nationwide and in both urban
and rural areas.
§ 108.350

Eligibility and completeness.

SBA will not consider any application that is not complete or that is
submitted by an Applicant that does
not meet the eligibility criteria described in subpart C of this part. SBA,
at its sole discretion, may request from
an Applicant additional information
concerning eligibility criteria or easily
completed portions of the application
in order to allow SBA to consider that
Applicant’s application.
§ 108.360

Evaluation criteria.

SBA will evaluate and select an Applicant for participation in the NMVC
program by considering the following
criteria—
(a) The quality of the Applicant’s
comprehensive business plan in terms
of meeting the objectives of the NMVC
program;
(b) The likelihood that the Applicant
will fulfill the goals described in its
comprehensive business plan;
(c) The capability of the Applicant’s
management team;

116

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00126

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.380

(d) The strength and likelihood for
success of the Applicant’s operations
and investment strategies;
(e) The need for Developmental Venture Capital investments in the LI
Areas in which the Applicant intends
to invest;
(f) The extent to which the Applicant
will concentrate its activities on serving the LI Areas in which it intends to
invest, including the ratio of resources
that it proposes to invest in such areas
as compared to other areas;
(g) The Applicant’s demonstrated understanding of the markets in the LI
Areas in which it intends to focus its
activities;
(h) The likelihood that and the time
frame within which the Applicant will
be able to—
(1) Raise the Regulatory Capital it
proposes to raise for its investments,
and
(2) Obtain the binding commitments
for contributions in cash or in-kind
and/or an annuity it proposes to obtain
as its matching resources for its Operational Assistance grant award;
(i) The strength of the Applicant’s
proposal to provide Operational Assistance to Smaller Enterprises in which it
plans to invest;
(j) The extent to which the activities
proposed by the Applicant will promote
economic development and the creation of wealth and job opportunities
in the LI Areas in which it intends to
invest and among individuals living in
LI Areas; and
(k) The strength of the Applicant’s
application compared to applications
submitted by other Applicants and by
SSBICs intending to invest in the same
or proximate LI Areas.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68503, Nov. 12, 2002]

§ 108.370 Conditional approval.
From among the Applicants submitting eligible and complete applications,
SBA will select a number of Applicants
and will conditionally approve such selected Applicants to participate in the
NMVC program. SBA will give each
such Conditionally Approved NMVC
Company a specific period of time, not
to exceed two years, to satisfy the requirements to become a NMVC Company.

§ 108.380 Final approval as a NMVC
Company.
(a) General rule. With respect to each
Conditionally Approved NMVC Company, SBA will either:
(1) Grant final approval to participate in the NMVC program and designate such company as a NMVC Company, if such Conditionally Approved
NMVC Company:
(i) Within the specific period of time
SBA gave to it when SBA conditionally
approved it for participation in the
NMVC program, has raised:
(A) The amount of Regulatory Capital set forth in its application, pursuant to § 108.310(a)(1); and
(B) The amount of matching resources for its Operational Assistance
grant award set forth in its application, pursuant to § 108.310(a)(2); and
(ii) Enters into a Participation
Agreement with SBA; or
(2) Revoke SBA’s conditional approval of the company, at which time
it is no longer a Conditionally Approved NMVC Company and must not
participate in the NMVC program or
represent itself as a Conditionally Approved NMVC Company.
(b) Exception to requirement to raise
matching resources—(1) General. At its
discretion and based upon a showing of
good cause, SBA may consider a Conditionally Approved NMVC Company to
have satisfied the requirement in paragraph (a)(1)(i)(B) of this section to
raise matching resources in the
amount of at least 30 percent of its
Regulatory Capital if the Conditionally
Approved NMVC Company—
(i) Already has raised at least 20 percent of the total amount of required
matching resources; and
(ii) Has a viable plan that reasonably
projects its capacity to raise the remainder of the required amount of
matching resources.
(2) Request for exception. Before the
expiration of the time period given to
it by SBA to meet the requirements to
become a NMVC Company, a Conditionally Approved NMVC Company
may submit to SBA a request that SBA
grant the exception described in paragraph (b)(1) of this section. Such Conditionally Approved NMVC must present
to SBA evidence of good cause for such
request, as well as evidence supporting

117

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00127

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.400

13 CFR Ch. I (1–1–06 Edition)

the elements of the exception described
in paragraph (b)(1) of this section.
(3) No applicability to Regulatory Capital. The exception described in this
section applies only to matching resources for the Operational Assistance
grant award. Under no circumstances
will SBA designate a Conditionally Approved NMVC Company as a NMVC
Company if such Conditionally Approved NMVC Company does not raise
the required amount of Regulatory
Capital within the time period SBA
gave it to do so.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68503, Nov. 12, 2002]

Subpart F—Changes in
Ownership, Structure, or Control

to such ownership interest (including
directly or indirectly procuring or voting any proxy, consent or authorization as to such voting rights at any
meeting of shareholders, partners or
members);
(c) Permit the proposed new owner(s)
to participate in any manner in the
conduct of your affairs (including exercising control over your books, records,
funds or other assets; participating directly or indirectly in any disposition
thereof; or serving as an officer, director, partner, manager, employee or
agent); or
(d) Allow ownership or Control to
pass to another Person.
§ 108.430 Notification to SBA of transactions that may change ownership
or Control.

CHANGES IN CONTROL OR OWNERSHIP OF
NMVC COMPANY
§ 108.400 Changes in ownership of 10
percent or more of NMVC Company
but no change of Control.
You must obtain SBA’s prior written
approval for any proposed transfer or
issuance of ownership interests that results in the ownership (beneficial or of
record) by any Person, or group of Persons acting in concert, of at least 10
percent of any class of your stock,
partnership capital or membership interests.
§ 108.410 Changes in Control of NMVC
Company (through change in ownership or otherwise).
You must obtain SBA’s prior written
approval for any proposed transaction
or event that results in Control by any
Person(s) not previously approved by
SBA.
§ 108.420 Prohibition on exercise of
ownership or Control rights in
NMVC Company before SBA approval.
Without prior written SBA approval,
no change of ownership or Control may
take effect and no officer, director, employee or other Person acting on your
behalf shall:
(a) Register on your books any transfer of ownership interest to the proposed new owner(s);
(b) Permit the proposed new owner(s)
to exercise voting rights with respect

You must promptly notify SBA as
soon as you have knowledge of transactions or events that may result in a
transfer of Control or ownership of at
least 10 percent of your capital. If there
is any doubt as to whether a particular
transaction or event will result in such
a change, report the facts to SBA.
§ 108.440 Standards governing prior
SBA approval for a proposed transfer of Control.
SBA approval is contingent upon full
disclosure of the real parties in interest, the source of funds for the new
owners’ interest, and other data requested by SBA. As a condition of approving a proposed transfer of control,
SBA may:
(a) Require an increase in your Regulatory Capital;
(b) Require the new owners or the
transferee’s Control Person(s) to assume, in writing, personal liability for
your Leverage, effective only in the
event of their direct or indirect participation in any transfer of Control not
approved by SBA; or
(c) Require compliance with any
other conditions set by SBA, including
compliance with the requirements for
minimum capital and managementownership diversity as in effect at such
time for new NMVC Companies.

118

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00128

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.503

Subpart G—Managing the
Operations of a NMVC Company

§ 108.450 Notification to SBA of pledge
of NMVC Company’s shares.
(a) You must notify SBA in writing,
within 30 calendar days, of the terms of
any transaction in which:
(1) Any Person, or group of Persons
acting in concert, pledges shares of
your stock (or equivalent ownership interests) as collateral for indebtedness;
and
(2) The shares pledged are at least 10
percent of your Regulatory Capital.
(b) If the transaction creates a
change of ownership or Control, you
must comply with § 108.400 or § 108.410,
as appropriate.
RESTRICTIONS ON COMMON CONTROL OR
OWNERSHIP OF TWO OR MORE NMVC
COMPANIES
§ 108.460 Restrictions
on
Common
Control or ownership of two (or
more) NMVC Companies.
Without SBA’s prior written approval, you must not have an officer,
director, manager, Control Person, or
owner (with a direct or indirect ownership interest of at least 10 percent) who
is also:
(a) An officer, director, manager,
Control Person, or owner (with a direct
or indirect ownership interest of at
least 10 percent) of another NMVC
Company; or
(b) An officer or director of any Person that directly or indirectly controls,
or is controlled by, or is under Common Control with, another NMVC Company.
CHANGE IN STRUCTURE OF NMVC
COMPANY
§ 108.470 SBA approval of merger, consolidation, or reorganization of
NMVC Company.
You may not merge, consolidate,
change form of organization (corporation or partnership) or reorganize without SBA’s prior written approval. Any
such merger or consolidation will be
subject to § 108.440.

GENERAL REQUIREMENTS
§ 108.500 Lawful operations under the
Act.
You must engage only in the activities contemplated by the Act and in no
other activities.
§ 108.502 Representations to the public.
You may not represent or imply to
anyone that the SBA, the U.S. Government or any of its agencies or officers
has approved any ownership interests
you have issued or obligations you
have incurred. Be certain to include a
statement to this effect in any solicitation to investors. Example: You may
not represent or imply that ‘‘SBA
stands behind the NMVC Company’’ or
that ‘‘Your capital is safe because
SBA’s experts review proposed investments to make sure they are safe for
the NMVC Company.’’
§ 108.503 NMVC Company’s adoption
of an approved valuation policy.
(a) Valuation guidelines. You must
prepare, document and report the valuations of your Loans and Investments
in accordance with the Valuation
Guidelines for SBICs issued by SBA.
These guidelines may be obtained from
SBA’s Investment Division.
(b) SBA approval of valuation policy.
You must have a written valuation policy approved by SBA for use in determining the value of your Loans and Investments. You must either:
(1) Adopt without change the model
valuation policy set forth in section III
of the Valuation Guidelines for SBICs;
or
(2) Obtain SBA’s prior written approval of an alternative valuation policy.
(c) Responsibility for valuations. Your
board of directors, managing members,
or general partner(s) will be solely responsible for adopting your valuation
policy and for using it to prepare valuations of your Loans and Investments
for submission to SBA. If SBA reasonably believes that your valuations, individually or in the aggregate, are materially misstated, it reserves the right

119

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00129

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.504

13 CFR Ch. I (1–1–06 Edition)

to require you to engage, at your expense, an independent third party acceptable to SBA to substantiate the
valuations.
(d) Frequency of valuations. (1) You
must value your Loans and Investments at the end of the second quarter
of your fiscal year, and at the end of
your fiscal year.
(2) On a case-by-case basis, SBA may
require you to perform valuations more
frequently.
(3) You must report material adverse
changes in valuations at least quarterly, within thirty days following the
close of the quarter.
(e) Review of valuations by independent
public accountant. (1) For valuations
performed as of the end of your fiscal
year, your independent public accountant must review your valuation procedures and the implementation of such
procedures, including adequacy of documentation.
(2) The independent public accountant’s report on your audited annual financial statements (SBA Form 468)
must include a statement that your
valuations were prepared in accordance
with your approved valuation policy.
§ 108.504 Equipment
quirements.

and

office

re-

(a) Computer capability. You must
have a personal computer with a
modem, and be able to use this equipment to prepare reports (using SBA
provided software) and transmit them
to SBA. In addition, you must have access to the Internet and the capability
to send and receive electronic mail via
the Internet.
(b) Facsimile capability. You must be
able to receive facsimile messages 24
hours per day at your primary office.
(c) Accessible office. You must maintain an office that is convenient to the
public and is open for business during
normal working hours.
§ 108.506 Safeguarding
the
NMVC
Company’s assets/Internal controls.
You must adopt a plan to safeguard
your assets and monitor the reliability
of your financial data, personnel, Portfolio, funds and equipment. You must
provide your bank and custodian with
a certified copy of your resolution or

other formal document describing your
control procedures.
§ 108.507 Violations based on false filings and nonperformance of agreements with SBA.
The following shall constitute a violation of this part:
(a) Nonperformance. Nonperformance
of any of the requirements of any Debenture or of any written agreement
with SBA.
(b) False statement. In any document
submitted to SBA:
(1) Any false statement knowingly
made; or
(2) Any misrepresentation of a material fact; or
(3) Any failure to state a material
fact. A material fact is any fact that is
necessary to make a statement not
misleading in light of the circumstances under which the statement
was made.
§ 108.509 Employment of SBA officials.
Without SBA’s prior written approval, for a period of two years after
the date of your most recent issuance
of Leverage (or the receipt of any SBA
Assistance as defined in part 105 of this
chapter), you are not permitted to employ, offer employment to, or retain for
professional services, any person who:
(a) Served as an officer, attorney,
agent, or employee of SBA on or within
one year before such date; and
(b) As such, occupied a position or
engaged in activities which, in SBA’s
determination,
involved
discretion
with respect to the granting of SBA
Assistance.
MANAGEMENT AND COMPENSATION
§ 108.510 SBA approval of NMVC Company’s Investment Adviser/Manager.
You may employ an Investment Adviser/Manager who will be subject to
the supervision of your board of directors, managing members, or general
partner. If you have Leverage or plan
to seek Leverage, you must obtain
SBA’s prior written approval of the
management contract. SBA’s approval
of an Investment Adviser/Manager for
one NMVC Company does not indicate
approval of that manager for any other
NMVC Company.

120

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00130

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.550

(a) Management contract. The contract must:
(1) Specify the services the Investment Adviser/Manager will render to
you and to the Small Businesses in
your Portfolio; and
(2) Indicate the basis for computing
Management Expenses.
(b) Material change to approved management contract. If there is a material
change, both you and SBA must approve such change in advance. If you
are uncertain if the change is material,
submit the proposed revision to SBA.
§ 108.520 Management Expenses of a
NMVC Company.
SBA must approve your initial Management Expenses and any increases in
your Management Expenses.
(a) Definition of Management Expenses.
Management Expenses include:
(1) Salaries;
(2) Office expenses;
(3) Travel;
(4) Business development;
(5) Office and equipment rental;
(6) Bookkeeping; and
(7) Expenses related to developing,
investigating and monitoring investments.
(b) Management Expenses do not include services provided by specialized
outside consultants, outside lawyers
and independent public accountants, if
they perform services not generally
performed by a venture capital company.

todial account at a federally insured
institution; or
(3) Certificates of deposit with a maturity of one year or less, issued by a
federally insured institution; or
(4) A deposit account in a federally
insured institution, subject to a withdrawal restriction of one year or less;
or
(5) A checking account in a federally
insured institution; or
(6) A reasonable petty cash fund.
(b) Deposit of funds in excess of the insured amount. (1) You are permitted to
deposit funds in a federally insured institution in excess of the institution’s
insured amount, but only if the institution is ‘‘well capitalized’’ in accordance
with the definition set forth in regulations of the Federal Deposit Insurance
Corporation, as amended (12 CFR
325.103).
(2) Exception: You may make a temporary deposit (not to exceed 30 days)
in excess of the insured amount, in a
transfer account established to facilitate the receipt and disbursement of
funds or to hold funds necessary to
honor Commitments issued.
(c) Deposit of funds in Associate institution. A deposit in, or a repurchase
agreement with, a federally insured institution that is your Associate is not
considered a Financing of such Associate under § 108.730, provided the terms
of such deposit or repurchase agreement are no less favorable than those
available to the general public.

CASH MANAGEMENT BY A NMVC
COMPANY

BORROWING BY NMVC COMPANIES FROM
NON-SBA SOURCES

§ 108.530 Restrictions on investments
of idle funds by NMVC Companies.
(a) Permitted investments of idle funds.
Funds not invested in Small Businesses
must be maintained in:
(1) Direct obligations of, or obligations guaranteed as to principal and interest by, the United States, which mature within 15 months from the date of
the investment; or
(2) Repurchase agreements with federally insured institutions, with a maturity of seven days or less. The securities underlying the repurchase agreements must be direct obligations of, or
obligations guaranteed as to principal
and interest by, the United States. The
securities must be maintained in a cus-

§ 108.550 Prior approval of secured
third-party debt of NMVC companies.
(a) Definition. In this section, ‘‘secured third-party debt’’ means any
non-SBA debt secured by any of your
assets, including secured guarantees
and other contingent obligations that
you voluntarily assume and secured
lines of credit.
(b) General rule. You must get SBA’s
written approval before you incur any
secured third-party debt or refinance
any debt with secured third-party debt,
including any renewal of a secured line
of credit, increase in the maximum
amount available under a secured line
of credit, or expansion of the scope of a

121

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00131

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.585

13 CFR Ch. I (1–1–06 Edition)

security interest or lien. For purposes
of this paragraph (b), ‘‘expansion of the
scope of a security interest or lien’’
does not include the substitution of
one asset or group of assets for another, provided the asset values (as reported on your most recent annual
Form 468) are comparable.
(c) Conditions for SBA approval. As a
condition of granting its approval
under this section, SBA may impose
such restrictions or limitations as it
deems appropriate, taking into account
your historical performance, current
financial position, proposed terms of
the secured debt and amount of aggregate debt you will have outstanding
(including Leverage). SBA will not favorably consider any requests for approval which include a blanket lien on
all your assets, or a security interest
in your investor commitments in excess of 125 percent of the proposed borrowing.
(d) Thirty-day approval. Unless SBA
notifies you otherwise within 30 days
after it receives your request, you may
consider your request automatically
approved if:
(1) You are in regulatory compliance;
(2) The security interest in your assets is limited to either those assets
being acquired with the borrowed funds
or an asset coverage ratio of no more
than 2:1;
(3) Your request is for approval of a
secured line of credit that would not
cause your total outstanding borrowings (not including Leverage) to exceed 50 percent of your Leverageable
Capital.
VOLUNTARY DECREASE IN REGULATORY
CAPITAL
§ 108.585 Voluntary decrease in NMVC
Company’s Regulatory Capital.
You must obtain SBA’s prior written
approval to reduce your Regulatory
Capital by more than two percent in
any fiscal year. At all times, you must
retain sufficient Regulatory Capital to
meet the minimum capital requirements in the Act and § 108.210, and sufficient Leverageable Capital to avoid
having excess Leverage in violation of
section 355(d) of the Act.

Subpart H—Recordkeeping, Reporting, and Examination Requirements for NMVC Companies
RECORDKEEPING REQUIREMENTS FOR
NMVC COMPANIES
§ 108.600 General
requirement
for
NMVC Company to maintain and
preserve records.
(a)
Maintaining
your
accounting
records. You must establish and maintain your accounting records using
SBA’s standard chart of accounts for
SBICs, unless SBA approves otherwise.
You may obtain this chart of accounts
from SBA.
(b) Location of records. You must keep
the following records at your principal
place of business or, in the case of
paragraph (b)(3) of this section, at the
branch office that is primarily responsible for the transaction:
(1) All your accounting and other financial records;
(2) All minutes of meetings of directors, stockholders, executive committees, partners, or other officials; and
(3) All documents and supporting materials related to your business transactions, except for any items held by a
custodian under a written agreement
between you and a Portfolio Concern or
non-SBA lender, or any securities held
in a safe deposit box, or by a licensed
securities broker in an amount not exceeding the broker’s per-account insurance coverage.
(c) Preservation of records. You must
retain all the records that are the basis
for your financial reports. Such records
must be preserved for the periods specified in this paragraph (c), and must remain accessible for the first two years
of the preservation period.
(1) You must preserve for at least 15
years or, in the case of a Partnership
NMVC Company or LLC NMVC Company, at least two years beyond the
date of liquidation:
(i) All your accounting ledgers and
journals, and any other records of assets, asset valuations, liabilities, equity, income, and expenses.
(ii) Your Articles, bylaws, minute
books, and NMVC Company application.

122

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00132

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.620

(iii) All documents evidencing ownership of the NMVC Company including
ownership ledgers, and ownership
transfer registers.
(2) You must preserve for at least six
years all supporting documentation
(such as vouchers, bank statements, or
canceled checks) for the records listed
in paragraph (b)(1) of this section.
(3) After final disposition of any item
in your Portfolio, you must preserve
for at least six years:
(i) Financing applications and Financing instruments.
(ii) All loan, participation, and escrow agreements.
(iii) Size status declarations (SBA
Form 480).
(iv) Any capital stock certificates
and warrants of the Portfolio Concern
that you did not surrender or exercise.
(v) All other documents and supporting material relating to the Portfolio Concern, including correspondence.
(4) You may substitute a microfilm
or computer-scanned or generated copy
for the original of any record covered
by this paragraph (c).
(d) Additional requirement. You must
comply with the recordkeeping and
record retention requirements set forth
in Circular A–110 of the Office of Management and Budget. (OMB circulars
are available from the addresses in 5
CFR 1310.3.)
§ 108.610 Required certifications for
Loans and Investments.
For each of your Loans and Investments, you must have the documents
listed in this section. You must keep
these documents in your files and
make them available to SBA upon request.
(a) SBA Form 480, the Size Status
Declaration, executed both by you and
by the concern you are financing. By
executing this document, both parties
certify that the concern is a Small
Business. For securities purchased
from an underwriter in a public offering, you may substitute a prospectus
showing that the concern is a Small
Business.
(b) SBA Form 652, a certification by
the concern you are financing that it
will not illegally discriminate (see part
112 of this chapter).

(c) A certification by the concern you
are financing of the intended use of the
proceeds. For securities purchased
from an underwriter in a public offering, you may substitute a prospectus
indicating the intended use of proceeds.
(d) For each Low-Income Investment,
a certification by the concern you are
financing as to the basis for its qualification as a Low-Income Enterprise.
§ 108.620 Requirements to obtain information from Portfolio Concerns.
All the information required by this
section is subject to the requirements
of § 108.600 and must be in English.
(a) Information for initial Financing decision. Before extending any Financing,
you must require the applicant to submit such financial statements, plans of
operation (including intended use of financing proceeds), cash flow analyses,
projections, and such community economic development information about
the company, as are necessary to support your investment decision. The information submitted must be consistent with the size and type of the
business and the amount of the proposed Financing.
(b) Updated financial and community
economic development information. (1)
The terms of each Financing must require the Portfolio Concern to provide,
at least annually, sufficient financial
and community economic development
information to enable you to perform
the following required procedures:
(i) Evaluate the financial condition
of the Portfolio Concern for the purpose of valuing your investment;
(ii) Determine the continued eligibility of the Portfolio Concern;
(iii) Verify the use of Financing proceeds; and
(iv) Evaluate the community economic development impact of the Financing.
(2) The president, chief executive officer, treasurer, chief financial officer,
general partner, or proprietor of the
Portfolio Concern must certify the information submitted to you.
(3) For financial and valuation purposes, you may accept a complete copy
of the Federal income tax return filed
by the Portfolio Concern (or its proprietor) in lieu of financial statements,

123

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00133

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.630

13 CFR Ch. I (1–1–06 Edition)

but only if appropriate for the size and
type of the business involved.
(4) The requirements in this paragraph (b) do not apply when you acquire securities from an underwriter in
a public offering (see § 108.825). In that
case, you must keep copies of all reports furnished by the Portfolio Concern to the holders of its securities.
(c) Information required for examination purposes. You must obtain any information requested by SBA’s examiners for the purpose of verifying the
certifications made by a Portfolio Concern under § 108.610. In this regard, your
Financing documents must contain
provisions requiring the Portfolio Concern to give you and/or SBA’s examiners access to its books and records
for such purpose.
REPORTING REQUIREMENTS FOR NMVC
COMPANIES
§ 108.630 Requirement for NMVC companies to file financial statements
and supplementary information
with SBA (SBA Form 468).
(a) Annual filing of Form 468. For each
fiscal year, you must submit to SBA financial statements and supplementary
information prepared on SBA Form 468.
You must file Form 468 on or before the
last day of the third month following
the end of your fiscal year, except for
the information required under paragraphs (e) and (f) of this section, which
must be filed on or before the last day
of the fifth month following the end of
your fiscal year.
(1) Audit of Form 468. An independent
public accountant acceptable to SBA
must audit the annual Form 468.
(2) Insurance requirement for public accountant. Unless SBA approves otherwise, your independent public accountant must carry at least $1,000,000 of Errors and Omissions insurance, or be
self-insured and have a net worth of at
least $1,000,000.
(b) Interim filings of Form 468. When
requested by SBA, you must file interim reports on Form 468. SBA may
require you to file the entire form or
only certain statements and schedules.
You must file such reports on or before
the last day of the month following the
end of the reporting period. When you
submit a request for a draw under an
SBA Leverage commitment, you must

also comply with any applicable filing
requirements set forth in § 108.1220.
(c) Standards for preparation of Form
468. You must prepare SBA Form 468 in
accordance with SBA’s Accounting
Standards and Financial Reporting Requirements for Small Business Investment Companies, which you may obtain from SBA.
(d) Where to file Form 468. Submit all
filings of Form 468 to the Office of New
Markets Venture Capital in the Investment Division of SBA.
(e) Reporting of social, economic, or
community development impact information on Form 468. Your annual filing of
SBA Form 468 must include an assessment of the social, economic, or community development impact of each Financing. This assessment must specify
the fulltime equivalent jobs created,
the impact of the Financing on the revenues and profits of the business and
on taxes paid by the business and its
employees, and a listing of the number
and percentage of employees who reside in LI Areas.
(f) Reporting of community development
information. For each Financing of a
Low-Income Enterprise, your Form 468
must include an assessment of such Financing with respect to:
(1) The social, economic or community development benefits achieved as
a result of the Financing;
(2) How and to what extent such benefits fulfilled the goals of your comprehensive business plan and Participation Agreement;
(3) Whether you consider the Financing or the results of the Financing to
have fulfilled the objectives of the
NMVC program; and
(4) Whether, and if so, how you
achieved accountability to the residents of the LI Area in connection with
that Financing.
§ 108.640 Requirement to file portfolio
financing reports (SBA Form 1031).
For each Financing you make (excluding guarantees), you must submit
a Portfolio Financing Report on SBA
Form 1031 within 30 days of the closing
date.

124

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00134

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.691

§ 108.650 Requirement to report portfolio valuations to SBA.
You must determine the value of
your Loans and Investments in accordance with § 108.503. You must report
such valuations to SBA within 90 days
of the end of the fiscal year in the case
of annual valuations, and within 30
days following the close of other reporting periods. You must report material adverse changes in valuations at
least quarterly, within thirty days following the close of the quarter.
§ 108.660 Other items required to be
filed by NMVC Company with SBA.
(a) Reports to owners. You must give
SBA a copy of any report you furnish
to your investors, including any prospectus, letter, or other publication
concerning your financial operations or
those of any Portfolio Concern.
(b) Documents filed with SEC. You
must give SBA a copy of any report,
application or document you file with
the Securities and Exchange Commission.
(c) Litigation reports. When you become a party to litigation or other proceedings, you must give SBA a report
within 30 days that describes the proceedings and identifies the other parties involved and your relationship to
them.
(1) The proceedings covered by this
paragraph (c) include any action by
you, or by your security holder(s) in a
personal
or
derivative
capacity,
against an officer, director, Investment
Adviser or other Associate of yours for
alleged breach of official duty.
(2) SBA may require you to submit
copies of the pleadings and other documents SBA may specify.
(3) Where proceedings have been terminated by settlement or final judgment, you must promptly advise SBA
of the terms.
(4) This paragraph (c) does not apply
to collection actions or proceedings to
enforce your ordinary creditors’ rights.
(d) Notification of criminal charges. If
any officer, director, or general partner
of the NMVC Company, or any other
person who was required by SBA to
complete a personal history statement,
is charged with or convicted of any
criminal offense other than a misdemeanor involving a minor motor ve-

hicle violation, you must report the incident to SBA within 5 calendar days.
Such report must fully describe the
facts that pertain to the incident.
(e) Reports concerning Operational Assistance grant funds. You must comply
with all reporting requirements set
forth in Circular A–110 of the Office of
Management and Budget and any grant
award document executed between you
and SBA.
(f) Other reports. You must file any
other reports SBA may require in writing.
§ 108.680 Reporting changes in NMVC
Company not subject to prior SBA
approval.
(a) Changes to be reported for post-approval. This section applies to any
changes in your Articles, ownership,
capitalization, management, operating
area, or investment policies that do
not require SBA’s prior approval. You
must report such changes to SBA within 30 days for post approval.
(b) Approval by SBA. You may consider any change submitted under this
section to be approved unless SBA notifies you to the contrary within 90
days after receiving it. SBA’s approval
is contingent upon your full disclosure
of all relevant facts and is subject to
any conditions SBA may prescribe.
EXAMINATIONS OF NMVC COMPANIES BY
SBA FOR REGULATORY COMPLIANCE
§ 108.690

Examinations.

All NMVC companies must submit to
annual examinations by or at the direction of SBA for the purpose of evaluating regulatory compliance.
§ 108.691 Responsibilities of NMVC
Company during examination.
You must make all books, records
and other pertinent documents and materials available for the examination,
including any information required by
the examiner under § 108.620(c). In addition, the agreement between you and
the independent public accountant performing your audit must provide that
any information in the accountant’s
working papers be made available to
SBA upon request.

125

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00135

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.692

13 CFR Ch. I (1–1–06 Edition)

§ 108.692 Examination fees.
(a) General. SBA will assess fees for
examinations in accordance with this
section. Unless SBA determines otherwise on a case by case basis, SBA will
not assess fees for special examinations
to obtain specific information.
(b) Base fee. A base fee of $3,500 will
be assessed, subject to adjustment in
accordance with paragraph (c) of this
section.
(c) Adjustments to base fee. The base
fee will be decreased based on the following criteria:
(1) If you have no outstanding regulatory violations at the time of the
commencement of the examination and
SBA did not identify any violations as
a result of the most recent prior examination, you will receive a 15% discount on your base fee; and
(2) If you were fully responsive to the
letter of notification of examination
(that is, you provided all requested
documents and information within the
time period stipulated in the notification letter in a complete and accurate
manner, and you prepared and had
available all information requested by
the examiner for on-site review), you
will receive a 10% discount on your
base fee.
(d) Delay fee. If, in the judgment of
SBA, the time required to complete
your examination is delayed due to
your lack of cooperation or the condition of your records, SBA may assess
an additional fee of up to $500 per day.

Subpart I—Financing of Small
Businesses by NMVC Companies
DETERMINING THE ELIGIBILITY OF A
SMALL BUSINESS FOR NMVC FINANCING
§ 108.700 Compliance with size standards in part 121 of this chapter as a
condition of Assistance.
You are permitted to provide financial assistance and management services only to a Small Business. To determine whether an applicant meets the
size standards for a Small Business,
you may use either the financial size
standards in § 121.301(c)(1) of this chapter or the industry standard covering
the industry in which the applicant is
primarily engaged, as set forth in
§ 121.301(c)(2) of this chapter.

§ 108.710 Requirement to finance LowIncome Enterprises.
(a) Low-Income Enterprise Financings.
At the close of each of your fiscal
years—
(1) At least 80 percent of your Portfolio Concerns must be Low-Income
Enterprises in which you have an Equity Capital Investment; and
(2) For all Financings you have extended, you must have invested at
least 80 percent (in total dollars) in Equity Capital Investments in Low-Income Enterprises.
(b) Non-compliance with this section. If
you have not reached the percentages
required in paragraph (a) of this section 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 such time as you reach
the required percentages (see § 108.1120).
§ 108.720 Small Businesses that may be
ineligible for financing.
(a) Relenders or reinvestors. You are
not permitted to finance any business
that is a relender or reinvestor. Relenders or reinvestors are businesses
whose primary business activity involves, directly or indirectly, providing
funds to others, purchasing debt obligations, factoring, or long-term leasing
of equipment with no provision for
maintenance or repair.
(b) Passive Businesses. You are not
permitted to finance a passive business.
(1) Definition. A business is passive if:
(i) It is not engaged in a regular and
continuous business operation (for purposes of this paragraph (b), the mere
receipt of payments such as dividends,
rents, lease payments, or royalties is
not considered a regular and continuous business operation); or
(ii) Its employees are not carrying on
the majority of day to day operations,
and the company does not provide effective control and supervision, on a
day to day basis, over persons employed under contract; or
(iii) It passes through substantially
all of the proceeds of the Financing to
another entity.
(2) Exception for pass-through of proceeds to subsidiary. With the prior written approval of SBA, you may finance

126

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00136

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.720

a passive business if it is a Small Business and it passes substantially all the
proceeds through to one or more subsidiary companies, each of which is an
eligible Small Business that is not passive. For the purpose of this paragraph
(b) (2), ‘‘subsidiary company’’ means a
company in which at least 50 percent of
the outstanding voting securities are
owned by the Financed passive business.
(3) Exception for certain Partnership
NMVC companies. With the prior written approval of SBA, if you are a Partnership NMVC Company, you may form
one or more wholly owned corporations
in accordance with this paragraph (b)
(3). The sole purpose of such corporation(s) must be to provide Financing to
one or more eligible, unincorporated
Small Businesses. You may form such
corporation(s) only if a direct Financing to such Small Businesses would
cause any of your investors to incur
unrelated business taxable income
under section 511 of the Internal Revenue Code of 1986, as amended (26
U.S.C. 511). Your investment of funds
in such corporation(s) will not constitute a violation of § 108.730(a).
(c) Real Estate Businesses. (1) You are
not permitted to finance:
(i) Any business classified under subsector 5311 (Lessors of Real Estate) of
the NAICS Manual; or
(ii) Any business listed under subsector 5312 (Offices of Real Estate
Agents and Brokers) unless at least 80
percent of the revenue is derived from
non-Affiliate sources.
(2) You are not permitted to finance
a business, regardless of NAICS classification, if the Financing is to be used
to acquire or refinance real property,
unless the Small Business:
(i) Is acquiring an existing property
and will use at least 51 percent of the
usable square footage for an eligible
business purpose; or
(ii) Is building or renovating a building and will use at least 67 percent of
the usable square footage for an eligible business purpose; or
(iii) Occupies the subject property
and uses at least 67 percent of the usable square footage for an eligible business purpose.
(d) Project Financing. You are not permitted to finance a business if:

(1) The assets of the business are to
be reduced or consumed, generally
without replacement, as the life of the
business progresses, and the nature of
the business requires that a stream of
cash payments be made to the
business’s financing sources, on a basis
associated with the continuing sale of
assets. Examples include real estate
development projects and oil and gas
wells; or
(2) The primary purpose of the Financing is to fund production of a single item or defined limited number of
items, generally over a defined production period, and such production will
constitute the majority of the activities of the Small Business. Examples
include motion pictures and electric
generating plants.
(e) Farm land purchases. You are not
permitted to finance the acquisition of
farmland. Farmland means land, which
is or is intended to be used for agricultural or forestry purposes, such as the
production of food, fiber, or wood, or is
so taxed or zoned.
(f) Public interest. You are not permitted to finance any business if the
proceeds are to be used for purposes
contrary to the public interest, including but not limited to activities which
are in violation of law, or inconsistent
with free competitive enterprise.
(g) Foreign investment—(1) General
rule. You are not permitted to finance
a business if:
(i) The funds will be used substantially for a foreign operation; or
(ii) At the time of the Financing or
within one year thereafter, more than
49 percent of the employees or tangible
assets of the Small Business are located outside the United States (unless
you can show, to SBA’s satisfaction,
that the Financing was used for a specific domestic purpose).
(2) Exception. This paragraph (g) does
not prohibit a Financing used to acquire foreign materials and equipment
or foreign property rights for use or
sale in the United States.
(h) Financing NMVC companies or
SBICs. You are not permitted to provide funds, directly or indirectly, that
the Small Business will use:
(1) To purchase stock in or provide
capital to a NMVC Company or SBIC;
or

127

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00137

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.730

13 CFR Ch. I (1–1–06 Edition)

(2) To repay an indebtedness incurred
for the purpose of investing in a NMVC
Company or SBIC.
§ 108.730 Financings which constitute
conflicts of interest.
(a) General rule. You must not selfdeal to the prejudice of a Small Business, the NMVC Company, its shareholders or partners, or SBA. Unless you
obtain a prior written exemption from
SBA for special instances in which a
Financing may further the purposes of
the Act despite presenting a conflict of
interest, you must not directly or indirectly:
(1) Provide Financing to any of your
Associates, except for a Small Business
that satisfies all of the following conditions:
(i) Your Associate relationship with
the Small Business is described by
paragraph (8) or (9) of the definition of
Associate in § 108.50;
(ii) No Person triggering the Associate relationship identified in paragraph (a)(1)(i) of this section is a Close
Relative or Secondary Relative of any
Person described in paragraph (1), (2),
(4), or (5) of the definition of Associate
in § 108.50; and
(iii) No single Associate of yours has
either a voting interest or an economic
interest in the Small Business exceeding 20 percent, and no two or more of
your Associates have either a voting
interest or an economic interest exceeding 33 percent. Economic interests
shall be computed on a fully diluted
basis, and both voting and economic interests shall exclude any interest
owned through the NMVC Company.
(2) Provide Financing to an Associate
of another NMVC Company if one of
your Associates has received or will receive any direct or indirect Financing
or a Commitment from that NMVC
Company or a third NMVC Company
(including Financing or Commitments
received under any understanding,
agreement, or cross dealing, reciprocal
or circular arrangement).
(3) Borrow money from:
(i) A Small Business Financed by
you;
(ii) An officer, director, or owner of
at least a 10 percent equity interest in
such business; or

(iii) A Close Relative of any such officer, director, or equity owner.
(4) Provide Financing to a Small
Business to discharge an obligation to
your Associate or free other funds to
pay such obligation. This paragraph
(a)(4) does not apply if the obligation is
to an Associate Lending Institution
and is a line of credit or other obligation incurred in the normal course of
business.
(b) Rules applicable to Associates.
Without SBA’ s prior written approval,
your Associates must not, directly or
indirectly:
(1) Borrow money from any Person
described in paragraph (a)(3) of this
section.
(2) Receive from a Small Business
any compensation in connection with
Assistance you provide (except as permitted under § 108.825(c)), or anything
of value for procuring, attempting to
procure, or influencing your action
with respect to such Assistance.
(c) Applicability of other laws. You are
also bound by any restrictions in Federal or State laws governing conflicts
of interest and fiduciary obligations.
(d) Financings with Associates—(1)
Financings with Associates requiring
prior approval. Without SBA’s prior
written approval, you may not Finance
any business in which your Associate
has either a voting equity interest or
total equity interests (including potential interests) of at least five percent,
except as otherwise permitted under
paragraph (a)(1) of this section.
(2) Other Financings with Associates. If
you and an Associate provide Financing to the same Small Business, either
at the same time or at different times,
you must be able to demonstrate to
SBA’s satisfaction that the terms and
conditions are (or were) fair and equitable to you, taking into account any
differences in the timing of each party’s financing transactions.
(3) Exceptions to paragraphs (d)(1) and
(d)(2) of this section. A Financing that
falls into one of the following categories is exempt from the prior approval requirement in paragraph (d)(1)
of this section or is presumed to be fair
and equitable to you for the purposes
of paragraph (d)(2) of this section, as
appropriate:

128

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00138

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.760

(i) Your Associate is a Lending Institution that is providing financing
under a credit facility in order to meet
the operational needs of the Small
Business, and the terms of such financing are usual and customary.
(ii) Your Associate invests in the
Small Business on the same terms and
conditions and at the same time as
you.
(iii) Both you and your Associate are
NMVC companies.
(e) Use of Associates to manage Portfolio Concerns. To protect your investment, you may designate an Associate
to serve as an officer, director, or other
participant in the management of a
Small Business. You must identify any
such Associate in your records available for SBA’s review under § 108.600.
Without SBA’s prior written approval,
the Associate must not:
(1) Have any other direct or indirect
financial interest in the Portfolio Concern that exceeds, or has the potential
to exceed, the percentages of the Portfolio Concern’s equity set forth in paragraph (a)(1) of this section.
(2) Receive any income or anything
of value from the Portfolio Concern unless it is for your benefit, with the exception of director’s fees, expenses, and
distributions based upon the Associate’s ownership interest in the Concern.
(f) 1940 and 1980 Act Companies: SEC
exemptions. If you are a 1940 or 1980 Act
Company and you receive an exemption
from the Securities and Exchange
Commission for a transaction described
in this section, you need not obtain
SBA’s approval of the transaction.
However, you must promptly notify
SBA of the transaction.
(g) Restriction on options obtained by
NMVC Company’s management and employees. Your employees, officers, directors, managing members or general
partners, or the general partners of the
management company that is providing services to you or to your general partner, may obtain options in a
Financed Small Business only if:
(1) They participate in the Financing
on a pari passu basis with you; or
(2) SBA gives its prior written approval; or
(3) The options received are compensation for service as a member of

the board of directors of the Small
Business, and such compensation does
not exceed that paid to other outside
directors. In the absence of such directors, fees must be reasonable when
compared with amounts paid to outside
directors of similar companies.
§ 108.740 Portfolio
diversification
(‘‘overline’’ limitation).
(a) Without SBA’s prior written approval, you may provide Financing or a
Commitment to a Small Business only
if the resulting amount of your aggregate outstanding Financings and Commitments to such Small Business and
its Affiliates does not exceed 20 percent
of the sum of:
(1) Your Regulatory Capital as of the
date of the Financing or Commitment;
plus
(2) Any permitted Distribution(s) you
made during the five years preceding
the date of the Financing or Commitment which reduced your Regulatory
Capital.
(b) For the purposes of paragraph (a)
of this section, you must measure each
outstanding Financing at its current
cost plus any amount of the Financing
that was previously written off.
§ 108.760 How a change in size or activity of a Portfolio Concern affects
the NMVC Company and the Portfolio Concern.
(a) Effect on NMVC Company of a
change in size of a Portfolio Concern. If a
Portfolio Concern no longer qualifies
as a Small Business you may keep your
investment in the concern and:
(1) Subject to the overline limitations of § 108.740, you may provide additional Financing to the concern up to
the time it makes a public offering of
its securities.
(2) Even after the concern makes a
public offering, you may exercise any
stock options, warrants, or other rights
to purchase Equity Securities which
you acquired before the public offering,
or fund Commitments you made before
the public offering.
(b) Effect of a change in business activity occurring within one year of NMVC
Company’s initial Financing—(1) Retention of Investment. Unless you receive
SBA’s written approval, you may not
keep your investment in a Portfolio

129

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00139

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.800

13 CFR Ch. I (1–1–06 Edition)

Concern, small or otherwise, which becomes ineligible by reason of a change
in its business activity within one year
of your initial investment.
(2) Request for SBA ’s approval to retain investment. If you request that SBA
approve the retention of your investment, your request must include sufficient evidence to demonstrate that the
change in business activity was caused
by an unforeseen change in circumstances and was not contemplated
at the time the Financing was made.
(3) Additional Financing. If SBA approves your request to retain an investment under paragraph (b)(2) of this
section, you may provide additional Financing to the Portfolio Concern to the
extent necessary to protect against the
loss of the amount of your original investment, subject to the overline limitations of § 108.740.
(c) Effect of a change in business activity occurring more than one year after the
initial Financing. If a Portfolio Concern
becomes ineligible because of a change
in business activity more than one
year after your initial Financing you
may:
(1) Retain your investment; and
(2) Provide additional Financing to
the Portfolio Concern to the extent
necessary to protect against the loss of
the amount of your original investment, subject to the overline limitations of § 108.740.
STRUCTURING
NANCING
NESSES

OF

NMVC COMPANY’S FIELIGIBLE SMALL BUSI-

§ 108.800 Financings in the form of equity interests.
You may not, inadvertently or otherwise:
(a) Become a general partner in any
unincorporated business; or
(b) Become jointly or severally liable
for any obligations of an unincorporated business.
§ 108.820 Financings in the form of
guarantees.
(a) General rule. At the request of a
Small Business or where necessary to
protect your existing investment, you
may guarantee the monetary obligation of a Small Business to any non-Associate creditor.

(b) Exception. You may not issue a
guaranty if:
(1) You would become subject to
State regulation as an insurance, guaranty or surety business; or
(2) The amount of the guaranty plus
any direct Financings to the Small
Business exceed the overline limitations of § 108.740, except that a pledge of
the Equity Securities of the issuer or a
subordination of your lien or creditor
position does not count toward your
overline.
(c) Pledge of NMVC Company’s assets
as guaranty. For purposes of this section, a guaranty with recourse only to
specific asset(s) you have pledged is
equal to the fair market value of such
asset(s) or the amount of the debt
guaranteed, whichever is less.
§ 108.825 Purchasing securities from
an underwriter or other third
party.
(a) Securities purchased through or
from an underwriter. You may purchase
the securities of a Small Business
through or from an underwriter if:
(1) You purchase such securities
within 90 days of the date the public offering is first made;
(2) Your purchase price is no more
than the original public offering price;
and
(3) The amount paid by you for the
securities (less ordinary and reasonable
underwriting charges and commissions)
has been, or will be, paid to the Small
Business, and the underwriter certifies
in writing that this requirement has
been met.
(b) Recordkeeping requirements. You
must keep records available for SBA’s
inspection which show the relevant details of the transaction, including, but
not limited to, date, price, commissions, and the underwriter’s certifications required under paragraphs
(a)(3) and (c) of this section.
(c) Underwriter’s requirements. The underwriter must certify whether it is
your Associate. You may pay reasonable and customary commissions and
expenses to an Associate underwriter
for the portion of an offering that you
purchase.
(d) Securities purchased from another
NMVC Company or from SBA. You may

130

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00140

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.900

purchase from, or exchange with, another NMVC Company, Portfolio securities (or any interest therein). Such
purchase or exchange may only be
made on a non-recourse basis. You may
not have more than one-third of your
total assets (valued at cost) invested in
such securities. If you have previously
sold Portfolio securities (or any interest therein) on a recourse basis, you
shall include the amount for which you
may be contingently liable in your
overline computation.
(e) Purchases of securities from other
non-issuers. You may purchase securities of a Small Business from a nonissuer not previously described in this
section if such acquisition is a reasonably necessary part of the overall
sound Financing of the Small Business.
LIMITATIONS ON DISPOSITION OF ASSETS
§ 108.885 Disposition
of
assets
NMVC Company’s Associates.

to

Except with SBA’s prior written approval, you are not permitted to dispose of assets (including assets acquired in liquidation) to any Associate.
As a prerequisite to such approval, you
must demonstrate that the proposed
terms of disposal are at least as favorable to you as the terms obtainable
elsewhere.
MANAGEMENT SERVICES AND FEES
§ 108.900 Fees for management services provided to a Small Business
by a NMVC Company or its Associate.
(a) General. This section applies to
management services that you or your
Associate provide to a Small Business
during the term of a Financing or prior
to a Financing. It does not apply to
management services that your Associate provides to a Small Business that
you do not finance. It also does not
apply to Operational Assistance that
you or your Associate provide to a
Smaller Enterprise that you have Financed or in which you expect to make
a Financing, for which neither you nor
your Associate may charge the Smaller
Enterprise.
(b) SBA approval. You must obtain
SBA’s prior written approval of any
management services fees and other

fees described in this section that you
or your Associate charge.
(c) Permitted management services fees.
You or your Associate may provide
management services to a Small Business financed by you if:
(1) You or your Associate have entered into a written contract with the
Small Business;
(2) The fees charged are for services
actually performed;
(3) Services are provided on an hourly
fee, project fee, or other reasonable
basis;
(4) You can demonstrate to SBA,
upon request, that the rate does not exceed the prevailing rate charged for
comparable services by other organizations in the geographic area of the
Small Business; and
(5) At least 50 percent of any management services fees paid to your Associate by a Small Business for management services provided by the Associate is allocated back to you for your
benefit.
(d) Fees for service as a board member.
You or your Associate may charge a
Small Business Financed by you for
services provided as members of the
Small Business’ board of directors. The
fees must not exceed those paid to
other outside board members. In the
absence of such board members, fees
must be reasonable when compared
with amounts paid to outside directors
of similar companies. Fees may be in
the form of cash, warrants, or other
payments. At least 50 percent of any
such fees paid to your Associate by a
Small Business for service by the Associate as a board member must be allocated back to you for your benefit.
(e) Transaction fees. (1) You or your
Associate may charge reasonable
transaction fees for work performed
such as preparing a Small Business for
a public offering, private offering, or
sale of all or part of the business, and
for assisting with the transaction. Fees
may be in the form of cash, notes,
stock, and/or options. At least 50 percent of any such fees paid to your Associate by a Small Business for transactions work done by the Associate
must be allocated back to you for your
benefit.
(2) Your Associate may charge market rate investment banking fees to a

131

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00141

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.1100

13 CFR Ch. I (1–1–06 Edition)

Small Business on that portion of a Financing that you do not provide.
(f) Recordkeeping requirements. You
must keep a record of hours spent and
amounts charged to the Small Business, including expenses charged.
[67 FR 68503, Nov. 12, 2002]

Subpart J—SBA Financial Assistance for NMVC Companies
(Leverage)
GENERAL INFORMATION ABOUT
OBTAINING LEVERAGE
§ 108.1100 Type of Leverage and application procedures.
(a) Type of Leverage available. You
may apply for Leverage from SBA in
the form of a guarantee of your Debentures.
(b) Applying for Leverage. The Leverage application process has two parts.
You must first apply for SBA’s conditional commitment to reserve a specific amount of Leverage for your future use. You may then apply to draw
down Leverage against the commitment. See §§ 108.1200 through 108.1240.
(c) Where to send your application.
Send all Leverage applications to SBA,
Investment Division Office of New Markets Venture Capital, 409 Third Street,
SW., Washington, DC 20416.
§ 108.1120 General eligibility requirement for Leverage.
To be eligible for Leverage, you must
be in compliance with the Act, the regulations in this part, and your Participation Agreement.
§ 108.1130 Leverage fees payable by
NMVC Company.
There is no fee for the issuance of Debentures by a NMVC Company.
§ 108.1140 NMVC Company’s acceptance of SBA remedies under
§ 108.1810.
If you issue Leverage, you automatically agree to the terms and conditions
in § 108.1810 as it exists at the time of
issuance. The effect of these terms and
conditions is the same as if they were
fully incorporated in the terms of your
Leverage.

MAXIMUM AMOUNT OF LEVERAGE FOR
WHICH A NMVC COMPANY IS ELIGIBLE
§ 108.1150 Maximum amount of Leverage for a NMVC Company.
The face amount of a NMVC Company’s outstanding Debentures may
not
exceed
150
percent
of
its
Leverageable Capital.
CONDITIONAL COMMITMENTS BY SBA TO
RESERVE LEVERAGE FOR A NMVC
COMPANY
§ 108.1200 SBA’s Leverage commitment
to a NMVC Company—application
procedure, amount, and term.
(a) General. Under the provisions in
§§ 108.1200 through 108.1240, you may
apply for SBA’s conditional commitment to reserve a specific amount and
type of Leverage for your future use.
You may then apply to draw down Leverage against the commitment.
(b) Applying for a Leverage commitment. SBA will notify you when it is
accepting requests for Leverage commitments. Upon receipt of your request, SBA will send you a complete
application package.
(c) Limitations on the amount of a Leverage commitment. The amount of a Leverage commitment must be a multiple
of $5,000. SBA, in its discretion, may
determine a minimum dollar amount
for Leverage commitments. Any such
minimum amounts will be published in
Notices in the FEDERAL REGISTER from
time to time.
(d) Term of Leverage commitment.
SBA’s Leverage commitment will automatically lapse on the expiration date
stated in the commitment letter issued
to you by SBA.
§ 108.1220 Requirement
for
NMVC
Company to file financial statements at the time of request for a
draw.
(a) If you submit a request for a draw
against SBA’s Leverage commitment
more than 90 days since your submission of an annual Form 468 or a Form
468 (Short Form), you must:
(1) Give SBA a financial statement
on Form 468 (Short Form); and
(2) File a statement of no material
adverse change in your financial condition since your last filing of Form 468.

132

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00142

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.1230

(b) You will not be eligible for a draw
if you are not in compliance with this
section.
§ 108.1230 Draw-downs by NMVC Company under SBA’s Leverage commitment.
(a) NMVC Company’s authorization of
SBA to guarantee securities. By submitting a request for a draw against SBA’s
Leverage commitment, you authorize
SBA, or any agent or trustee SBA designates, to guarantee your Debenture
and to sell it with SBA’s guarantee.
(b) Limitations on amount of draw. The
amount of a draw must be a multiple of
$5,000. SBA, in its discretion, may determine a minimum dollar amount for
draws against SBA’s Leverage commitments. Any such minimum amounts
will be published in Notices in the FEDERAL REGISTER from time to time.
(c) Effect of regulatory violations on
NMVC Company’s eligibility for draws—
(1) General rule. You are eligible to
make a draw against SBA’s Leverage
commitment only if you are in compliance with all applicable provisions of
the Act and SBA regulations (i.e., no
unresolved statutory or regulatory violations) and your Participation Agreement.
(2) Exception to general rule. If you are
not in compliance, you may still be eligible for draws if:
(i) SBA determines that your outstanding violations are of non-substantive provisions of the Act or regulations or your Participation Agreement and that you have not repeatedly
violated any non-substantive provisions; or
(ii) You have agreed with SBA on a
course of action to resolve your violations and such agreement does not prevent you from issuing Leverage.
(d) Procedures for funding draws. You
may request a draw at any time during
the term of the commitment. With
each request, submit the following documentation:
(1) A statement certifying that there
has been no material adverse change in
your financial condition since your last
filing of SBA Form 468 (see also
§ 108.1220 for SBA Form 468 filing requirements).
(2) If your request is submitted more
than 30 days following the end of your

fiscal year, but before you have submitted your annual filing of SBA Form
468 (Long Form) in accordance with
§ 108.630(a), a preliminary unaudited annual financial statement on SBA Form
468 (Short Form).
(3) A statement certifying that to the
best of your knowledge and belief, you
are in compliance with all provisions of
the Act and SBA regulations (i.e., no
unresolved regulatory or statutory violations) and your Participation Agreement, or a statement listing any specific violations you are aware of. Either statement must be executed by
one of the following:
(i) An officer of the NMVC Company;
(ii) An officer of a corporate general
partner of the NMVC Company;
(iii) An individual who is authorized
to act as or for a general partner of the
NMVC Company; or
(iv) An individual who is authorized
to act as or for a member-manager of
the NMVC Company.
(4) A statement that the proceeds are
needed to fund one or more particular
Small Businesses or to provide liquidity for your operations. If required by
SBA, the statement must include the
name and address of each Small Business, and the amount and anticipated
closing date of each proposed Financing.
(e) Reporting requirements after drawing funds. (1) Within 30 calendar days
after the actual closing date of each Financing funded with the proceeds of
your draw, you must file an SBA Form
1031 confirming the closing of the
transaction.
(2) If SBA required you to provide information
concerning
a
specific
planned Financing under paragraph
(d)(4) of this section, and such Financing has not closed within 60 calendar
days after the anticipated closing date,
you must give SBA a written explanation of the failure to close.
(3) If you do not comply with this
paragraph (e), you will not be eligible
for additional draws. SBA may also determine that you are not in compliance
with the terms of your Leverage under
§ 108.1810.

133

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00143

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.1240

13 CFR Ch. I (1–1–06 Edition)

§ 108.1240 Funding of NMVC Company’s draw request through sale to
third-party.
(a) NMVC Company’s authorization of
SBA to arrange sale of securities to thirdparty. By submitting a request for a
draw of Debenture Leverage, you authorize SBA, or any agent or trustee
SBA designates, to enter into any
agreements (and to bind you to such
agreements) necessary to accomplish:
(1) The sale of your Debenture to a
third-party at a rate approved by SBA;
and
(2) The purchase of your security
from the third-party and the pooling of
your security with other securities
with the same maturity date.
(b) Sale of Debentures to a third-party.
If SBA arranges for the sale of your Debenture to a third-party, the sale price
may be an amount discounted from the
face amount of the Debenture.
FUNDING LEVERAGE BY USE OF SBA
GUARANTEED TRUST CERTIFICATES
(‘‘TCS’’)
§ 108.1600 SBA authority to issue and
guarantee Trust Certificates.
(a) Authorization. Section 356 of the
Act authorizes SBA to issue TCs and to
guarantee the timely payment of the
principal and interest thereon. Any
guarantee by SBA of such TC is limited
to the principal and interest due on the
Debentures in any Trust or Pool backing such TC. The full faith and credit
of the United States is pledged to the
payment of all amounts due under the
guarantee of any TC.
(b) SBA authority to arrange public or
private fundings of Leverage. SBA in its
discretion may arrange for public or
private financing under its guarantee
authority. Such financing arranged by
SBA may be accomplished by the sale
of individual Debentures, aggregations
of Debentures, or Pools or Trusts of
Debentures.
(c) Pass-through provisions. TCs shall
provide for a pass-through to their
holders of all amounts of principal and
interest paid on the Debentures in the
Pool or Trust against which they are
issued.
(d) Formation of a Pool or Trust holding Leverage Securities. SBA shall approve the formation of each Pool or

Trust. SBA may, in its discretion, establish the size of the Pools and their
composition, the interest rate on the
TCs issued against Trusts or Pools,
fees, discounts, premiums and other
charges made in connection with the
Pools, Trusts, and TCs, and any other
characteristics of a Pool or Trust it
deems appropriate.
§ 108.1610 Effect of prepayment or
early redemption of Leverage on a
Trust Certificate.
(a) The rights, if any, of a NMVC
Company to prepay any Debenture is
established by the terms of such security, and no such right is created or denied by the regulations in this part.
(b) SBA’s rights to purchase or prepay any Debenture without premium
are established by the terms of the
Guaranty Agreement relating to the
Debenture.
(c) Any prepayment of a Debenture
pursuant to the terms of the Guaranty
Agreement relating to such security
shall reduce the SBA guarantee of
timely payment of principal and interest on a TC in proportion to the
amount of principal that such prepaid
Debenture represents in the Trust or
Pool backing such TC.
(d) SBA shall be discharged from its
guarantee obligation to the holder or
holders of any TC, or any successor or
transferee of such holder, to the extent
of any such prepayment. whether or
not such successor or transferee shall
have notice of any such prepayment.
(e) Interest on prepaid Debentures
shall accrue only through the date of
prepayment.
(f) In the event that all Debentures
constituting a Trust or Pool are prepaid, the TCs backed by such Trust or
Pool shall be redeemed by payment of
the unpaid principal and interest on
the TCs; provided, however, that in the
case of the prepayment of a Debenture
pursuant to the provisions of the Guaranty Agreement relating to the Debenture, the CRA shall pass through pro
rata to the holders of the TCs any such
prepayments including any prepayment penalty paid by the obligor
NMVC Company pursuant to the terms
of the Debenture.

134

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00144

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.1630

§ 108.1620 Functions of agents, including Central Registration Agent,
Selling Agent and Fiscal Agent.
(a) Agents. SBA may appoint or cause
to be appointed agent(s) to perform
functions necessary to market and
service Debentures or TCs pursuant to
this part.
(1) Selling Agent. As a condition of
guaranteeing a Debenture, SBA may
cause each NMVC Company to appoint
a Selling Agent to perform functions
that include, but are not limited to:
(i) Selecting qualified entities to become
pool
or
Trust
assemblers
(‘‘Poolers’’).
(ii) Receiving guaranteed Debentures
as well as negotiating the terms and
conditions of sales or periodic offerings
of Debentures and/or TCs on behalf of
NMVC companies.
(iii) Directing and coordinating periodic sales of Debentures and/or TCs.
(iv) Arranging for the production of
Offering Circulars, certificates, and
such other documents as may be required from time to time.
(2) Fiscal Agent. SBA shall appoint a
Fiscal Agent to:
(i) Establish performance criteria for
Poolers.
(ii) Monitor and evaluate the financial markets to determine those factors that will minimize or reduce the
cost of funding Debentures.
(iii) Monitor the performance of the
Selling Agent, Poolers, CRA, and the
Trustee.
(iv) Perform such other functions as
SBA, from time to time, may prescribe.
(3) Central Registration Agent. Pursuant to a contract entered into with
SBA, the CRA, as SBA’s agent, will do
the following with respect to the Pools
or Trust Certificates for the Debentures:
(i) Form an SBA-approved Pool or
Trust;
(ii) Issue the TCs in the form prescribed by SBA;
(iii) Transfer the TCs upon the sale of
original issue TCs in any secondary
market transaction;
(iv) Receive payments from NMVC
companies;
(v) Make periodic payments as scheduled or required by the terms of the
TCs, and pay all amounts required to

be paid upon prepayment of Debentures;
(vi) Hold, safeguard, and release all
Debentures constituting Trusts or
Pools upon instructions from SBA;
(vii) Remain custodian of such other
documentation as SBA shall direct by
written instructions;
(viii) Provide for the registration of
all pooled Debentures, all Pools and
Trusts, and all TCs;
(ix) Perform such other functions as
SBA may deem necessary to implement the provisions of this section.
(b) Functions. Either SBA or an agent
appointed by SBA may perform the
function of locating purchasers, and
negotiating and closing the sale of Debentures and TCs. Nothing in the regulations in this part shall be interpreted
to prevent the CRA from acting as
SBA’s agent for this purpose.
§ 108.1630 SBA regulation of Brokers
and Dealers and disclosure to purchasers of Leverage or Trust Certificates.
(a) Brokers and Dealers. Each broker,
dealer, and Pool or Trust assembler approved by SBA pursuant to these regulations shall either be regulated by a
Federal financial regulatory agency, or
be a member of the National Association of Securities Dealers (NASD), and
shall be in good standing in respect to
compliance with the financial, ethical,
and reporting requirements of such
body. They also shall be in good standing with SBA as determined by the
SBA Associate Administrator for Investment (see paragraph (c) of this section) and shall provide a fidelity bond
or insurance in such amount as SBA
may require.
(b) Suspension and/or termination of
Broker or Dealer. SBA shall exclude
from the sale and all other dealings in
Debentures or TCs any broker or dealer:
(1) If such broker’s or dealer’s authority to engage in the securities
business has been revoked or suspended
by a supervisory agency. When such
authority has been suspended, SBA will
suspend such broker or dealer for the
duration of such suspension by the supervisory agency.
(2) If such broker or dealer has been
indicted or otherwise formally charged

135

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00145

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.1640

13 CFR Ch. I (1–1–06 Edition)

with a misdemeanor or felony bearing
on its fitness, such broker or dealer
may be suspended while the charge is
pending. Upon conviction, participation may be terminated.
(3) If such broker or dealer has suffered an adverse final civil judgment
holding that such broker or dealer has
committed a breach of trust or violation of law or regulation protecting the
integrity of business transactions or
relationships, participation in the market for Debentures or TCs may be terminated.
(c) Termination/suspension proceedings.
A broker’s or dealer’s participation in
the market for Debentures or TCs will
be conducted in accordance with part
134 of this chapter. SBA may, for any
of the reasons stated in paragraphs
(b)(1) through (b)(3) of this section, suspend the privilege of any broker or
dealer to participate in this market.
SBA shall give written notice at least
ten (10) business days prior to the effective date of such suspension. Such notice shall inform the broker or dealer
of the opportunity for a hearing pursuant to part 134 of this chapter.
§ 108.1640 SBA access to records of the
CRA, Brokers, Dealers and Pool or
Trust assemblers.
The CRA and any broker, dealer and
Pool or Trust assembler operating
under the regulations in this part shall
make all books, records and related
materials associated with Debentures
and TCs available to SBA for review
and copying purposes. Such access
shall be at such party’s primary place
of business during normal business
hours.
MISCELLANEOUS
§ 108.1700 Transfer by SBA of its interest in a NMVC Company’s Leverage
security.
Upon such conditions and for such
consideration as it deems reasonable,
SBA may sell, assign, transfer, or otherwise dispose of any Debenture held
by or on behalf of SBA. Upon notice by
SBA, a NMVC Company will make all
payments of principal and interest as
shall be directed by SBA. A NMVC
Company will be liable for all damage
or loss which SBA may sustain by reason of such disposal, up to the amount

of the NMVC Company’s liability under
such security, plus court costs and reasonable attorney’s fees incurred by
SBA.
§ 108.1710 SBA authority to collect or
compromise its claims.
SBA may, upon such conditions and
for such consideration as it deems reasonable, collect or compromise all
claims relating to obligations held or
guaranteed by SBA, and all legal or equitable rights accruing to SBA.
§ 108.1720 Characteristics
guarantee.

of

If SBA agrees to guarantee a NMVC
Company’s Debentures, such guarantee
will be unconditional, irrespective of
the validity, regularity or enforceability of the Debentures or any other
circumstances that might constitute a
legal or equitable discharge or defense
of a guarantor. Pursuant to its guarantee, SBA will make timely payments
of principal and interest on the Debentures.

Subpart K—NMVC Company’s
Noncompliance With Terms of
Leverage
§ 108.1810 Events of default and SBA’s
remedies for NMVC Company’s noncompliance with terms of Debentures.
(a) Applicability of this section. By
issuing Debentures, you automatically
agree to the terms, conditions and remedies in this section, as in effect at the
time of issuance and as if fully set
forth in the Debentures.
(b) Automatic events of default. The occurrence of one or more of the events
in this paragraph (b) causes the remedies in paragraph (c) of this section to
take effect immediately.
(1) Insolvency. You become equitably
or legally insolvent.
(2) Voluntary assignment. You make a
voluntary assignment for the benefit of
creditors without SBA’s prior written
approval.
(3) Bankruptcy. You file a petition to
begin any bankruptcy or reorganization proceeding, receivership, dissolution or other similar creditors’ rights
proceeding, or such action is initiated

136

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00146

Fmt 8010

SBA’s

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.1810

against you and is not dismissed within
60 days.
(c) SBA remedies for automatic events
of default. Upon the occurrence of one
or more of the events in paragraph (b)
of this section:
(1) Without notice, presentation or
demand, the entire indebtedness evidenced by your Debentures, including
accrued interest, and any other
amounts owed SBA with respect to
your Debentures, is immediately due
and payable; and
(2) You automatically consent to the
appointment of SBA or its designee as
your receiver under section 363(c) of
the Act.
(d) Events of default with notice. For
any occurrence (as determined by SBA)
of one or more of the events in this
paragraph (d), SBA may avail itself of
one or more of the remedies in paragraph (e) of this section.
(1) Fraud. You commit a fraudulent
act that causes detriment to SBA’s position as a creditor or guarantor.
(2) Fraudulent transfers. You make
any transfer or incur any obligation
that is fraudulent under the terms of 11
U.S.C. 548.
(3) Willful conflicts of interest. You
willfully violate § 108.730.
(4) Willful non-compliance. You willfully violate one or more of the substantive provisions of the Act or any
substantive regulation promulgated
under the Act or any substantive provision of your Participation Agreement.
(5) Repeated Events of Default. At any
time after being notified by SBA of the
occurrence of an event of default under
paragraph (f) of this section, you engage in similar behavior that results in
another occurrence of the same event
of default.
(6) Transfer of Control. You willfully
violate § 108.410, and as a result of such
violation you undergo a transfer of
Control.
(7) Non-cooperation under paragraph
(h) of this section. You fail to take appropriate steps, satisfactory to SBA, to
accomplish any action SBA may have
required under paragraph (h) of this
section.
(8) Non-notification of Events of Default. You fail to notify SBA as soon as
you know or reasonably should have

known that any event of default exists
under this section.
(9) Non-notification of defaults to others. You fail to notify SBA in writing
within ten days from the date of a declaration of an event of default or nonperformance under any note, debenture
or indebtedness of yours, issued to or
held by anyone other than SBA.
(e) SBA remedies for events of default
with notice. Upon written notice to you
of the occurrence (as determined by
SBA) of one or more of the events in
paragraph (d) of this section:
(1) SBA may declare the entire indebtedness evidenced by your Debentures, including accrued interest. and/
or any other amounts owed SBA with
respect to your Debentures, immediately due and payable; and
(2) SBA may avail itself of any remedy available under the Act, specifically including institution of proceedings for the appointment of SBA or
its designee as your receiver under section 363 (c) of the Act.
(f) Events of default with opportunity
to cure. For any occurrence (as determined by SBA) of one or more of the
events in this paragraph (f), SBA may
avail itself of one or more of the remedies in paragraph (g) of this section.
(1) Excessive Management Expenses.
Without the prior written consent of
SBA, you incur Management Expenses
in excess of those permitted under
§§ 108.510 and 108.520.
(2) Improper Distributions. You make
any Distribution to your shareholders
or partners, except with the prior written consent of SBA, other than:
(i) Distributions permitted under
§ 108.585; and
(ii) Payments from Retained Earnings Available for Distribution based
on either the shareholders’ or members’ pro-rata interests or the provisions for profit distributions in your
partnership agreement, as appropriate.
(3) Failure to make payment. Unless
otherwise approved by SBA, you fail to
make timely payment of any amount
due under any security or obligation of
yours that is issued to, held or guaranteed by SBA.
(4) Failure to maintain Regulatory Capital. You fail to maintain the minimum
Regulatory Capital required under
these regulations or, without the prior

137

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00147

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.1810

13 CFR Ch. I (1–1–06 Edition)

written consent of SBA, you reduce
your Regulatory Capital except as permitted by § 108.585.
(5) Capital Impairment. You have a
condition of Capital Impairment as determined under § 108.1830.
(6) Cross-default. An obligation of
yours that is greater than $100,000 becomes due or payable (with or without
notice) before its stated maturity date,
for any reason including your failure to
pay any amount when due. This provision does not apply if you pay the
amount due within any applicable
grace period or contest the payment of
the obligation in good faith by appropriate proceedings.
(7) Nonperformance. You violate or
fail to perform one or more of the
terms and conditions of any security or
obligation of yours that is issued to,
held or guaranteed by SBA, or of any
agreement (including your Participation Agreement) with or conditions imposed by SBA in its administration of
the Act and the regulations promulgated under the Act.
(8) Noncompliance. Except as otherwise provided in paragraph (d) (5) of
this section, SBA determines that you
have violated one or more of the substantive provisions of the Act or any
substantive regulation promulgated
under the Act.
(9) Failure to maintain diversity. You
fail to maintain diversity between
management and ownership as required
by § 108.150.
(g) SBA remedies for events of default
with opportunity to cure. (1) Upon written notice to you of the occurrence (as
determined by SBA) of one or more of
the events of default in paragraph (f) of
this section, and subject to the conditions in paragraph (g)(2) of this section:
(i) SBA may declare the entire indebtedness evidenced by your Debentures, including accrued interest, and/
or any other amounts owed SBA with
respect to your Debentures, immediately due and payable; and
(ii) SBA may avail itself of any remedy available under the Act, specifically including institution of proceedings for the appointment of SBA or
its designee as your receiver under section 363(c) of the Act.
(2) SBA may invoke the remedies in
paragraph (g)(l) of this section only if:

(i) It has given you at least 15 days to
cure the default(s); and
(ii) You fail to cure the default(s) to
SBA’s satisfaction within the allotted
time.
(h) Repeated non-substantive violations.
If you repeatedly fail to comply with
one or more of the non-substantive provisions of the Act or any non-substantive regulation promulgated under
the Act, SBA, after written notification to you and until you cure such
condition to SBA’s satisfaction, may
deny you additional Leverage and/or
require you to take such actions as
SBA may determine to be appropriate
under the circumstances.
(i) Consent to removal of officers, directors, or general partners and/or appointment of receiver. The Articles of each
NMVC Company must include the following provisions as a condition to the
purchase or guarantee by SBA of Leverage. Upon the occurrence of any of
the events specified in paragraphs
(d)(1) through (d)(6) or (f)(1) through
(f)(3) of this section as determined by
SBA, SBA shall have the right, and you
consent to SBA’s exercise of such
right:
(1) With respect to a Corporate
NMVC Company, upon written notice,
to require you to replace, with individuals approved by SBA, one or more of
your officers and/or such number of directors of your board of directors as is
sufficient to constitute a majority of
such board; or
(2) With respect to a Partnership
NMVC Company or an LLC NMVC
Company, upon written notice, to require you to remove the person(s) responsible for such occurrence and/or to
remove the general partner or manager
of the NMVC Company, which general
partner or manager shall then be replaced in accordance with NMVC Company’s Articles by a new general partner or manager approved by SBA; and/
or
(3) With respect to a Corporate or
Partnership or LLC NMVC Company,
to obtain the appointment of SBA or
its designee as your receiver under section 363(c) of the Act for the purpose of
continuing your operations. The appointment of a receiver to liquidate a
NMVC Company is not within such

138

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00148

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.1840

consent, but is governed instead by the
relevant provisions of the Act.
COMPUTATION OF NMVC COMPANY’S
CAPITAL IMPAIRMENT
§ 108.1830 NMVC Company’s Capital
Impairment definition and general
requirements.
(a) Significance of Capital Impairment
condition. If you have a condition of
Capital Impairment, you are not in
compliance with the terms of your Leverage. As a result, SBA has the right
to impose the applicable remedies for
noncompliance in § 108.1810(g).
(b) Definition of Capital Impairment
condition. You have a condition of Capital Impairment if your Capital Impairment Percentage, as computed in
§ 108.1840, exceeds 70 percent.
(c) Quarterly computation requirement
and procedure. You must determine
whether you have a condition of Capital Impairment as of the end of each
fiscal quarter. You must notify SBA
promptly if you are capitally impaired.
(d) SBA’s right to determine NMVC
Company’s Capital Impairment condition.
SBA may make its own determination
of your Capital Impairment condition
at any time.
§ 108.1840 Computation of NMVC Company’s Capital Impairment Percentage.
(a) General. This section contains the
procedures you must use to determine
your Capital Impairment Percentage.
You must compare your Capital Impairment Percentage to the maximum
permitted under § 108.1830(b) to determine whether you have a condition of
Capital Impairment.
(b) Preliminary impairment test. If you
satisfy the preliminary impairment
test, your Capital Impairment Percentage is zero and you do not have to perform any more procedures in this section. Otherwise, you must continue
with paragraph (c) of this section. You
satisfy the test if the following
amounts are both zero or greater:
(1) The sum of Undistributed Net Realized Earnings, as reported on SBA
Form 468, and Includible Non-Cash
Gains.
(2) Unrealized Gain (Loss) on Securities Held.

(c) How to compute your Capital Impairment Percentage. (1) If you have an
Unrealized Gain on Securities Held,
compute your Adjusted Unrealized
Gain using paragraph (d) of this section. If you have an Unrealized Loss on
Securities Held, continue with paragraph (c)(2) of this section.
(2) Add together your Undistributed
Net Realized Earnings, your Includible
Non-cash Gains, and either your Unrealized Loss on Securities Held or your
Adjusted Unrealized Gain.
(3) If the sum in paragraph (c)(2) of
this section is zero or greater, your
Capital Impairment Percentage is zero.
(4) If the sum in paragraph (c)(2) of
this section is less than zero, drop the
negative sign, divide by your Regulatory Capital (excluding Treasury
Stock), and multiply by 100. The result
is your Capital Impairment Percentage.
(d) How to compute your Adjusted Unrealized Gain. (1) Subtract Unrealized
Depreciation from Unrealized Appreciation. This is your ‘‘Net Appreciation’’.
(2) Determine your Unrealized Appreciation on Publicly Traded and Marketable securities. This is your ’’Class
I Appreciation’’.
(3) Determine your Unrealized Appreciation on securities that are not Publicly Traded and Marketable and meet
the following criteria, which must be
substantiated to the satisfaction of
SBA (this is your ‘‘Class 2 Appreciation’’):
(i) The Small Business that issued
the security received a significant subsequent equity financing by an investor whose objectives were not primarily strategic and at a price that
conclusively supports the Unrealized
Appreciation;
(ii) Such financing represents a substantial investment in the form of an
arm’s length transaction by a sophisticated new investor in the issuer’s securities; and
(iii) Such financing occurred within
24 months of the date of the Capital
Impairment computation, or the Small
Business’ pre-tax cash flow from operations for its most recent fiscal year
was at least 10 percent of the Small
Business’ average contributed capital
for such fiscal year.

139

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00149

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.1900

13 CFR Ch. I (1–1–06 Edition)

(4) Perform the appropriate computation from the table in § 107.1840(d)(4) of
this chapter.
(5) Reduce the gain computed in
paragraph (d) (4) of this section by your
estimate of related future income tax
expense. Subject to any adjustment required by paragraph (d)(6) of this section, the result is your Adjusted Unrealized Gain for use in paragraph (c)(2)
of this section.
(6) If any securities that are the
source of either Class 1 or Class 2 Appreciation are pledged or encumbered
in any way, you must reduce the Adjusted Unrealized Gain computed in
paragraph (d)(5) of this section by the
amount of the related borrowing or
other obligation, up to the amount of
the Unrealized Appreciation on the securities.

Subpart L—Ending Operations as
a NMVC Company
§ 108.1900 Termination of participation as a NMVC Company.
You may not terminate your participation as a NMVC Company without
SBA’s prior written approval. Your request for approval must be accompanied by an offer of immediate repayment of all of your outstanding Leverage (including any prepayment penalties thereon), or by a plan satisfactory to SBA for the orderly liquidation
of the NMVC Company.

Subpart M—Miscellaneous
§ 108.1910 Non-waiver of SBA’s rights
or terms of Leverage security.
SBA’s failure to exercise or delay in
exercising any right or remedy under
the Act or the regulations in this part
does not constitute a waiver of such
right or remedy. SBA’s failure to require you to perform any term or provision of your Leverage does not affect
SBA’s right to enforce such term or
provision. Similarly, SBA’s waiver of,
or failure to enforce, any term or provision of your Leverage or of any event
or condition set forth in § 108.1810 does
not constitute a waiver of any succeeding breach of such term or provision or condition.

§ 108.1920 NMVC Company’s application for exemption from a regulation in this part 108.
(a) General. You may file an application in writing with SBA to have a proposed action exempted from any procedural or substantive requirement, restriction, or prohibition to which it is
subject under this part, unless the provision is mandated by the Act. SBA
may grant an exemption for such applicant, conditionally or unconditionally,
provided the exemption would not be
contrary to the purposes of the Act.
(b) Contents of application. Your application must be accompanied by supporting evidence that demonstrates to
SBA’s satisfaction that:
(1) The proposed action is fair and equitable; and
(2) The exemption requested is reasonably calculated to advance the best
interests of the NMVC program in a
manner consistent with the policy objectives of the Act and the regulations
in this part.
§ 108.1930 Effect of changes in this
part 108 on transactions previously
consummated.
The legality of a transaction covered
by the regulations in this part is governed by the regulations in this part in
effect at the time the transaction was
consummated, regardless of later
changes. Nothing in this part bars SBA
enforcement action with respect to any
transaction consummated in violation
of provisions applicable at the time,
but no longer in effect.
§ 108.1940 Procedures for designation
of additional Low-Income Geographic Areas
(a) General. On its own initiative or
upon written request by a Person
which addresses the relevant factor(s)
set forth in paragraph (b) of this section, SBA may consider whether to
designate additional census tracts (or
equivalent county divisions) as LI
Areas.
(b) Criteria. SBA will consider one or
more of the following factors in determining whether to designate a particular census tract (or equivalent
county division) as an additional LI
Area:

140

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00150

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.2003

(1) A substantial number of Low-Income Individuals reside in that census
tract (or equivalent county division).
(2) As adequately supported by studies or other analyses or reliable data,
that census tract (or equivalent county
division) has a pattern of unmet needs
for investment capital.
(3) As adequately supported by studies or other analyses or reliable data,
that census tract (or equivalent county
division) has indications of economic
distress.
(c) Procedure for designation. (1) If
SBA decides to consider the designation of an additional LI Area, SBA will
publish in the FEDERAL REGISTER a notice that it is considering such designation. SBA will advise the public that it
will consider any comments supporting
or opposing the designation, submitted
within a specified time period.
(2) In making a final decision on
whether to designate a particular census tract (or equivalent county division) as an additional LI Area, SBA
will consider evidence submitted by
any requester, SBA’s own research, any
public comments submitted, and any
other information deemed relevant by
SBA.
(3) If SBA designates a particular
census tract (or equivalent county division) as an additional LI Area, SBA
will publish a notice in the FEDERAL
REGISTER and, if appropriate, will
amend this part to include the additional LI Area.

Subpart N—Requirements and
Procedures for Operational
Assistance Grants to NMVC
Companies and SSBICs
§ 108.2000 Operational
Assistance
Grants to NMVC Companies and
SSBICs.

§ 108.2001 When and how SSBICs may
apply for Operational Assistance
grants.
(a) Notice of Funds Availability
(‘‘NOFA’’). SBA will publish a NOFA in
the
FEDERAL
REGISTER,
advising
SSBICs of the availability of funds for
Operational
Assistance
grants
to
SSBICs. This NOFA will be the same
NOFA described in § 108.300(a), or will
be published simultaneously with that
NOFA. An SSBIC may submit an application for an Operational Assistance
grant only during the time period specified for such purpose in the NOFA.
(b) Application form. An SSBIC must
apply for an Operational Assistance
grant using the application packet provided by SBA. Upon receipt of an application, SBA may request clarifying or
technical information on the materials
submitted as part of the application.
[67 FR 68503, Nov. 12, 2002]

§ 108.2002 Eligibility of SSBICs to
apply for Operational Assistance
grants.
An SSBIC is eligible to apply for an
Operational Assistance grant if:
(a) It intends to increase its Regulatory Capital, as in effect on December 21, 2000, and to make Low-Income
Investments in the amount of such increase;
(b) It intends to raise binding commitments for contributions in cash or
in-kind, and/or to purchase an annuity,
in an amount not less than 30 percent
of the intended increase in its Regulatory Capital described in paragraph
(a) of this section; and
(c) It has a plan describing how it intends to use the requested grant funds
to provide Operational Assistance to
Smaller Enterprises in which it has
made or expects to make Low-Income
Investments after December 21, 2000.
[67 FR 68503, Nov. 12, 2002]

(a) NMVC Companies. Regulations
governing
Operational
Assistance
grants to NMVC Companies may be
found in subparts D and E of this part
108, and in §§ 108.2010 through 108.2040.
(b) SSBICs. Regulations governing
Operational
Assistance
grants
to
SSBICs may be found in §§ 108.2001
through 108.2040.

§ 108.2003 Grant issuance fee for
SSBICs.
An SSBIC must pay to SBA a grant
issuance fee of $5,000. An SSBIC must
submit this fee in advance, at the time
of application submission. If SBA does
not award a grant to the SSBIC, SBA
will refund this fee to the SSBIC.

[67 FR 68503, Nov. 12, 2002]

[67 FR 68503, Nov. 12, 2002]

141

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00151

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.2004

13 CFR Ch. I (1–1–06 Edition)

§ 108.2004 Contents of application submitted by SSBICs.
Each application submitted by an
SSBIC for an Operational Assistance
grant must contain the information
specified in the application packet provided by SBA, including the following
information:
(a) Amounts. An SSBIC must specify
the amount of Regulatory Capital it intends to raise after December 21, 2000,
and the amount of Operational Assistance grant funds it seeks from SBA,
which must be at least 30 percent of its
intended increase in its Regulatory
Capital since December 21, 2000.
(b) Plan. An SSBIC must submit a
plan addressing the specific items described in § 108.2005.
[67 FR 68503, Nov. 12, 2002]

§ 108.2005 Contents of plan submitted
by SSBICs.
(a) Plan for providing Operational Assistance. The SSBIC must describe how
it plans to use its grant funds to provide Operational Assistance to Smaller
Enterprises in which it will make LowIncome Investments. Its plan must address the types of Operational Assistance it proposes to provide, and how it
plans to provide the Operational Assistance through the use of licensed
professionals, when necessary, either
from its own staff or from outside entities.
(b) Matching resources for Operational
Assistance grant. The SSBIC must include a detailed description of how it
plans to obtain binding commitments
for contributions in cash or in-kind,
and/or to purchase an annuity, to
match the funds requested from SBA
for the SSBIC’s Operational Assistance
grant. If it proposes to obtain commitments for cash and in-kind contributions, it also must estimate the ratio
of cash to in-kind contributions (in no
event may in-kind contributions exceed 50 percent of the total contributions). The SSBIC must discuss its potential sources of matching resources,
the estimated timing on raising such
match, and the extent of the expressions of interest to commit such match
to the SSBIC.
(c) Identification of LI Areas. The
SSBIC must identify the specific LI

Areas in which it intends to make LowIncome Investments and provide Operational Assistance under the NMVC
program.
(d) Projected allocation of investments
among identified LI Areas. The SSBIC
must describe the amount of Low-Income Investments it intends to make
in each of the identified LI Areas.
(e) Track record of management team in
obtaining public policy results through investments. The SSBIC must provide information concerning the past track
record of the SSBIC in making investments that have had a demonstrable
impact on the socially or economically
disadvantaged businesses targeted by
the SSBIC program (for example, new
businesses created, jobs created, or
wealth created). Such information
might include case studies or examples
of the SSBIC’s successful Financings.
(f) Market analysis. The SSBIC must
provide an analysis of the LI Areas in
which it intends to makes its Low-Income Investments and provide its Operational Assistance to Smaller Enterprises, demonstrating that the SSBIC
understands the market and the unmet
capital needs in such areas and how its
activities will meet these unmet capital needs through Low-Income Investments and have a positive economic
impact on those areas. The analysis
must include a description of the extent of the economic distress in the
identified LI Areas. The SSBIC also
must analyze the extent of the demand
in such areas for Low-Income Investments and any factors or trends that
may affect the SSBIC’s ability to make
effective Low-Income Investments.
(g) Regulatory Capital. The SSBIC
must include a detailed description of
how it plans to raise its Regulatory
Capital. The SSBIC must discuss its
potential sources of Regulatory Capital, the estimated timing on raising
such funds, and the extent of the expressions of interest to commit such
funds to the SSBIC.
(h) Projected impact. The SSBIC must
describe the criteria and economic
measurements to be used to evaluate
whether and to what extent it has met
the objectives of the NMVC program. It
must include:
(1) An estimate of the social, economic, and community development

142

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00152

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 108.2010

benefits to be created within identified
LI Areas over the next five years or
more as a result of its activities;
(2) A description of the criteria to be
used to measure the benefits created as
a result of its activities; and
(3) A discussion about the amount of
such benefits created that it will consider to constitute successfully meeting the objectives of the NMVC program.

invest and among individuals living in
LI Areas;
(g) The likelihood that the SSBIC
will fulfill the goals described in its application and meet the objectives of
the NMVC program; and
(h) The strength of the SSBIC’s application compared to applications submitted by other SSBICs and by Applicants intending to invest in the same
or proximate LI Areas.

[67 FR 68503, Nov. 12, 2002]

[67 FR 68503, Nov. 12, 2002]

§ 108.2006 Evaluation and selection of
SSBICs.
SBA will evaluate and select an
SSBIC for an Operational Assistance
grant award under the NMVC program
solely at SBA’s discretion, based on
SBA’s review of the SSBIC’s application materials, interviews or site visits
with the SSBIC (if any), and information in SBA’s records relating to the
SSBIC’s regulatory compliance status
and track record as an SSBIC. SBA’s
evaluation and selection process is intended to ensure that SSBIC requests
are evaluated on a competitive basis
and in a fair and consistent manner.
SBA will evaluate and select SSBICs
for an Operational Assistance grant
award by considering the following criteria:
(a) The strength of the SSBIC’s application, including the strength of its
proposal to provide Operational Assistance to Smaller Enterprises in which it
intends to invest;
(b) The SSBIC’s regulatory compliance status and past track record in
being able to accomplish program goals
through its investment activity;
(c) The likelihood that and the time
frame within which the SSBIC will be
able to raise the Regulatory Capital it
intends to raise and obtain the matching resources described in § 108.2005(b)
and (g);
(d) The need for Low-Income Investments in the LI Areas in which the
SSBIC intends to invest;
(e) The SSBIC’s demonstrated understanding of the markets in the LI
Areas in which it intends to invest;
(f) The extent to which the activities
proposed by the SSBIC will promote
economic development and the creation of wealth and job opportunities
in the LI Areas in which it intends to

§ 108.2007 Grant award to SSBICs.
An SSBIC selected for an Operational
Assistance grant award will receive a
grant award only if, by a date established by SBA, it increases its Regulatory Capital in the specific amount
set forth in its application, pursuant to
§ 108.2004(a), and raises matching resources for the grant in the amount required by § 108.2030(d)(2).
[67 FR 68503, Nov. 12, 2002]

§ 108.2010 Restrictions on use of Operational Assistance grant funds.
(a) Restrictions applicable only to
SSBICs. An SSBIC that receives an
Operational Assistance grant must use
both grant funds awarded by SBA and
its matching resources only to provide
Operational Assistance in connection
with a Low-Income Investment made
by the SSBIC with Regulatory Capital
raised after December 21, 2000.
(b) Restrictions applicable only to
NMVC Companies. A NMVC Company
must use at least 80 percent of both
grant funds awarded by SBA and its
matching resources to provide Operational Assistance to Smaller Enterprises whose Principal Office at the
time the Operational Assistance commences is located in an LI Area.
(c) Restrictions applicable to NMVC
Companies and SSBICs. A NMVC Company or a SSBIC that receives an Operational Assistance grant must not use
either grant funds awarded by SBA or
its matching resources for ‘‘general
and administrative expense,’’ as defined in the Federal Acquisition Regulations, ‘‘Definitions of Words and
Terms,’’ 48 CFR 2.101.
[66 FR 28609, May 23, 2001; 66 FR 32894, June
19, 2001, as amended at 67 FR 68505, Nov. 12,
2002]

143

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00153

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

§ 108.2020

13 CFR Ch. I (1–1–06 Edition)

§ 108.2020 Amount of Operational Assistance grant.
(a) Amount of grant to NMVC Company. NMVC Companies are eligible for
an Operational Assistance grant award
equal to the amount of matching resources raised by the NMVC Company
in accordance with §§ 108.380(a)(1)(i)(B)
and 108.2030.
(b) Amount of grant to SSBIC. SSBICs
are eligible for an Operational Assistance grant award equal to the amount
of matching resources raised by the
SSBIC in accordance with §§ 108.2007
and 108.2030.
(c) Pro rata reductions. In the event
that the total amount of funds available to SBA for purposes of making
Operational Assistance grant awards to
NMVC Companies and SSBICs is not
sufficient to award grants in the
amounts described in paragraphs (a)
and (b) of this section, SBA will make
pro rata reductions in the amounts
otherwise awarded to each such NMVC
Company and SSBIC.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68505, Nov. 12, 2002]

§ 108.2030

Matching requirements.

(a) General. All Operational Assistance grant funds SBA awards to an
NMVC Company or a SSBIC must be
matched on a dollar for dollar basis
with funds or other resources raised by
the NMVC Company or SSBIC.
(b) Allowable sources. (1) Any source
other than SBA is an allowable source
of matching resources for an Operational Assistance grant award.
(2) Neither a NMVC Company nor a
SSBIC may use funds or other resources that it has used to satisfy a
legal requirement for obtaining funds
under any other Federal program, to
satisfy the matching resources requirements described in this part.
(3) A portion of Private Capital may
be designated as matching resources if
the designated funds are used to purchase an annuity pursuant to paragraph (c)(2)(iv) of this section or are
otherwise segregated in a manner acceptable to SBA.
(c) Type and form of matching resources. (1) Matching resources may
come from cash contributions or inkind contributions. In-kind contribu-

tions cannot exceed 50 percent of the
total amount of match raised by the
NMVC Company or SSBIC.
(2) Matching resources may be in the
form of:
(i) Cash;
(ii) In-kind contributions;
(iii) Binding commitments for cash
or in-kind contributions that may be
payable over a multiyear period acceptable to SBA (but not to exceed the
term of the Operational Assistance
grant from SBA and in no event more
than 10 years); and/or
(iv) An annuity, purchased with
funds other than Regulatory Capital,
from an insurance company acceptable
to SBA and that may be payable over a
multiyear period acceptable to SBA
(but not to exceed the term of the
Operational Assistance grant from SBA
and in no event more than 10 years).
(d) Amount of matching resources—(1)
NMVC Companies. The amount of
matching resources required of an
NMVC Company is set forth in
§ 108.380(a)(1)(i)(B).
(2) SSBICs. The amount of matching
resources required of an SSBIC is equal
to the amount of Operational Assistance grant funds requested by the
SSBIC, as set forth in its application
pursuant to § 108.2004(a).
[66 FR 28609, May 23, 2001, as amended at 67
FR 68505, Nov. 12, 2002]

§ 108.2040 Reporting
and
recordkeeping requirements.
(a) NMVC Companies. Policies governing reporting, record retention, and
recordkeeping requirements applicable
to NMVC Companies may be found in
subpart H of this part. NMVC Companies also must comply with all reporting, record retention, and recordkeeping requirements set forth in Circular A–110 of the Office of Management and Budget (for availability, see 5
CFR 1310.3) and any grant award document executed between SBA and the
NMVC Company.
(b) SSBICs. An SSBIC receiving an
Operational Assistance grant award
must comply with all reporting, record
retention and recordkeeping requirements set forth in Circular A–110 of the
Office of Management and Budget and
any grant award document executed
between SBA and the SSBIC, as well as

144

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00154

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042

Small Business Administration

§ 112.2

the
reporting
requirements
in
§ 108.630(f) and the filing requirement in
§ 108.640.
[66 FR 28609, May 23, 2001, as amended at 67
FR 68505, Nov. 12, 2002]

PART 112—NONDISCRIMINATION
IN FEDERALLY ASSISTED PROGRAMS OF SBA—EFFECTUATION
OF TITLE VI OF THE CIVIL RIGHTS
ACT OF 1964
Sec.
112.1 Purpose.
112.2 Application of this part.
112.3 Discrimination prohibited.
112.4 Discrimination in employment.
112.5 Discrimination in providing financial
assistance.
112.6 Discrimination in accommodations or
services.
112.7 Illustrative applications.
112.8 Assurances required.
112.9 Compliance information.
112.10 Conduct of investigations.
112.11 Procedure for effecting compliance.
112.12 Effect on other regulations; forms
and instructions.
APPENDIX A TO PART 112
AUTHORITY: Sec. 602, 78 Stat. 252 (42 U.S.C.
2000d–1).
SOURCE: 30 FR 298, Jan. 9, 1965, unless otherwise noted.

§ 112.1 Purpose.
The purpose of this part is to effectuate the provisions of Title VI of the
Civil Rights Act of 1964 (hereinafter referred to as the Act) to the end that no
person in the United States shall, on
the ground of race, color, or national
origin, be excluded from participation
in, be denied the benefits of, or be otherwise subjected to discrimination
under any financial assistance activities of the Small Business Administration to which the Act applies.
§ 112.2 Application of this part.
(a) This part applies to all recipients
of Federal financial assistance administered by the Small Business Administration. (See appendix A)
(b) The term Federal financial assistance includes: (1) Grants and loans of
Federal funds; (2) the grant or donation
of Federal property and interests in
property; (3) the detail of Federal personnel; (4) the sale and lease of, and the

permission to use (on other than a casual or transient basis), Federal property or any interest in such property
without consideration, or at a nominal
consideration, or at a consideration
which is reduced for the purpose of assisting the recipient, or in recognition
of the public interest to be served by
such sale or lease to the recipient; and
(5) any Federal agreement, arrangement, or other contract which has as
one of its purposes the provision of assistance.
(c) This part does not apply to financial assistance extended by way of insurance or guarantee.
(d) The terms applicant and recipient
mean, respectively, one who applies for
and one who receives any of the financial assistance under any of the statutes referred to in paragraph (a) of this
section. The term recipient also shall be
deemed to include subrecipients of SBA
financial assistance, i.e., concerns
which secondarily receive financial assistance from the primary recipients of
such financial assistance.
(e) The terms program or activity and
program mean all of the operations of
any entity described in paragraphs
(e)(1) through (4) of this section, any
part of which is extended Federal financial assistance:
(1)(i) A department, agency, special
purpose district, or other instrumentality of a State or of a local government; or
(ii) The entity of such State or local
government that distributes such assistance and each such department or
agency (and each other State or local
government entity) to which the assistance is extended, in the case of assistance to a State or local government;
(2)(i) A college, university, or other
postsecondary institution, or a public
system of higher education; or
(ii) A local educational agency (as defined in 20 U.S.C. 7801), system of vocational education, or other school system;
(3)(i) An entire corporation, partnership, or other private organization, or
an entire sole proprietorship—
(A) If assistance is extended to such
corporation, partnership, private organization, or sole proprietorship as a
whole; or

145

VerDate Aug<31>2005

01:44 Feb 04, 2006

Jkt 208042

PO 00000

Frm 00155

Fmt 8010

Sfmt 8010

Y:\SGML\208042.XXX

208042