While the $2T CARES package approved by Congress and the White House makes a great deal of money available to small businesses in the form of forgivable loans, whether companies who have taken VC will be able to take part remains unclear. Currently, under Small Business Administration rules, the 7(a) loans are only available to companies with less than 500 employees, which sounds reasonable enough until one notices that companies will have to count as their own all of the employees from all other companies that also received capital from their investor. While this seems to immediately exclude, well, pretty much all startups, at least Fred Wilson does not think that Congress intentionally wrote the law this way. The hope that is simply an oversight has mobilized many in the startup community to lobby for alterations, including the National Venture Capital Association - in addition to representatives of funds, and investors themselves - which recently sent a letter to Treasury Secretary Steve Mnuchin.
In any case, the loans are intended to protect jobs, max out at the lesser of $10M or 2.5x monthly payroll, and have forgiveness penalties based on a company’s decision to reduce salaries 25% or more, or substantially lay off full-time employees. They require no collateral, which differentiates them from the other option in the CARES act, known as Economic Injury Disaster Loans. These are available only to sole contractors/proprietors unable to find funding elsewhere and require a personal guarantee of $200K if made at sums above $200K, which could certainly keep many startups away. According to Forbes, a $10K grant provided for in the act can also be forgiven if spent on things like payroll, maternity leave, etc. They, of course, also fall under the restrictions of affiliation.
Content courtesy of Inside Venture Capital and Techcrunch read the full article here: Amid Startup Concerns