Alternative investment firms explicitly barred from PPP loans

With the Paycheck Protection Program (PPP) portal expected to reopen Monday, the Small Business Administration has explicitly prohibited "hedge funds and private equity firms" from receiving loans, and it also reaffirmed "affiliation" rules for private equity-owned companies.

Wait, what? Yes, there have been anecdotal reports of alternative investment firms at least inquiring about PPP loan eligibility. It's unclear if any such loans were made.

• Most alternative investment firms have fewer than 500 employees, but the economic harm argument is tougher. Hedge funds might claim that they've experienced accelerated redemptions, thus reducing management fee flow, while private equity firms might point to LP defaults.
• SBA used some imprecise language here, referring to hedge funds and private equity firms, but lawyers I spoke with don't think lenders will approve applications from PE firms at the fund or management company levels.
• The bigger issue is that PPP loans operate under something called Section 7(a), which generally prohibits businesses that are primarily engaged in investment or speculation. SBA could have waived those guidelines for PPP — as it's done for businesses that generate revenue via legal gambling — but it didn't.

The bottom line: Alternative investment firms (or funds) were always edge cases for PPP loans, and now they've been thrown over that edge.

Note: Axios qualified for a loan under this program. More details here.