Criticism of venture-backed startups that took coronavirus loans has exploded since the government’s first round of stimulus funding was exhausted on April 17. With millions of mom-and-pop businesses laying off employees, some have asked why buzzy tech startups with powerful patrons should be among the first to receive forgivable Small Business Administration loans. After all, can’t venture-backed startups simply ask for more money from wealthy investors?
Of course, it’s more complicated than that. There’s no doubt that some larger companies have abused the program, and many may end up giving the money back. But it’s also true that there are many different kinds of venture-backed startups, in various stages of their development, with varying access to capital. Despite the backlash, many startups say they really did need federal loans to stave off layoffs and stay afloat.
The Paycheck Protection Program, which the government just reloaded with $310 billion in additional funds, is meant to provide emergency relief to small- and medium-size businesses. Low-interest loans of up to $10 million are forgivable if the recipient lays off no employees for eight weeks after getting the funds. But the SBA left it up to applicants to determine whether they could borrow the money “in good faith.”