---
kind: "range"
citation: "13 C.F.R. §§ 107.1540–107.1570"
title: "13"
from: "107.1540"
to: "107.1570"
count: 4
url: "https://uscodex.org/cfr/13/107.1540..107.1570"
---

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


After you compute Prioritized Payments and Adjustments under [§ 107.1520](/cfr/13/107.1520.md), you must distribute them in accordance with this § 107.1540. You must notify SBA of any planned distribution under this [section 10](/cfr/13/10.md) business days before the distribution date, unless SBA permits otherwise.


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


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](/cfr/13/10.md) 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](/cfr/13/107.1520.md)).
  - (2) You satisfy the liquidity requirement in [§ 107.1505](/cfr/13/107.1505.md).
  - (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)](#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](/cfr/13/107.1530.md).
  - (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)](/cfr/13/107.1560.md?p=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)](/cfr/13/107.1575.md?p=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)](#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.

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


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)](#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](/cfr/13/10.md) 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](/cfr/13/107.1520.md) and [107.1540](/cfr/13/107.1540.md)).
  - (2) You must have made any permitted tax Distribution that you choose to make under [§ 107.1550](/cfr/13/107.1550.md).
  - (3) You must satisfy the liquidity requirement in [§ 107.1505](/cfr/13/107.1505.md).
  - (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](/cfr/13/107.1540.md) and [107.1550](/cfr/13/107.1550.md); minus
  - (2) All previous Distributions under this section and [§ 107.1570(a)](/cfr/13/107.1570.md?p=a) that were applied as redemptions or repayments of Leverage; plus
  - (3) All previous Distributions under [§ 107.1570(b)](/cfr/13/107.1570.md?p=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)](#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)](#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)](#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)](#f-1) is not a “payment failure” in violation of [§ 107.1820(e)(6)](/cfr/13/107.1820.md?p=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.

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


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](/cfr/13/107.1560.md), 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](/cfr/13/10.md) 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)](#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)](/cfr/13/107.1560.md?p=e).
  - (2) Such Distributions are subject to all the provisions in § [107.1560 (a)(1)](/cfr/13/107.1560.md?p=a-1), [(a)(3)](/cfr/13/107.1560.md?p=a-3), [(a)(4)](/cfr/13/107.1560.md?p=a-4), [(d)](/cfr/13/107.1560.md?p=a-d), [(f)(2)](/cfr/13/107.1560.md?p=f-2), and [(g)](/cfr/13/107.1560.md?p=f-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)](#a) or [§ 107.1560](/cfr/13/107.1560.md) that were applied as redemptions or repayments of Leverage; plus
    - (iii) All previous Distributions under [paragraph (b)](#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)](#b).
  - (1) **Conditions for making a Distribution.** You may make a Distribution under this [paragraph (b)](#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](/cfr/13/107.1520.md)).
    - (ii) You have distributed all Profit Participation computed under [§ 107.1530](/cfr/13/107.1530.md) which you are required to distribute under [§ 107.1560](/cfr/13/107.1560.md) or permitted to distribute under [paragraph (a)](#a) of this section, as appropriate, and you have made all required Distributions under [§ 107.1560](/cfr/13/107.1560.md).
    - (iii) You satisfy the liquidity requirement in [§ 107.1505](/cfr/13/107.1505.md) 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](/cfr/13/107.210.md), 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](/cfr/13/107.1840.md) is zero, SBA's percentage share of any Distribution under this [paragraph (b)](#b) equals:
    - (ii) If your Capital Impairment Percentage under [§ 107.1840](/cfr/13/107.1840.md) is greater than zero, you must modify the formula in [paragraph (b)(2)(i)](#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)](#b) will be applied as a repayment or redemption of Leverage in the order set forth in [§ 107.1560(g)(3) through (g)(5)](/cfr/13/107.1560.md?p=g-3..g-5).
  - (4) **Effect of Distributions on Retained Earnings Available for Distribution.** Any amounts you distribute to non-SBA investors under this [paragraph (b)](#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)](#b), even if the result is a reduction in your Regulatory Capital that would otherwise be prohibited under [§ 107.585](/cfr/13/107.585.md).