Apr 2, 2020 - Economy & Business

Kevin McCarthy: Startups will be eligible for coronavirus stimulus loans

Dan Primack, author of Pro Rata

Venture capital-backed startups will become eligible for $350 billion in small business loans guaranteed by the federal government, House Minority Leader Kevin McCarthy (R-Calif.) told the Axios Pro Rata Podcast on Thursday: "I just got off the phone with Treasury Secretary Mnuchin and this is going to be solved."

In context: The Paycheck Protection Program, which provides forgivable loans of up to $10 million for companies with fewer than 500 employees, was included in the $2 trillion stimulus plan passed last week. But it also maintained something called the "affiliation rule" for most applicants, which likely excluded many small businesses that count venture capitalists among their shareholders.

  • McCarthy and House Speaker Nancy Pelosi (D-Calif.) have in recent days pushed for the Treasury Department to issue guidance easing the affiliation rule.
  • McCarthy says that in the next day or two, Treasury will release guidance that sets a simple guideline for PPP loan eligibility.
  • If a small business is not controlled by a single outside shareholder, it would be eligible.

Between the lines: This does leave out possibly thousands of private equity-owned small businesses. McCarthy says there could be future efforts, or maybe even a subsequent piece of legislation, to address such companies, but for now he and Mnuchin agreed that "control" is the simplest and fairest way to determine eligibility.

Go deeper: Bipartisan push could save private equity-owned small businesses

Go deeper

Cities' budget woes worsen with increased social unrest

Illustration: Sarah Grillo/Axios

Cities were already furloughing workers and considering cutting back essential services — including public safety — because of the dramatic drops in the local tax revenue that funds them. Now they're also dealing with turmoil in their streets.

Why it matters: "Unfortunately, the increasing levels of social unrest across the country reallocated efforts and scarce resources away from the former focus of getting state, regional and local economies back to some semblance of normalcy," per Tom Kozlik, head of municipal strategy and credit at HilltopSecurities.

Senate passes bill to ease PPP loan restrictions

Illustration: Sarah Grillo/Axios

The Senate unanimously passed a bill on Wednesday to loosen some of the rules that small businesses must follow when applying for Paycheck Protection Program loans.

By the numbers: Businesses now have 24 weeks to use loans obtained through the program, instead of eight weeks. Only 60% of a PPP loan now has to be used for payroll, instead of 75% — a requirement that "tens of thousands of borrowers" weren't expected to meet, per a recent inspector general report.

Cities are retooling public transit to lure riders back

Illustration: Sarah Grillo/Axios

After being told for months to stay away from others, the idea of being shoulder to shoulder again in a bus or subway terrifies many people, requiring sweeping changes to public transit systems for the COVID-19 era.

Why it matters: Cities can't come close to resuming normal economic activity until large numbers of people feel comfortable using public transportation.