§ 107.305 Evaluation of license applicants. SBA will evaluate a license applicant based on the submitted application materials, any interviews with the applicant's management team, and the results of background investigations, public record searches, and other due diligence conducted by SBA and other Federal agencies. SBA's evaluation will consider factors including the following: ( a ) *Management qualifications.* Management qualifications, including demonstrated investment skills and experience as a principal investor, or a combination of investment skill and relevant industry operational experience; business reputation; adherence to legal and ethical standards; record of active involvement in making and monitoring investments and assisting portfolio companies; managing a regulated business, if applicable; successful history of working as a team; and experience in developing appropriate processes for evaluating investments and implementing best practices for investment firms.
( b ) *Demonstrated investment acumen.* Performance of proposed investment team's prior relevant industry investments as well as any supporting operating experience, including investment returns measured both in percentage terms and in comparison to appropriate industry benchmarks; the extent to which investments have been realized as a result of sales, repayments, or other exit mechanisms; evidence of previous investment or operational experience contributing to U.S. domestic job creation and, when applicable, demonstrated past adherence to statutory and regulatory SBIC program requirements. While a track record is required to apply for an SBIC license, a “certified” track record is not required.
( c ) *Strategy and fit.* Applicant's proposed investment strategy as presented in its business plan, including adherence to the Statement of Policy as stated in section 102 of the Act, clarity of objectives; strength of management's rationale for pursuing the selected strategy; compliance with this part and applicable provisions of part 121 of this chapter; fit with management's skills and experience; and the availability of sufficient resources to carry out the proposed strategy. As determined by SBA, a Licensee may not materially deviate from the proposed investment strategy after three years of Licensure.
( d ) *Structure and economics.* Applicant's proposed organizational structure and fund economics, including compliance with this part 107; soundness of financial projections and underlying assumptions; a compensation plan that provides managers with appropriate economic incentives; a reasonable basis for allocations of profits and fees to Persons not involved in management; and governance procedures that provide appropriate checks and balances.
( e ) *Subsequent fund applicants.* ( 1 ) Applicants operating an active Licensee that meet the following eligibility criteria can apply under an “Expediated Subsequent Fund” evaluation process. Should an applicant fulfill and formally attest to meeting all of the following eligibility criteria, the applicant can apply for an “Expediated Subsequent Fund” evaluation process: ( i ) *Consistent strategy and fund size.* Targeted Regulatory Capital to be raised is ≤133% the size of their most recent SBIC fund (inflation adjustments will be considered). Same asset class and investment strategy as most recent license.
( ii ) *Clean regulatory history.* No major findings, significant “other matters,” or unresolved “other matters” related to licensees managed by the principals of applicant in the previous ten years.
( iii ) *Consistent limited partnership (LP)-general partnership (GP) dynamics.* No new limited partner will represent ≥33 percent of the Private Capital of the licensee upon reaching final close at target fund size or hard cap. SBA would expect to see that a meaningful proportion of a prior SBIC fund's institutional investor base would return to support an anticipated subsequent SBIC fund. The most recent limited partnership agreement (LPA) of the active Licensee and all side letters will have no substantive changes for the applicant fund.
( iv ) *Investment performance stability.* The most recent licensee net distributions to paid-in capital (DPI) and net total value to paid-in capital (TVPI) TVPI are at or above median vintage year and strategy performance benchmarks for the prior three quarters. The principals of the applicant are not managing a licensee in default or with high Capital Impairment (CIP).
( v ) *Consistent or reduced leverage management.* The applicant is requesting a leverage to Private Capital ratio ≤ the current or most recent SBIC licensee at target fund size or hard cap.
( vi ) *Firm stability.* Subject to SBA's determination, no material changes to the broader firm, to include resignations, terminations, or retirements by members of the general partnership, investment committee, broader investment team, or key finance and operations personnel, subject to paragraph (e)(1)(vii) of this section.
( vii ) *Promotions from within.* Demonstration of promoting internal investment team talent from within the firm/organization sponsoring the license.
( viii ) *Inclusive equity.* Demonstration of appropriate/increased sharing of carry and/or management company economics with promoted talent or distribution of equitable or increasingly equitable economics among the partnership.
( ix ) *Federal Bureau of Investigation (FBI) criminal and Internal Revenue Service (IRS) background check no findings.* The sponsoring entity and all principals of the Licensee do not have an FBI criminal record and do not have IRS violations from the date of their most recent SBIC fund licensure.
( x ) *No outstanding or unresolved material litigation matters.* No outstanding or unresolved litigation matters involving allegations of dishonesty, fraud, or breach of fiduciary duty or otherwise requiring a report under § 107.660(c) or (d) as to a prior Licensee, the prospective Applicant's general partner, or any other person who was required by SBA to complete a personal history statement in connection with the license application.
( xi ) *No outstanding tax liens.* On the principals applying to manage the licensee, on the most recent or active licensee, and on the sponsoring entity of the licensee.
( 2 ) Should an applicant fulfill and formally attest to meeting all of the eligibility criteria in paragraph (e)(1) of this section, the applicant can submit a streamlined “Short-Form Subsequent Fund MAQ”.
[77 FR 25052, Apr. 27, 2012, as amended at 88 FR 46008, July 18, 2023; 89 FR 3547, Jan. 19, 2024]