Foes have argued that BDCs should lower their expenses and fees, which can go to almost 15 percent of an initial investment, to attract more inflows, but Palmer says that this is best achieved by easing some of the regulatory restrictions.

"There are some efficiencies of scales that BDCs could take advantage of if they could go to a 2:1 ratio," Palmer says. "There have already been a number of traded BDCs who have lowered their fees, and I would expect to see that broaden if they were able to get bigger."

Facing a legislative calendar shortened by the election cycle and major parties reluctant to pass any legislation for fear of political blowback, Palmer is still confident that the SBIA, an industry group representing over half of the BDCs and small business investment companies in the U.S., will prevail in 2016.

“One of the things that makes our strategy effective is that we try to win the argument before we win the vote,” Palmer says. “In the current regulatory environment, policy makers are concerned about banks, private equity and investing in general, so we make a straight-and-narrow case that people can get behind and agree to.”

Late last year, the bill passed the House Financial Services Committee by a bipartisan 53-4 vote. To encourage consensus on the bill, a number of investor protections were added, including a provision that BDCs would need board or shareholder approval before increasing their leverage ratio.

“In the last Congress, it passed committee in a vote that was along party lines, and then the clock ran out before it was voted on by the entire House,” Palmer says. “This year, we even got Maxine Waters’ support for our bill, which is a nice improvement.”

Waters, a representative from California and a staunch liberal, is the Democratic Party’s ranking member on the House Financial Services Committee. The bill’s passage faces some opposition from regulators, including SEC Chairwoman Mary Jo White, who panned the proposal in testimony to the committee last year. White was particularly alarmed at a provision that would allow BDCs to invest in small financial firms, like RIAs, explaining that conflicts of interest could arise in some scenarios.

But according to Palmer: “Entity-owned investment advisors already exist, and they get exemptive relief from the SEC to do it. … In any case, we feel it’s better to have some consistency so that investors know what they’re getting.”

As part of last year’s budgetary process, Palmer and the his association won a few legislative battles as Congress increased the capital gains exclusions for SBICs and BDCs and made permanent a foreign investor withholding exemption for BDCs.

Modernizing BDC regulations could provide some much needed stimulus in the heart of the American economy, says Palmer.