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Treasury Department releases new guidance rules on SBA Loans

April 3, 2020

April 4, 04:53 pm: This story has been corrected to clarify the new guidance rules on SBA loans. We apologize for the error.

On Friday night, the Treasury Department updated its rules regarding the “affiliation” of private entities to include religious organizations and nonprofits but keep in place the same rules that would deny some startups from receiving loans.

The rule update comes after language in the economic stimulus package signed into law last week left unclear whether some VC-backed startups would be eligible for relief. The $2 trillion CARES Act has earmarked $350 billion for loans to small businesses, to be managed through the Small Business Administration (SBA). To qualify for relief, companies must have fewer than 500 employees.

The program came with guidelines called “affiliation rules.” These rules dictated that companies majority-owned by private equity or venture capital firms must count the employees of other startups in their investors’ portfolios toward their own employee totals.

If a venture firm and its portfolio companies were to be considered affiliates, many would easily surpass the 500-person limit, making them ineligible for SBA loans.

On Tuesday, Speaker of the House Nancy Pelosi and Rep. Ro Khanna sent a letter to Treasury Secretary Steve Mnuchin and Jovita Carranza, head of the SBA, to address the portion of the stimulus package that excludes venture capital-backed startups from being considered a small business.

“Many small businesses in our districts that employ fewer than 500 employees, particularly startup companies with equity investors, have expressed concerns that an overly strict application of the Small Business Administration’s (SBA) affiliation rule may exclude them from eligibility for PPP loans,” wrote the two lawmakers. “For these small businesses, as for many others across America, access to forgivable PPP loans will be critical to preserving jobs during the coronavirus pandemic and to securing America’s leadership in science, technology and innovation.”

Additionally, the Iowa Capital Venture Association, along with more than 100 other organizations across the U.S., sent a similar letter urging the SBA and U.S. Department of the Treasury to include VC-backed startups in the CARES Act.

“Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible,” reads the letter. “The confusion alone could lead to waves of preventable layoffs. These layoffs will also have broad short term downstream economic consequences, including for service-oriented businesses like restaurants, coffee shops, and bars, who rely on these workers as customers.”

Previous coverage

Senate Stimulus: What it would mean for the tech sector -March 27, 2020

State announces assistance for targeted small businesses -March 26, 2020

Iowa launches Small Business Relief Program in response to COVID-19 -March 24, 2020

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Treasury Department releases new guidance rules on SBA Loans | Clay & Milk
A central Iowa ag-tech accelerator has secured more backers and finally has a name. The Greater Des Moines Partnership first announced the accelerator last year, naming four initial investors. On Monday, the Partnership said the program will be called the "Iowa AgriTech Accelerator" and named three new investors. The new investors include Grinnell Mutual, Kent Corp. and Sukup Manufacturing, all Iowa companies. They join investors Deere & Co., Peoples Co., Farmers Mutual Hail Insurance Co. and DuPont Pioneer. Each investor has agreed to put up $100,000 for the first year of the accelerator. Startups entering the program will receive $40,000 in seed funding in exchange for 6 percent equity. Tej Dhawan, an angel investor and local startup mentor, is serving as interim director until the AgriTech Accelerator names a permanent leader. Dhawan held a similar role with the GIA before Brian Hemesath was named as managing director. As interim director, Dhawan said his main job includes hiring the accelerator's executive director, establishing a business structure and initial recruiting for the first cohort. The accelerator will place few filters, such as location and product, on the applicant pool, Dhawan said. "When you’re seeking innovation, innovation can come from every corner of the world so why restrict ourselves," he said. One area the the AgriTech Accelerator won't recruit from is biotech. For its first cohort, the AgriTech Accelerator will work out of the GIA's space in Des Moines' East Village, Dhawan said. A future, permanent home is still to be decided. The accelerator's program will host startups from mid-July through mid-October, ending with an event connected to the annual World Food Prize. The GIA, which the AgriTech Accelerator is based on, also ends with presentations at an industry event. The accelerator has also started lining up a mentor pool. The Iowa Corn Growers Association, Iowa Soybean Association and the Iowa Pork Producers Association have agreed to provide mentors, as has Iowa State University. While the AgriTech Accelerator is loosely based off of the GIA, it will differ in its business structure, Dhawan said. The GIA runs through a for-profit model for both operations and its investment fund. The AgriTech Accelerator will have a nonprofit model for its operations and a for-profit setup for its fund. Dhawan said the nonprofit model is being used so the accelerator can better work with other nonprofit partners, such as trade associations. "These are all organizations that are nonprofits and can be amazing stakeholders without ever having to be investors in the accelerator," he said. "It becomes easier to work with trade associations in their nonprofit role when we are also a nonprofit." When it's up and running, the AgriTech Accelerator would be one of a handful of ag-focused startup development programs in Iowa. Others include the Ag Startup Engine out of Iowa State University and the Rural Ventures Alliance from Iowa MicroLoan. Matthew Patane is the managing editor and co-founder of Clay & Milk. Send him an email at mpatane@clayandmilk.com.
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