On July 7, 2025, the U.S. Small Business Administration (SBA) issued a notice of proposed rulemaking related to SBIC Applicants and Licensees. The proposed rulemaking is open for comment until September 5, 2025. A summary of the relevant changes is provided below.
Project financing1
The most significant change relative to SBIC investments is the proposed increased flexibility for project financing of critical minerals and critical technologies. Currently, SBIC-licensed funds are generally not permitted to participate in project financing.
However, SBA has proposed an exception to this general prohibition on project financing if the financing is for one or more projects that is reasonably anticipated to have a duration of more than 48 months and involves: (i) the production, mining, extraction, orbeneficiation ofcritical minerals2, (ii) the conversion of critical mineral ores into oxides, oxide concentrates, metals, metal powders, or alloys, (iii) any other processing of critical minerals necessary for incorporation into semi-finished goods or final products, or (iv) a designated critical technology being financed by an SBICCT. SBA did not indicate what a “designated” critical technology will be.
Application frocess for subsequent funds3
The proposed rulemaking includes several clarifications for the application process for subsequent funds.
First, SBA has clarified that any applicant whose management team currently manages an active Licensee may use the MAQ form designed for subsequent funds; however SBA retains discretion to require an applicant to complete the long-form MAQ or request additional information. Please note that only applicants who meet SBA's stated criteria are entitled to an expedited application review process, regardless of whether they are entitled to use the subsequent fund MAQ form.
Additionally, SBA has made a number of updates to the stated criteria for a subsequent fund applicant to qualify for expedited review. A summary of those updates is available upon request to the authors of this alert or any other member of the Hogan Lovells SBIC team. We note that the changes are mixed – with some increasing the barriers to qualifying for subsequent treatment and others reducing the barriers.
Annual charge4
As revised, SBA will be permitted to have an annual charge below the stated minimum. Any changes would be posted in the Federal Register.
Other amendments
In addition to the amendments mentioned above, SBA has also proposed a number of clean-up amendments, such as removing provisions that are related to outdated programs, combining similar provisions and other technical changes.
Conclusion
The proposed rulemaking provides helpful clean-up changes to the existing regulations related to subsequent fund SBIC licensees, and flexibility for licensees who have identified critical minerals investments and/or SBICCT licensees who have identified other critical technologies investments that might not have otherwise been SBIC-compliant.
Although unrelated to the proposed rulemaking, we want to note that as of the date of this alert, Frank Salomone, formerly Associate Administrator for Investment at SBA's Office of Investment and Innovation, has left that position. Donald Park has been appointed Acting Associate Administrator in his place. We will continue to monitor SBA communications as well as regulatory and policy changes.
References
1 13 CFR 107.720(d)(2)
2 As defined in the “Critical Minerals List” published by the United States Geological Survey (USGS) pursuant to section 7002(c) of the Energy Act of 2020, 30 U.S.C. 1606, at 87 FR 10381, or any subsequent such list, as well as uranium, copper, potash, gold, the 17 elements identified as rare earth elements by the Department of Energy (DOE) in the April 2020 publication titled “Critical Materials Rare Earths Supply Chain,” and any additional elements that either the USGS or DOE determines in any subsequent official report or publication should be considered rare earth elements.
3 13 CFR 107.300(a); 107.305(e)
4 13 CFR 107.1130(d)(1)
[View source.]
