can also find on twitter
The big news is the treasury's new guidance via its FAQ on additional requirements for applying firms on sources of liquidity
- The treasury has stated:
In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
- What does this mean?
- As laid out by Cooley, for new applicants, it is important to assess that you do not have alternative means of liquidity available and that you collect the proper supporting evidence that this is the case. This includes
- making sure you have properly assessed whether you have other sources of capital available (and can document)
- how you have assessed that these sources would be detrimental to the business ( and can document)
- As laid out by Cooley, for new applicants, it is important to assess that you do not have alternative means of liquidity available and that you collect the proper supporting evidence that this is the case. This includes
Also, there is a new measure in place that allows companies that received funds but no longer believe the are eligible to return funds by May 7th.
Otherwise, PPP loans should resume Monday.
New bill coming out, with largely the same structure as the original PPP. Overview:
- $310 billion for the Paycheck Protection Program (PPP), which ran out of funds late last week
- $60 billion is set aside for small businesses who do not have access to large financial institutions, to be divided between
- lenders with less than $10 billion in assets
- those with $10-$50 billion
- $50 billion for SBA Economic Impact Disaster Loan (EIDL) program
- $75 billion for hospitals
- $25 billion for COVID-19 tests to be divided among federal, state, and local governments, with a requirement for a national testing strategy
- Fixes to previous COVID-19 relief measures, including giving states and localities additional flexibility to use funds allocated to address lost revenues
Assuming this passes the house, the President should sign this Friday.
List of lenders we have heard are accepting new clients
There is a lot of speculation out there. The most reliable resources are from the SBA & Treasury:
We recommend that our portfolio companies who need capital as a consequence of the COVID-19 disaster consider the PPP loan. We believe it has the most favorable terms for our founders
- Potential forgiveness for approved payroll usage (up to 100% of principle)
- No personal guarantee
- No collateral requirements
- Rate and Term
However, we believe it's important to make sure that this is something they truly need given the scarcity of funds.
List of lenders we have heard are accepting new clients
Our founders have had success with:
- SVB (if they had a pre-existing relationship)
- Evolve Bank, Radius Bank, Lendio (as new customers)
See here for details - this is not free money, this is a relief program for firms that need it.
- Understand the certifications you will be making (for a full list, see form) including
- the requirement to retain employee and wage levels
- forgiveness will be reduced if there is a decrease in the number of employees or wages in excess of 25% of total wages during the period.
- Employers must bring back employees terminated from February 15 to April 27 before June 30th
- good faith certification that current economic uncertainty makes the loan necessary to support your ongoing operations and that you do not have alternative sources of liquidity available to you
- "must take into account current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business"
- Impact - if you have other funding sources available or significant runway, the PPP is most likely not for you
- the requirement to retain employee and wage levels
- Understand the caps placed on the loan AND that eligibility <> forgiveness
- Employee salary qualifies up to 100K per Year
- Impact - not all of your salary expenses may be used to calculate loan size
- the maximum amount of the lone that can be applied to non-payroll operating expenses is 25%
- Impact - your loan may not be fully forgivable even if you use it on qualified operating expenses
- Employee salary qualifies up to 100K per Year
- Stand up a processes for collecting supporting documents for certification requirements and use of proceeds now
A lot remains unknown, and information is constantly evolving. As of now, the biggest questions for venture-backed startups are around size requirements and the affiliation clause. Certain negative rights held by investors on day-to-day operations may trigger the affiliation rules.
Thus, we recommend that founders discuss with their investors the possibility of changing applicable covenants to enhance your eligibility.
As of now, our best guess on the negative clauses around day-to-day operations that would likely impact affiliation are (Per NVCA Guidance):
- Making, declaring, or paying distributions or dividends other than tax distributions
- Establishing a quorum at a meeting of stockholders (and likely, by extension, at a meeting of the board)
- Approving or making changes to the company’s budget or approving capital expenditures outside the budget
- Determining employee compensation
- Hiring and firing officers and executives.
- Blocking changes in the company’s strategic direction.
- Establishing or amending an incentive or employee stock ownership plan.
- Incurring or guaranteeing debts or obligations.
- Initiating or defending a lawsuit.
- Entering contracts or joint ventures.
- Amending or terminating leases.
Note: investors will have to give up those rights irrevocably.
Most people have heard about the COVID-19 Aid, Relief, and Economic Security (CARES) Act by now – the $2 trillion stimulus bill passed by the US government to help businesses and individuals impacted by the COVID-19 epidemic.
However, at Hustle Fund, we have seen founders and investing partners have less clarity on what this bill means for them, and how they can or cannot participate.
We decided to try to bring some clarity for our founders and the venture/startup community more broadly. We have tried to pull together as much information and resources as possible in this piece, and would love to hear your suggestions for what else would be helpful via pull requests or emailing us here.
Please note, none of this information constitutes legal or financial advice. You should consult a legal representative to get information and guidance that is right for you.
At the core of this guide is outlining the available financial aid options for startups
| Item | High Level Details |
|---|---|
| Loan via CARES Act/PPP (CARES act sections 1101-1107) |
- For operating expenses (Payroll + Current Interest/Utilities/Rent) - Amount : 250% of average monthly operating expenses ($10mm Cap) - Terms : 1% for 2 years - Possible forgiveness |
| Loan via EIDL (Economic Injury Disaster Loans) | - For operating & non-operating expenses - Amount : $2mm Max, dependent on the applicant's demonstrated economic injury and ability to repay - Terms : Max 4% Interest, Maturity up to 30 Years - No forgiveness |
| Tax Relief (CARES act sections 2301,2302) | Options to either - defer 2020 payroll tax payment over the next two years - receive a 50% credit for payroll taxes for certain employers and employees |
In addition we provide:
- Some helpful resources we have found during our research
- A deep dive into control, affiliation, and its implications for VC-backed companies
- A guide on how to apply
- An FAQ that we will try to keep updated