Next Coronavirus Relief Package Should Address Startup Concerns
TLDR: When Congress returns from recess later this month, policymakers must ensure that they are effectively supporting startups in their fourth coronavirus relief package. In order to protect our nation’s startup ecosystem, however, Congress needs to look beyond currently available small business loan programs and examine other policy proposals that will enable startups and entrepreneurs to survive the pandemic’s economic fallout.
What’s Happening This Week: With Congress on its Fourth of July recess for the next two weeks, startups and entrepreneurs continue to wait for progress on a fourth coronavirus relief package.
While Democrats and Republicans remain at odds over what to include in the so-called Phase Four proposal, the stimulus package is likely to contain additional support for businesses that have been hard-hit by the COVID-19 pandemic. Recent discussions between the Trump administration and Senate Republicans have reportedly focused on several key issues, including more targeted relief for small businesses through another round of Paycheck Protection Program (PPP) loans.
Policymakers extended the deadline for small businesses to apply for PPP loans before they left Capitol Hill last week, giving the U.S. Small Business Administration until August 8th to offer and approve loans through the program. While PPP loans have helped to support some small businesses with their payroll expenses during the pandemic, questions about the program’s requirements, loan forgiveness process, and eligibility rules have all limited the ability for startups—particularly those backed by venture capital firms—to benefit from financial relief through the program. More than $130 billion in PPP loans remain available, further highlighting how some of the program’s existing requirements and rules have limited the utility of this funding.
Policymakers are already discussing ways to more effectively target funding in the Phase Four package. Senate Small Business Committee Chairman Marco Rubio (R-Fla.) said he is working to develop a plan that would expand the use of PPP loans, set aside approximately $25 billion in funding for firms with less than 10 employees, and financially support underrepresented entrepreneurs.
Why it Matters to Startups: Startups and entrepreneurs are continuing to struggle as a result of the coronavirus pandemic, and are increasingly looking to policymakers to offer more focused relief options to support their businesses during this difficult economic time.
Startups are important drivers of job growth in the U.S., with the Congressional Research Service finding that they accounted for roughly 30 percent of employment gains each year from 2010 to 2018. With many startups losing access to more conventional sources of capital as a result of the pandemic, it’s crucial for the government to step in and support these critical hubs of employment. And the current lack of capital is particularly harmful for entrepreneurs of color and female founders, who already face greater barriers to success when launching a startup.
In April, Engine conducted a survey of startups, which found that entrepreneurs want lawmakers to pursue additional relief efforts beyond PPP loans. In order to provide more holistic support for the country’s startup ecosystem, lawmakers should take additional steps—such as targeted investments, grant opportunities, and tax credits—to ensure that this vital sector of the U.S. economy remains intact.
Engine has spoken with entrepreneurs and lawmakers about a variety of alternative policy proposals that can bolster the startup community as part of the Phase Four package. These proposals include enhanced equity investments to directly infuse capital into startups across the country. One such legislative proposal—the New Business Preservation Act—would help incentivize investments in startups by creating an equity investment program at the Treasury Department to give states the necessary funding to support the growth of new startups. This type of legislation would increase startup diversity and development, while also creating a self-sustaining program that would allow the federal government’s financial returns to be reinvested in future startups.
In order to strengthen PPP loans, lawmakers should also clarify and ease the program’s affiliation rule that limits many venture capital-backed startups from accessing funding. Lawmakers can also expand the scope of PPP’s forgiveness requirements to include some or all of a startup’s basic operating costs, such as marketing and cloud computing services. And Congress could also ensure that a portion of Phase Four loan funding is set aside for use by high-growth startups.
Additional relief options, such as tax credits and grants, would go a long way in supporting startups through a potentially drawn out economic downturn. For example, investor tax credits and R&D tax credits would also spur further innovation and development, allowing companies to bet on their long-term success. And other potential steps—such as easing restrictions on regulation crowdfunding—would provide startups with greater access to capital without any direct financial burden on the government.
Given lawmakers’ concerns about the pandemic’s impact on the U.S. economy and startups, these common sense proposals would strengthen the startup community and preserve these hubs of innovation. Policymakers must include these policy proposals in the Phase Four relief package in order to ensure that the nation’s startups are receiving the support that they deserve.
On the Horizon.
The Data Coalition and Denodo are hosting a webinar at 10 a.m. tomorrow to discuss how new data-sharing technologies can be used for the public good.
The Information is hosting a video summit this Thursday beginning at 8 a.m. PT to discuss how large tech platforms are working to support small- and medium-sized businesses as they navigate the economic uncertainty caused by the coronavirus pandemic.
TheBridge and All Tech is Human are hosting a virtual discussion this Thursday at noon to discuss how to build anti-racist technology.
