Startup advocates worry venture-backed companies that got money under the $670 billion small-business loan program are going to have to give it back
Advocates of startups are worried that new guidelines issued by Small Business Administration may have retroactively disqualified many businesses from the small-business loan program Congress enacted as part of its $2 trillion coronavirus aid package.
Many startups applied for the loans, which the SBA has promised to forgive if the money is used for payroll, rent, and other basic expenses.
The revised rules advise companies that when certifying they need the loans, they need to consider whether they have access to other sources of cash, potentially including money from their venture or other investors; previously, companies only had to certify they needed the funds due to the "current economic uncertainty."
Some startups are already giving back the money they received under the program, and attorneys that represent venture firms and venture-backed companies say many more may do so.
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Startup founders and venture capitalists have a new reason to worry about the small business loans the federal government is handing out as part of its coronavirus relief effort.
Over the last two weeks, the Small Business Administration, which is overseeing the program, has issued new rules and guidelines governing it, which may effectively retroactively disqualify some startups from participating in the program, startup advocates told Business Insider.
Some companies are already giving back money they received under the program in response to the new rules after applying for them, thinking they were eligible under the then-current guidelines and after being encouraged to do so by Treasury Secretary Steve Mnuchin, said Ed Zimmerman, chair of the tech group at the law firm Lowenstein Sandler.
The SBA and the Treasury Department, under which it operates, have "really muddied the water" with the new rules, Zimmerman said. "They said, 'Come and get it while it's hot.' And then right after you were bringing your plates to the sink, they said, 'By the way, there might have been a little poison in that hot dog.'"
"So what are you supposed to do now?" Zimmerman continued. "Stick your finger down your throat?"
The $2 trillion stimulus package Congress passed in March earmarked $349 billion for the SBA to hand out in loans to small businesses that were struggling to make ends meet due to the coronavirus crisis. If the companies used the loans to pay their payrolls and things like rent and utilities, the SBA promised to forgive them. After the initiative, dubbed the Paycheck Protection Program, ran out of money, Congress last month refilled it with another $320 billion .
Numerous startups applied for and received loans under the program. Of Bullpen Capital's 60 portfolio companies, for example, more than half applied for PPP loans , partner Duncan Davidson told Business Insider.
Shake Shack drew criticism for getting a loan...