MCB Accounting Blog

SBIC Debenture Coupon Rates at Historic Low of 2.766%

On March 22, 2012, the SBIC Funding Corporation completed pooling of SBA debentures with a historically low coupon rate of 2.766%. This is the lowest pricing of SBA-pooled debentures in more than 50 years of the SBA program.

The pricing of the pool is a critical component of the cost of funds used by SBIC Funds. Once the SBA debentures are pooled, the interest rate on them becomes fixed for 10 years. The SBIC Fund is responsible only for semiannual interest-only payments until the SBA debentures are repaid.  SBA debentures must be repaid within 10 years. However, there are no prepayment penalties.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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SEC Increases Scrutiny of Private Equity Industry

The SEC has increased its scrutiny of the private equity industry over concern that some private equity funds might overstate the value of their portfolios to attract investors for future funds. The industry historically has received minimal attention from federal lawmakers, in part because private equity clients--typically pension funds and the investment arms of foreign governments--are considered to be more sophisticated than average investors.  The inquiry is also a result of the attention brought to the industry by the presidential campaign of Mitt Romney, who earned his fortune running Bain Capital, one of the world's largest private equity firms.

The industry also drew heightened interest during the buyout boom of the last decade, as firms backed by loans from flush banks acquired major American companies.  The favorable tax treatment that private equity executives receive on a large portion of their compensation came under attack. In addition, the Justice Department began investigating whether the world's largest private equity firms colluded to drive down the prices of acquisitions that they teamed up on.

Under the Dodd-Frank financial reform law, most private equity firms must register with the SEC by the end of March 2012.  The SEC already oversees many firms. The industry is large, with several thousand firms and more than $1 trillion in assets under management.

Industry critics argue that private equity's core investment strategy--taking on large amounts of debt to buy companies--too often results in bankruptcies and job losses. Private equity officials counter that their acquisitions drive economic growth and make companies more competitive. They also note that they deliver superior investment returns to clients.

The SEC's inquiry is focusing on more narrow issues such as firms' fee structures and how they value investments.  Valuation involves varying, complex methodologies that often involve subjective judgments. Because there are no easily ascertainable market prices for private companies, valuation can be a risk factor. Funds argue that they are rigorous in the valuation processes. Many use independent financial advisory firms that specialize in portfolio valuation.

Click here to view the complete NewYorkTimes.com article.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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Bipartisan Support Could Yield More Venture Capital

Senate Republicans and Democrats have joined together to introduce legislation expanding the Small Business Administration's (SBA's) venture capital program. The bill would increase the amount of debt the SBA could guarantee for small business investment companies (SBICs) from $3 billion to $4 billion.  SBICs are privately owned fund that are licensed by the SBA.  They raise private capital to go along with money borrowed from the SBA. They then invest this money in small businesses. 

Other proposed legislation includes bills designed to make it easier for startups and early-stage companies to raise capital. These measures include "crowdfunding" on the Internet and letting companies raise up to $50 million in stock without registering with the Securities and Exchange Commission. These bills have been repackaged with four other measures in to the JOBS Act, which stands for Jumpstart Our Business Startups.  This legislation would encourage more companies to go public by phasing in SEC regulations during the first five years after an initial public offering.

Click here to view the complete Portfolio.com article.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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Midwest Private Equity Conference, May 3-4, Chicago

MCB is a Proud Sponsor of The Midwest Private Equity Conference, May 3-4, 2012, at the Ritz Carlton-Water Tower, Chicago:  The Midwest Private Equity Conference brings together middle market practitioners to facilitate deal flow. Along with being a forum for networking, the Conference includes updates on regulatory and legislative issues impacting middle market funds and panel discussions on how to make your funds function more effectively with advice on fundraising, management of funds, and deal trends.

Click here for more information.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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Southern Private Equity Conference, May 23-24, Nashville

MCB is a Proud Sponsor of The Southern Private Equity Conference, May 23-24, 2012, at the Hermitage, Nashville: The Southern Private Equity Conference brings together middle market practitioners to facilitate deal flow. Along with being a forum for networking, the Conference includes updates on regulatory and legislative issues impacting middle market funds and panel discussions on how to make your funds function more effectively with advice on fundraising, management of funds, and deal trends.

Click here for more information.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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New SBA Annual Financial Reporting Requirements

On February 10, 2012, the Small Business Administration (SBA) issued their Annual Year-end Financial Reporting Requirements letter for Small Business Investment Companies (SBICs).  MCB has summarized below the most significant information.

SBA Web-Based Reporting Update
The SBA is developing a new Web-based reporting system for SBICs that will replace the current Access-based reporting software.  The SBA reports the first phase of the new system, which includes SBA Forms 1031 and 468, has been completed and is being tested.  The SBA will be sending out a memo with additional information about this project.  MCB expects the new system to be rolled out no later than Q2 2012.

Schedule 8 and 9 Submission Revisions
The SBA has indicated that, based on feedback received from many SBICs and their service providers, SBA has limited the supplemental information that must be provided to selected information from Schedule 8 only (see Attachment section below), with the Schedule 9 reporting requirements deferred until further notice. View an updated list of Schedule 8 and 9 FAQ's.  Note:  Since all of the information on the Schedule 8 and 9 is not yet required to be filed, the Economic Data schedule is once again required.  The Schedule of Participations and Joint Financings may be omitted.

Filing Requirements--SBA Form 468
Annual SBA Form 468 is due March 31, 2012.  A complete filing of the annual SBA Form 468 consists of:

  • the SBA From 468 data files created by the electronic reporting software; 
  • two printed sets of audited SBA Form 468 financial statements and the supplementary schedules including:
    i. the notes to financial statements,
    ii. the Independent Auditor's Report,
    iii. two copies of the Operating Plan Update narrative; 
  • the valuation reports you prepare internally to support the valuations shown on Form 468 for each portfolio company;
  • Schedule 8, Portfolio Company Information, including capitalization tables and liquidation preferences, in the SBIC's own format;
  • The Economic Data schedule, which may be filed separately, but due no later than May 31, 2012 (this requirement was originally dropped, but reinstated with the changes to the Schedule 8 and 9 reporting requirements);
  • If you are a Participating Securities fund, the Participating Securities Distribution Worksheet must also be submitted.  Any required distributions calculated on this form must be paid by May 1, 2012.  

Send the paper copies of the Form 468 to the following address:  

U.S. Small Business Administration
Office of Investment
Attention:  Antoinette Shingler
409 3rd Street SW, Suite 6300 Washington, DC  20416

Transmit the SBA Form 468 data files created by the electronic reporting package to the Office of Investment by diskette or by electronic mail to sbic@sba.gov. The SBA would appreciate the Form 468 in PDF format as well, but it is not a requirement.

Conduct of the Annual Audit
Confirmations:  For Licensees with SBA leverage, the SBA's independent auditors require that SBA confirm a Licensee's outstanding balance.  To expedite this request, mail your outstanding balance confirmation to the following address:  

U.S. Small Business Administration
Attention:  Mia McCutcheon
Denver Finance Center, Room 322
Denver, CO 80259

Accounting Matters-General
Reporting Valuations on SBA Form 468.  SBA does not follow fair value measurement as prescribed by Generally Accepted Accounting Principles (GAAP).  The framework for fair value measurements under GAAP is found in Accounting Standards Committee Topic 820, "Fair Value Measurements and Disclosures" (ASC 820), formerly FAS 157, "Fair Value Measurements."  SBA has not adopted ASC 820 for reporting valuations on SBA Form 468, and Licensees are not required to include valuation disclosures as required by ASC 820 in the footnotes to their SBA Form 468 financial statements. 

SBICs must report portfolio valuations in accordance with the fund's valuation policy, which should mirror the SBA valuation guidelines found in SBA Standard Operating Procedure 10 06A,  Appendix 15,  "Valuation Guidelines for Small Business Investment Companies"  and SBIC Technote 12, "Guidelines Concerning Valuation Issues."

Participating Securities Distribution Worksheet
For Participating Securities funds, submission of the Participating Securities Distribution Worksheet is also an annual filing requirement.  If you have ever issued Participating Securities, complete and submit the Participating Securities Distribution Worksheet in addition to your SBA Form 468. 

SBA Letter, Schedule 8 Instructions and other SBA Attachments
Please click the Download button in the footer of this posting to view the entire SBA letter with Attachments including Form 468 Schedule 8 Instructions.

MCB has over 50 years of experience serving SBICs with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.


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March 8th NYC Masterclass - Best Practices for Launching & Managing an SBIC

Matthews Carter & Boyce would like to extend an invitation to you to attend The Capital Roundtable's conference on Best Practices for Launching & Managing an SBIC, being held on Thursday, March 8 in New York City.  

Our very own Matt Dwyer, will be a panelist at the March 8 Session "Managing an SBIC -- Due-Diligence on Targets & Overseeing the Portfolio & Back Office".  He will be joined by 20 other SBIC industry experts at the conference.

As a sponsor, we have the privilege to put your name on our VIP list, allowing you to register for a special rate of $995 -- $400 off the standard registration price. 

We also encourage you to attend the afternoon pre-conference Workshop the day before on Wednesday, March 7 -- Launching a New SBIC -- The Basics & the Nuances, led by Mike Staebler of Pepper Hamilton.  The special rate for both the conference and the workshop is $1295.

For registration or inquiries, call Anna Fagan at 212-832-7300, or email afagan@capitalroundtable.com.  Please be sure to mention that Matt Dwyer from Matthews, Carter & Boyce referred you for the discounted rates.

For more details click here. 

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Western Private Equity Conference, April 18th, Los Angeles

MCB is a Proud Sponsor of The Western Private Equity Conference, Wednesday, April 18, 2012, at the InterContinental Los Angeles Century City, Los Angeles:  The Western Private Equity Conference brings together middle market practitioners to facilitate deal flow. Along with being a forum for networking, the Conference includes updates on regulatory and legislative issues impacting middle market funds and panel discussions on how to make your funds function more effectively with advice on fundraising, management of funds, and deal trends.

Click here for more information.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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Capital Gains Tax Exemption Could Be Good for Startups

Eliminating capital gains taxes on investments in startups could help these companies raise up to an additional $7.5 billion over ten years, according to an analysis by the Kauffman Foundation, which specializes in entrepreneurship. This report is timely because there is legislation pending in Congress that would permanently eliminate capital gains taxes on investments in C corporations with less than $50 million in assets.

Kauffman's estimate of how much additional investment this tax break would generate is based on how much money venture capitalists, angel investors and entrepreneurs themselves currently invest in startups. In 2010, that amount was around $10 billion. Exempting these investments from the current 15 percent capital gains tax rate should lead to a 7.5 percent increase in total investments in startups.

Measures that would lead to more investment in startups should lead to the launch of more high-growth firms and boost the odds that they will reach the growth phase and create jobs. This growth is key because startups contribute the vast majority of net new jobs created in the U.S. economy.

Until 2009, taxpayers could exclude 50 percent of their gains from the sale of stock in qualified small businesses from capital gains taxes.  This amount was increased temporarily to 75 percent, then additional  legislation raised it to 100 percent for stock in qualified small businesses acquired before the end of 2011.  This small business stock must be held for five years in order to qualify for the tax break, making it hard to tell how much additional investment was generated.

President Obama has proposed additional enhancements to make these investments even more attractive: making the capital gains tax break exempt from the alternative minimum tax and giving investors six months to roll over their gains into new investments in small businesses.

Click here for the complete Portfolio.com article.

MCB has over 40 years of experience serving Private Equity and Venture Capitalists with accounting, tax, audit, due diligence and consulting services. Contact Matt Dwyer at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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SBA Lending Returns to Pre-Boom Levels

A steady flow of new loans backed by the Small Business Administration in the Washington area is helping some institutions return to the pace of lending that was common in the pre-boom years.

Through the three months ended Dec. 31, 2011, the start of the agency's 2012 fiscal year, 126 loans totaling $43.4 million were made to local mom-and-pop shops, comparable to loans issued during the early 2000s, according to the SBA. 

Compared with the high loan volume between October 2010 and December 2010, the most recent figures seem low. During that period, 237 loans worth $93.6 million were doled out to area small businesses. In those days, however, borrowers flocked to lenders to take advantage of fee waivers before they expired under the terms of the Small Business Jobs Act of 2010.

"We had a flurry of activity as those waivers were wearing off," said Sally Robertson, President of Business Finance Group, a Fairfax-based certified development company, and MCB client, that manages SBA 504 loans, which fund fixed assets such as equipment and real estate. 

Business Finance Group closed 13 SBA-backed loans totaling $5.6 million in the three months ending December 2011, a 64.3 percent drop in money from the same period a year earlier. As steep as the decline may be, Robertson said the current activity is more in line with historic norms.

"Activity is good; we're seeing that businesses are climbing out of the recession," she said. "Financials are improving and businesses are looking at the opportunity to grow, where they might not have considered it three years ago."

Business Finance Group is a client of Matthews, Carter & Boyce and remains one of the most active lenders in the region, ranking third based on the number of loans it made in the first quarter of the fiscal year.

Read the full article from The Washington Post Capital Business Section.

MCB has over 50 years of experience working with investment companies, government contractors and closely held businesses with SBA loan accounting and compliance needs.  Contact an MCB Adviser today at 703.218.3600 to start building a relationship with a CPA firm who strives to earn your RESPECT and CONFIDENCE as a TRUSTED business adviser.

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