SBIC Financial Reports

U.S. SMALL BUSINESS ADMINISTRATION
OFFICE OF INVESTMENT AND INNOVATION
409 THIRD STREET, SW SUITE 6300
WASHINGTON, D.C. 20416

DATE:

February 23, 2021

TO:

Licensed Small Business Investment Companies

SUBJECT:

Year-end Financial Reporting Requirements

Under §107.630 of the SBA regulations, each Small Business Investment Company (SBIC) must
file an audited Annual Financial Report, SBA Form 468, within three months from the close of
its fiscal year. For example, if your fiscal year-end is December 31st, you must file your audited
Annual Financial Report, SBA Form 468 no later than March 31st.
In accordance with §107.504(a), you must prepare SBA Form 468 electronically using the SBICWeb application provided by SBA. SBA recommends you download the “SBIC-Web
Application Reference Guide for External User” Version 4.0, dated September 15, 2017
(“Reference Guide”), which includes information on using SBIC-Web and preparing the SBA
Form 468, from the “External User’s Manual” link at the bottom of the screen once you have
logged into SBIC-Web.
This memo provides information concerning the SBIC-Web reporting platform, preparation of
the SBA Form 468 and guidance on SBIC audit and financial reporting issues. If the SBA Form
468 is not completed in accordance with this memo (including Section III, paragraph 1 of this
letter), the SBIC regulations and the Reference Guide, the SBIC may be subject to civil penalties
under 13 CFR §107.665.
This memo also provides clarifications on how SBICs should address Paycheck Protection
Program (PPP) loans and Economic Injury Disaster Loans (EIDL) that its portfolio concerns
might have received within both Schedule 8 and its valuation reports (see Sections 3 and 4 of this
notice, respectively). SBICs should disclose such information to help SBA correctly interpret
presented financial information and valuations.
Please read this memo carefully as there are changes from last year. You should provide your
independent public accountant with a copy of this memorandum.
Section 1: SBIC-Web
1. The SBIC-Web application is best viewed in one of the following Web browsers: Internet
Explorer 9 and later; Microsoft Edge, Google Chrome; Firefox; or Safari.

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2. To access SBIC-Web, please ensure that you have a current SBA Connect account. If you do
not have a current SBA Connect account, please go to https://connect.sba.gov/ to set up an
account. If you need assistance with setting up an account, please click on “Help” in the
upper right-hand corner after you have landed on the SBA Connect page to view the User
Manual, FAQs, or to contact the SBA Connect helpdesk.
3. Please note that the fund primary contact for your SBIC is the only individual who can
approve your account before you can access the SBIC record using the SBIC Web
application. If your fund primary contact does not have an SBA Connect account, they
should set up their account first, so they will receive your SBA Connect account request and
have the ability to approve it. NOTE: SBA no longer approves all users for a given SBIC;
only the fund primary contact can approve access to all other SBIC users.
4. We are no longer using [email protected]. If you experience any issues with SBIC
Web, please send an email to [email protected] include “SBA – SBICWEB Support” in the
subject line along with a short description of your issue. In the body of the email include as
much detail about the issue you are experiencing and include screenshots if possible.
5. Please review the Rules of Behavior for all users of SBIC-Web in Attachment 1.
Section 2: Filing Requirements – SBA Form 468
1. A complete filing of the audited Annual Financial Report, SBA Form 468, consists of the
following:
•
•
•
•
•

The data files created and submitted in the SBIC-Web application
An uploaded .pdf file that includes the Independent Auditor's Report and the Notes to
Financial Statements (see Section 6, paragraph 3 of this letter for further details regarding
the contents of this file)
An uploaded .pdf file containing the Operating Plan Update narrative (for Licensees with
outstanding SBA leverage or commitments)
An uploaded .pdf file of the signed Certifications page
Any other supplementary uploaded .pdf files (such as valuation meeting minutes,
valuation reports, capitalization information, wind-up plan updates, etc.)

Please note that your independent auditor may want to combine all the above documents into
one .pdf file to upload into SBIC-Web. SBA has no objection to uploading these documents
in this manner.
2. SBA Form 468 data files created and submitted in the SBIC-Web are automatically
transmitted to SBA. Submitted SBA Form 468s are listed on the SBIC’s SBIC-Web Home
Page and the date stamp serves as the official confirmation of receipt of the filing. Previous
filings, along with a calculated capital impairment worksheet, can also be found under the
SBIC-Web SBIC Profile – Form 468 Filings page.

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3. CIVIL PENALTY: Under §107.665, an SBIC that violates any regulation or written
directive issued by SBA requiring the filing of any regular or special report shall be
fined a civil penalty of not more than the amount set forth in such regulation for each
day the Licensee fails to file such report.
4. Under §107.670, an SBIC may apply for an exemption from the civil penalty for late filing of
reports when extenuating circumstances make it impracticable to file a required report within
the allowed time.
The request for an extension of time to file a required report must:
a. Be in writing (email is acceptable).
b. Submitted to SBA before the filing due date.
c. Certify to an extraordinary occurrence, not within your control, that makes timely filing
of the report impractical, and
d. Be accompanied by written evidence of such occurrence, where appropriate (See Section
1, Item 4).
Upon receipt of your request, SBA may exempt you from the civil penalty provision of
§107.665, in such manner and under such conditions as SBA determines. Be advised that a
request for an extension of time to file required reports must be justified and approval is
not routine.
If the extenuating circumstance is related to the SBIC-Web application, your request for an
exemption under §107.670 should include evidence that you contacted the SBIC-Web
support team (at [email protected]) prior to the filing due date.
5. Industry information shown on Form 468 Schedule of Loans and Investments must be
reported using 2017 NAICS Codes. You can find the NAICS Code for a given industry on
the Web at https://www.census.gov/naics. Enter an industry description and click on the
button titled NAICS Search on the left side of the page to find the NAICS Code for a given
industry.
6. Mature funds that are no longer making new investments are reminded to comply with
§107.590(c) which requires the submission of a wind-up plan to your assigned financial
analyst. If you are already operating under an SBA-approved wind-up plan, your SBA Form
468 filing must include any updates to your wind-up plan, such as changes in the expected
timing or amounts of liquidity events and distributions to SBA and your investors.
Section 3: Form 468 Supplemental Information
1. Schedule 8 - Portfolio Company Financial Information:
a. Trailing Twelve-Month Basis. SBICs must report portfolio company information on a
trailing twelve-month (TTM) basis for the most recent period available. See pages 19

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and 55 in the Reference Guide, which provide detailed descriptions regarding required
unaudited portfolio company information. If the required portfolio company
information is not provided as identified in these sections, the SBIC may be subject to a
civil penalty, as described above, until the required information is filed with SBA.
b. PPP Loans. In order for SBA to better interpret the portfolio concern financials presented
in Schedule 8 and assess the financial condition of the portfolio concern for all portfolio
concerns that are active (with any unrealized assets), SBICs should disclose any PPP
loans/grants the portfolio concern received in the Schedule 8 comments field. SBA
considers a PPP loan to be a liability unless it is forgiven and is therefore a financing
cashflow. SBICs should minimally include the amount of the PPP loan and its
forgiveness status/disposition and status as of the report date (12/31) and if the status
changes post 12/31/2020 they should identify the new status and the date it applies. They
should continue to update this field in subsequent Form 468s as applicable. Example:
For 12/31/2020:
• PPP: $10 million; as of 12/31/20 not forgiven; 100% forgiven 1/05/21
For 03/31/2021:
• PPP: $10 million; 100% forgiven 1/05/21
c. EIDL loans should be addressed in a similar manor as PPP loans.
2. SBICs are asked to upload one (1) .pdf document containing the following information to the
extent that it is applicable to them:
a. Capitalization/Waterfall: For each portfolio company, in any format, provide a
capitalization table (including debt and equity) and distribution “waterfall” (the hierarchy
delineating the order in which funds will be distributed, including the priority of payment
of the different types of securities). Once information has been uploaded for a given
portfolio company, the SBIC will not need to re-submit unless and until there is a
material change, such as a new round of financing.
b. For SBICs that have been transferred to the Office of Liquidation, provide the following
information for each portfolio company (if no such rights exist, please indicate “None”):
i.
ii.
iii.

Negative Covenants: ROFR – Right of First Refusal; COA – Co-sale Agreement;
and Other.
Board Rights: Whether the SBIC holds a Board Seat; has Board observation
rights; appoints the Board Chairperson.
Other Rights: Whether the SBIC has any of the following rights: Veto and
“Springing” (right that comes into existence upon the occurrence of an event).

3. Schedule 9 (partnership SBICs only): In accordance with page 56 of the Reference Guide,
this information must be completed by any partnership SBIC licensed on or after October 1,
1993, that has outstanding leverage, a leverage commitment, or Earmarked Assets. As
discussed in the Reference Guide:

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a. Include all investments, both realized and unrealized, made by the SBIC since the fund
commencement date or October 1, 1993, whichever is later. If historical information is
unavailable in the format requested, you may omit (1) investments realized or written off
before January 1, 2012, and (2) for investments held as of January 1, 2012, gross receipts
received earlier than January 1, 2012.
b. Schedule 9 information is required on an annual basis only.
4. For any SBIC that has unrealized depreciation (i.e., has taken a reserve) on non-cash
gains/income, we encourage you to upload a supplementary schedule detailing such
depreciation under the Notes to Financial Statements. SBA recognizes that the standard
capital impairment and READ calculations penalize an SBIC in these circumstances (because
the calculations exclude the non-cash gains/income while including the related depreciation)
and would appreciate having this information readily available.
5. For any SBIC that reports management fee expense net of offsets on the Statement of
Operations Realized as permitted by SBIC TechNote 7A, the notes to the financial statements
must include a disclosure of the total management fee expense prior to offsets (calculated in
accordance with the SBIC’s limited partnership agreement and any applicable side letters)
and the amounts of all offsets for fees received by affiliates of the SBIC under §§107.860 and
107.900.
6. For any SBIC that has a waived management fee provision in its limited partnership
agreement, the notes to the financial statements must include a disclosure of the total capital
committed by the SBIC’s general partner (or any affiliated persons/entities that may satisfy
capital calls via waived fees), the amount of management fees waived during the reporting
year and cumulatively, and the amount of waived fees that were used to reduce the general
partner’s (or affiliate’s) capital commitment during the reporting year and cumulatively.
Finally, the amount of waived management fee that may be applied under this provision is
limited to 50% of the general partner’s capital commitment to the SBIC.
Section 4: Valuation Reporting
1. You are required to submit the valuation reports you prepare internally to support the
valuations shown on your SBA Form 468 for each portfolio company. There is no SBAmandated format for these reports. Upload these reports to the SBIC-Web as one document
in .pdf format.
2. You are required to submit, in .pdf format to the SBIC-Web, the minutes of the meeting at
which your valuations were determined. The minutes must include a resolution adopted by
the General Partners or Board of Directors confirming that each portfolio security was valued
in accordance with the SBIC’s duly adopted valuation guidelines. The minutes must also
incorporate by reference the valuation report signed by each General Partner or Director
along with any dissenting valuation opinions. See SBIC TechNote 4 for additional guidance
on reporting portfolio valuations.

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3. If a portfolio concern received a PPP loan, an SBIC should disclose the PPP loan, including
the amount, the current status and how the SBIC considered the PPP loan in valuing its loans
and investments. SBA considers the PPP loan a liability and a financing cashflow unless the
loan is forgiven. While SBA does not believe that the PPP standard certifications by the
small business concern, on their own, prevent an SBIC from writing up an asset that
otherwise meets SBIC valuation guidelines, SBA believes that PPP proceeds that result from
PPP forgiveness should not be used to write up SBIC assets. SBA considers this forgiveness
a “one-time event” similar to an EBITDA adjustment.
4. If a portfolio concern received an EIDL loan, SBICs should disclose in the same manner as
the PPP loan.
Section 5: Other Filing Requirements – SBA Form 1031A and Interim SBA Form 468
1. You must file SBA Form 1031A – Portfolio Financing Report Certification to certify the
completeness and correctness of previous electronic filings of SBA Form 1031. SBICs with
Leverage or a Leverage commitment must file SBA Form 1031A semi-annually, with their
semi-annual valuation report and with their audited Annual Financial Report, SBA Form 468.
SBICs without Leverage or a Leverage commitment must file SBA Form 1031A annually
with their audited Annual Financial Report, SBA Form 468.
To submit an SBA Form 1031A, generate and print the form in the SBIC-Web application.
The form will list all investments for which the SBIC filed an SBA Form 1031 during the
applicable certification period. An authorized official of the SBIC must sign and date the
form. Then upload the signed SBA Form 1031A in .pdf format to the SBIC-Web
application.
2. If you are submitting a request to draw Leverage more than 30 days after the end of your
fiscal year, but before the due date of your audited Annual Financial Report, SBA Form 468,
you must file an unaudited quarterly SBA Form 468 (select the Q4 quarterly filing option) as
of your fiscal year end through the SBIC-Web. Please include a hard copy of the quarterly
SBA Form 468 with your draw request. The interim SBA Form 468 must be signed and may
not be stamped or marked in any manner.
Section 6: Conduct of the Annual Audit
1. Confirmations. As part of the annual audit of a leveraged SBIC, Independent public
accounts typically ask SBA to confirm the SBIC’s outstanding leverage balance. Your
independent public accountant may e-mail confirmation requests to Patrick Henning in
SBA’s Denver Finance Center at [email protected]. Please include the SBIC’s
license number and allow five (5) business days for a response.
In prior years, SBA provided independent public accountants the option to request a signed
original confirmation to be returned by mail. Due to COVID-19, confirmation requests for
2020 can only be fulfilled by e-mail. E-mailed confirmations will be certified by secured
electronic signature.

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Please note that the Denver Finance Center can confirm an SBIC’s outstanding Participating
Securities balance but is not able to confirm accumulated Prioritized Payments. SBA
recommends that all SBICs with Participating Securities leverage complete the Prioritized
Payment section of the Participating Securities Distribution Worksheet for this purpose.
2. Auditing Standards. Audits are to be performed in accordance with Generally Accepted
Auditing Standards (GAAS). It is not necessary to follow Government Auditing Standards.
3. Auditor’s Opinion. The financial statements contained in the Annual Report, SBA Form
468, are the subject of the independent public accountant's opinion and must be referred to
specifically in the opinion. SBA recognizes that various changes to Generally Accepted
Accounting Principles (GAAP) have resulted in several significant differences between SBA
Form 468 and GAAP financial statements (including, but not limited to, the treatment of
unrealized gain/loss, presentation of financial highlights, valuation of certain loans and
investments, treatment of Participating Securities, prioritized payments and SBA profit
participation). As a result, the financial statement presentation on SBA Form 468, based on
SBA’s “Accounting Standards and Financial Reporting Requirements for SBICs” and this
memo, may be considered an Other Comprehensive Basis of Accounting (OCBOA).
Auditors may elect to provide SBA with an OCBOA opinion rather than a GAAP opinion,
with the auditor’s report stating that the financial statements have been prepared in
accordance with accounting practices prescribed or permitted by the U.S. Small Business
Administration. SBA encourages this practice in preference to the issuance of a qualified
GAAP opinion. The notes to the financial statement should include an appropriate
description of the SBIC’s basis of accounting.
SBA will accept an auditor’s opinion stating that an SBIC’s financial statements are
presented fairly in accordance with US GAAP (in particular, SBA notes that a number of
non-leveraged SBICs have received SBA approval to value their investments on a GAAP
basis; in addition, some leveraged SBICs may provide types of financing for which the
valuations under GAAP and SBA guidelines are not materially different). SBA will also
accept a qualified GAAP opinion if the qualification is not material to the financial
statements. SBA will not accept an auditor’s opinion that is qualified because the
investments in portfolio companies included in the financial statements have been valued by
the general partners using the SBA valuation guidelines applicable to the SBIC, which are
not in accordance with GAAP (ASC 820). Because investments in portfolio companies
typically represent a very high percentage of an SBIC’s assets, these qualified opinions do
not provide SBA with adequate assurance regarding the financial statements as a whole.
The auditor’s opinion must be uploaded to the SBIC-Web system in a .pdf document that
also includes the notes to the financial statements that are the subject of the opinion. It is
within the auditor’s discretion to include the audited SBA Form 468 schedules and the
unaudited Schedules 8 and 9.
4. Special Reporting Requirement for SBICs. The annual audit of an SBIC must include a
statement by the independent certified public accountant that an SBIC's valuations were
prepared in conformity with its SBA-approved valuation policy. This is required by section
310(d) of the Small Business Investment Act of 1958, as amended, and §107.503(e)(2) of the

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SBA regulations. SBA has determined that this legal requirement can be satisfied through
the use of the following explanatory paragraph in the auditor’s report on the Form 468
financial statements: “As discussed in Note [number], the investment securities included in
the financial statements have been valued by the [board of directors, or general partner(s)]
using valuation criteria applicable to the licensee. These criteria were established in
accordance with section 310(d)(2) of the Small Business Investment Act of 1958, as
amended.” The referenced section 310(d)(2) states that each valuation submitted by an SBIC
must be prepared in accordance with valuation criteria that (1) shall be “established or
approved” by SBA, and (2) “include appropriate safeguards to ensure that the noncash assets
of a licensee are not overvalued.” For further information, please see section IV, paragraph
B, of “Accounting Standards and Financial Reporting Requirements for SBICs”. Please note
that this requirement applies only to reports on SBA Form 468 and not to reports on any
other financial statements that an SBIC may prepare.
Section 7: Accounting Matters – General
1. Reporting Valuations on SBA Form 468. The FASB has issued FAS 157 (now codified as
ASC Topic 820), “Fair Value Measurements”, which provides a framework for measuring
fair value under GAAP. SBA has not adopted FAS 157 for reporting valuations on SBA
Form 468, and SBICs are not required to include FAS 157 valuation disclosures in the
footnotes to their SBA Form 468 financial statements. SBICs should continue to determine
and report portfolio valuations in accordance with SBA’s “Valuation Guidelines for Small
Business Investment Companies” and SBIC TechNote 12, “Guidelines Concerning Valuation
Issues”. Please review Attachment 2 to this letter which addresses questions SBA has
received about how to interpret the guidance in TechNote 12 concerning liquidation
preferences.
2. Financial Highlights. SBA does not require “Financial Highlights” of the type described in
AICPA Statement of Position 95-2 (ASC Topic 946).
3. Organization Costs. In accordance with AICPA Statement of Position 98-5(ASC Topic
720), organization costs of an SBIC are to be expensed as they are incurred. This accounting
treatment applies only to organization costs, not to SBA leverage fees or partnership
syndication costs.
4. Debt Issuance Costs. In April 2015, the FASB issued ASU 2015-03, Interest – Imputation
of interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which
requires that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt liability rather than
as an asset. SBA has not adopted ASU 2015-03. On SBA Form 468, SBICs must continue
to present unamortized debt issuance costs related to SBA leverage as “Net Leverage Fees”
in the Other Assets section of the Statement of Financial Position. Amortization of debt
issuance costs will continue to be reported as “Amortization of Leverage Fees” in the
Expenses section of the Statement of Operations Realized.
5. Investments in Flow-through Entities. The Statement of Operations Realized (page 4P or
4C of Form 468) includes a line for “Income (Loss) from Investments in Partnerships/Flow-

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through Entities” (line 3). Investors in such entities typically use the equity method of
accounting, under which the cost basis of the investment is adjusted at the end of each
accounting period to recognize the investor's allocated share of earnings or losses, and the
amount of the adjustment is included in the net income of the investor. However, SBA has
determined that this method is not appropriate for SBICs.
Under SBA’s guidelines, instead of using the equity method, SBICs with portfolio
investments in flow-through entities must report these investments at their fair value in the
Statement of Financial Position, with the difference between cost and value reflected as
unrealized appreciation or depreciation. Any income or loss allocated to the SBIC may, if
appropriate, be a factor in the SBIC's estimate of the investment's fair value, but such
allocations are not recognized as income or loss in the Statement of Operations Realized.
Furthermore, the SBIC's cost basis is not adjusted to reflect such allocations. SBICs are to
recognize income or loss when realized upon disposition or liquidation of all or part of their
ownership interest. Income is also recognized when the SBIC receives a cash dividend or
other distribution from the investee (unless the distribution represents a return of capital,
which does not result in the recognition of income, but is treated as a reduction of the SBIC's
cost basis).
6. Consolidation of Portfolio Companies. For most SBICs, the reporting entity is the SBIC
only (for exceptions, see section V, paragraph C, of “Accounting Standards and Financial
Reporting Requirements for SBICs”). Portfolio companies should not be consolidated.
7. “Passive Business” Entity. Under §107.720(b)(2) (exception for pass-through of proceeds
to subsidiary) and §107.720(b)(3) (exception for certain Partnership Licensees), an SBIC
may finance passive businesses under the circumstances set forth in those regulations. Under
these circumstances, the SBIC should report its investment on page 11P or 11C of Form 468
under the name of the eligible small business that is the ultimate recipient of the financing.
In the “Comments” field, the SBIC must indicate the name of each passive business entity
through which it holds the investment and the qualifying exception under which the passive
business Financing was performed (either §107.720 (b)(2) or §107.720 (b)(3)).
Section 8: Accounting Matters – Participating Securities SBICs
1. Classification of Participating Securities under FAS 150. The FASB has issued FAS 150
(ASC Topic 480), “Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity.” SBA’s view is that this Statement requires the outstanding
principal balance of Participating Securities to be reported as a liability. SBA Form 468
classifies outstanding Participating Securities as a liability to conform to this requirement.
2. Treatment of Prioritized Payments and Leverage Fees. FAS 150 also affected the
accounting treatment of Prioritized Payments and leverage fees related to the Participating
Securities. “Earned” Prioritized Payments, Charges and Adjustments, which an SBIC is
obligated to pay to SBA based on its profits, are reported as interest expense in the Statement
of Operations Realized (line 11a). Any amount that is “Earned” but unpaid as of December
31, 2020 will be reported on line 33b of the Statement of Financial Position. This
presentation requires an adjustment to net income in the Participating Securities Distribution

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Worksheet; see Section 9, paragraph 4 of this memo. “Accumulated” Prioritized
Payments”, which an SBIC is not obligated to pay, should not be accrued because of their
contingent nature but must be disclosed in a footnote to the financial statements. Consistent
with the characterization of Participating Securities as a liability, leverage fees from 2005
and later years that are associated with these instruments must be treated as deferred
financing costs, not as syndication costs. SBA encourages but does not require
reclassification of leverage fees paid in 2004 and earlier years. The summary of significant
accounting policies accompanying the financial statements should clearly describe the
accounting treatment of leverage fees, including any differences in the treatment of fees paid
before and after December 31, 2004.
3. Prioritized Payments and Profit Participation Not Subject to FAS 133. SBA is aware
that some SBIC accounting practitioners have considered whether the Prioritized Payment
and/or Profit Participation features of the Participating Securities may be subject to the
requirements of FAS 133 (ASC Topic 815), “Accounting for Derivative Instruments and
Hedging Activities.” If applicable, FAS 133 would require SBICs to report prioritized
payments and Profit Participation potentially due to SBA as liabilities measured at estimated
fair value. For the purpose of reporting on SBA Form 468, SBICs should not treat potential
SBA Prioritized Payments or Profit Participation as a derivative instrument per FAS 133.
Prioritized Payments are to be presented in accordance with Section 8, paragraph 2 of this
memo. Any actual Profit Participation that has been calculated as of December 31, 2020 and
is payable to SBA as a required annual distribution by the May 1, 2020 is to be shown in the
Statement of Financial Position on line 33c.
4. Noncash Gains from Installment sales, Earnouts, etc. SBA is aware that the definition of
“Earmarked Profit” under §107.1510 may cause a Participating Securities SBIC that records
Noncash Gains/Income to have Earned Prioritized Payments, even though the SBIC may not
have sufficient cash available to pay the required amount. Should this situation occur, please
contact your assigned financial analyst in the Office of SBIC Operations for guidance.
5. Tax Identification Number. If you have issued Participating Securities and are preparing a
K-1 for SBA, the SBA’s tax identification number for such purpose is 53-0215587.
Section 9: Participating Securities Distribution Worksheet (PSDW)
1. Required Submission of Distribution Worksheet. If you have issued Participating
Securities, complete and submit the PSDW in addition to your SBA Form 468. The PSDW
should be uploaded, as a .pdf file, to the SBIC-WEB system. You must use the PSDW to do
the calculations required by §§107.1510 through 107.1560 at the end of each fiscal year,
beginning with the first year in which you issued Participating Securities. Even if you have
no profits as of the end of a particular year and will not be making any distributions, you
must go through the applicable sections of the PSDW, such as the computation of
Accumulated Prioritized Payments and Adjustments. Specifically, you are required to
complete the following sections:
•
•

The preliminary information at the very beginning of the PSDW (lines 1 through 5)
Section I: Earmarked Profit (Loss)

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•
•
•

Section II: Liquidity
Section III: Prioritized Payments
Section IV: Profit Participation (Parts IV-1 and IV-2 only)

2. Requirements for SBICs Making a Required or Optional Distribution. If the PSDW
indicates you must make a required year-end distribution, or if you wish to make an optional
distribution, please telephone or email both your assigned financial analyst and Marilyn
Kapila (202-205-7504, [email protected]) as soon as possible. SBIC program
regulations require that you notify SBA (i.e., submit a completed PSDW and any necessary
supporting documentation) at least 10 business days prior to any distribution. Required
year-end distributions for Calendar Year 2020 must be made no later than May 1, 2021
3. Obtaining the PSDW software. The PSDW software is unchanged from prior years. To
request a copy, please contact Marilyn Kapila at [email protected]. [The software can
be installed on PCs running all 32-bit Microsoft operating systems. For operation under
a 64-bit operating system, installation within a 32-bit virtual environment will be
necessary.]
4. Calculation of “Earmarked Profit”. If you had Earned Prioritized Payments, Charges
and/or Adjustments during 2020 (i.e., Prioritized Payments, etc. that you were obligated to
pay to SBA based on your profits), you must report these amounts on SBA Form 468 as
interest expense in the Statement of Operations Realized, in accordance with FAS 150 (see
Section 8, paragraph 2 of this memo). For the purpose of completing section I-3 of the
PSDW, this interest expense must be added back to year-to-date net income on line 1 to
calculate Earmarked Profit correctly and avoid double-counting.
5. Calculation of “Excess Management Expense”. In the calculation of Excess Management
Expense (section I-2 of the PSDW), on line 5 you must enter the gross management fee
computed under your approved management fee formula, before any offsets for fee income
earned by Associates. If you report your management fee expense net of offsets on SBA
Form 468, include a reconciliation of the gross and net management fee figures with your
PSDW submission. Note: If you have previously made one or more distributions based on
PSDWs in which Excess Management Expense was calculated using a net management fee,
you will not be required to restate those worksheets.
Section 10: Other Available Information
1. The following accounting-related documents are available at
https://www.sba.gov/partners/sbics/operate-sbic#section-header-2: (1) Accounting Standards
for SBICs; (2) Chart of Accounts for SBICs; (3) Valuation Guidelines for SBICs. These
items were published in August 1999 as appendices to SBA SOP 10 06, “Oversight and
Regulation of Small Business Investment Companies.” In addition, SBIC TechNote 12,
“Guidelines Concerning Valuation Issues”, issued August 2007, is available at
http://www.sba.gov/sites/default/files/files/SBICTechnote12.pdf. We encourage you to
download and review these materials.

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2. If you have any questions concerning SBIC accounting or financial reporting, contact Judith
Taylor on (202) 205-7083 or at [email protected]
3. If you have any questions concerning the Participating Securities Distributions Worksheet or
distribution, contact Marilyn Kapila on (202) 205-7504 or [email protected].
4. For questions concerning SBA Connect, please send an email to [email protected]
5. For questions concerning SBIC-Web, please send an email to [email protected] and include
“SBA – SBICWEB Support” in the subject line along with a brief title of your issue. In the
body of the email, please include the SBIC Name and any detailed and pertinent information
related to your issue.
6. For other matters, including valuation reporting, contact your area chief or financial analyst.

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Attachment 1
Rules of Behavior
All Users
Small Business Investment Company Information System (SBICWEB)
Unauthorized Use – Users of the Small Business Investment Company Information System
(SBICWEB) are responsible for the appropriate use and protection of sensitive information to
which they have authorized access. You are prohibited from disclosing, without proper
authorization, sensitive or Privacy Act information to individuals who have not been authorized
to access the information.
IDs and Passwords – User IDs are assigned to individuals and should not be shared with other
persons or groups. You must maintain the secrecy of your password. If you suspect your
password has been compromised, you must change it immediately.
Accountability – You are accountable for all actions associated with the use of your assigned
User ID and may be held liable for unauthorized actions found to be intentional, malicious, or
negligent.
Unauthorized Access – You are prohibited from accessing or attempting to access SBICWEB
information for which you are not authorized. You are prohibited from changing access controls
to allow yourself or others to perform actions outside your authorized privileges. You may not
imitate another system, impersonate another user, misuse another user’s credentials (user ID,
password, etc.) or read, store, or transfer information for which you are not authorized. Abuse of
access capabilities will result in the removal of access to SBICWEB.
Denial of Service Action – You are not allowed to initiate actions that limit or prevent other
users from performing authorized functions.
Data or Software Modification or Destruction – Unless otherwise authorized, you are not
allowed to intentionally modify or delete system software, programs, or data.

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Attachment 2
Valuations When an SBIC Has Liquidation Preferences
The Form 468 Schedule of Loans and Investments requires an SBIC to list and value separately each
security of a portfolio company that it holds.
Many equity securities have a liquidation preference associated with the order and amount the security is
entitled to receive when distributions are made.
SBA’s model valuation policy does not allow for unrealized appreciation above cost based on liquidation
preferences, even if it is allowed for GAAP purposes. SBIC TechNote #12 provides the following
supplemental guidance on how SBICs may consider the downside protection that a preference provides:
If the SBIC’s investment provides for liquidation preferences, the SBIC’s valuation should take into
account the downside protection afforded by the preferences, up to the cost of the investment, in the event
that the value of the underlying company deteriorates. When considering the protective impact of its own
preferences, the SBIC must also consider the potential unfavorable impact of preferences held by other
investors.
It is not uncommon for new rounds of funding to include liquidation preferences used to preserve the total
investment that a fund has in the portfolio company. SBA has been asked how the valuation of multiple
securities should be reported on the SBA Form 468 if the most senior security has a liquidation preference
that recovers the cost, or part of the cost, of all the outstanding securities. Specifically, applying the
above guidance from SBIC TechNote #12, can all or part of the cost of the junior securities be protected
to the extent that the senior security has a liquidation preference that is expected to return the cost of both
the senior and junior securities?
SBA’s response to this question is yes, as illustrated in the following examples, subject to the
documentation requirements listed at the end of this attachment.
Example #1:
The investor syndicate has one or more investors who are not able or willing to put more money into a
company. The syndicate puts a liquidation preference on the new round of funding to penalize the
syndicate members who are not participating in the newest round.

Series A
Series B
Liquidation Value
Enterprise value
Series B
Series A

Price Per Total round
Post-Money
Share
Size
Enterprise Value Seniority
$ 1.00 $ 2,500,000 $
4,000,000
2
$ 1.00 $ 2,000,000 $
6,000,000
1
$ 4,500,000

Total value

$
$
$

6,000,000
6,000,000
-

$

6,000,000

Liquidation
Liquidation
Preference X Preference $
1
$ 2,500,000
3
$ 6,000,000

In this case, assuming the $6M enterprise value can be supported, the fund will get more than cost basis
of its total investment in the portfolio company, based on the liquidation preference on the Series B, but

14

nothing would go specifically to the Series A. Because the SBIC’s total cost basis is protected by the
Series B preference, the SBIC would show both the Series A investment and the Series B investment at
cost on the Form 468 Schedule of Loans and Investments.
Example #2
The investor syndicate has one or more investors who are not able or willing to put more money into a
company. The syndicate puts a liquidation preference on the new round of funding to penalize the
syndicate members who are not participating in the newest round. The newest round was also done at a
lower pre-money enterprise value.

Series A
Series B
Liquidation Value
Enterprise value
Series B
Series A

Price Per Total round
Post-Money
Share
Size
Enterprise Value Seniority
$ 1.00 $ 2,500,000 $
4,000,000
2
$ 1.00 $ 2,000,000 $
4,000,000
1
$ 4,500,000

Total value

$
$
$

4,000,000
4,000,000
-

$

4,000,000

Liquidation
Liquidation
Preference X Preference $
1
$ 2,500,000
3
$ 6,000,000

In this case, assuming the $4M enterprise can be supported, the fund will get all its cost in Series B
($2.0M) and some of its cost basis from Series A ($2.0M of the $2.5M) based on the liquidation
preference on the Series B, but nothing would go specifically to the Series A. Because the SBIC’s Series
A cost basis is partially protected by the Series B preference, the SBIC would show both the Series A
investment at $2.0M (written down from cost of $2.5M) and the Series B investment at its cost of $2.0M
on the Form 468 Schedule of Loans and Investments.
SBA believes that reporting in accordance with these examples will allow an SBIC to appropriately
represent the total value of its position in a company, not to exceed cost, in accordance with SBA
valuation guidelines.
Documentation Requirements
For any security that is reported on Form 468 at a value that depends on the estimated value of a
liquidation preference, the SBIC must note the basis for the valuation in the comments section. The
comment must describe the preference and indicate the specific security that has the preference.
Upon request, an SBIC must provide documentation satisfactory to SBA of its calculation of the
enterprise value on which the value of a liquidation preference is based. The calculation of enterprise
value must consider any down round that has taken place, whether or not outside investors were involved.
If SBA is not satisfied that the enterprise value is reasonable and appropriately supported, we can require
adjustment of the value based on an independent third-party valuation, either by a contractor of our
choosing or a valuation firm engaged by the SBIC and acceptable to SBA. Licensees are strongly
cautioned that merely holding a preference does not provide downside protection if the value of the
portfolio company is insufficient to cover the preference.

15