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What $2T in stimulus does—and doesn’t do—for private markets

The US House of Representatives is expected to weigh in Friday on a rescue package that passed the Senate on Wednesday.

House Speaker Nancy Pelosi (Alex Wong/Getty Images News)

The US House of Representatives is expected to weigh in Friday on a $2 trillion rescue package that passed the Senate on Wednesday. The sprawling document consists of both broad and targeted assistance for companies and individuals amid the coronavirus outbreak.

Here are the main considerations for private equity and venture capital. More coronavirus news: Continuing coverage from PitchBook

$349 billion for small businesses

Plenty of privately owned small businesses could stand to benefit from the $349 billion in Small Business Administration loans that are included in the bill. But companies backed by private equity and venture capital firms may find them hard to come by.

There’s a 500-employee cap on companies receiving SBA loans, and portfolio companies owned by PE firms are typically treated as affiliates rather than individual companies when it comes to meeting this threshold. So even individual companies that fall below the 500-person headcount may be disqualified if their owner’s total portfolio exceeds it. Some VC-backed startups may also fall into this category if they and other portfolio companies are considered affiliates under the SBA’s rules.

The loans also come with plenty of requirements: no stock buybacks, no dividends and no large layoffs. The portion of the loan used to pay salaries and some other core expenses is forgivable. Cannabis companies are excluded from the SBA loan program.

The bill also waived requirements for collateral and personal guarantees tied to loans, a change that organizations such as the National Venture Capital Association had pushed for.

As companies large and small announce significant layoffs, there’s also the question of whether financial assistance can get to companies fast enough.

“The resources are going to come,” said Justin Field, senior vice president of government affairs at the NVCA. “The challenge is that the companies are trying to make decisions in days, and this stuff is moving in weeks.”

Targeted relief for industries

The bill hand-picks a few industries to receive taxpayer-funded loans while ignoring others. Like the SBA loans, these come with required assurances, such as maintaining employment for six months and swearing off stock buybacks and dividends for a year.

  • Passenger and cargo airlines may receive $29 billion in assistance. Most US airlines are public, but Frontier Airlines is owned by PE firm Indigo Partners.
  • Businesses critical to national security could get up to $17 billion in loans and loan guarantees, much of which is expected to go to Boeing. But other defense companies, including those owned by PE firms, could potentially access the loans.
  • The auto industry wasn’t singled out for help, but it may take advantage of the vast loan program. Privately owned upstarts such as Rivian and Faraday Future would also be eligible.
  • Hospitals get $100 billion in grants to help fight the COVID-19 outbreak as they lose money on canceled surgeries and other non-vital appointments, which is good news for PE firms with exposure to the sector.
  • The energy industry failed to claim major relief due to ideological divisions between the left and right. That’s a loss for PE-backed oil & gas companies as well as VC-backed renewable energy companies.

Checks for almost everyone

Under the proposed legislation, all taxpayers earning less than $75,000 will receive $1,200. The payments phase out gradually, and those earning more than $99,000 won’t receive anything. The payments and limits are doubled for couples, and parents receive an extra $500 per child. The Trump administration wants the payments to arrive in weeks, but experts say it could take months.

The rebates are great news for gig economy workers and those in the hospitality, restaurant and travel industries who have been hard hit. And it may provide some help for employees at PE-backed firms that aren’t eligible for SBA loans. Within the tech sector, the payments are a much-needed lifeline for Uber drivers, for example, but Uber’s software engineers likely earn too much.

People who lose their jobs will see their benefits extended to 39 weeks and will receive an additional $600 per week for the first four months on top of state unemployment. Gig workers, independent contractors and freelancers who lose work will have access to some of these benefits, even though they’re typically excluded.

Last week brought more good news for startup employees in a separate stimulus bill, which required small businesses to provide up to two weeks of emergency paid sick leave and 12 weeks of family and medical leave for employees through the end of the year, which would be reimbursed with a fully refundable tax credit.

Correction, March 27 at 9:30 a.m. PT: An earlier version of this story incorrectly stated that SBA loans under the stimulus program are not forgivable, and that small business owners may have to provide a personal guarantee. Debts used for payroll, rent, mortgage interest and utility payments can be forgiven. The bill makes an exception to personal guarantee requirements.

Update, March 27 at 11:45 a.m. PT: Comments added from Justin Field, senior vice president of government affairs at NVCA.
  • james-thorne.jpg
    Written by James Thorne
    James Thorne is a Seattle-based managing editor overseeing PitchBook’s venture capital coverage and data journalism initiatives. He previously reported for GeekWire, Reuters, CNBC and Source Media. A native of Colorado, James graduated from Boston College and received his master’s degree in business journalism from New York University.
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