SBA’s new loans: VC- and PE-backed companies grapple with the fine print

by PRIYA RAO
APR 07, 2020

The passing of the CARES Act last week, that provides disaster relief for both individuals and businesses, is the first attempt that the U.S. government has taken to financially repair the current economic hit from coronavirus. For smaller beauty, personal care and wellness companies that have popped up in the Instagram- and DTC-boom, the most important elements of the CARES Act include the economic injury disaster loan through the Small Business Association (SBA), that offers up to $2 million on a 30-year loan, and the Payroll Protection Program (PPA), which is the CARES Act’s most recent addition.

The government has allocated $349 billion for the PPP, with up to $10 million in loans and grants per business. What is so attractive about the PPP is that it offers eight weeks of relief for employee salaries, rents, mortgage payments and insurance, provided that companies don’t lay off or furlough employees or slash payroll. However, as brands get more serious about their cash-management skills, one sticking point is how the SBA views affiliations. Under traditional SBA rules, a small business means a company with fewer than 500 employees, but if the company has raised venture capital or if private equity investors hold more than 50% control, its backers would be considered an affiliate, and their other portfolio businesses and employees would be added to that 500-person count. VC investors and angel investors can also be deemed affiliates of a company if said investor holds other status, like providing approvals or vetos as a board member or owning preferred stock…

…Stage 1 Financial colleague Lila Sharifian, who is the CFO to its personal care and beauty companies, attributed this to the banking industry “having PTSD” from the 2008 financial crisis. Stage 1 does not hold majority control for any of its beauty investments, and has started a digital question-and-answer series for partners to ask specific CARES Act questions. Triefenbach told all businesses the company works with to consult general counsel as “misinformation around PPP is making issues more complex.”

Continue reading: Glossy.com


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