13 C.F.R. §§ 107.1500–107.1570

§107.1500. General description of Participating Securities.

13 C.F.R. § 107.1500

(a)

Types of Participating Securities. Participating Securities are redeemable, preferred, equity-type securities. SBA may purchase or guarantee Participating Securities issued by Licensees in the form of limited partnership interests, preferred stock, or debentures with interest payable only to the extent of earnings. The structure, terms and conditions of Participating Securities are set forth in detail in §§ 107.1500 through 107.1590.

(b)

Special eligibility requirements for Participating Securities. In addition to the general eligibility requirements for Leverage under § 107.1120, Participating Securities issuers must also comply with special rules on:

(1)

Minimum capital (see § 107.210).

(2)

Liquidity (see § 107.1505).

(3)

Non-SBA borrowing (see § 107.570).

(4)

Equity investing, as set forth in this paragraph (b)(4). If you issue Participating Securities, you must invest an amount equal to the Original Issue Price of such securities solely in Equity Capital Investments, as defined in § 107.50.

(c)

Special features of Participating Securities—Prioritized Payments, Adjustments, and Profit Participation. When you issue Participating Securities, you agree to make the following payments:

(1)

Prioritized Payments. Depending upon the type of Participating Security you issue, Prioritized Payments may be preferred partnership distributions, preferred dividends, or interest. Your obligation to pay Prioritized Payments is contingent upon your profits as determined under § 107.1520.

(2)

Adjustments to Prioritized Payments. If you have unpaid Prioritized Payments, you must compute Adjustments, which are additional contingent obligations determined under § 107.1520. The conditions for paying Adjustments are the same as for Prioritized Payments.

(3)

SBA Profit Participation. Profit Participation is an amount payable to SBA under § 107.1530 in consideration for SBA's guarantee of your Participating Securities.

(d)

Distributions by Licensees issuing Participating Securities. Sections 107.1540 through 107.1580 govern both required and optional Distributions by Participating Securities issuers. Distributions include both profit distributions and returns of capital, paid either to SBA or to your non-SBA investors.

(e)

Mandatory redemption of Participating Securities. You must redeem Participating Securities at the redemption date, which is the same as the maturity date of the Trust Certificates for the Trust containing such securities. The redemption date can never be later than 15 years after the issue date. You must pay the Redemption Price plus any unpaid Earned Prioritized Payments and any earned Adjustments and earned Charges (see § 107.1520).

(f)

Priority of Participating Securities in liquidation of Licensee. In the event of your liquidation, the following are senior in priority, for all purposes, to all other equity interests you have issued at any time:

(1)

The Redemption Price of Participating Securities;

(2)

Any Earned Prioritized Payments and any earned Adjustments and earned Charges (see § 107.1520); and

(3)

Any Profit Participation allocated to SBA under § 107.1530.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]

§107.1505. Liquidity requirements for Licensees issuing Participating Securities.

13 C.F.R. § 107.1505

If you have outstanding Participating Securities, you must maintain sufficient liquidity to avoid a condition of Liquidity Impairment. Such a condition will constitute noncompliance with the terms of your Leverage under § 107.1820(e).

(a)

Definition of Liquidity Impairment. A condition of Liquidity Impairment exists when your Liquidity Ratio, as determined in paragraph (b) of this section, is less than 1.20. You are responsible for calculating whether you have a condition of Liquidity Impairment:

(1)

As of the close of your fiscal year;

(2)

At the time you apply for Leverage, unless SBA permits otherwise; and

(3)

At such time as you contemplate making any Distribution.

(b)

Computation of Liquidity Ratio. Your Liquidity Ratio equals your Total Current Funds Available (A) divided by your Total Current Funds Required (B), as determined in the following table:

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5869, Feb. 5, 1998]

§107.1510. How a Licensee computes Earmarked Profit (Loss).

13 C.F.R. § 107.1510

Computing your Earmarked Profit (Loss) is the first step in determining your obligations to pay Prioritized Payments, Adjustments and Charges under § 107.1520 and Profit Participation under § 107.1530.

(a)

Requirement to compute your Earmarked Profit (Loss). While you have Participating Securities outstanding or have Earmarked Assets (as defined in paragraph (b) of this section), you must compute your Earmarked Profit (Loss) for:

(1)

Each full fiscal year.

(2)

Any interim period (consisting of one or more fiscal quarters) for which you want to make a Distribution.

(b)

How to determine your Earmarked Assets. “Earmarked Assets” means all the Loans and Investments that you have when you issue Participating Securities or that you acquire while you have Participating Securities outstanding, and any non-cash assets that you receive in exchange for such Loans and Investments.

(1)

An Earmarked Asset remains earmarked until you dispose of it, even if you no longer have any outstanding Participating Securities.

(2)

Investments you make after redeeming all your Participating Securities are not Earmarked Assets. However, if you issue new Participating Securities, all of your Loans and Investments again become Earmarked Assets.

(3)

If you were licensed before March 31, 1993, you may be permitted to exclude Loans and Investments held at that date from Earmarked Assets under § 107.1590.

(c)

How to compute your Earmarked Asset Ratio. You must determine your Earmarked Asset Ratio each time you compute Earmarked Profit (Loss). If all your Loans and Investments are Earmarked Assets, your Earmarked Asset Ratio equals 100 percent. Otherwise, compute your Earmarked Asset Ratio using the following formula:

(d)

How to compute your Earmarked Profit (Loss) if Earmarked Asset Ratio is 100 percent.

(1)

(i)

If your Earmarked Asset Ratio from paragraph (b) of this section is 100 percent, use the following formula to compute your Earmarked Profit (Loss):

(ii)

For the purpose of determining Net Income (Loss), leverage fees paid to SBA and partnership syndication costs that you incur must be capitalized and amortized on a straight-line basis over not less than five years.

(2)

“Excess Management Expenses” are those that exceed the following limit:

(i)

For a full fiscal year, the limit is the lower of—

(A)

2.5 percent of your weighted average Combined Capital for the year, plus $125,000 if Combined Capital is below $20,000,000; or

(B)

Your Management Expenses approved by SBA.

(ii)

For less than a full fiscal year, you must prorate the annual amounts in paragraph (d)(2)(i) of this section to determine the limit.

(e)

How to compute your Earmarked Profit (Loss) if Earmarked Asset Ratio is less than 100 percent. If your Earmarked Asset Ratio is less than 100 percent, compute your Earmarked Profit (Loss) as follows:

(1)

Do the Earmarked Profit (Loss) computation in paragraph (d) of this section.

(2)

Subtract your net realized gain (loss) (as reported on SBA Form 468) on Loans and Investments that are not Earmarked Assets.

(3)

Separate the result from paragraph (e)(2) of this section into—

(i)

Net realized gain (loss) (as reported on SBA Form 468) on Earmarked Assets (“EGL”); and

(ii)

The remainder (“R”).

(4)

Your Earmarked Profit (Loss) equals—

(f)

How to compute your cumulative Earmarked Profit (Loss). Sum your Earmarked Profit (Loss) for all fiscal years and for any interim period following the end of your last fiscal year. The total is your cumulative Earmarked Profit (Loss), which you must use in the Prioritized Payment computations under § 107.1520.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5870, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5870, Feb. 5, 1998]

§107.1520. How a Licensee computes and allocates Prioritized Payments to SBA.

13 C.F.R. § 107.1520

This section tells you how to compute Prioritized Payments, Adjustments and Charges on Participating Securities and determine the amounts you must pay. To distribute these amounts, see § 107.1540.

(a)

How to compute Prioritized Payments and Adjustments—

(1)

Prioritized Payments. For a full fiscal year, the Prioritized Payment on an outstanding Participating Security equals the Redemption Price times the related Trust Certificate Rate. For an interim period, you must prorate the annual Prioritized Payment. If your Participating Security was sold to a short-term investor in accordance with § 107.1240, the Prioritized Payment for the short-term period equals the Redemption Price times the short-term rate.

(2)

Adjustments. Compute Adjustments using paragraph (f) of this section.

(3)

Charges. Compute Charges in accordance with § 107.1130(d)(2).

(b)

Licensee's obligation to pay Prioritized Payments, Adjustments and Charges. You are obligated to pay Prioritized Payments, Adjustments and Charges only if you have profit as determined in paragraph (d) of this section.

(1)

Prioritized Payments that you must pay (or have already paid) because you have sufficient profit are “Earned Prioritized Payments”.

(2)

Prioritized Payments that have not become payable because you lack sufficient profit are “Accumulated Prioritized Payments”. Treat all Prioritized Payments as “Accumulated” until they become “Earned” under this section.

(3)

Adjustments (computed under paragraph (f) of this section) and Charges (computed under § 107.1130(d)(2)) are “earned” according to the same criteria applied to Prioritized Payments.

(c)

How to keep track of Prioritized Payments. You must establish three accounts to record your Accumulated and Earned Prioritized Payments:

(1)

Accumulation Account. The Accumulation Account is a memorandum account. Its balance represents your Accumulated Prioritized Payments, unearned Adjustments and unearned Charges.

(2)

Distribution Account. The Distribution Account is a liability account. Its balance represents your unpaid Earned Prioritized Payments, earned Adjustments and earned Charges.

(3)

Earned Payments Account. The Earned Payments Account is a memorandum account. Each time you add to the Distribution Account balance, add the same amount to the Earned Payments Account. Its balance represents your total (paid and unpaid) Earned Prioritized Payments, earned Adjustments and earned Charges.

(d)

How to determine your profit for Prioritized Payment purposes. As of the end of each fiscal year and any interim period for which you want to make a Distribution:

(1)

Bring the Accumulation Account up to date by adding to it all Prioritized Payments and Charges through the end of the appropriate fiscal period.

(2)

Determine whether you have profit for the purposes of this section by doing the following computation—

(i)

Cumulative Earmarked Profit (Loss) under § 107.1510(f); minus

(ii)

The Earned Payments Account balance; minus

(iii)

All Distributions previously made under §§ 107.1550, 107.1560 and 107.1570(a); minus

(iv)

Any Profit Participation previously allocated to SBA under § 107.1530, but not yet distributed.

(3)

The amount computed in paragraph (d)(2) of this section, if greater than zero, is your profit. If the amount is zero or less, you have no profit.

(4)

If you have a profit, continue with paragraph (e) of this section. Otherwise, continue with paragraph (f) of this section.

(e)

Allocating Prioritized Payments to the Distribution Account.

(1)

If you have a profit under paragraph (d) of this section, determine the lesser of:

(i)

Your profit; or

(ii)

The balance in your Accumulation Account.

(2)

Subtract the result in paragraph (e)(1) of this section from the Accumulation Account and add it to the Distribution Account and the Earned Payments Account.

(f)

How to compute Adjustments. You must compute Adjustments as of the end of each fiscal year if you have a balance greater than zero in either your Accumulation Account or your Distribution Account, after giving effect to any Distribution that will be made no later than the second Payment Date following the fiscal year end.

(1)

Determine the combined average Accumulation Account and Distribution Account balances for the fiscal year, assuming that Prioritized Payments accumulate on a daily basis without compounding.

(2)

Multiply the average balance computed in paragraph (f)(1) of this section by the average of the Trust Certificate Rates for all the Participating Securities poolings during the fiscal year.

(3)

Add the amounts computed in this paragraph (f) to your Accumulation Account.

(g)

Licensee's obligation to pay Prioritized Payments after redeeming Participating Securities. This paragraph (g) applies if you have redeemed all your Participating Securities, but you still hold Earmarked Assets and still have a balance in your Accumulation Account.

(1)

You must continue to perform all the procedures in this section as of the end of each fiscal quarter and prior to making any Distribution. You must distribute any Earned Prioritized Payments, earned Adjustments and earned Charges in accordance with § 107.1540.

(2)

After you dispose of all your Earmarked Assets and make any required Distributions in accordance with § 107.1540, your obligation to pay any remaining Accumulated Prioritized Payments, unearned Adjustments and unearned Charges will be extinguished.

Notes, amendments, and revision history

Amendments

[63 FR 5870, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[63 FR 5870, Feb. 5, 1998]

§107.1530. How a Licensee computes SBA's Profit Participation.

13 C.F.R. § 107.1530

This section tells you how to compute SBA's Profit Participation. Profit Participation is included in the Distributions you make to SBA under §§ 107.1550 and 107.1560.

(a)

How to compute Profit Participation. Profit Participation equals your “Base” times your “Profit Participation Rate” (if the Base is zero or less, you do not owe SBA Profit Participation). Compute the Base using paragraph (c) of this section and the Profit Participation Rate using paragraphs (d) through (g) of this section. You must compute your Earmarked Profit (Loss) under § 107.1510 and your Prioritized Payments and Adjustments under § 107.1520 before you can compute Profit Participation.

(b)

How to keep track of Profit Participation. You must establish a Profit Participation Account to record your computations under this section and payments under §§ 107.1550 and 107.1560. Its balance represents your unpaid Profit Participation.

(c)

How to compute the Base. As of the end of each fiscal year and any year-to-date interim period for which you want to make a Distribution, compute your Base using the following formula:

(1)

If the Base computed as of the end of your previous fiscal year (your “Previous Base”) was less than zero, your Unused Loss equals your Previous Base.

(2)

If your Previous Base was zero or greater, your Unused Loss equals zero, with the following exception: If you made an interim Distribution of Profit Participation during your previous fiscal year, and your Previous Base was lower than the interim Base on which your Distribution was computed, then your Unused Loss equals the difference between the interim Base and the Previous Base. For example, assume you are computing your Base as of December 31, 1997, your fiscal year end. Your Previous Base, computed as of December 31, 1996, was $3,000,000. During 1996, you made an interim Distribution which was computed on a Base of $3,500,000 as of June 30, 1996. The $500,000 difference between the 1996 interim and year-end Bases would be carried forward as Unused Loss in the computation of your Base as of December 31, 1997.

(3)

If you had no Participating Securities outstanding as of the end of your last fiscal year, you may request SBA's approval to treat your Undistributed Net Realized Loss, as reported on SBA Form 468 for that year, as Unused Loss. If you did not file SBA Form 468 because you were not yet licensed as of the end of your last fiscal year, you may request SBA's approval to treat pre-licensing losses as Unused Loss.

(d)

How to compute the Profit Participation Rate. You must determine your Profit Participation Rate each time you compute a Base that is greater than zero. Compute the Rate by following the steps in paragraphs (e) through (g) of this section.

(e)

Compute the “PLC ratio”—

(1)

General rule. The “PLC ratio” is the highest ratio of outstanding Participating Securities to Leverageable Capital that you have ever attained.

(2)

Exception. You may reduce the ratio computed under paragraph (e)(1) of this section if you have increased your Leverageable Capital above its highest previous level. The increase must have taken place at least 120 days before the date as of which your Base is computed. In addition, the increase must have been expressly provided for in a plan of operations submitted to and approved by SBA in writing, or must be the result of the takedown of commitments or the conversion of non-cash assets that were included in your Private Capital. If these conditions are satisfied, compute your reduced PLC ratio as follows:

(i)

Divide the highest dollar amount of Participating Securities you have ever had outstanding by your increased Leverageable Capital.

(ii)

If the result in paragraph (e)(2)(i) of this section is lower than your PLC ratio currently in effect, such result will become your new PLC ratio.

(f)

Compute the Profit Participation Rate (before indexing). Compute the Profit Participation Rate (before indexing) using the table in this paragraph (f). Then go to paragraph (g) of this section to determine whether to index the Profit Participation Rate.

(g)

Indexing the Profit Participation Rate. The Profit Participation Rate is indexed, up or down, to the yield-to-maturity on Treasury bonds with a remaining term of ten (10) years (the “Treasury Rate”). You must perform the indexing procedures in this paragraph (g) unless the Treasury Rate was exactly 8 percent on every date that you issued Participating Securities.

(1)

Licensees that have issued Participating Securities on only one occasion. Determine the Treasury Rate for the date you issued your Participating Security. Adjust the Profit Participation Rate from paragraph (f) of this section by the percentage difference between the Treasury Rate and 8 percent. For example, assume that you issued Participating Securities when the Treasury Rate was 10 percent. The percentage difference between 10 percent and 8 percent is 25 percent. If you had a PLC ratio of 1, the Profit Participation Rate before indexing would be 9 percent. You would increase this rate by 25 percent, giving you a Profit Participation Rate of 11.25 percent.

(2)

Licensees that have issued Participating Securities on more than one occasion. Determine the Treasury Rate for each of the dates you issued Participating Securities.

(i)

Compute an average of all such Treasury Rates, weighted to reflect the dollar amount of each issuance (ignoring any redemptions) and the number of days from the date of each issuance to the date as of which you are computing the Profit Participation Rate.

(ii)

Adjust the Profit Participation Rate from paragraph (f) of this section by the percentage difference between the weighted average Treasury Rate and 8 percent. In the example given in paragraph (g)(2)(i) of this section, if the PLC ratio were equal to 2, the Profit Participation Rate for the fiscal year would be 12.83 percent. [{((.0855−.08) ÷ .08) + 1} × .12 × 100 = 12.83%]

(h)

Computing SBA's Profit Participation. If the Base from paragraph (c) of this section is greater than zero, you must compute SBA's Profit Participation as follows:

(1)

Multiply the Base from paragraph (c) of this section by the Profit Participation Rate from paragraph (g) of this section.

(2)

If your last Profit Participation computation was for an interim period during the same fiscal year and used a higher Profit Participation Rate than the Rate you just used in paragraph (h)(1) of this section, you must adjust the amount computed in paragraph (h)(1) of this section as follows:

(i)

Determine the difference between the Profit Participation Rate you just used in paragraph (h)(1) of this section and the Rate used in your previous computation;

(ii)

Multiply the difference by the Base from your last Profit Participation computation; and

(iii)

Add the result to the amount you computed in paragraph (h)(1) of this section.

(3)

Reduce the Profit Participation computed in paragraphs (h)(1) and (h)(2) of this section by any amounts of Profit Participation that you distributed or reserved for distribution to SBA, or its designated agent or Trustee, for any previous interim period(s) during the fiscal year. The result is SBA's Profit Participation (unless it is less than zero, in which case SBA's Profit Participation is zero).

(i)

Allocation of Profit Participation. Before any Distribution and in any case within 120 days following the end of your fiscal year, you must add the amount of Profit Participation computed under this § 107.1530 to the Profit Participation Account. You must reserve funds equal to this amount for distribution to SBA, or its designated agent or Trustee; you may not reinvest these funds or use them for any other purpose.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996, as amended at 63 FR 5871, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996; 61 FR 41496, Aug. 9, 1996, as amended at 63 FR 5871, Feb. 5, 1998]

§107.1540. Distributions by Licensee—Prioritized Payments and Adjustments.

13 C.F.R. § 107.1540

After you compute Prioritized Payments and Adjustments under § 107.1520, you must distribute them in accordance with this § 107.1540. You must notify SBA of any planned distribution under this section 10 business days before the distribution date, unless SBA permits otherwise.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998; 88 FR 46012, July 18, 2023]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998; 88 FR 46012, July 18, 2023]

§107.1550. Distributions by Licensee—permitted “tax Distributions” to private investors and SBA.

13 C.F.R. § 107.1550

If you have outstanding Participating Securities or Earmarked Assets, and you are a limited partnership, “S Corporation,” or equivalent pass-through entity for tax purposes, you may make “tax Distributions” to your investors in accordance with this § 107.1550, whether or not they have an actual tax liability. SBA receives a share of any tax Distribution you make. This section tells you when you may make a “tax Distribution” and how to compute it. You must notify SBA of any planned distribution under this section 10 business days before the distribution date, unless SBA permits otherwise.

(a)

Conditions for making a tax Distribution. You may make a tax Distribution only if:

(1)

You have paid all your Prioritized Payments, Adjustments, and Charges, so that the balance in both your Distribution Account and your Accumulation Account is zero (see § 107.1520).

(2)

You satisfy the liquidity requirement in § 107.1505.

(3)

The tax Distribution does not exceed your Retained Earnings Available for Distribution.

(4)

The tax Distribution does not exceed the Maximum Tax Liability from paragraph (b) of this section.

(b)

How to compute the Maximum Tax Liability.

(1)

You may compute your Maximum Tax Liability for a full fiscal year or for any calendar quarter. Use the following formula:

(2)

You may compute the highest combined marginal Federal and State income tax rate on ordinary income and capital gains using either individual or corporate rates. However, you must apply the same type of rate, either individual or corporate, to both ordinary income and capital gains.

(3)

In determining the combined Federal and State income tax rate, you must assume that State income taxes are deductible from Federal income taxes. For example, if the Federal tax rate was 35 percent and the State tax rate was 5 percent, the combined tax rate would be [35% × (1−.05)] + 5% = 38.25%.

(4)

For purposes of this paragraph (b), the “State income tax” is that of the State where your principal place of business is located, and does not include any local income taxes.

(c)

SBA's share of the tax Distribution.

(1)

SBA's percentage share of the tax Distribution is equal to the Profit Participation Rate computed under § 107.1530.

(2)

SBA may direct you to pay its share of the tax Distribution to its designated agent or Trustee.

(3)

SBA will apply its share of the tax Distribution in the order set forth in § 107.1560(g).

(d)

Paying a tax Distribution. You may make an annual tax Distribution on the first or second Payment Date following the end of your fiscal year. You may make a quarterly tax Distribution on the first Payment Date following the end of the calendar quarter for which the Distribution is being made. See also § 107.1575(a).

(e)

Excess tax Distributions.

(1)

As of the end of your fiscal year, you must determine whether you made any excess tax Distributions for the year in accordance with paragraph (e)(2) of this section. Any tax Distributions that you make for a subsequent period must be reduced by the excess amount distributed.

(2)

Determine your excess tax Distributions by adding together all your quarterly tax Distributions for the year (ignoring any required reductions for excess tax Distributions made in prior years), and subtracting the maximum tax Distribution that you would have been permitted to make based upon a single computation performed for the entire fiscal year. The result, if greater than zero, is your excess tax Distribution for the year.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998; 64 FR 70996, Dec. 20, 1999]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5871, Feb. 5, 1998; 64 FR 70996, Dec. 20, 1999]

§107.1560. Distributions by Licensee—required Distributions to private investors and SBA.

13 C.F.R. § 107.1560

You must make Distributions under this § 107.1560 if you have outstanding Participating Securities or Earmarked Assets and you satisfy the conditions in paragraph (a) of this section. Distributions under this section are determined as of the end of each fiscal year. You must notify SBA of any planned distribution under this section 10 business days before the distribution date, unless SBA permits otherwise.

(a)

Conditions for making Distributions. Distributions under this section are subject to the following conditions:

(1)

You must have paid all Prioritized Payments, Adjustments and Charges, so that the balance in both your Distribution Account and your Accumulation Account is zero (see §§ 107.1520 and 107.1540).

(2)

You must have made any permitted tax Distribution that you choose to make under § 107.1550.

(3)

You must satisfy the liquidity requirement in § 107.1505.

(4)

The amount you distribute under this section must not exceed your remaining Retained Earnings Available for Distribution.

(b)

Total amount you must distribute. Unless SBA permits otherwise, the total amount you must distribute equals the result (if greater than zero) of the following computation:

(1)

Your Retained Earnings Available for Distribution as of the end of your fiscal year, after giving effect to any Distribution under §§ 107.1540 and 107.1550; minus

(2)

All previous Distributions under this section and § 107.1570(a) that were applied as redemptions or repayments of Leverage; plus

(3)

All previous Distributions under § 107.1570(b) that reduced your Retained Earnings Available for Distribution.

(c)

When you must make Distributions. You must make the required Distributions on either the first or second Payment Date following the end of your fiscal year.

(d)

Effect of Distributions on Retained Earnings Available for Distribution. Distributions under this § 107.1560 have the following effect on your Retained Earnings Available for Distribution:

(1)

All Distributions to private investors reduce Retained Earnings Available for Distribution.

(2)

Distributions to SBA, or its designated agent or Trustee, reduce Retained Earnings Available for Distribution if they are applied as payments of Profit Participation (see paragraph (g) of this section).

(3)

Distributions to SBA, or its designated agent or Trustee, do not reduce Retained Earnings Available for Distribution if they are applied as a repayment or redemption of Leverage (see paragraph (g) of this section).

(e)

SBA's share of the total Distribution. Use the following table to determine the percentage share of the total Distribution (from paragraph (b) of this section) that goes to SBA (or its designated agent or Trustee):

(f)

Exceptions to the Distribution requirement.

(1)

With SBA's prior written approval, you may withhold from distribution reasonable reserves necessary to protect your investments or relative position in Loans and Investments and to meet contingent liabilities.

(i)

If you submit a written request for SBA approval, you may consider it approved unless SBA notifies you otherwise within 30 days from receipt.

(ii)

Reserves that you withhold from distribution may not be used to make investments in additional portfolio companies.

(iii)

Withholding of reserves under this paragraph (f)(1) is not a “payment failure” in violation of § 107.1820(e)(6).

(2)

SBA may restrict Distributions under this § 107.1560 if SBA determines that the value of your assets is materially overstated. SBA must give you notice of such a determination in advance of your proposed Distribution.

(g)

How SBA will apply your Distributions. Your Distributions to SBA (or its designated agent or Trustee) under this § 107.1560 will be applied in the following order:

(1)

First, to Profit Participation;

(2)

Second, as a redemption of Participating Securities in order of issue; and

(3)

Third, as the repayment of principal of any outstanding Debentures, with such repayment to be made into escrow on terms and conditions SBA determines.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998; 91 FR 9, Jan. 2, 2026]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998; 91 FR 9, Jan. 2, 2026]

§107.1570. Distributions by Licensee—optional Distribution to private investors and SBA.

13 C.F.R. § 107.1570

If you have outstanding Participating Securities or Earmarked Assets, you may make two types of optional Distributions under this § 107.1570: quarterly Distributions determined the same way as the required annual Distributions in § 107.1560, and Distributions allocated between SBA and your private investors in proportion to the capital contributions of each. You must notify SBA of any planned distribution under this section 10 business days before the distribution date, unless SBA permits otherwise.

(a)

Quarterly Distributions subject to conditions in § 107.1560.

(1)

You may make Distributions under this paragraph (a) as of the end of any fiscal quarter, giving SBA (or its designated agent or Trustee) a percentage share determined under § 107.1560(e).

(2)

Such Distributions are subject to all the provisions in § 107.1560 (a)(1), (a)(3), (a)(4), (d), (f)(2), and (g).

(3)

You may make such Distributions only on the next Payment Date following the end of your fiscal quarter.

(4)

The total amount of such Distributions may not exceed the result of the following computation:

(i)

Your Retained Earnings Available for Distribution as of the end of your fiscal quarter; minus

(ii)

All previous Distributions under this paragraph (a) or § 107.1560 that were applied as redemptions or repayments of Leverage; plus

(iii)

All previous Distributions under paragraph (b) of this section that reduced your Retained Earnings Available for Distribution.

(b)

Other optional Distributions. On any Payment Date, you may make additional Distributions to your private investors and to SBA (or its designated agent or Trustee) under this paragraph (b).

(1)

Conditions for making a Distribution. You may make a Distribution under this paragraph (b) only if:

(i)

You have distributed all Earned Prioritized Payments, earned Adjustments, and earned Charges, so that the balance in your Distribution Account is zero (see § 107.1520).

(ii)

You have distributed all Profit Participation computed under § 107.1530 which you are required to distribute under § 107.1560 or permitted to distribute under paragraph (a) of this section, as appropriate, and you have made all required Distributions under § 107.1560.

(iii)

You satisfy the liquidity requirement in § 107.1505 or obtain SBA's prior written approval of the Distribution.

(iv)

You do not have a condition of Capital Impairment.

(v)

The Distribution does not reduce your Regulatory Capital (excluding commitments from Institutional Investors) below the minimum required under § 107.210, unless SBA approves the reduction as part of a plan of liquidation.

(vi)

The Distribution does not cause you to have excess Leverage contrary to section 303 of the Act.

(2)

SBA's share of Distribution.

(i)

If your Capital Impairment Percentage under § 107.1840 is zero, SBA's percentage share of any Distribution under this paragraph (b) equals:

(ii)

If your Capital Impairment Percentage under § 107.1840 is greater than zero, you must modify the formula in paragraph (b)(2)(i) of this section by replacing Leverageable Capital with:

(3)

How SBA will apply Distributions. Any amounts you distribute to SBA, or its designated agent or Trustee, under this paragraph (b) will be applied as a repayment or redemption of Leverage in the order set forth in § 107.1560(g)(3) through (g)(5).

(4)

Effect of Distributions on Retained Earnings Available for Distribution. Any amounts you distribute to non-SBA investors under this paragraph (b) must reduce your Retained Earnings Available for Distribution to zero before reducing your Private Capital.

(5)

Permitted exception to § 107.585. You may make any Distribution permitted by this paragraph (b), even if the result is a reduction in your Regulatory Capital that would otherwise be prohibited under § 107.585.

Notes, amendments, and revision history

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998]

Authority

Authority: 15 U.S.C. 662, 681-687, 687b-h, 687k-m.

Source

Source: 61 FR 3189, Jan. 31, 1996, unless otherwise noted.

Amendments

[61 FR 3189, Jan. 31, 1996, as amended at 63 FR 5872, Feb. 5, 1998]