Clarification Needed for the 7(a) Loan Program Under CARES Act

By: Pat Gouhin, Chief Executive Officer

As part of America’s startup community, ACA was among many organizations that responded this weekend to address an issue of concern regarding a needed clarification that otherwise excludes small businesses with equity investors from the 7(a) loan program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  

The Small Business Administration’s (SBA) “Affiliation Rules” will create confusion and delays in administering the program, and exclude many startups that are trying to survive the economic crisis.   Current “Affiliation Rules” will prevent many small companies with equity investment from qualifying for the emergency relief provided by the CARES Act to companies with less than 500 employees. Current rules would force these companies to aggregate the employees of all of the unrelated companies in which their investors are affiliated and count them in their employee count, pushing many above the 500-employee threshold.

Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these companies may be rendered ineligible. Through a written request, ACA and many other organizations are urging the SBA to issue the necessary waiver to the “Affiliation Rule” that is needed to protect jobs at startups across the nation when implementing the CARES Act.