Sutherland’s SBIC practice combines our corporate knowledge with extensive experience in fund formation and the SBIC licensing process, and provides ongoing regulatory support.
Small Business Investment Companies (SBICs) are privately owned and operated companies that make long-term investments in U.S.-based small businesses and are licensed by the U.S. Small Business Administration (SBA). The SBIC program was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. The SBIC program oversees more than 300 SBA-licensed funds, with over $20 billion in capital, including private investor commitments and the SBA’s leverage commitments. In 2013, SBICs provided $3.5 billion in growth capital to more than 1,000 small businesses collectively supporting more than 73,000 jobs. Sutherland’s highly skilled lawyers provide guidance to SBICs at all points in development—from formation and licensing to ongoing operations and portfolio company transactions.
Our SBIC clients range from public and private corporations to specialty investment companies and sponsors of private investment funds. We also work with existing fund structures, including business development companies, in structuring and obtaining licenses for SBIC subsidiaries.
We assist in the preparation and documentation of the Management Assessment Questionnaire (MAQ), License Application and related documentation required in the SBIC licensing process. Our experience working with SBIC clients and the innovative business solutions we provide ensure that the process will be managed effectively. We work with clients in connection with operating the SBIC and providing ongoing regulatory support. We also advise clients with respect to change of control applications and approvals.
Sutherland’s lawyers acquired their wide-ranging knowledge of the SBIC program and the inner workings of the SBA over many years of practice. As with other Sutherland practice areas, we believe that one size does not fit all. This understanding has produced a team capable of tailoring legal solutions to fit the needs of our clients in matters from fund formation and crisis management advice to regulatory consulting.
Practical know-how. Clients come to us for advice on day-to-day operational issues, such as registration, compliance and change-of-control scenarios, as well as examinations and investigations brought by regulators.
Knowledge of regulatory requirements. We understand the SBA’s evolving regulatory requirements and industry best practices. We have the experience to advise all SBICs, both in the pre-licensing and post-licensing stages, including with respect to portfolio investments and ongoing compliance obligations.
The right structure. Our corporate, securities, tax and ERISA teams provide guidance on structuring management organizations, including determining the best organizational structure, and provide ongoing support to existing SBICs. Our team can call upon our other practices to provide SBICs with regulatory, tax and litigation services when needed.
Responsiveness. Listening to our clients and understanding their needs enables us to structure the most appropriate funds and effectively advise on all aspects of fund operation and management.
Industry involvement. Sutherland attorneys have been involved in the SBIC program for many years and have close working relationships with SBA regulators. In addition, Sutherland is a member of the Small Business Investment Alliance (SBIA) and works closely with the SBIA in developing legislative and regulatory initiatives.
Nuts and Bolts
Our SBIC team is engaged in:
Fund formation, including complex SBIC acquisition transactions, change of control structures, and formation of wholly owned BDC subsidiaries and drop down structures.
Document preparation including the drafting and submission of the MAQ, license application, pre-licensing investment paperwork and responses to comment letters, if any, for potential SBICs
Preparation for and attendance at SBA pre-screening interviews and investment committee presentations
Ongoing discussions with SBA regulators, including resolving complex structuring issues
Corporate matters, such as preparing investment adviser operating agreements, counseling on tax and compensation matters, designing employment agreements and regularly providing counsel on conflicts of interest and other similar matters.
Once our clients successfully receive their license from the SBA, we serve as trusted advisers in the ongoing operations of their businesses:
Fund operational issues
Preparation and development of compliance documentation
Knowledge of relevant federal legislation including the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934 and ERISA
Advising on portfolio company transactions
Additional regulatory filings, including commitment requests and leverage draws
Our SBIC team is equipped to negotiate third-party service provider arrangements efficiently and effectively through:
Strong relationships with leading industry service providers and our understanding of the intricacies of negotiating as counter-parties to them.
Contract negotiations for services such as administration, custody, accountants, compliance services and other back-office functions
A fund’s ability to access reliable sources of capital can be a significant differentiating factor in its long-term growth and success. Sutherland’s SBIC team has assisted many clients to obtain SBIC licenses and successfully operate an SBIC.