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Quick update on this - hearing that the SBA is working expeditiously to release a new (and potentially streamlined) 7A application for the CARES/PPT loan program along with updated guidance on eligibility. https://twitter.com/skupor/status/1244029666060431365
If you are working off of the existing 7A application, you may want to wait for the updated app/process. If you move forward now, make sure you are clear with the SBA that you are applying to the CARES/PPT program, not other existing 7A programs.
New loan application out from Treasury/SBA for those considering the CARES/PPT program https://home.treasury.gov/system/files/136/Borrower%20Paycheck%20Protection%20Program%20Application%20%28v1%29.pdf
Q&A for borrowers from Treasury/SBA is here - no guidance yet on the affiliation rules for companies with minority equity owners https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf
Update on the "Affiliation" rules: We are hearing that Section 301 (not 103) will govern affiliation for the CARES loans. What does that mean? That you are affiliated with an investor only if that investor ALONE controls the vote on an offending protective provision.
For example, if you have several investors and the protective provision vote is a majority of the preferred voting as a class, then as long as no single investor has a majority on her own, you are unaffiliated.
If one investor controls, you will need to "break the chain" of affiliation by amending the protective provisions with that investor. All caveats apply: this is evolving, consult with your lawyer and follow @NVCA for the latest and greatest updates!
This probably means that most B/C round companies - if you have drafted your protective provisions well - should be eligible, but many A round companies or growth companies with series-specific votes will need to make some changes.
Final Affiliation rules guidance from the SBA - unfortunately did not resolve the concern that venture-backed companies had raised. https://www.sba.gov/sites/default/files/2020-04/Affiliation%20rules%20overview%20%28for%20public%29.pdf
From the guidance: "SBA will deem a minority shareholder to be in control, if that individual or entity has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders."
Full employment act for corporate lawyers and will introduce delays in accessing capital.
BTW - huge shoutout to the @nvca team for their tireless advocacy on behalf of the entrepreneurial ecosystem throughout this process. They have done an incredible job in working with legislators and the agency folks!
