# 66 FR 20531: New Markets Venture Capital Program

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-9839

## Section

- **Citation:** 66 FR 20531
- **Heading:** New Markets Venture Capital Program
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 66 / 66 FR 20531

## Text

SMALL BUSINESS ADMINISTRATION 13 CFR Part 108 RIN 3245-AE40 New Markets Venture Capital Program AGENCY:
U.S. Small Business Administration.

ACTION:
Proposed rule; Proposed withdrawal of interim final rule.

SUMMARY:
The U.S. Small Business Administration (“SBA”) is proposing to add a new Part 108 to implement the New Markets Venture Capital Program Act of 2000 (“the Act”). The Act authorizes SBA to issue regulations necessary to implement the program. The regulations set forth the requirements for: newly-formed venture capital companies to qualify to become New Markets Venture Capital (“NMVC”) companies to make developmental venture capital investments in smaller enterprises located in low-income geographic areas and provide operational assistance to such enterprises receiving such investments; and (2) existing Specialized Small Business Investment Companies (“SSBICs”) to qualify for grants to provide operational assistance to smaller enterprises located in low-income geographic areas and which such SSBICs have financed or expect to finance.
In today's Federal Register , SBA publishes an extension of the effective date of the interim final rule SBA published in the Federal Register on January 22, 2001, 66 FR 7218, to June 22, 2001. SBA proposes to withdraw that interim final rule before it becomes effective. SBA further proposes to implement the NMVC program instead with this proposed rule. SBA intends to complete its rulemaking and publish a final rule based on this proposed rule, before the extended effective date of the interim final rule and with sufficient time to implement the NMVC program during fiscal year 2001.
The proposed regulations in this proposed rule are based in large part on the regulations previously published in the interim final rule, with several technical and substantive changes. The Supplementary Information section of this proposed rule includes a discussion of these technical and substantive changes as well as of the comments SBA received on the interim final rule
ing fiscal year 2001.
The proposed regulations in this proposed rule are based in large part on the regulations previously published in the interim final rule, with several technical and substantive changes. The Supplementary Information section of this proposed rule includes a discussion of these technical and substantive changes as well as of the comments SBA received on the interim final rule.

DATES:
Submit comments on or before May 4, 2001.

ADDRESSES:
Written comments should be sent to Austin Belton, Investment Division, Office of New Markets Venture Capital, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT:
Austin Belton, Director, Office of New Markets Venture Capital, 202-205-7027.

SUPPLEMENTARY INFORMATION:
I. Background
The New Markets Venture Capital Program Act of 2000 (“the Act”) was created by the Consolidated Appropriations Act of 2001, Public Law 106-554, enacted December 21, 2000. Congress recognized that despite the nation's overall economic prosperity, many underserved areas in America have not experienced such prosperity and millions of Americans living in these areas do not have access to jobs or entrepreneurial opportunities. It enacted the New Markets Venture Capital (“NMVC”) Program to help create an economic infrastructure in such underserved areas by encouraging business growth through program-supported investment. This type of investing is known in the community development venture capital industry as “double bottomline” investing, because the investments have both an anticipated financial and social return. Social returns include creating sustainable jobs at businesses receiving investments from NMVC companies, and encouraging such businesses to provide much-needed new products and services within underserved areas
of investing is known in the community development venture capital industry as “double bottomline” investing, because the investments have both an anticipated financial and social return. Social returns include creating sustainable jobs at businesses receiving investments from NMVC companies, and encouraging such businesses to provide much-needed new products and services within underserved areas.
Congress noted that between 1997 and 1998, the median income for the nation's households rose 3.5 percent in real terms, yet 12.7 percent of Americans (34.5 million people) still live below the poverty line. Many of these Americans live in inner city and rural areas, where job opportunities are scarce and there is little to attract small business investors. In rural and urban communities, poverty remains a persistent problem. Job growth is well below the national average, with unemployment at or above 14 percent. Unemployment is 7.5 percent in the African American urban community, and is 6.4 percent in the Hispanic urban population; both are nearly double the national average. Despite these statistics, Congress found that it is not enough to create jobs in these pockets of poverty, rather these communities need a new economic infrastructure to enable them to develop their full potential and participate fully in the economic mainstream. The NMVC program will encourage the growth of such an infrastructure by supporting new equity capital investments by NMVC companies and SSBICs and by providing operational assistance to smaller enterprises located in low-income geographic areas whose growth will foster the creation of wealth and job opportunities in such areas.
SBA will enter into participation agreements with NMVC companies to fulfill these statutory purposes. The Act authorizes SBA to guarantee debentures of NMVC companies. Such debentures leverage the private capital that NMVC companies must raise and enable them to make the equity investments in low-income geographic areas contemplated by the Act
ation of wealth and job opportunities in such areas.
SBA will enter into participation agreements with NMVC companies to fulfill these statutory purposes. The Act authorizes SBA to guarantee debentures of NMVC companies. Such debentures leverage the private capital that NMVC companies must raise and enable them to make the equity investments in low-income geographic areas contemplated by the Act. The Act also authorizes SBA to provide grants to NMVC companies to provide operational assistance to smaller enterprises in which they invest. In addition, the Act enhances the ability of existing SSBICs to invest in smaller enterprises in low-income areas by giving them grants to provide operational assistance to such enterprises in connection with such investments.
SBA intends to enter into participation agreements with NMVC companies that have a solid business plan for making investments in the low-income geographic areas targeted by the Act, and that have the most likelihood of expanding economic opportunities in such areas.
II. Proposal to Withdraw Interim Final Rule
SBA published an interim final rule in the Federal Register on January 22, 2001, 66 FR 7218, with an effective date of February 21, 2001. SBA subsequently published in the Federal Register on February 20, 2001, 66 FR 10811, a delay of the effective date of the final rule until April 23, 2001. The delay was for the purpose of giving Administration officials the opportunity for further review and consideration of new regulations, consistent with the Assistant to the President and Chief of Staff memorandum entitled “Regulatory Review Plan,” published in the Federal Register on January 24, 2001. In today's Federal Register , SBA publishes a notice of a further extension of the effective date of the interim final rule, to June 22, 2001
stration officials the opportunity for further review and consideration of new regulations, consistent with the Assistant to the President and Chief of Staff memorandum entitled “Regulatory Review Plan,” published in the Federal Register on January 24, 2001. In today's Federal Register , SBA publishes a notice of a further extension of the effective date of the interim final rule, to June 22, 2001. The purpose of this additional extension is to give Administration officials additional time for further review and consideration of new regulations, consistent with that “Regulatory Review Plan,” before the interim final rule becomes effective.
SBA now proposes to withdraw that interim final rule before it becomes effective and to implement the NMVC program instead with this proposed rule. SBA seeks comments from interested members of the public on this proposed rulemaking action.
This proposed rule incorporates substantive changes resulting from the Administration's review of the interim final rule. SBA intends to complete its rulemaking and publish a final rule based on this proposed rule, before the extended effective date of the interim final rule.
SBA has published an extension of the application filing deadline, from April 19, 2001 to May 21, 2001, 66 FR 18993 (April 12, 2001). SBA hopes to be able to complete its rulemaking on this proposed rule and publish a final rule with an effective date sufficiently in advance of that date to allow potential applicants to consider the final rule and its applicability to their applications before they submit them to SBA. If SBA is unable to complete its rulemaking within that time frame, SBA may make a further extension of the application filing date so as to allow at least one week between the effective date of the final rule and the application filing deadline.
III. Discussion of Comments on Interim Final Rule
SBA received three comment letters on the interim final rule published in the Federal Register on January 22, 2001, 66 FR 7218
e its rulemaking within that time frame, SBA may make a further extension of the application filing date so as to allow at least one week between the effective date of the final rule and the application filing deadline.
III. Discussion of Comments on Interim Final Rule
SBA received three comment letters on the interim final rule published in the Federal Register on January 22, 2001, 66 FR 7218. This proposed rule reflects several technical changes that are based on SBA's consideration of specific comments in those comment letters. SBA discusses those particular changes in Part B of Section III, “Section by Section Analysis.” In this section, SBA will discuss other significant comments recommending changes that SBA considered but chose not to include in this proposed rule.
One commenter recommended that SBA include in the definition of “Lending Institution” in § 108.50 any entity certified by the U.S. Department of Treasury to be a Community Development Financial Institution (“CDFI”). SBA proposes not to implement this suggestion. Many CDFIs already may qualify as “Lending Institutions” within the existing definition and, therefore, would not need this change to the regulation. SBA's definition of “Lending Institution” includes entities that are subject to regulatory oversight by third parties or other objective means of oversight, which reduces the potential for conflicts of interest with associated entities, including NMVC companies. Entities that are CDFIs can include venture capital funds and non-profit certified development companies, which may not be subject to objective oversight. Those entities associated with a NMVC company that qualify as CDFIs but not “Lending Institutions” within SBA's definition, may present potential conflicts of interest between those associates and the NMVC company, which justifies the requirement in proposed § 108.730(d) for prior approval by SBA of a financing with such associates
opment companies, which may not be subject to objective oversight. Those entities associated with a NMVC company that qualify as CDFIs but not “Lending Institutions” within SBA's definition, may present potential conflicts of interest between those associates and the NMVC company, which justifies the requirement in proposed § 108.730(d) for prior approval by SBA of a financing with such associates.
One commenter recommended that SBA change one aspect of its management and ownership diversity regulation, § 108.150(b), to allow for a more than 70% drop-down NMVC company subject to SBA prior approval. SBA proposes not to change the 70% limitation because SBA believes that a 70% limitation on ownership of a NMVC company by one person or affiliated group of persons is reasonable, regardless of the identity or motivations of such person or persons. In addition, SBA proposes to delete language that would have allowed SBA to approve an exception to this requirement.
One commenter suggested that SBA expand the scope of the requirement for a market analysis that applicants for NMVC company designation must include in their comprehensive business plans, § 108.320(c). Specifically, the commenter requested that SBA add to the end of the first sentence in that subsection the phrase “ * * * and the low-income individuals living in those areas.” SBA proposes not to implement this suggestion, for two reasons.
First, this would add a requirement on applicants that goes beyond the scope of the Act. “Low-income individual” is a defined term in section 351(2) of the Small Business Investment Act (“SBI Act”), as amended by the Act. The Act uses that defined term only in the context of the Administrator's discretionary ability to designate additional areas as LI areas (see section 351(3)(A)(iii) of the SBI Act as amended by the Act)
equirement on applicants that goes beyond the scope of the Act. “Low-income individual” is a defined term in section 351(2) of the Small Business Investment Act (“SBI Act”), as amended by the Act. The Act uses that defined term only in the context of the Administrator's discretionary ability to designate additional areas as LI areas (see section 351(3)(A)(iii) of the SBI Act as amended by the Act). Section 352(1) of the SBI Act, as amended by the Act, describes one of the purposes of the NMVC program as promoting economic development in LI areas and “among individuals living in such areas.” Congress could have used the defined term “low-income individuals” here, if it had so intended, but chose not to. Therefore, SBA believes it would be going beyond the statutory language and purpose to impose a requirement on NMVC company applicants to demonstrate how its activities will have a positive economic impact on the “low-income individuals living in” LI areas.
Second, the market analysis requirement in this section already requires applicants to analyze how its activities will have a positive economic impact on the LI areas in which it intends to focus its activities. SBA intends that applicants include in this analysis a discussion of all relevant aspects of economic impact on the LI areas, which reasonably would include impact on residents of the areas.
One commenter stated that it believes SBA did not include in § 108.360, which addresses criteria for conditional approval, certain elements the commenter believes the Act requires SBA to consider in selecting NMVC company applicants for conditional approval.
Section 354(c)(2) of the SBI Act, as amended by the Act, sets forth the criteria SBA must consider in selecting NMVC company applicants for conditional approval. Section 354(c)(2)(E) requires SBA to consider the likelihood that an applicant will be able to satisfy the conditions set forth in section 354(d) of the SBI Act, as amended by the Act
ng NMVC company applicants for conditional approval.
Section 354(c)(2) of the SBI Act, as amended by the Act, sets forth the criteria SBA must consider in selecting NMVC company applicants for conditional approval. Section 354(c)(2)(E) requires SBA to consider the likelihood that an applicant will be able to satisfy the conditions set forth in section 354(d) of the SBI Act, as amended by the Act. Sections 354(d)(1) and (2) set forth the minimum amounts of capital and grant matching resources a conditionally approved NMVC company must raise in order to be considered for final approval. Proposed § 108.360 sets forth the evaluation criteria SBA proposes to consider in selecting applicants for participation in the NMVC program. One of those criteria, proposed § 108.360(h), is the likelihood and the time frame within which the applicant will be able to raise the minimum amounts of capital and grant matching resources the company must raise in order to be considered for final approval.
SBA believes that this adequately implements the statutory requirement in section 354(c)(2)(E) that SBA consider the likelihood that an applicant will be able to raise the resources required under section 354(d) within the required time period. In addition, in the competitive selection process for participation in the NMVC program, SBA intends to evaluate each applicant's plan for raising required resources and the likelihood that the applicant can implement its plan.
One commenter suggested that SBA revise § 108.380(a)(1)(i)(B) to limit the amount of grant matching resources a conditionally approved NMVC company must raise in order to receive final approval. The commenter suggested this limit should be an amount not more than the amount of operational assistance grant that SBA has “conditionally designated for that NMVC company.” SBA proposes not to implement this suggestion for several reasons
vise § 108.380(a)(1)(i)(B) to limit the amount of grant matching resources a conditionally approved NMVC company must raise in order to receive final approval. The commenter suggested this limit should be an amount not more than the amount of operational assistance grant that SBA has “conditionally designated for that NMVC company.” SBA proposes not to implement this suggestion for several reasons.
First, SBA will not “conditionally designate” or otherwise commit or obligate its appropriated funds for operational assistance grants to conditionally approved NMVC
Second, the statutory scheme created by the Act provides that conditionally approved NMVC companies must raise at least a specified minimum of capital and grant matching resources by a deadline established by SBA. There is no prohibition on a conditionally approved NMVC company raising more capital than it proposed to raise in the plan it submitted to SBA and upon which SBA gave conditional approval. If a conditionally approved NMVC company did so, however, pursuant to the Act it also must raise additional grant matching resources in an amount not less than 30 percent of the capital it actually raised. In addition, there also is no statutory prohibition on a NMVC company raising the minimum of $5 million in capital but raising more than the minimum amount for grant matching resources of 30% of capital. If one or more conditionally approved NMVC companies raised more grant matching resources than anticipated at the time of selections for conditional approval, that could result in SBA not having sufficient appropriated funds to make grants equal to the full amount of each NMVC company's grant matching resources. In that event, SBA would have to use the pro rata reduction provision in proposed § 108.2020(c)
more conditionally approved NMVC companies raised more grant matching resources than anticipated at the time of selections for conditional approval, that could result in SBA not having sufficient appropriated funds to make grants equal to the full amount of each NMVC company's grant matching resources. In that event, SBA would have to use the pro rata reduction provision in proposed § 108.2020(c).
One commenter believes that the regulations do not, but should, require a NMVC company to provide reports to SBA concerning small businesses that receive operational assistance but not financing from the NMVC company or small businesses in which the NMVC company invests (“portfolio concerns”) that are located outside LI areas. Specifically, the commenter states that section 361(2) of the SBI Act, as amended by the Act, requires a NMVC company to report the number and percentage of employees of such businesses that reside in LI areas. Another commenter suggested that SBA expand the scope of the reporting requirements set forth in § 108.630(e) to include required reporting on the full-time equivalent jobs created and the percentage of these jobs filled by people who were low-income individuals immediately prior to employment in such jobs. SBA proposes not to implement this second suggestion because SBA believes this goes beyond the scope and purpose of the Act. See discussion, above, concerning “low-income individual.”
Proposed § 108.630(e) already addresses the first suggestion, because it would require a NMVC company to report to SBA certain social, economic, or community development impact information concerning every financing the NMVC company makes. SBA has developed a reporting form specifically for this purpose (SBA Form 468, Schedule 9). This reporting requirement applies to both low-income investments and to any other financing the NMVC company makes (including financings the NMVC company makes in businesses located outside LI areas)
, economic, or community development impact information concerning every financing the NMVC company makes. SBA has developed a reporting form specifically for this purpose (SBA Form 468, Schedule 9). This reporting requirement applies to both low-income investments and to any other financing the NMVC company makes (including financings the NMVC company makes in businesses located outside LI areas). NMVC companies must provide information concerning each of its portfolio concerns, on the number of the concern's full-time employees that reside both inside and outside the LI areas and the quality of those jobs (for example, whether health insurance and pension plan benefits are provided). With respect to a small business to which the NMVC company provides operational assistance but not also a financing, SBA proposes to implement the other part of the first suggestion, by requiring a NMVC company to report on the numbers of that small business' employees that reside inside and outside of a LI area. This reporting requirement will be contained within the grant award agreement between SBA and finally approved NMVC companies.
One commenter recommended that SBA reduce or eliminate the examination fee set forth in § 108.692. SBA considered the suggestion but proposes not to implement it. The examination fee for NMVC companies is comparable to or lower than the examination fee for a similarly-sized SBIC. SBA expects the examination of NMVC companies to be significantly more complex than the examination required for SBICs. For example, SBA will be required to audit a NMVC company's reporting on the economic, social, and community impact of its financings, and its use of operational assistance funds
fee for NMVC companies is comparable to or lower than the examination fee for a similarly-sized SBIC. SBA expects the examination of NMVC companies to be significantly more complex than the examination required for SBICs. For example, SBA will be required to audit a NMVC company's reporting on the economic, social, and community impact of its financings, and its use of operational assistance funds.
One commenter suggested that SBA ease the requirement in § 108.710 that 80 percent of the businesses receiving financing from a NMVC company must be low-income enterprises (defined in proposed § 108.50 as smaller enterprises located in LI areas at the time the financing is made) and must receive equity capital investments, in order to give NMVC companies more investing flexibility. The commenter recommends a revision that would allow the 80 percent of businesses that must be low-income enterprises to not necessarily be the same 80 percent of businesses that receive equity capital investments.
SBA proposes not to implement this suggestion. SBA believes the clear statutory purpose behind the NMVC program, as set forth in sections 352(1) and (2) of the SBI Act, as amended by the Act, is specifically to address the unmet equity needs of smaller enterprises located in LI areas, not generally the unmet credit needs of such businesses. By requiring the same 80% of smaller enterprises located in LI areas also to receive equity capital investments, this statutory purpose is better served.
One commenter suggested that it might be impossible for a NMVC company to comply with the requirements of § 108.710(a) if, at the end of the NMVC company's fiscal year, it has invested most or all of its capital and is unable to draw leverage in order to make additional investments to bring itself into compliance. This comment anticipates that a NMVC company will use all of its private capital first, before drawing any leverage
might be impossible for a NMVC company to comply with the requirements of § 108.710(a) if, at the end of the NMVC company's fiscal year, it has invested most or all of its capital and is unable to draw leverage in order to make additional investments to bring itself into compliance. This comment anticipates that a NMVC company will use all of its private capital first, before drawing any leverage. SBA does not anticipate this problem will arise for a NMVC company that is properly using both its regulatory capital and leverage to make investments. SBA expects NMVC companies to utilize the debenture leverage available under the NMVC program as they make investments.
One commenter suggested that SBA eliminate the prohibition in § 108.800(b) that a NMVC company may not provide a credit guarantee for an unincorporated portfolio company. SBA proposes not to implement this suggestion. This is a long-standing policy in the SBIC program and SBA believes it also should be applicable to NMVC companies.
IV. Section by Section Analysis
This section by section analysis is divided into two parts. Part A includes a description of each proposed regulation. Part B describes each regulation for which SBA proposes a significantly changed version from the version of that regulation that was published in the interim final rule, and the basis for the change. These changes include technical and substantive changes.
A. Section by Section Analysis of Regulations
The following is a section by section analysis of SBA's proposed rule to add a new part 108 to title 13 of the Code of Federal Regulations to implement the Act.
1. General Information About the Regulations
As you read through the section by section analysis of particular
The SBIC program was created by the Small Business Investment Act of 1958 in response to a Federal Reserve study finding that small businesses in general were unable to obtain the long-term debt and equity funds that they needed for success
Federal Regulations to implement the Act.
1. General Information About the Regulations
As you read through the section by section analysis of particular
The SBIC program was created by the Small Business Investment Act of 1958 in response to a Federal Reserve study finding that small businesses in general were unable to obtain the long-term debt and equity funds that they needed for success. The basic objective of the program is to attract and supplement private capital, managed by private investment managers, to meet that need. SBA licenses such companies as SBICs, regulates their activities to ensure that they are financially sound and serve the program's public policy objectives, and supplements their private capital by guaranteeing debentures or other securities that they issue.
The SBIC program has been extraordinarily successful in recent years and today represents a major factor in small business financing. It is estimated that 34 percent of all companies receiving institutional venture capital in 1999 obtained it from an SBIC. In fiscal year 2000, SBICs invested a record $5.5 billion in more than 3,000 small growth companies. This was accomplished with a budget appropriation of just $24.3 million.
A key strength of the SBIC program lies in the fact that all investment decisions are made by private individuals with their own money at first risk. However, this also represents a limitation in that such investment activities are profit driven and generally are not targeted to small businesses located in low-income areas. Low-income investments typically are smaller and more costly to make, and they require significantly more assistance over the investment period than most SBIC investments. At the same time, they generally offer a more limited profit potential to the investor
mitation in that such investment activities are profit driven and generally are not targeted to small businesses located in low-income areas. Low-income investments typically are smaller and more costly to make, and they require significantly more assistance over the investment period than most SBIC investments. At the same time, they generally offer a more limited profit potential to the investor. The NMVC program addresses these factors by adding to the SBIC structure an operational assistance grant subsidy and by recruiting managers and investors that have an economic development objective in addition to their financial one.
Because of these many similarities between SBICs and NMVC companies and between these two venture capital programs, SBA proposes to incorporate into the NMVC program many of the SBIC regulations that SBA believes are fundamental to the safety and soundness of the SBIC program.
2. Section by Section Analysis
Proposed §§ 108.10 through 108.50 briefly describe the NMVC program, state the legal basis for the program, definitions, and provide guidance on how to read part 108. Most of the definitions come directly from part 107 of this title, which governs the SBIC program. Most of the newly defined terms come directly from the Act, and SBA proposes not to supplement or modify them. SBA also proposes several new definitions, including terms “Low-Income Enterprise” and “Low-Income Investment” as a shorter way to describe equity capital investments in a smaller enterprise that, at the time of the initial financing, has its principal office located in a low-income geographic area.
Proposed §§ 108.100 through 108.160 describe the qualifications for the NMVC program. Under the Act, NMVC companies must be newly-formed, for-profit entities. SBA proposes to require that NMVC companies be organized under state law and be either corporations, limited liability companies, or limited partnerships
initial financing, has its principal office located in a low-income geographic area.
Proposed §§ 108.100 through 108.160 describe the qualifications for the NMVC program. Under the Act, NMVC companies must be newly-formed, for-profit entities. SBA proposes to require that NMVC companies be organized under state law and be either corporations, limited liability companies, or limited partnerships. SBA proposes to require that they have qualified management, have economic development as their primary mission, and identify particular low-income geographic areas in which they propose to focus their investment activities. SBA models these regulations on the SBIC program, including the requirements that NMVC companies must have management and ownership diversity and that SBA will require pre-approval of all management expenses of a NMVC company (see §§ 107.100 through 107.160 of this title).
Proposed §§ 108.200 through 108.240 address capitalization of a NMVC company, including minimum capital requirements, permitted sources of capital, and limitations on non-cash contributions to capital. These regulations also are modeled on similar regulations in the SBIC program (see §§ 107.200 through 107.250 of this title).
Proposed §§ 108.300 through 108.330 set forth policies and procedures for application for designation as a NMVC company. SBA proposes to allow submission of applications for participation in the NMVC program only during a specific application period, to be set forth in a Notice of Funds Availability subsequently published in the Federal Register , as opposed to a rolling admissions process. SBA proposes to use this method of selecting applicants for three reasons. One reason is that SBA believes this method will enable SBA to achieve the statutory directive of ensuring, to the extent possible and given the applications received, nationwide availability of developmental venture capital
ability subsequently published in the Federal Register , as opposed to a rolling admissions process. SBA proposes to use this method of selecting applicants for three reasons. One reason is that SBA believes this method will enable SBA to achieve the statutory directive of ensuring, to the extent possible and given the applications received, nationwide availability of developmental venture capital. SBA proposes to compare applications both for quality and other criteria described in the regulations, and for the geographic areas they intend to cover so as to choose the best applications for each geographic area and avoid duplication within specific geographic areas. Another reason is that SBA has received one-year appropriated funds for operational assistance grants, and the statute requires SBA to distribute available appropriated funds pro rata among NMVC companies and SSBICs that apply for such grants. (See discussion of §§ 108.2000 through 108.2040 for more information about how SBA proposes to administer the operational assistance grant program.) Submission of all applications for these grant funds at the same time will allow SBA to distribute these funds among all eligible and qualified recipients. Third, SBA believes this procedure will allow SBA to orderly administer appropriated funds it may receive in subsequent fiscal years, by allowing SBA to open up the NMVC program to new rounds of applicants.
SBA proposes to require applicants for participation in the NMVC program to submit an application, similar to the application for the SBIC program but which also includes the requirement for a comprehensive business plan. Many of the topics SBA proposes to require applicants to include in their business plans are outlined in section 354(b) of the SBI Act, as amended by the Act, regarding application for the NMVC program
applicants for participation in the NMVC program to submit an application, similar to the application for the SBIC program but which also includes the requirement for a comprehensive business plan. Many of the topics SBA proposes to require applicants to include in their business plans are outlined in section 354(b) of the SBI Act, as amended by the Act, regarding application for the NMVC program. In addition, SBA proposes to use the following additional topics: market analysis of the specific low-income areas towards which the applicant proposes to target its investments and other activities, operational capacity and investment strategies, plans for raising capital and matching funds for operational assistance grants, and projected amount of investment in low-income areas as opposed to outside those areas. Based in part on the experience of other Federal agencies with similar economic development programs, SBA believes these additional topics will allow SBA to ensure that applicants understand the objectives of the NMVC program and have a good plan for accomplishing those objectives and for creating and maintaining a viable investment fund.
SBA also proposes to assess a fee for receiving a grant under the NMVC program to ensure that applicants are
Proposed §§ 108.340 through 108.395 describe SBA's evaluation criteria and selection process for participation in the NMVC program. SBA proposes to consider ten criteria in its evaluation and selection of applicants for participation in the NVMC program. Most of the specified criteria are set forth in the Act
assess a fee for receiving a grant under the NMVC program to ensure that applicants are
Proposed §§ 108.340 through 108.395 describe SBA's evaluation criteria and selection process for participation in the NMVC program. SBA proposes to consider ten criteria in its evaluation and selection of applicants for participation in the NVMC program. Most of the specified criteria are set forth in the Act. SBA proposes to use the following additional selection criteria not specifically described in the Act: the quality of the applicant's business plan in terms of meeting the objectives of the program; the strength and likelihood for success of the applicant's operations and investment strategies; the need for developmental venture capital investments in the geographic areas in which the applicant proposes to concentrate its activities; and the extent of the applicant's understanding of the markets in such geographic areas. Based in part on the experience of other Federal agencies with similar economic development programs, SBA believes these additional evaluation criteria are effective indicators of whether the objectives of the NMVC program will be met.
The Act provides for SBA to conditionally approve companies for participation in the NMVC program, based on SBA's evaluation of their applications. Conditionally approved companies must raise the required amounts of capital and of matching funds for the operational assistance grant award from SBA within a time period specified by SBA. As provided in the Act, SBA will finally approve as NMVC companies all conditionally approved NMVC companies that raise the required amount of capital within the time period specified by SBA and sign a participation agreement with SBA
companies must raise the required amounts of capital and of matching funds for the operational assistance grant award from SBA within a time period specified by SBA. As provided in the Act, SBA will finally approve as NMVC companies all conditionally approved NMVC companies that raise the required amount of capital within the time period specified by SBA and sign a participation agreement with SBA. Proposed § 108.380(b) also sets forth procedures under which SBA may grant to conditionally approved companies, as provided in the Act, an exception to the requirement to raise all of their required matching funds for their operational assistance grants before SBA designates them as finally approved NMVC companies.
Proposed §§ 108.400 through 108.470 describe SBA's requirements for changes in ownership, control, or structure of a NMVC company. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.400 through 107.475 of this title).
Proposed §§ 108.500 through 108.585 describe SBA's requirements for managing the operations of a NMVC company. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.500 through 107.590 of this title).
Proposed §§ 108.600 through 108.680 describe SBA's record keeping, record retention, and reporting requirements for NMVC companies. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.600 through 107.680 of this title)
f a NMVC company. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.500 through 107.590 of this title).
Proposed §§ 108.600 through 108.680 describe SBA's record keeping, record retention, and reporting requirements for NMVC companies. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.600 through 107.680 of this title). SBA also proposes to require each NMVC company to provide reports concerning the community development impact of each investment it makes, as well as reports on its administration and use of grant funds as required by Circular A-110 of the Office of Management and Budget, “Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Non-Profit Organizations.” SBA anticipates that to the extent not inconsistent with SBA's regulations for the NMVC program, NMVC companies' administration and use of grant funds will be subject to OMB Circular A-110 and to Part 31 of the Federal Acquisition Regulations, 48 CFR 31.000 et seq. , “Contract Cost Principles and Procedures.” OMB Circular A-110 is optional for use in connection with grants to commercial organizations. SBA proposes to apply it to NMVC companies in order to take advantage of existing and well-known grant administrative procedures and policies to facilitate SBA's orderly administration of grants to NMVC companies. (See the discussion of §§ 108.2000 through 108.2040 concerning applicability of these same procedures and policies to grants to SSBICs.)
Proposed §§ 108.690 through 108.692 describe SBA's requirements for SBA's examinations of NMVC companies. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.690 through 107.692 of this title).
Proposed §§ 108.700 through 108.885 describe SBA's requirements for determining the eligibility of financings of small businesses by NMVC companies, and regarding types of allowable financings
gh 108.692 describe SBA's requirements for SBA's examinations of NMVC companies. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.690 through 107.692 of this title).
Proposed §§ 108.700 through 108.885 describe SBA's requirements for determining the eligibility of financings of small businesses by NMVC companies, and regarding types of allowable financings. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.700 through 107.885 of this title).
Proposed § 108.710 sets forth the requirement that at the close of each year, 80 percent of the concerns that NMVC companies have financed must be smaller enterprises that, as of the time of the initial financing, had their principal office in a low-income geographic area and in which the NMVC companies have made equity capital investments as defined in the regulations (see proposed § 108.50). This regulation implements the requirement outlined in the definition of “participation agreement” in section 351(6)(B) of the SBI Act. SBA interprets this statutory section to refer to 80 percent of the businesses in which a NMVC company invests.
Proposed §§ 108.1100 through 108.1720 describe SBA's requirements and procedures for NMVC companies to obtain leverage from SBA and the procedures governing how SBA will fund leverage. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.1100 through 107.1720 of this title).
Proposed §§ 108.1810 through 108.1840 describe defaults by NMVC companies on the terms and conditions governing their participation in the NMVC program, and SBA's remedies upon such defaults. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.1810 through 107.1840 of this title).
Proposed § 108.1900 concerns termination by a NMVC company of its participation in the NMVC program. This regulation is modeled after a similar regulation for the SBIC program (see § 107.1900 of this title)
tion in the NMVC program, and SBA's remedies upon such defaults. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.1810 through 107.1840 of this title).
Proposed § 108.1900 concerns termination by a NMVC company of its participation in the NMVC program. This regulation is modeled after a similar regulation for the SBIC program (see § 107.1900 of this title).
Proposed §§ 108.1910 through 108.1930 address miscellaneous issues, including application for an exemption from regulatory requirements and the effect of regulation changes on transactions previously consummated. These regulations are modeled after similar regulations for the SBIC program (see §§ 107.1910 through 107.1930 of this title).
Proposed § 108.1940 sets forth procedures under which SBA may designate additional census tracts or equivalent county divisions as low-income geographic areas. This regulation implements the authority given to SBA's Administrator in section 351(3)(A)(iii) of the SBI Act, as amended by the SBI Act. SBA has designed these procedures to allow for maximum opportunity by interested members of the public to ask SBA to designate specific census tracts or equivalent county divisions as additional low-income geographic areas.
Proposed §§ 108.2000 through 108.2040 set forth requirements and procedures for operational assistance grants to both NMVC companies and to SSBICs. SBA proposes to award such grants only after receiving and evaluating applications in response to a Notice of Funds Availability published in the Federal Register
ensus tracts or equivalent county divisions as additional low-income geographic areas.
Proposed §§ 108.2000 through 108.2040 set forth requirements and procedures for operational assistance grants to both NMVC companies and to SSBICs. SBA proposes to award such grants only after receiving and evaluating applications in response to a Notice of Funds Availability published in the Federal Register . SBA proposes to award grants to SSBICs and to NMVC companies in such a way as to promote developmental venture capital
SBA also proposes to require SSBICs to provide reports on its administration and use of grant funds as required by Circular A-110 of the Office of Management and Budget, “Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Non-Profit Organizations.” SBA anticipates that to the extent not inconsistent with these regulations, SSBICs' administration and use of grant funds will be subject to OMB Circular A-110 and to part 31 of the Federal Acquisition Regulations, 48 CFR 31.000 et seq. , “Contract Cost Principles and Procedures.” OMB Circular A-110 is optional for use in connection with grants to commercial organizations. SBA proposes to apply it to SSBICs in order to take advantage of existing and well-known grant administrative procedures and policies to facilitate SBA's orderly administration of grants to SSBICs.
B. Discussion of Changes to Regulations as Published in Interim Final Rule
SBA wishes to help members of the public who already are familiar with the version of the regulations published as an interim final rule to focus only on those changes SBA makes in this proposed rule to that original version of the regulations. Accordingly, in this Part B SBA describes only those regulations to which SBA made significant changes and the basis for the changes
n Interim Final Rule
SBA wishes to help members of the public who already are familiar with the version of the regulations published as an interim final rule to focus only on those changes SBA makes in this proposed rule to that original version of the regulations. Accordingly, in this Part B SBA describes only those regulations to which SBA made significant changes and the basis for the changes.
In § 108.50, SBA proposes to change the previously published version of the definitions of Equity Capital Investment, Financing or Financed, and Trust Certificate Rate to make technical corrections. SBA proposes to change the previously published version of the definition of Relevant Venture Capital Finance to eliminate reference to intent and instead focus on demonstrable prior actions, and to further distinguish this definition from the definition of Community Development Finance. The proposed definition of Community Development Finance focuses on any type of financing (debt or equity) in low-income communities. The definition also does not limit the relevant experience in terms of the types of entities receiving the financing. By contrast, the proposed, revised definition of Relevant Venture Capital Finance focuses more specifically on equity-type investments in small businesses in low-income communities or benefiting low-income communities. SBA believes that this change will better enable an applicant for NMVC company designation to demonstrate in its application the relevant types of experience.
SBA proposes to change the previously published version of § 108.110 to add the word “team” in the first sentence. The purpose of this change is to clarify that the management team as a whole, as opposed to each member of the team individually, must have knowledge, experience and capability in Community Development Finance or Relevant Venture Capital Finance satisfactory to SBA
es of experience.
SBA proposes to change the previously published version of § 108.110 to add the word “team” in the first sentence. The purpose of this change is to clarify that the management team as a whole, as opposed to each member of the team individually, must have knowledge, experience and capability in Community Development Finance or Relevant Venture Capital Finance satisfactory to SBA.
SBA proposes to change the previously published version of § 108.240 by withdrawing it in its entirety because, upon SBA's further consideration, SBA believes it will not be necessary or desirable for NMVC companies to have the ability to include non-cash contributions in Private Capital. SBA also proposes to make technical changes to the previously published version of §§ 108.200 and 108.230(d) to reflect the withdrawal of § 108.240.
SBA proposes to change the previously published version of § 108.320 by revising paragraphs (f) and (g). This section addresses the contents of the comprehensive business plan that applicants for NMVC company designation must submit for SBA's consideration. Paragraph (f) concerns the applicant's plan for providing operational assistance. One commenter expressed concern that the regulations did not clearly require NMVC companies to use licensed professionals, when necessary, to provide operational assistance to small business. Section 354(c)(2)(G) of the SBI Act, as amended by the Act, requires SBA to evaluate, among other things, the strength of an applicant's proposal to provide operational assistance to small business concerns, “as the proposal relates to * * * the use of resources for the services of licensed professionals, when necessary * * *” The previously published version of paragraph (f) in § 108.320 stated that applicants must address whether and to what extent they plan to use licensed professionals, which leaves open the possibility that they might choose not to use licensed professionals
ll business concerns, “as the proposal relates to * * * the use of resources for the services of licensed professionals, when necessary * * *” The previously published version of paragraph (f) in § 108.320 stated that applicants must address whether and to what extent they plan to use licensed professionals, which leaves open the possibility that they might choose not to use licensed professionals. In order to clarify that NMVC companies selected by SBA must use licensed professionals, when necessary, SBA proposes to revise paragraph (f) to require applicants to address how they plan to use licensed professionals, when necessary. SBA also proposes to revise the previously published version of § 108.2000(b)(4)(ii)(A) to make the same change with respect to an SSBIC applicant's planned use of operational assistance grant funds.
Another commenter suggested that SBA revise this paragraph (f) to request that in addition to addressing when applicants plan to use licensed professionals, they also address how they plan to provide operational assistance through the use of their own staff versus outside entities. SBA considers that applicants necessarily will have to address this topic in their plan for providing operational assistance and, therefore, believes that this topic need not be set forth as a specific requirement.
SBA also proposes to revise the previously published version of paragraph (g) to make a technical change suggested by a commenter.
SBA proposes to change the previously published version of § 108.330 to revise the name of the fee and when it is due. SBA reconsidered the provisions in the Act that authorize SBA to charge fees, and has determined that SBA has authority to charge a fee in connection with SBA's issuance of a grant. SBA proposes to require applicants for NMVC company designation, who will be entitled to a grant upon final approval as a NMVC company, to pay this fee in advance at the time of application submission
ed version of § 108.710 to add a new substantive requirement. The previously published
This additional provision would require that most of a NMVC company's capital and leverage go toward making equity investments in smaller enterprises located in LI areas. SBA believes that this will fulfill one of the Act's purposes—to address the unmet equity investment needs of businesses located in LI areas. SBA has not required 100 percent of a NMVC company's capital and leverage to meet this requirement, however, in order to give a NMVC company some flexibility as to its use of the remaining 20 percent. A NMVC company may choose to make other kinds of investments with a lower risk and/or higher anticipated rate of return to offset the expectation of higher risk and lower rate of return from low-income investments, in order to ensure the overall economic viability of the NMVC company. The economic viability of a NMVC company is an important public policy consideration because it better ensures both the safety and soundness of the use of taxpayer dollars for leverage and grant assistance to NMVC companies and the ability of a NMVC company to attract private investment dollars.
SBA proposes to change the previously published version of § 108.720 by revising paragraphs (b)(2) and (h). The previously published version of paragraph (b)(2) would be revised to require that a NMVC company must obtain SBA's prior written approval before financing a passive small business. SBA believes that this issue will not arise with any frequency, considering the types and sizes of financings NMVC companies are likely to make. However, to the extent that it does arise, by requiring advance approval SBA intends to ensure narrow application of this exception to the rule that only active operating small business concerns are eligible to receive financing from a NMVC company.
SBA also proposes to change the previously published version of paragraph (h) to include an additional situation in which a small business is ineligible for financing
tent that it does arise, by requiring advance approval SBA intends to ensure narrow application of this exception to the rule that only active operating small business concerns are eligible to receive financing from a NMVC company.
SBA also proposes to change the previously published version of paragraph (h) to include an additional situation in which a small business is ineligible for financing. SBA proposes that a NMVC company would be prohibited from providing funds that a small business will use to purchase stock in or provide capital to a Small Business Investment Company (“SBIC”) or to repay indebtedness incurred for the purpose of investing in an SBIC.
SBA proposes to change the previously published version of § 108.1230 to make technical corrections. In paragraph (d)(3), which addresses which representatives of a NMVC company from whom SBA will accept a certification in connection with a draw of leverage, SBA proposes to add to the list an individual who is authorized to act as or for a member-manager. This change addresses NMVC companies that are organized as limited liability companies. Similarly, SBA proposes to change the previously published version of § 108.1810 to make a technical correction, to address NMVC companies that are organized as limited liability companies.
SBA proposes to make several changes to the previously published version of § 108.2000. SBA proposes to change paragraph (b)(3) to charge a $5,000 grant issuance fee to SSBICs applying for grants under the NMVC program. SBA proposes that this fee will be in the same amount as that charged to applicants for the NMVC company program and will be refunded in full if the SSBIC does not receive a grant award. This change is necessary to treat all applicants for operational assistance grants under the NMVC program the same
(b)(3) to charge a $5,000 grant issuance fee to SSBICs applying for grants under the NMVC program. SBA proposes that this fee will be in the same amount as that charged to applicants for the NMVC company program and will be refunded in full if the SSBIC does not receive a grant award. This change is necessary to treat all applicants for operational assistance grants under the NMVC program the same.
SBA also proposes to change the previously published version of § 108.2000(b)(4)(ii), which describes the elements of the plan an SSBIC must submit to SBA as part of its application for an operational assistance grant. SBA proposes to add four new issues that an SSBIC's plan must address: track record of management team in obtaining public policy results through investments; market analysis; regulatory capital; and projected impact. These changes are necessary to treat all applicants for operational assistance grants under the NMVC program the same.
SBA also proposes to change the previously published version of § 108.2000(b)(5), which describes the evaluation and selection criteria SBA will use to select SSBICs for an operational assistance grant. SBA proposes to add six new criteria in subparagraphs (ii), (iv), (v), (vi), (vii), and (viii). These changes are necessary to treat all applicants for operational assistance grants under the NMVC program the same.
SBA proposes to change the previously published version of § 108.2030 to revise the allowable time period within which binding commitments or annuities for grant matching resources may be payable to a NMVC company or SSBIC. SBA proposes that the allowable time period be five years. The reason for this change is that both Federal funds and matching resources must be available and expended within the same time period. By law, SBA's grant funds will be available for expenditure from the date of award to a date not more than five years from that date
for grant matching resources may be payable to a NMVC company or SSBIC. SBA proposes that the allowable time period be five years. The reason for this change is that both Federal funds and matching resources must be available and expended within the same time period. By law, SBA's grant funds will be available for expenditure from the date of award to a date not more than five years from that date. As a result, the time period within which the grantee's grant matching resources are available to the grantee must not exceed the time period within which SBA grant funds will be available.
V. Regulatory Compliance Section—Compliance With Executive Orders 12866, 12988 and 13132, and the Paperwork Reduction Act (44 U.S.C. Ch. 35)
Compliance With Executive Order 12866
The Office of Management and Budget (OMB) has reviewed this proposed rule as a “significant” regulatory action under Executive Order 12866. A regulatory assessment is set forth below.
Low-income communities in the United States face multiple and varied barriers to sustainable growth. But a common obstacle for virtually all such communities is that they are unable to attract sufficient equity capital and technical assistance for starting and expanding businesses. Federal Reserve Board Chair Alan Greenspan has observed that equity capital is crucial to the existence of an innovative and productive business community, especially in lower-income communities. Yet the existing private venture-capital industry is heavily concentrated in affluent, high technology regions located in only a handful of states.
In order to promote economic development and address the unmet equity needs of smaller businesses located in low-income areas, Congress passed and President Clinton signed into law the legislation creating the NMVC program. SBA proposes to use these regulations to implement and administer the NMVC program
vily concentrated in affluent, high technology regions located in only a handful of states.
In order to promote economic development and address the unmet equity needs of smaller businesses located in low-income areas, Congress passed and President Clinton signed into law the legislation creating the NMVC program. SBA proposes to use these regulations to implement and administer the NMVC program. NMVC companies will be newly formed, for-profit investment companies with
SBA estimates that the NMVC program will cost approximately $1 million annually to administer. The cost to the government includes the costs of staff (including benefits) and all other overhead expenses. SBA proposes to select participants for the NMVC program and regulate NMVC operations to ensure that public policy objectives are being met. Toward that end, SBA proposes to require NMVC companies to provide regular performance reports and take part in annual financial examinations.
SBA estimates that it will cost a NMVC company approximately $6,000 to apply for designation as a NMVC company, not including a $5,000 grant issuance fee due in advance at the time of application. This includes the cost of one staff person at a level comparable to a Federal employee at a GS-13 grade level spending 160 hours to complete the application. After receiving designation as a NMVC company, the annual cost to the NMVC company will be based on compliance with the reporting requirements of the program. SBA anticipates that compliance with the reporting requirements of the program will cost approximately $1,500. This includes the cost of one staff person at a level comparable to a Federal employee at a GS-13 grade level spending approximately 40 hours preparing the required performance and financial reports
e NMVC company will be based on compliance with the reporting requirements of the program. SBA anticipates that compliance with the reporting requirements of the program will cost approximately $1,500. This includes the cost of one staff person at a level comparable to a Federal employee at a GS-13 grade level spending approximately 40 hours preparing the required performance and financial reports. The costs to NMVC companies and SSBICs that choose to participate in the grant aspect of the program include approximately $1,500 to prepare the initial grant application (approximately 40 hours of work), and approximately $600 annually thereafter to prepare the required quarterly status reports (approximately 16 hours of work). Again, these costs are estimated based upon one staff person at a level comparable to a Federal employee at a GS-13 grade level. There is also a fee payable by the NMVC company each time SBA examines the company. This rulemaking action proposes a base fee for the examination of $3,500.
SBA believes that there are no alternatives to the planned regulatory action that could more adequately address the equity needs of the nation's low-income areas. In developing the regulations, application package and reporting materials SBA purposefully followed proven industry practices. Based upon the foregoing, SBA believes that its proposed rule implements the congressionally-mandated NMVC program in the most cost effective and efficient manner.
Compliance With Executive Order 12988
SBA certifies that this proposed rule is drafted, to the extent practicable, in accordance with the standards set forth in section 3 of Executive Order 12988.
Compliance With Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this proposed rule has no federalism implications because the legislation authorizing it addresses private, for-profit concerns (NMVC companies) working directly with entrepreneurs.
Compliance With Paperwork Reduction Act, 44 U.S.C. Ch. 35
ards set forth in section 3 of Executive Order 12988.
Compliance With Executive Order 13132
For purposes of Executive Order 13132, SBA has determined that this proposed rule has no federalism implications because the legislation authorizing it addresses private, for-profit concerns (NMVC companies) working directly with entrepreneurs.
Compliance With Paperwork Reduction Act, 44 U.S.C. Ch. 35.
For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, the collection of information (“collection”) for this program includes the NMVC program application package and reporting and recordkeeping requirements. SBA previously requested from the Office of Management and Budget (“OMB”) an emergency clearance of this collection. OMB reviewed and approved the collection and assigned OMB control number 3245-0332.
SBA has made the collection available to the public on SBA's web site at http://www.sba.gov/inv and by calling Terri Dennin at (202) 205-6234. SBA already has provided the public with a 60-day comment period on this collection (66 FR 7218). SBA received no comments on the collection.
List of Subjects in 13 CFR Part 108

Community development, Government securities, Grant programs—business, Securities, Small businesses.
For the reasons stated in the preamble, the Small Business Administration is proposing to add 13 CFR part 108 as follows:
PART 108—NEW MARKETS VENTURE CAPITAL (“NMVC”) PROGRAM 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 Part 108
108.50 Definition of terms. Subpart C—Qualifications for the NMVC Program
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
d regulations. 108.40 How to read this part 108. Subpart B—Definition of Terms Used in Part 108
108.50 Definition of terms. Subpart C—Qualifications for the NMVC Program
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. Subpart E—Evaluation and Selection of NMVC Companies
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. Subpart F—Changes in Ownership, Structure, 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. 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. 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
A 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. 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
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 Non-SBA 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
Recordkeeping Requirements for NMVC Companies
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. Reporting Requirements for NMVC Companies
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)
to maintain and preserve records. 108.610 Required certifications for Loans and Investments. 108.620 Requirements to obtain information from Portfolio Concerns. Reporting Requirements for NMVC Companies
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
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
108.885 Disposition of assets to NMVC Company's Associates. 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
s
108.885 Disposition of assets to NMVC Company's Associates. 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. 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. Computation of NMVC Company's Capital Impairment
108.1830 NMVC Company's Capital Impairment definition and general requirements. 108.1840 Computation of NMVC Company's Capital Impairment Percentage
acteristics 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. Computation of NMVC Company's Capital Impairment
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. 108.2010 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. 634(b)(6) and Pub. L. 106-544 (114 Stat. 2763).
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 job

§ 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. 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
on of wealth and job

§ 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. 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 existing and future 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. 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 Part 108
§ 108.50 Definition of terms. Act means the Small Business Investment Act of 1958, as amended.
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 the regulations in this part.
Associate of a NMVC Company means any of the following:
ny, 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 the regulations in 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 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.
an 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.
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-in-law, 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
Community Development Finance means debt and equity-type investments in low-income communities
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
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 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—
t 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 fostering economic development in Low-Income 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
come 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
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 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 non-rated 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.)
ent 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 (Pub. L. 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.
(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.
ividual 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.
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
A 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—
sehold 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, Pub L. No. 106-554, enacted December 21, 2000, to be implemented by the Internal Revenue Service, United States Department of Treasury
f 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, Pub L. No. 106-554, 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 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 § 108.390 of this part, 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.
1980 Act Company means a NMVC Company which is registered under the Small Business Investment Incentive Act of 1980.
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 § 108.390 of this part, that—
(1) Details the company's operating plan and investment criteria; and
chnical 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 § 108.390 of this part, 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
loyees 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:
(1) General. Regulatory Capital means Private Capital, excluding non-cash assets contributed to a NMVC Company, a Conditionally Approved NMVC Company, or an Applicant, and non-cash assets purchased by a Conditionally Approved NMVC Company or an Applicant, unless such assets have been converted to cash or have been approved by SBA for inclusion in Regulatory Capital. For purposes of this definition, sales of contributed non-cash assets with recourse or borrowing against such assets shall not constitute a conversion to cash.
(2) Exclusion of questionable commitments. An investor's commitment to a NMVC Company, Conditionally Approved NMVC Company, or Applicant is excluded from Regulatory Capital if SBA determines that the collectability of the commitment is questionable.
of this definition, sales of contributed non-cash assets with recourse or borrowing against such assets shall not constitute a conversion to cash.
(2) Exclusion of questionable commitments. An investor's commitment to a NMVC Company, Conditionally Approved NMVC Company, or Applicant is excluded from Regulatory Capital if SBA determines that the collectability of the commitment is questionable.
(3) Exclusion of amounts designated for Operational Assistance match. Regulatory Capital excludes 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
(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:
ess 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 title 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
mined 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.

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
rmed 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, these regulations and its business plan. In determining whether an Applicant's 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
§ 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 Persons unaffiliated with your management and unaffiliated with each other, and 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.
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 management-ownership diversity, you must:
(1) Notify SBA within 10 days; and
(2) Re-establish diversity within six months.

§ 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”) 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.
ity 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.
ment.
(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
Capitalizing a NMVC Company

§ 108.200 Adequate capital for NMVC Companies. You must meet the requirements of these §§ 108.200 through 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 Capital for NMVC Companies. (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.
Regulatory Capital of at least $5,000,000 and Leverageable Capital of at least $500,000 to become a NMVC Company.

§ 108.230 Private Capital for NMVC Companies. (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' contributed capital of a LLC NMVC Company, or the partners' contributed 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 age

[Text truncated at 120,000 characters. The full text is on the page linked above.]

## Nearby sections

- [66 FR 341 Software Defined Radios](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-63.md)
- [66 FR 1059 Federal Old-Age, Survivors and Disability Insurance and Supplemental Security Income for the Aged, Blind, and Disabled; Scheduling Video Teleconference Hearings Before Administrative Law Judges](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-319.md)
- [66 FR 1069 Special Regulations, Areas of the National Park System](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-377.md)
- [66 FR 1273 Airworthiness Directives; Cessna Aircraft Company Models 172N, 172P, R172K, 172RG, F172N, F172P, FR172J, and FR172K Airplanes](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-343.md)
- [66 FR 1280 National Reconnaissance Office Privacy Act Program](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-416.md)
- [66 FR 1283 2000 Biennial Regulatory Review](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-88.md)
- [66 FR 1923 Drawbridge Operation Regulations: Miami River, Miami, Dade County, FL](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-762.md)
- [66 FR 1923 Tax Treatment of Cafeteria Plans](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-259.md)
- [66 FR 2374 Indiana Regulatory Program](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-835.md)
- [66 FR 2395 Digital Television Broadcast Service; Jacksonville, NC](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-678.md)
- [66 FR 3521 Airworthiness Directives; Boeing Model 777-200 Series Airplanes](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-1235.md)
- [66 FR 4768 Water Pollution Control; Program Modification Application by South Dakota To Administer the Sludge Management (Biosolids) Program](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-1347.md)
- [66 FR 6488 Importation of Mangoes From the Philippines](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-1655.md)
- [66 FR 6494 Airworthiness Directives; Bell Helicopter Textron, Inc. Model 412 Helicopters and Agusta S.p.A. Model AB412 Helicopters](https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-1587.md)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_01-9839. Check the current official text before relying on it. Not legal advice.