ITIF Estimates SBA Rule Could Cost More Than 1 Million U.S. Jobs by Excluding Venture-Backed Firms From Economic Aid

March 31, 2020

WASHINGTON—The $2.2 trillion economic aid package that Congress passed last week in response to the COVID-19 pandemic includes $370 billion for small business loans, but a new report from the Information Technology and Innovation Foundation (ITIF), the world’s top think tank for science and technology policy, warns that existing Small Business Administration (SBA) regulations will exclude some small venture- and angel-capital-backed firms from accessing these funds. This will lead to more than 1 million job losses unless the Trump administration waives the rule.

“Existing SBA regulations governing small businesses with affiliates will mean that some small firms, including some that are supported by venture and angel capital funding, will either be excluded from needed funding, or will have to go through a time-consuming and uncertain process to get special approval,” said ITIF president Rob Atkinson, who authored the report. “If these firms are not eligible for Paycheck Protection loans, ITIF estimates that they will be forced to directly lay off about 279,000 workers and indirectly impact up to 1 million jobs in all.”

Under SBA rules, a 10 percent venture-backed startup can be defined as a large business if more than 50 percent of its equity comes from a venture capital firm whose portfolio companies collectively employ more than 500 workers. There are more than 83,000 venture- and angel-backed firms in the United States. Absent a waiver of the affiliation, these firms might not receive needed assistance. At the end of a 10 year-period, because of the additional closures of these normally high-growth firms, there will be 703,000 fewer workers in venture- and angel-backed firms.

ITIF urges the Trump administration to waive the affiliation rule as it implements the relief package so all small businesses can get the help they need during this crisis. The likely alternative, if venture- and angel-backed small firms do not have access to the Paycheck Protection Program and expect their revenues to decline, is that many will proceed with drastic layoffs.

“The SBA affiliate rule makes no sense in the midst of possibly the worst economic crisis the nation has faced since the Great Depression,” adds Atkinson. “Not waiving the rule will preclude needed assistance, or at best delay it, which will lead to unnecessary layoffs and bankruptcies.”

Read the report.