The Securities and Exchange Commission has broadened financing opportunities for small businesses by adopting a rule amendment under the Investment Company Act.

The amendment increases the availability of capital to certain smaller companies that may not have ready access to the public capital markets or other forms of conventional financing.

"Small businesses are the backbone of the U.S. economy," said SEC Chairman Christopher Cox (pictured) in a statement last week. "Today's action will help retail investors broaden their participation in small business financing. That will improve opportunities for investors and small businesses alike, and contribute directly to the health of our nation's capital markets."

Congress in 1980 established business development companies, a type of publicly traded investment company, to help make capital more readily available to small, developing and financially troubled businesses. To accomplish this purpose, the Investment Company Act generally prohibits a BDC from making any investment unless, at the time of the investment, at least 70 percent of its total assets are invested in securities of certain specific types of companies, including "eligible portfolio companies."

The SEC has amended Rule 2a-46 to expand the definition of eligible portfolio company to include any domestic operating company with securities listed on a national securities exchange, if the company has a market capitalization of less than $250 million.

The amendment to Rule 2a-46 will become effective in July 2008. For more information, visit http://www.sec.gov/rules/final/2008/ic-28266.pdf.

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