After Congressman Tim Ryan’s urging, venture capital backed start-ups will now be eligible for coronavirus relief loans through the Paycheck
Youngstown, Ohio – After Congressman Tim Ryan’s urging, venture capital backed start-ups will now be eligible for coronavirus relief loans through the Paycheck Protection Program passed under the $2 trillion CARES Act, which became law last week. Today, Treasury Secretary Mnuchin released new guidelines for the Paycheck Protection Program loan eligibility to allow small businesses not controlled by a single outside shareholder to be eligible.
“Today's announcement is a major win for small businesses across the country. Just last year, 2.3 million jobs were created across the nation by startups, and 98 percent of which have fewer than 100 employees. I am thankful that the Trump Administration heeded our advice and allowed start-ups to access this important loan program,” said Congressman Tim Ryan.
The problem stems from the SBA’s definition of “small business” in light of the way that many startups in America are financed – through equity investment provided by venture capital firms, which typically make investments in a portfolio of young businesses, understanding that many will fail while a few will survive and thrive. To be eligible for the relief and support provided by the CARES Act – particularly access to the SBA’s 7(a) loan program – business must meet the definition of small business, which the SBA defines as having fewer than 500 employees. As part of that definition, the SBA applies an “affiliation rule,” requiring companies to include in their employee count all the employees of companies with which they are “affiliated.” Because venture capital firms typically invest in a number of young companies simultaneously, the affiliation rule would require venture-backed startups to aggregate the employees of all the unrelated companies in which their investors have equity positions, pushing many beyond the 500-employee threshold.
Earlier today, Ryan joined 55 Members of Congress in sending a letter to U.S. Treasury Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza to urge the Trump Administration to make these small businesses eligible. Read the full letter here.
Congressman Ryan is also an original cosponsor of the New Business Preservation Act which would create a program at the Treasury Department that will partner with states to invest alongside private venture capital companies in new businesses in areas of the country that do not currently attract significant equity investment. This bill would help increase investment in startup businesses in under-resourced regions of the country.