BDC Reform Bill Clears House, Next Stop: Senate
Legislation Aims to Fix Unintended Consequences of Fee Disclosure Rule for Business Development Companies
WASHINGTON, DC (June 23, 2025) – The Small Business Investor Alliance, the premier association representing Business Development Companies (BDCs) and lower middle market private equity and its investors, today applauded unanimous House passage of the “Access to Small Business Investor Capital Act” (H.R. 2225), sponsored by U.S. Representatives Brad Sherman (D-CA), Bill Huizenga (R-MI), Janelle Bynum (D-OR), and Andrew Garbarino (R-NY). The bill will expand access to capital for small and mid-size American businesses by encouraging stronger institutional investment in BDCs.
"Business Development Companies are a critical source of growth capital for small and mid-size businesses across the country," said SBIA President Brett Palmer. "This commonsense fix removes an artificial hurdle to institutional investment in BDCs while ensuring that investors receive clear, accurate financial information. SBIA thanks Representatives Sherman, Huizenga, Bynum, and Garbarino for their leadership and the entire House for its support. We look forward to working with the Senate to get the bill to President Trump’s desk.”
The Access to Small Business Investor Capital Act corrects a misleading U.S. Securities and Exchange Commission disclosure requirement that overstates the actual costs of investment in BDCs. The bill will exempt funds that invest in BDCs from including the acquired fund fees and expenses (AFFE) calculation in the prospectus fee table, providing more accurate information for investors.
BDCs are a vital funding source for middle market businesses nationwide. Required by law to invest at least 70% of their assets in private U.S. companies — though most invest closer to 95% — BDCs help support job creation and economic growth while offering retail investors opportunities to participate in the upside of American entrepreneurship.
Companion legislation has been introduced in the Senate by U.S. Senators Dave McCormick (R-PA) and Angela Alsobrooks (D-MD).
Background on AFFE
- Given the capital and personnel-intensive nature of actively sourcing and managing a portfolio of smaller private investments, BDC operating expenses are naturally higher than, for example, passive index funds. However, these expenses are already reflected in a BDC’s quarterly reported net asset value (NAV) and thus ultimately reflected in its trading price.
- Requiring funds to report BDC expenses again under the current AFFE disclosure requirements results in a double counting of BDC expenses that artificially inflates acquiring fund expense ratios.
- Between 2006 and 2014, the BDC industry experienced dramatic growth, magnifying the impact of the AFFE rule. As a result, the MSCI, Russell and S&P indices removed BDCs from their indices in 2014, which precipitated a 25 percent decrease in institutional investment (primarily by index funds) in BDCs. Between 2014 and 2018 there was another 13 percent drop in institutional investors in the BDC space.
- Several unintended consequences of the current AFFE disclosure requirements for acquiring funds have proven harmful to retail investors: fewer analysts cover BDCs, reducing publicly available information for retail investors; reduced institutional ownership of BDCs denies retail investors the benefit of corporate governance oversight provided by sophisticated institutional investors; and, finally, reduced trading volume and liquidity of BDC shares increases the cost of capital for middle market businesses.
Read SBIA's letter of support >
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About the Small Business Investor Alliance
The Small Business Investor Alliance (SBIA) is the national association representing Business Development Companies (BDCs) and lower middle market private equity funds and investors. SBIA works on behalf of its members as a tireless advocate for policies that promote competitive markets and robust domestic investment for growing small businesses. SBIA has been playing a pivotal role in promoting the growth and vitality of the private equity industry for over 65 years. For more information, visit www.SBIA.org or call (202) 628-5055.
