by Adam Gardiner, Director of Client Services, PEF Services LLC

Effective December 13, 2017, SBA is increasing fees charged for licensing and examinations and adding an inflation adjustment.

The fee increases will be phased in over a period of four years with the inflation adjustment beginning October 1, 2021. The final rule is available here.

 

SBA’s Priorities for the Use of the Additional Funds are to:

  1. Support its continued efforts to migrate from desktop database tools to a secure cloud-based system comparable to the systems used by a typical private equity fund of funds;
  2. Pay for additional contractor services to support examinations and facilitate SBA’s transition to a paperless environment;
  3. Increase travel related to licensing, examination, and other program oversight;
  4. Train employees;
  5. Increase access to subscription services used by a typical private equity fund of funds, such as industry reports; and
  6. Further offset the compensation and benefits of personnel associated with these activities.

In addition to these priorities, SBA hopes to cover the shortfall in funding due to the lack of an inflation factor in the previous regulation.

SBA License Fees

The new license fees are:

  1. $10,000 non-refundable Initial Licensing Fee; and
  2. Final Licensing Fee according to table below:
Time period Final licensing fee
December 13, 2017 to September 30, 2018 $20,000
October 1, 2018 to September 30, 2019 25,000
October 1, 2019 to September 30, 2020 30,000
October 1, 2020 to September 30, 2021 35,000

Beginning on October 1, 2021, SBA will annually adjust both the Initial Licensing Fee and Final Licensing Fee using the Inflation Adjustment and will publish a Notice prior to such adjustment in the Federal Register identifying the amount of the fee.

If there is a change of Control of a Licensee, the processing fee will be equal to the combined Licensing Fee then in effect.

SBA Examination Fees

The new base fee for examinations will be based on the total assets (at cost) as of the date of the latest Form 468. The base fee is the Minimum Base Fee plus 0.024% of assets at cost, rounded to nearest $100, not to exceed the Maximum Base Fee.

The Minimum and Maximum Base Fees are adjusted annually as follows:

Time period

(Based on the examination start date)

Minimum base fee Maximum base fee for non-leveraged SBICs Maximum base fee for leveraged SBICs
December 13, 2017 to September 30, 2018 $6,000 $22,500 $26,000
October 1, 2018 to September 30, 2019 7,000 25,000 32,000
October 1, 2019 to September 30, 2020 8,000 27,500 38,000
October 1, 2020 to September 30, 2021 9,000 30,000 44,000

Beginning on October 1, 2021, SBA will annually adjust both the Minimum Base Fee and Maximum Base Fee using the Inflation Adjustment and will publish a Notice prior to such adjustment in the Federal Register identifying the amount of the fees.

Additional adjustments to the examination fee are:

  1. Non-responsive fee of 15% of Base fee
  2. Records/files at multiple locations fee of 10% of Base fee
  3. Unresolved findings fee of 5% of Base fee for every 30 days past cure period
  4. Delay fee of $700 per day

These increases are expected to generate additional fees of $3 million to $4 million per year, however SBA is concerned that even with these additional fees, not all expenses authorized by the statue will be covered. Therefore, SBA is considering proposing a new rule after this final rule becomes effective to more fully cover its licensing and examination costs.

As always, please contact your PEF team if you have any questions.