April 13, 2020 - The LSTA joined a joint trade association letter last week asking the government to make important revisions to the Paycheck Protection Program, one of the key elements of the federal government’s coronavirus response included as part of the CARES Act.

The letter points out that the PPP, which was designed primarily to provide up to $10 million to in payroll support to companies with fewer than 500 employees, currently excludes a large segment of startups and small businesses, including many backed by private equity. It strongly urges the government to provide additional guidance making the PPP program accessible to private-equity backed companies.

The letter focuses in particular on the program’s affiliation rule, which states that a company must count among its employees those at other businesses in the same corporate family, affiliated complex or investor portfolio. The result of the rule is that a large number of companies backed by angel investors, venture capital or private equity exceed the 500-employee threshold.

“While strict affiliation rules make sense during normal operations,” the letter states, “the intent of the CARES Act to stabilize the overall economy would be effectuated with a broader interpretation.”

The letter also points to certain public benefits that would result from a broader interpretation of the affiliation rule. It notes that public and private pension funds, university endowments, insurance companies and charitable foundations are all invested significantly in companies that are currently excluded from the PPP.

Sixteen other trade associations joined the letter, including the American Investment Council, the Angel Capital Association, the Association for Corporate Growth, the Institutional Limited Partners Association, the Managed Funds Association, the Small Business Investor Alliance, and the U.S. Chamber of Commerce.