Startups backed by venture capital may not qualify for a new $349 billion round of Small Business Association loans, warns PitchBook.
The expansive news site that covers startups and private equity notes that the SBA plan approved by the Senate as part of a $2 trillion coronavirus relief package says “companies backed by private equity and venture capital firms may find them hard to come by.”
The House is expected to approve the bill Friday, and President Trump has said he will sign it.
But PitchBook says there are strings VCs and their portfolio companies may not like.
“There’s a 500-employee cap on companies receiving SBA loans, and portfolio companies owned by PE firms are typically treated as affiliates rather than individual companies when it comes to meeting this threshold. So even individual companies that fall below the 500-person headcount may be disqualified if their owner’s total portfolio exceeds it. Some VC-backed startups may also fall into this category if they and other portfolio companies are considered affiliates under the SBA’s rules,” says Pitchbook.
“The loans also come with plenty of requirements: no stock buybacks, no dividends, no forgiveness and no large layoffs. Cannabis companies are excluded from the SBA loan program.”
