SBA Expands Impact Investment Fund

On Sep 26, 2014

Administrator of the U.S. Small Business Administration (SBA), Maria Contreras-Sweet, recently  announced it has expanded the Impact Investment Fund, a feature of the Small Business Investment Company (SBIC) Program.  The SBA is implementing a series of policy changes that promise to broaden access to the fund and strengthen the impact of SBIC’s.

“As head of the SBA, my main goal is to increase access to capital for our nation’s entrepreneurs, especially to our underserved communities. This expansion of the Impact Investment Fund today puts more capital into the hands of entrepreneurs, while offering impact investors a tremendous platform to reach small business owners with innovative ideas,” said Administrator Contreras-Sweet.

The SBA launched the Impact Fund in 2011 as a five-year, $1 billion pilot initiative to capitalize investment funds that seek both financial and social return.  This announcement reaffirms SBA’s commitment to impact investing beyond 2016.  The agency will continue to allocate roughly $200 million of its $4 billion annual investment authority to Impact SBIC’s investing in underserved areas and sectors of national priority.  The detailed policy memo that outlines this new commitment can be found at: www.sba.gov/inv/impact.

In addition to extending the Impact Investment Fund, SBA has introduced policy changes based on extensive consultation with SBIC Program stakeholders and experts in the impact investment industry.  The major changes include:

• Advanced Manufacturing Businesses and SBIR/STTR Recipients Now Eligible: Currently, Impact SBICs must invest 50 percent of their capital in businesses located in underserved communities, the education sector or the clean energy sector.  The new policy will add advanced manufacturing to the list of recognized sectors and allow businesses that have received Small Business Innovation Research (“SBIR”) or Small Business Technology Transfer (“STTR”) grants to become eligible for impact investments.
• Incorporating IRIS-based Measurement: Impact SBICs may also now designate their own, self-identified impact investment strategy, but must commit to measure their social, environmental or economic impact using an assessment system based on The Global Impact Investing Network’s Impact Reporting and Investment Standards.
• $200 million Restriction Lifted: During the pilot initiative, Impact SBICs were collectively limited to a restricted pool of $200 million in annual SBA-guaranteed leverage commitments.  Under the new policy, Impact SBICs will be able to access leverage on equal footing with Standard SBICs.

“We applaud the US Small Business Administration’s relentless work with the private sector to enhance investment opportunities and coming up with this policy refresh” said Jonathan Greenblatt, Special Assistant to the President and Director of the Office of Social Innovation and Civic Participation in the Domestic Policy Council.

SBA anticipates licensing a few new Impact SBICs by the end of the year.  These funds will join the two existing Impact SBICs, Michigan Growth Capital Partners and SJF Ventures III.  Together they manage over $182 million in assets and have invested in seventeen (17) companies that collectively employ about 1,500 people.  Fiber By-Products, a portfolio company of Michigan Growth Capital Partners located in rural White Pigeon, Mich., collects wood waste otherwise destined for the landfill and uses it to produce animal bedding, wood mulch and premium pellet fuel.  Think Through Learning, an impact investment of SJF Ventures III, is an education technology company that provides online instructional systems for schools and students nationwide.  Its flagship product, Think Through Math, helps students master key mathematical concepts and is designed to aid the transition many schools are making to the Common Core Curriculum.

The 290 funds in the SBIC Program portfolio, which collectively manage $21.5 billion in assets, are already focused on increasing investment flows to sectors and regions where capital formation gaps are widest.   Last year, about one-quarter of the American small businesses SBICs financed were owned by minorities, women, and veterans – or conducted business in HUBZones, rural or distressed urban areas and other Competitive Opportunity Gaps.

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