Startups Nationwide to See Job Losses Absent Urgent SBA Rule Fix
MARCH 30, 2020/BY DEVIN MILLER
126 pro-startup groups representing 39 states urge Trump Administration to save startup jobs by fixing SBA rule
FOR IMMEDIATE RELEASE
March 29, 2020
Contact: Cassie Ann Hodges
WASHINGTON, DC – TechNet and the National Venture Capital Association today led 126 local, state, regional, and national groups representing 39 states across the country in urging the Trump Administration to ensure startups and their workers are eligible for the emergency relief loan program included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The full letter and list of signatories is below and is available as a PDF here. The groups sent a letter to the Administration this afternoon regarding startups with equity investors being forced to potentially count employees from unrelated companies as their own employees – pushing startups over the 500-employee threshold that is used to determine eligibility for the loan program, under the Small Business Administration’s (SBA) Affiliation Rules.
In 2019, 2.27 million Americans worked at startups. According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees. Without access to this loan program, some of these startups could face preventable layoffs and be forced to shut down research and development projects that could set back our country’s competitiveness, as well as delay new tools to combat the COVID-19 pandemic.
“[W]e are gravely concerned that application of the current Small Business Administration’s (SBA) ‘Affiliation Rules’ to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis,” the letter states. “Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy. 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.”
TEXT OF LETTER:
Dear Secretary Mnuchin and Administrator Carranza:
Thank you for your service to our nation and support for America’s small businesses and their workers, especially during this challenging time.
We, the undersigned organizations representing America’s startup community, respectfully urge you to clarify as quickly as possible that small businesses with equity investors will not be excluded from the 7(a) loan program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In particular, we are gravely concerned that application of the current Small Business Administration’s (SBA) “Affiliation Rules” to these companies will create confusion and delays in administering the program, and could effectively exclude many startups that are trying to survive this economic crisis. Such a result would be contrary to the intent of the legislation to provide assistance broadly across all sectors of the economy.
The CARES Act takes many positive steps forward to provide relief to the U.S. economy. However, the goals of the program will be undermined if the “Affiliation Rules” prevent many small companies with equity investment — as is the case with most startups — from qualifying for the emergency relief made available by the CARES Act. This relief is intended for companies with less than 500 employees, other firms that qualify based upon eligible size standards, and entities that already have an explicit waiver. Depending on how the SBA assesses questions of “control” under current “Affiliation Rules,” many of these companies could be required to aggregate the employees of unrelated companies in which their investors are affiliated and count them in their employee count, pushing many above the employee size threshold. Regardless of the purpose of these rules for traditional 7(a) loans, allowing the rules to exclude some of our country’s most innovative startups in this new loan program is manifestly contrary to the intent of the legislation: to help small businesses keep their lights on and their employees working despite the double financial squeeze created by the economic and financial market downturns.
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. 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.
In addition to laying off workers, startups will have to shut down critical research and development (R&D) projects in fields like bio-research, medical technology, and artificial intelligence, setting back our country’s competitiveness and delaying the creation of new tools to combat the COVID-19 pandemic. Bottom line: not providing this critical support to startups now will cause both short-term pain and long-term consequences that linger for years.
In 2019 alone, 2.27 million jobs were created in the U.S. by startups across our nation. According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees. When implementing the CARES Act, we urge the SBA to issue guidance that makes clear affiliation rules do not arbitrarily exclude our most innovative startups. Thank you for considering our concerns.
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