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Illustration: Aïda Amer/Axios

Private equity and venture capital investors now have high-powered bipartisan support in their efforts to expand the types of small businesses eligible for $350 billion in federal loans via the CARES Act.

The intrigue: House Speaker Nancy Pelosi and House Minority Leader Kevin McCarthy, who rarely agree on anything except for the grandeur of California, both want the so-called "affiliation rules" waived.

What's the affiliation rule? As Axios Pro Rata discussed last week, it excludes most small businesses from qualifying as small businesses if they are owned by a private equity firm — by "affiliating" all of the company's employees with those of the private equity firm's other portfolio companies.

  • So if a private equity firm has 10 portfolio companies with 51 employees each, then none of those companies would qualify for loans that are explicitly structured to keep people employed.

Affiliation rules also expand to many VC-backed companies, even if there is no outside investor control, such as if two or more VC firms combined "are large compared to other stock holdings."

  • This is particularly pernicious because the vagueness could cause banks participating in the loan program to avoid VC-backed companies, given that they cannot be sure of the federal guarantees until weeks or months from now (when the SBA would rule on a case-by-case basis).
  • As Justin Field of the National Venture Capital Association suggests, it's reminiscent of the Seinfeld bit when Kramer pretends to be Moviefone. "Why don't you just tell me if you're a small business..."

Some argue that these companies should tap their existing financial sponsors for support, but that misses the point of a federal program designed to stem job losses immediately.

  • Some firms could (and are) plugging in new cash or debt, but many are holding out in case they need to rescue the entire entity (at which point there would be no prospect for rehiring).

All of which brings us back to Pelosi and McCarthy.

  • Yes, they helped write the bill that they now want Treasury or the SBA to fix via "guidance."
  • No, we can't say that the bill just relied on existing SBA language, given that it exempted relevant companies in select industries (restaurants, hospitality, etc.) and those that have received prior SBA funding via SBICs.
  • But, but, but: Their vocal efforts are better late than never for hundreds, maybe thousands, of companies that are staring down awful payroll decisions.

The bottom line: Waiving the affiliate rule remains a long shot, particularly given that it wasn't addressed yesterday in new loan application information released by the Treasury and SBA. Still, it remains a long shot that's worth taking.

  • Bonus: Later today I'll be interviewing McCarthy about the affiliate rule on Pro Rata podcast.

Update: McCarthy says VC-backed startups will be covered

Go deeper

Trump political team disavows "Patriot Party" groups

Marine One carries President Trump away from the White House on Inauguration Day. Photo: Patrick Smith/Getty Images

Donald Trump's still-active presidential campaign committee officially disavowed political groups affiliated with the nascent "Patriot Party" on Monday.

Why it matters: Trump briefly floated the possibility of creating a new political party to compete with the GOP — with him at the helm. But others have formed their own "Patriot Party" entities during the past week, and Trump's team wants to make clear it has nothing to do with them.

DOJ watchdog to probe whether officials sought to alter election results

Donald and Melania Trump exit Air Force One in West Palm Beach, Fla., on Jan. 20. Photo: Alex Edelman/AFP via Getty Images

The Justice Department's inspector general will investigate whether any current or former DOJ officials "engaged in an improper attempt to have DOJ seek to alter the outcome" of the 2020 election, the agency announced Monday.

Driving the news: The investigation comes in the wake of a New York Times report that alleged Jeffrey Clark, the head of DOJ's civil division, had plotted with President Trump to oust acting Attorney General Jeffery Rosen in a scheme to overturn the election results in Georgia.