Pelosi and Khanna appeal to Treasury Secretary Steve Mnuchin and Jovita Carranza, head of the Small Business Administration (SBA).

Hundreds of small businesses backed by venture capital finance may not be eligible for the relief available in the Paycheck Protection Program (PPP), a part of the $2 trillion CARES Act coronavirus stimulus package. They would be denied even if the number of their employees is less than the qualifying limit of 500. Speaker of the House Nancy Pelosi (D-Cal.) and Rep. Ro Khanna (D-Cal.) wrote to Treasury Secretary Steve Mnuchin and Jovita Carranza, head of the Small Business Administration (SBA) to correct this anomaly. (Law|Street)

A strict application of SBA’s affiliation rules will harm small businesses

At the root of the problem is the SBA’s affiliation rule. Under this rule, a business may have to count all of the employees at every other company backed by their investors. The individual business could find itself above the employee size threshold if the aggregate of these numbers exceeds 500.

That would put the aid package under the CARES Act out of its reach.

“As the Administration crafts guidance to implement the small business assistance Paycheck Protection Program (PPP) as part of the recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act, we urge you to exercise the appropriate discretion under the law to secure coverage for as many small businesses under 500 employees as possible,” wrote Pelosi and Khanna.

In their letter, Pelosi and Khanna stressed the importance of PPP assistance for startups to survive and preserve jobs.

“From clean technology to sustainable agriculture to biotechnology, startups create high-paying jobs and make important contributions to America’s economy.”

Call to action

Therefore, they suggested against “an overly strict application of the Small Business Administration’s (SBA) affiliation rule.”

They further wrote:  “PPP loans as provided for under the CARES Act are designed to help small businesses cover their payroll costs and other key expenses through the coronavirus crisis.”

They further urged the Treasury and the SBA to issue guidance as expeditiously as possible. This would allow the nation’s startups access to a critical source of credit in the coming months.

NVCA guidance

Though the lobbying on their behalf by Pelosi and Khanna raises hopes for small, venture-backed businesses, they may do well to refer to the National Venture Capital Association’s guidance on the subject of the SBA’s affiliation rule.

Related Story:   Venture Capital: VC-backed Small Businesses May Get Short Shrift from the SBA in Stimulus Relief