The SEC’s Proposed New Rule To Restrict BDC Funding

In December 2015, the Securities and Exchange Commission (SEC) released a proposed rule that could seriously limit access to capital for America’s small and mid-sized businesses.

  • The proposed rule aims to limit the debt-to-equity ratio of higher risk investment companies and protect investors, however it would also apply to Business Development Companies (BDCs).
  • BDCs are operating vehicles that provide loans to small business, such as revolvers, which allow companies to draw and pay on capital as they go.
  • BDCs are congressionally mandated to fund small business. As such, BDCs have become an increasing source of funding for this sector, where access to bank loans and other forms of financing are extremely limited.
  • Since Congress created BDCs in 1980, they have invested more than $70 billion in America’s small businesses.
  • The SEC is aiming to place new restrictions on mutual funds, which are mostly investors in securities. By including BDCs, the SEC could inadvertently restrict access to more than $70 billion in loans for small businesses and place unnecessary pressure on other types of lending.
  • The SEC should modify the language in the new rule to exclude BDCs and protect the economic future of Main Street America.