The government is now giving startups a green light to participate in its $670 billion small-business loan program, but at least some advocates are urging caution
. The SBA warned companies they must certify that they actually needed the loan funds. When assessing that need, companies — particularly those backed by private-equity firms — needed to consider whether they had access to alternative sources of funding, such as from their investors. Venture capital are generally considered to be a kind of private equity.
The new guidance "changed the game a little bit for a number of companies, and they decided not take it," Murphy said. Even if one assumes it's equivalent to a regulation or a law, the document still leaves room for uncertainty, he said. In the FAQ, the SBA seemed to leave open the possibility that it might still audit loans of less than $2 million and could force companies to repay loans if it determined they didn't need the money, he said.
And it may be a red flag to such law enforcement officials and regulators if a company applied for a loan after the latest change after either pulling its application or repaying a loan following the prior guidance, he warned. Such a sequence of events might suggest to law enforcement officials that a company's leadership didn't really believe the company qualified for the loans.
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