Venture-backed Startups Will be Eligible for Small Business Loans

Venture capital-backed startups will qualify for the $350 billion in small business loans now available to companies affected by the coronavirus pandemic. 

“I just got off the phone with Treasury Secretary Mnuchin and this is going to be solved,” House Minority Leader Kevin McCarthy (R-Calif.) told the Axios Pro Rata Podcast on Thursday.

In its current form, the stimulus package offers payroll tax relief and loans to businesses with 500 or fewer employees, but startups may be ineligible due to rules governing how businesses calculate employees, according to Business Insider.

Small Business Administration’s (SBA) “affiliation rule” requires companies to include workers they employ directly — and those employed by any affiliated companies. The SBA states that a company is affiliated with a second company if the second company owns a controlling stake, 20% or more, in the first company or if an investor owns a controlling stake in both. 

Many Silicon Valley startups have investors, so now Congress is working on a way to ease the affiliation rule in the “next day or two,” per McCarthy. 

The restrictions could easily be lifted for small businesses not controlled by a single outside shareholder, but that means there may still be issues for private equity-owned small businesses. However, McCarthy noted that there may be future legislation to address that need.