Connect with us

Business Finance

Early stage startup funding gap filled: SBA matches investment dollars

Research shows there is a large funding gap for startups seeking smaller amounts of money, so the federal government has launched a program to match funds contributed by select venture capital funds.

Published

on

early stage startup funding

Early stage startup funding challenges

The amount of time it takes for startups to secure enough capital to start and maintain a business can be pretty lengthy for a number of reasons. Some companies are borrowing from a traditional lender like a bank, which can take a while for funds to be released. Other companies might need more money than one or two investors can provide and will therefore spend a lot of time seeking out new individual investors or firms. And if these companies are growing at a rapid rate, this process will be even more difficult, because they need larger sums of investment capital in order to meet demand and expand operations.

The Early Stage Innovation Funds initiative started by the Small Business Association works to give high growth startups the large investments they need by matching the investments of private lenders. Analysis performed by the SBA shows that many high growth companies just starting out rarely receive the full amount of funding they need to get up and running; they’re growing at a rate so fast that they need more funding to keep up with demands than would another company that’s developing more slowly.

Early stage startup funding gap

Research shows there is a funding gap for companies seeking between $1 million and $4 million, referred to as the “Valley of Death.” Looking at numbers as far back as 2006, only 10 percent of all capital funded went to startups seeking amounts within this range, and of that 10 percent that received that large of an investment, 70 percent of those businesses were in New York, California or Massachusetts.

The SBA recently licensed Hatteras Venture Partners as one of its lenders under the initiative, allowing the firm to receive up to an additional $50 million in SBA-guaranteed funding to match their initial startup investment contributions. The venture capital firm is focused on assisting businesses in the biopharmaceuticals, human medicine, and medical devices industries.

By leveraging private lenders such as Hatteras and matching their funds given, the SBA helps perpetuate a cycle of investment and positive growth for startups that are accelerating rapidly and need multi-million dollar investments in order to meet demands and maintain their strong patterns of growth. Fund managers have until March 1st of this year to complete the application needed to participate in the second year of the overall five year initiative.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

Business Finance

Politicians reconsider PPP rules too cumbersome for small businesses

(BUSINESS FINANCE) The PPP loans may have some changes coming soon, to help small businesses even more by extending the time they have to spend the money.

Published

on

loan changes

Congress has reported talks over fixing parts of the Paycheck Protection Program (PPP), a key program designed to help businesses during the coronavirus pandemic. Changes could range between small tweaks to an overhaul of program requirements. Congress remains divided over a phase four relief bill (passed in the House last week) which includes several of those PPP changes.

The PPP was created to provide forgivable loans to businesses with fewer than 500 employees. Although the Treasury is continuing to offer updated guidance, any significant changes will require approval from Congress.

One of the major potential changes is an extension to the eight-week time frame for businesses to spend their loan money. Senator Marco Rubio (R.-Fla.) is advocating the change. He told reporters “I think the more important thing to change is the time frame in which they can use it for,” Rubio told reporters. “We do need to give them more time to spend those monies.” The hope is to pass those changes before the first PPP loan recipients reach their deadline in early June.

Other changes proposed in the House bill include extending the spending time period to 24-weeks and eliminating the requirement for 75 percent of loan spending on payroll in order to qualify for full forgiveness. The flexibility could allow recipients to allocate money towards rent, another challenge facing small business owners. While Senate Republicans haven’t shot down that option, they’ve voiced concern on the spending rule which was originally designed to keep workers employed. Meanwhile, Democrats argue for flexibility which could support businesses with fixed costs. Both sides are open to discussing a 50 percent payroll and 50 percent additional cost breakdown in a new PPP changes.

The Small Business Administration has reported $195 billion from the $310 billion of the second tranche of PPP has been approved. With no defined plan to reopen the country, small businesses are counting on relief programs. Senior White House advisor Kevin Hassett has said the government can’t continue to lend money to businesses indefinitely. “It is something we can do through Jun, I would, guess if there’s enough cash for that.”

Continue Reading

Business Finance

Unless you call your representative, the IRS will be forced to screw PPP recipients

(BUSINESS FINANCE) Small business owners, can your Covid-19 loans really be forgiven? “Free money” never sounded so good…or bad. The CARES act missed a vital tax hole.

Published

on

Cares act taxes due

The Paycheck Protection Program (PPP) portion of the Coronavirus Aid, Relief, and Economic Security Act (CARES) was hailed as a revolutionary life line to small businesses that had to shutter their doors against the plague.

Basically, the Feds said: Keep your expenses up, pay your staff so they don’t have to go on assistance, and not only will we loan you the cash to do so, so long as you can prove it was spent stimulating your business, we’ll not only forgive the loan, it won’t be taxed as income.

Right said, Fed. But some sharp-eyed readers of the letter of the law say they’re too savvy for these loans, and here’s why.

It was announced on April 30th that anything paid with PPP payments won’t be tax deductible.

Specifically, the IRS says, expenses that qualify a business owner loan forgiveness cannot be deducted from 2020’s tax filings, in order to keep people from getting “double tax benefit[s].” You can read up on the tax code citations and legal precedents right here, straight from the tax horse’s mouth.

So what’s happening here is you can “enjoy” free money from the government, but if you were counting on it being non-taxable income, then you’d best count again.

I may be a simple country (adjacent) April, but is the purpose of handing out money somehow… NOT to put business owners AHEAD?

This move strikes me as a ship throwing someone in the water a life-vest… then sailing off without reeling them in.

‘Well you don’t want people to double-dip,’ is a rebuttal I’d expect. Or ‘that’s how the CARES Act was written,’ but right now we’re dealing with people and their businesses needing EXTRA. Not ‘a bit,’ not ‘enough,’ but quantifiably EXTRA help in order to do better than just tread water. We NEED that extra dip… and individual bowls for everyone while we’re at it.

“No half measures,” as a wise, narcissistic fictional criminal once said. Brian Cranston won an Emmy for delivering that line, so I figure it’s stand-by-able.

As of right now, there’s not much that can be done except for business owners to gather and lobby their representatives en masse to alter the language of the CARES Act, or add an amendment to it that allows the IRS to let the deductions business owners need to slide.

As is, strict interpretation of the law doesn’t give our beloved agents enough wiggle room to LET this money be deducted. And I’m guessing that the IRS isn’t really the type of agency to DO interpretative judgements as a matter of course so… the ball is in Congress’ court on this one.

Fortunately, it seems like they’re taking it and running with it!

On May 12, a bill aptly named the HEROES Act was proposed in the house, and it clarifies: “For purposes of the Internal Revenue Code of 1986 and notwithstanding any other provision of law, any deduction and the basis of any property shall be determined without regard to whether any amount is excluded from gross income under section 20233 of this Act or section 1106(i) of the CARES Act.”

They’re reaching past the last stimulus bundle (that I haven’t received my share of yet by the way, cough cough) with a total of three trillion as a distribution goal. That’s a three followed by twelve zeroes, sweeties. And this is all cold, hard, tax free, DEDUCTIBLE cash.

My advice here? Get your letter-writing hands ready, business owners! It’s not a law YET, so keep pushing your politicians as best you can, and telling your friends, (and sharing our articles) And best of luck.


Sidenote from the Editor: Research for this story includes insights from Caleb Ellinger at Ellinger Services (CPA wizard (our word, not his) in Austin who is very well known as serving startup and freelance communities).

Continue Reading

Business Finance

Companies seek brownie points by returning PPP cash they shouldn’t have applied for

(BUSINESS FINANCE) It turns out some large national companies received millions of dollars of the PPP loans that were pitched as for small businesses, what gives?

Published

on

ppp loans

The CARES Act, passed last month in response to the COVID19 pandemic, allocated over $370 billion to small businesses in the form of PPP loans. The Paycheck Protection Program (PPP) was hastily ran through Congress, with many of the small details left for the SBA, IRS and other entities to iron out, even though the legislation was over 800 pages.

Now, Bloomberg is reporting that many small businesses are returning loans as the Trump administration issues new guidance for these loans.

PPP loans- confusion over eligibility, rules and restrictions

The PPP was designed to incentivize employers to maintain payroll through the pandemic. The law’s intent was to help small businesses, non-profits and smaller organizations without other resources.
Within just a few days, the money was exhausted.

As Congress allocated more money for the program, it came to light that many larger businesses made requests for the money. Shake Shack, a national chain, received $10 million. Ruth’s Chris steakhouse received $20 million. Even the Los Angeles Lakers received about $4.6 million through the PPP. It should be noted that each of these entities returned the money. Technically, each of the entities qualified under the PPP, too.

Treasury Secretary Steven Mnuchin and the SBA announced that all PPP loans over $2 million will be reviewed to ensure borrower eligibility. The SBA continues to provide guidance for the PPP loans. One financial expert likened it to building the plane while it was still in the air. Some companies are receiving guidance that no publicly traded companies qualify, even though these companies have received PPP funding, and some intend to keep it.

If a company doesn’t qualify for the PPP, they could face criminal charges for making false certifications on their loan applications. This could include statements that indicate the PPP funding is necessary to support ongoing operations.

Return the PPP money or not?

The SBA is giving borrowers a deadline of May 14 to return PPP loans without any legal trouble. Some companies are returning the money, not only because of public backlash, but to avoid problems. The government is sending a message that it will be vigilant over the use of PPP funding. There are still so many questions about how the loans will work and will be forgiven, it pays to tread carefully if you’ve received more than $2 million in funding under PPP.

Continue Reading
Advertisement

Our Great Partners

The
American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Emerging Stories

Get The American Genius
neatly in your inbox

Subscribe to get business and tech updates, breaking stories, and more!