Guidance on how #SBA #Section7A #Loans apply to #VentureCapital backed #Startups under #CARESAct
just published https://www.lowenstein.com/news-insights/publications/client-alerts/sba-section-7-a-loans-for-venture-capital-backed-growth-companiesstartups-under-the-cares-act-the-tech-group cc @LowensteinLLP @Columbia_Biz #SBALoans

2) There's been confusion whether the #Affiliate rules preclude #VentureCapital backed #startups from #SBA Section 7 Loans. There are 2 sections of the regs: 301 & 103. Both sections provide that 301 governs #Section7a Loans

3) If you read the #SBAGuide to understand whether your #startup is "controlled" by your VCs, just know that the Guide primarily focuses on Section 103, not Section 301! The analysis under 301 is different in important ways; 301 is more generous to VC-backed startups! #SBALoans

4) Because of 301, Section 7(a) loans do NOT have to clear the hurdle imposed relating to finding “affiliation” based on having 2 or more persons having roughly equal holdings, who together are “large” compared to others...

5) TLDR: most VC-backed companies will have to analyze #ProtectiveProvisions to the extent those provisions give an individual #Veto power over stockholder/Board action &

6) even then, were the #SBA to conclude the #ProtectiveProvisions confer "control" to make the VC an #Affiliate, it must do so under 301's higher standard #ClearAndConvincing evidence that totality of circumstances creates control &

7) analysis under Section 103 (which does NOT govern these #SBA #Section7aLoans under #PPP) doesn't require "clear & convincing evidence of control" So, again, a more flexible standard for 7(a) Loans. Here's our @LowensteinLLP article: https://www.lowenstein.com/news-insights/publications/client-alerts/sba-section-7-a-loans-for-venture-capital-backed-growth-companiesstartups-under-the-cares-act-the-tech-group

8) @USTreasury released #PPP #SBA #LoanApplication, which asks you to list 20% owners (with an inconsistency). Look at manner of calculating under 301(f)(ii)(2)
https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf

9) inconsistency in #LoanApplication:
"List all owners of Applicant with greater than 20% ownership stakes."
"The Business and each 20% or greater owner must certify"
so, it's "list >20%," but certified by those with "20% or more"

If interested in our 11am WebEx today re #SBAloans under Section7(a) in a #startup #venturecapital context, pls email venturecrush AT Lowenstein dot com. Cc ⁦ @LowensteinLLP⁩ ⁦ @MatthewJMoisan⁩ ⁦ @VentureCrushFG⁩ ⁦ @VentureCrush⁩