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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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On February 2, 2026, the U.S. Small Business Administration (SBA) finalized rules revising regulations for the Small Business Investment Company (SBIC) program. The amendments are best understood as a targeted modernization and cleanup of obsolete programs and provisions. As part of these updates, the SBA eliminated provisions tied to legacy SBIC structures, clarified how certain investments fit within the program’s eligibility framework, and streamlined aspects of the licensing process while maintaining SBA’s supervisory and diligence standards. 

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Regulatory Modernization Removes Friction

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The central tenet of the modernizing provisions is the removal or consolidation of requirements that are obsolete, redundant, or otherwise inefficient. The SBA explained that it aimed to remove multiple regulations and definitions that no longer serve a practical purpose or reflect current program operations.&nbsp;

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Of the numerous changes to the SBIC program, legacy “Subsidized Leverage” rules and terminology have been revised to remove multiple provisions tied to “Subsidized Leverage” for Section 301(d) licensees, a structure that the SBA describes as no longer relevant to the SBIC program’s modern leverage framework. The SBA noted that no Section 301(d) licensee has subsidized leverage outstanding and, following statutory changes, such leverage is not authorized for future use. In the same vein, the SBA deleted the definition of “Preferred Securities,” a concept associated with legacy 301(d) licenses.&nbsp;

Early Stage SBIC licensing provisions have also been retired. The final rule removed regulations governing “Early Stage SBIC” licensing procedures because the SBA states it no longer licenses Early Stage SBICs, a program that the SBA began to transition away from nearly two decades ago.&nbsp;

The SBA also identified and removed certain duplicative requirements aiming to make the regulations more streamlined and understandable. For example, the SBA removed a regulation on common control/ownership restrictions that the SBA viewed as duplicative of other approval provisions already applicable to SBICs, thereby making the regulations clearer to any fund manager aiming to comply with them.&nbsp;

Collectively, these changes should make the SBIC program’s regulatory schema easier to navigate and reduce the risk that applicants or licensees spend time complying with requirements that do not meaningfully affect the SBA’s evaluation or oversight.

Clarifying Investment Alignment with Current Businesses

A second major focus of the amendments is clarifying how SBIC capital can align with macro federal industrial priorities, particularly in critical minerals and critical technologies. The SBA frames the goal of this focus and alignment as reducing barriers to SBIC investments aligned with industrial priorities and encouraging investments in small businesses engaged in advanced technologies and critical minerals.&nbsp;

The SBA also added additional definitions and provisions to modernize the regulations to align them to the current business world. Specifically, the SBA has defined “Critical Technology” as an investment type that may be permitted under an additional exception to certain project finance restrictions when made by a Critical Technology SBIC.&nbsp;The prior rules may have prohibited this type of investment altogether.

The rules around project finance duration were also clarified to address timing concepts relevant to long-term projects. In discussing investments tied to critical minerals and critical technologies, the SBA explains how projects anticipated to exceed a specified duration would be treated under the relevant exception framework.&nbsp;For SBIC fund managers, the practical takeaway is not that the SBIC program has become an industrial policy vehicle, but that the SBA is explicitly smoothing edges in the regulatory text that previously could be read to constrain certain investments in these categories or to require more interpretive gymnastics to justify them.

The SBA’s licensing process has long been considered unnecessarily cumbersome and a deterrent to fund managers seeking SBIC licensure. The new changes to the SBIC program are particularly meaningful for fund managers seeking to license successor vehicles, a process which previously often took just as long to accomplish as a first-time licensure. In the final rule’s section-by-section discussion, the SBA describes revisions intended to modify and streamline criteria for determining whether an applicant is eligible for the expedited process, while maintaining appropriate benchmarks for evaluation by the SBA reviewers.&nbsp;

The SBA also clarifies that applicants meeting criteria for expedited evaluation, including fund managers currently operating an active SBIC, may be permitted to submit a “Short-Form” subsequent fund Management Assessment Questionnaire (MAQ), while reserving authority to request the full MAQ where needed to adequately evaluate the application.&nbsp;This is an important operational point for fund managers because the rule changes do not eliminate the SBA’s discretion or diligence expectations, but do give the SBA clearer authority to right-size submissions for qualified subsequent funds, which could potentially shorten time-to-license, reduce application burden, and encourage participants to apply if they had previously been deterred from doing so due to the previous often slow and arduous process.

The February 2026 SBIC amendments are not a wholesale redesign of the SBIC program. Instead, they are a pragmatic modernization focused on cutting obsolete rules, clarifying investment fit in priority areas, and simplifying licensing steps for repeat, qualified managers. For market participants, the changes should reduce unnecessary process drag and make the rules more readable, all while maintaining strong SBA oversight in the process. These revisions make the SBIC program more appealing and attainable in reasonable timeframes from talented fund managers interested in having the federal government as a partner for the life of their fund.

<em>This article may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgement of its source and copyright. It is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.</em>

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SBIC Program Rule Changes Usher in Modernization, Alignment, and a Faster Path to Licensing

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