New law gives rural startup investors $125 million more room

A new federal law changes how some investment funds can finance small businesses, especially in rural communities and lower income areas. The measure updates rules for Small Business Investment Companies, or SBICs, a long running program in the United States that helps channel private investment into smaller firms.

SBICs combine private money with federally backed borrowing, known as leverage, to invest in small businesses. The new law allows certain investments to be left out when regulators calculate how much borrowing an SBIC fund is using. Those qualifying investments include smaller enterprises in rural areas, businesses in low income communities, some manufacturers, and companies working in designated critical technology fields.

More room to invest in targeted businesses

By excluding those investments from the leverage calculation, the law effectively creates extra borrowing capacity for SBIC funds that focus on these sectors. Funds can put more money to work while still staying within the borrowing limits that normally apply to the program.

The exclusion has a cap. The total amount that can be left out of the leverage calculation cannot exceed the lesser of half of a fund’s private capital or 125 million dollars. The provision also applies only to investments made after the law took effect.

SBICs have been part of federal small business policy for decades. The program is designed to help companies that often have trouble attracting traditional financing. By adjusting the leverage formula, the law directs more of that investment capacity toward rural communities, lower income regions, small manufacturers, and firms developing key technologies.