The reservation provision was included in the original legislation that created the Participating Security program because some feared that there would be a significant number of large participating security firms that would somehow monopolize available leverage. That has not proven to be the case. The small percentage is to be expected given that participating security leverage must be invested in the equities of small businesses. The majority of SBIC equity funds are always going to be smaller because the typical equity investment is at an earlier stage and relatively small when compared with latter stage financing needs of growing companies more likely to be financed by debt-oriented funds, including debenture SBICs. The required reservation is also made unnecessary by virtue of the commitment process created by Congress and which SBA uses to allocate leverage.
Commitments are good for up to five years.
Commitments guarantee that leverage up to the face amount of the commitment will be available to the SBIC holding the same so long as the SBIC is in regulatory compliance. All SBICs, regardless of size, can reserve leverage through the commitment process. If left in the law, the reservation requirement simply confuses the situation at best. There is the possibility that at some time SBA would be called upon to deny leverage to an SBIC that needed it to make an actual investment in a small business in order to reserve the leverage for a theoretical investment that might be made in the future. Under this potential, both the SBIC denied leverage and the small business that would have received it would suffer to protect a mere possibility at best.