Leverage is central to the SBIC program. Each Standard Debenture carries a 10-year term with semiannual interest payments. Accrual Debentures also carry 10-year terms but defer current interest payments, which suits strategies that do not generate consistent or predictable current income. 2
How the Investing in All of America Act Changed SBIC Leverage Limits
In May 2026, the Investing in All of America Act of 2025 (IAA Act) was signed into law, increasing the statutory leverage limits. A single Standard Debenture licensee’s outstanding leverage is now capped at the lesser of (i) 200% of private capital, or (ii) $250 million (up from $175 million). The cap for individual Accrual Debenture licensees remains at $175 million. For commonly controlled licensees, the combined ceiling is $475 million for Standard Debenture licensees, up from $350 million, and remains $350 million for all others. The IAA Act also allows for what is commonly called “bonus leverage,” which provides that investments made after May 19, 2026 in small businesses located in low-income or rural areas, small businesses operating primarily in a covered critical technology category, and small manufacturers are excluded from the leverage calculation, up to the lesser of (i) 50% of private capital, or (ii) $125 million. This allows individual licensees to exceed their applicable leverage cap by the amount of available bonus leverage. 3
Which Companies Qualify as Small Businesses Eligible for SBIC Investments?
The universe of eligible companies is broader than the label “small business” suggests. A company may qualify under its industry size standard based on its North American Industry Classification System code or, alternatively, under the SBIC financial test. That test permits tangible net worth of up to $24 million and average after-tax net income of up to $8 million for the two preceding completed fiscal years, in each case including affiliates. 4
2. Why Banks Invest in SBIC Funds: Four Practical Benefits
Attractive risk-adjusted return potential and diversification
A bank can generally invest up to 5% of the bank’s capital and surplus in SBIC funds. 5 An SBIC fund allocation gives a bank exposure to private credit or private equity in companies that may initially be too small for the bank’s direct lending or investment programs, allowing the bank to access alternative asset classes with attractive return potential. SBA leverage increases the capital an SBIC fund can deploy, allowing the SBIC fund’s limited partners to benefit from the spread between the return earned on the SBIC fund’s investments and the SBIC fund’s cost of capital. For reference, the September 2026 Standard Debenture pool priced at 5.454%, before the SBA’s annual charge and fees. 6 At the same time, bank investments in SBIC funds can create a pipeline of potential new client relationships with the SBIC fund’s portfolio companies, many of which may be taking on their first institutional investment. These ancillary benefits are discussed in more detail below.
A clear Volcker Rule path
The Volcker Rule generally restricts banking entities from owning or sponsoring covered funds. The implementing regulations exclude SBIC funds, and SBIC applicants that have received a “green light” letter from the SBA 7 , from the definition of a covered fund. Since 2020, the exclusion also covers an SBIC fund that voluntarily surrenders its SBIC license and begins to wind down as long as it makes no new investments after the license surrender other than in cash equivalents. U.S. Office of the Comptroller of the Currency (OCC) rules similarly permit a national bank or federal savings association to retain its interest in such a fund. This exclusion makes an investment in an SBIC fund simpler for a bank to evaluate than an investment in most private equity funds or hedge funds. Many banks nonetheless seek additional comfort in their side letters with any SBIC fund regarding the SBIC fund’s investment activities following any license surrender.
2
Powered by FlippingBook