Venture capital-backed start-ups fear they won’t get relief from small business stimulus
Small businesses are lining up to get help from government loans. But they might not get it if they’ve taken venture capital or private equity money.
A $2 trillion stimulus bill to blunt the economic effect of coronavirus has $350 billion earmarked for loans to businesses with fewer than 500 employees, managed through the Small Business Administration.
Start-ups and their investors fear a so-called “affiliation” rule could prevent access to that safety net. The ruling is on a case-by-case basis and can be triggered if the company has taken money from a private investor.
The Small Business Administration, or SBA, said it considers ownership, management, contractual relationships and minority shareholders. The affiliation rule applies if a venture firm owns half or more of a company’s voting stock. It can also be triggered if multiple firms’ holdings “are large” compared with other stock holdings.
In some cases, even if a start-up has 30 people working there, it could be “affiliated” with the thousands of other employees at its investors’ separate portfolio companies. Therefore, it wouldn’t be eligible for SBA loans.
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