SBA Enabling Business, Expanding Impact

Jonathan Greenblatt, Maria Contreras-Sweet

Wednesday, October 8th, 2014

Last week, the U.S. Small Business Administration announced a series of important new measures to expand its landmark Impact Investment Fund. Inspired by the President’s vision of a more inclusive and sustainable economy, the Impact Fund was launched in 2011 as one of several federal initiatives designed to support America’s impact investment industry. 

The SBA launched the Impact Fund in 2011 as a five-year, $1 billion pilot initiative to capitalize investment funds that seek both financial and social return. This announcement reaffirms SBA’s commitment to impact investing beyond 2016. The agency will continue to allocate roughly $200 million of its $4 billion annual investment authority to Impact SBIC’s investing in underserved areas and sectors of national priority.

The SBA is excited to announce that it has expanded the Impact Fund to continue beyond FY2016 as a feature of the Small Business Investment Company (SBIC) Program. The transition reflects the agency’s commitment to support the growth and development of the country’s impact investing industry. SBA has long played a role in driving capital toward America’s underserved communities and its most innovative sectors. Many of America’s first venture capital funds were SBICs that then funded leading companies such as Apple, FedEx, Costco, and many others. With the Impact Fund, the SBIC Program is seizing another opportunity to foster the development of an emerging and transformative approach to small business financing.

The local impact of this fund is already being felt around the country. For example, Fiber By-Products, a portfolio company of one of our Impact SBIC’s, Michigan Growth Capital Partners, is collecting wood waste otherwise destined for landfills and is instead using it to create premium pellet fuel, animal bedding, and wood mulch. Another Impact SBIC, SJF Ventures III, has invested in Think Through Learning, an education technology company that is providing online instructional systems for schools and students and aiding in the transition many schools are making to the Common Core Curriculum, such as its flagship product, Think Through Math.

The policy changes announced today will make the Impact Investment Fund available to a broader range of investors pursuing positive social, environmental, and economic impact alongside strong financial returns. Whereas SBICs were initially limited to SBA-identified impact investments, participating funds will now have the flexibility to pursue their own Fund-identified strategies. SBA is particularly interested in attracting fund managers with expertise in the national priority sectors of clean energy, education, and advanced manufacturing, which remains key to a sustained economic recovery.

Along with the flexibility of the new Impact Fund comes a renewed focus on measurement. Applicants that chose to pursue their own, Fund-identified investment strategy will need to use a third-party measurement model to assess their environmental, social, and economic impact. SBA is the first federal credit program to incorporate the Global Impact Investing Network’s Impact Reporting and Investment Standards, along with several other best of class metrics, into its investment policy. As the Impact Fund portfolio grows, it will help drive the emergence of impact measurement and reporting standards.

In addition to this expansion, SBA has removed several key barriers that were inhibiting access to the Impact Investment Fund including:

  • Lifting the $200 million restriction to offer licensed Impact SBICs better access to leverage;
  • Removing the waiting period in accessing multiple leverage commitments; and
  • Permitting existing SBICs to opt-in if they meet the Impact Fund requirements.

These changes should create a more inclusive program that embodies the best elements of impact investing – creating jobs, driving recovery, and generating positive impact on a broad range of environmental and social issues.