“Investing in All of America Act” Expands SBIC Leverage Caps and Incentives for Critical Technology Investment
President Donald J. Trump signed the Investing in All of America Act (IAAA) into law on Tuesday, May 19, 2026, delivering a significant boost to one of the most important federal programs in the private capital ecosystem – the Small Business Investment Company (SBIC) program.
Passed by voice vote in the U.S. House of Representatives in December 2025 and by unanimous consent in the U.S. Senate in April 2026 with bipartisan sponsorship, the law expands SBIC program capacity by increasing core leverage caps for SBICs, broadening the scope of “bonus leverage” across several key sectors and geographies and facilitating investment from public colleges and universities.
The SBIC program was enacted in 1958 through the Small Business Investment Act of 1958 (the SBIC Act) and is designed to enhance capital deployed to American small businesses.[1] SBICs are administered by the U.S. Small Business Administration (SBA).
Most notably, the law increases SBIC statutory leverage caps – from $175 million to $250 million for an individual SBIC fund and from $350 million to $475 million for a family of affiliated SBIC funds. The increase represents the first expansion of SBIC leverage caps in more than a decade, following the prior statutory expansion in 2015.
The IAAA arrives as the SBIC program has reached record scale with $53 billion in combined private capital and SBA-backed leverage in FY 2025, an increase from $46 billion in FY 2024. It also follows the most significant modernization of SBIC regulations in a quarter-century. In 2023, the SBA adopted wide-ranging reforms that overhauled and updated the licensing process and introduced a new accrual debenture instrument designed to facilitate longer-duration and more equity-oriented investments (as compared to the standard debenture). In particular, since 2023, the SBA has partnered with the U.S. Department of Defense (Department of War) through the Office of Strategic Capital (OSC) to administer an accrual debenture-based SBIC Critical Technologies initiative (SBIC-CT) aimed at increasing private investment in domestic sectors viewed as strategically important to U.S. national and economic security.
Taken together, the IAAA reflects a continuing bipartisan policy trend of channeling private capital toward strategic domestic priorities through government-supported investment structures, including manufacturing, supply-chain resilience, rural and low-income investment, and critical technologies.
Key Takeaways
1. Higher Leverage Limits
The nominal increase in statutory leverage caps, to $250 million for a single SBIC fund and to $475 million for a family of SBIC funds, roughly tracks to the inflation rate since 2015. Notably, the increase applies only to standard debenture SBICs and not to accrual debenture SBICs, which remain subject to the $175 million and $350 million caps, respectively.
The law also reduces the maximum statutory leverage ratio from 300% to 200%. In practice, however, standard debenture SBICs have traditionally been licensed to permit a 200% debt-to-equity ratio, so the law’s change codifies existing SBA practice.[2] Accrual debenture SBICs are permitted to draw leverage at a lower 125% debt-to-equity ratio.
2. Expanded Bonus Leverage
Previously, an SBIC could exclude certain equity investments in smaller enterprises in low-income communities as “bonus leverage,” thereby effectively allowing SBICs to exceed the statutory caps (up to 50% of the SBIC’s private capital, i.e. essentially its equity capital).
The IAAA expands the ability of SBICs to take advantage of this bonus leverage by (i) eliminating the prior requirement that such bonus leverage be deployed into equity investments, (ii) applying the bonus leverage exclusion to the “family of funds” cap as well as the individual SBIC cap and (iii) expanding the list of categories for which such bonus leverage is eligible. In addition to low-income geographic areas, bonus leverage will now be available for rural areas, businesses operating in critical technology areas and small manufacturers. Notably, this provision of the law applies to accrual debenture SBICs as well as standard debenture SBICs.
The IAAA retains a cap on bonus leverage – the lesser of 50% of private capital or $125 million. In addition, each SBIC is still subject to the overall 2:1 leverage ratio limitation.
3. Investment from Public Colleges and Universities
Although private capital generally includes the private capital commitments and capital contributions of equity investors, the technical definition of “private capital” in 13 CFR Section 107.230 technically excludes certain additional sources of capital, including borrowed funds and funding obtained (directly or indirectly) from any federal government agency or instrumentality.[3] The technical definition of “private capital,” however, permitted the inclusion of funds obtained from U.S. state or local government agencies or instrumentalities so long as such amounts do not exceed 33% of overall private capital. Additional restrictions also applied to such “qualified non-private funds,” including that investors of qualified non-private funds are not permitted to control an SBIC’s management. Traditionally, this limitation has captured public university endowments as instrumentalities of state governments.
The IAAA amends the SBIC Act to add foundations, endowments and trusts of colleges and universities to those entities whose investments are excluded from this general exclusion of government funding in an SBIC’s private capital. As a result, public college and university endowment investments will no longer be subject to the 33% cap and, therefore, SBIC fund sponsors will no longer be subject to the prior constraints in fundraising from such endowments.
4. Conclusion
Shulman Rogers routinely advises investment advisers and clients that engage in many SBA programs and invest in many small businesses. Existing and prospective fund sponsors may wish to revisit whether SBIC structures, including standard debenture and accrual debenture products, have become comparatively more attractive in light of expanded leverage capacity and increasing federal emphasis on manufacturing, critical technologies and domestic investment. We continue to monitor regulatory developments generally.
More Information
The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact Kevin Lees, Scott Museles, Kimberly Mann, or the Shulman Rogers attorney with whom you regularly work.
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[1] While the definition of “small business” is complicated, a small business may qualify under SBIC regulations under either of a financial test or an industry test. The more bright-line financial test defines small businesses as those that have (i) a tangible net worth of $24 million or less as of the prior fiscal quarter and (ii) average after-tax net income of $8 million or less for the prior two completed fiscal years. SBICs must invest at least 25% of their financings in “smaller enterprises” that meet a lower-threshold version of the financial test ($6 million net worth or less and after-tax net income of $2 million or less).
[2] In practice, a standard debenture SBIC must raise $87.5 million in equity to take advantage of the full 2:1 leverage ratio to deploy $175 million in SBA leverage. Under the new law, a standard debenture SBIC must now raise $125 million to take advantage of the 2:1 leverage ratio to deploy $250 million in SBA leverage. Leverage is approved after a lengthy licensing process whereby SBIC applicants provide comprehensive background information to SBA through submission of the Management Assessment Questionnaire (MAQ); if, following an interview with SBA’s investment committee, the applicants are provided a “green light letter” inviting them to proceed to file a full application for licensure that follows the SBIC’s initial equity closing.
[3] In the SBIC regulatory taxonomy, “private capital” is the basis for calculating “regulatory capital” under 13 CFR Section 107.50, which will generally equal an SBIC’s private capital (subject to SBA’s discretion to exclude amounts if the SBA determines that collectability is questionable; SBA may, for example, exclude certain non-US equity from an SBIC’s regulatory capital). Many of the SBIC regulatory thresholds are based upon the SBIC’s regulatory capital, including the calculation of the SBIC’s management fee, organizational expenses and the waterfall by which SBIC managers may make distributions of “retained earnings available for distribution” (READ) alongside leverage repayment.
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