New SBIC Rules Cut Borrowing Limits to $200M, Push Investment into Rural Tech and Manufacturing

The “Investing in All of America Act of 2025” is making some serious changes to how Small Business Investment Companies (SBICs)—the private funds that use government-backed leverage to invest in small businesses—are allowed to operate. Think of this as the government updating the risk profile for those funds while simultaneously trying to steer their focus toward specific economic goals.

The New Rules of the Road for SBIC Borrowing

The biggest change hitting the financial side is a cut in the maximum amount of leverage (borrowing) a standard SBIC can take on. Currently, they can borrow up to $300 million; this bill drops that limit down to $200 million (Sec. 2(A)(i)). This is a significant decrease that essentially limits the size of the fund they can build using government backing. For many established SBICs, this means less capital available to deploy for lending or investing in small businesses overall. However, the bill creates new tiers based on how often the fund pays interest, with some getting slightly higher caps ($250 million for quarterly/semiannual payers).

In a move that tightens the screws on funding sources, the bill also clarifies that money coming directly or indirectly from any Federal, State, or local government or agency generally will not count toward an SBIC’s capital when calculating how much they can borrow (Sec. 2, Updating Definitions). If an SBIC relies on public funds—say, a state pension fund or a local economic development agency—to meet its capital requirements, it might suddenly find its ability to leverage that capital restricted. This pushes SBICs to rely more heavily on purely private dollars, which could make it harder for some funds focused on underserved markets to raise capital.

Incentives for Rural and Tech Investment

While the bill tightens the general borrowing limits, it simultaneously creates a major incentive to invest in specific areas. The law allows SBICs to exclude certain investments from their leverage calculations, essentially allowing them to borrow more overall if they focus their dollars correctly. This exclusion is being expanded to cover investments in:

1. Small businesses located in a low-income geographic area or a rural area.
2. Small businesses primarily operating in a critical technology category.
3. Small manufacturers.

This exclusion is capped at the lesser of 50 percent of the company’s capital or $125 million (Sec. 2, Calculation Changes). What this means in practice is that the government is offering a regulatory bonus for SBICs that focus on these targeted areas. If you’re a small manufacturer looking to expand in a rural community, this bill makes your business a much more attractive target for SBIC investment than before. This provision is clearly aimed at driving capital toward places and industries the government deems strategically important.

The Real-World Trade-Off

This legislation presents a clear trade-off. On one hand, it lowers the general risk profile of the SBIC program by reducing the maximum leverage available to standard funds. This might be seen as a responsible financial move, but it also shrinks the total pool of government-backed capital available for general small business investment. On the other hand, it creates a powerful financial incentive—the leverage exclusion—to direct significant capital toward rural tech and manufacturing businesses. For a tech startup based in a low-income area, this could be a huge win, potentially unlocking a new source of funding.

However, the reduced maximum leverage limit will be felt by the larger, more established SBICs that relied on the $300 million cap. They will have to adjust their fundraising and investment strategies. Meanwhile, the Administrator of the Small Business Administration gets increased authority to police the source of an SBIC’s capital, deciding which government funds count and which don’t. This increased discretion, while perhaps intended to ensure private investment, adds a layer of complexity and potential uncertainty to how SBICs structure their funds.