Startups: SBA Loans Are Not Free Money and Taking Them Has Consequences
Despite being fully eligible, the company I founded, Matter, will not be applying for one of the forgivable loans available through the $350 billion economic rescue plan from Congress.
Why won’t we be applying? Quite simply, we’re not the intended target and we don’t want to divert resources away from those who are truly in need.
This is Not Free Money
We don’t believe the intent is for all VC-backed companies to access this money. Rather, this support is generally meant for small, “mom and pop” businesses that do not have access to other types of financing. The need among these types of companies is immense: According to a recent Goldman Sachs survey, 50% of small local business owners don’t think they can continue operating their businesses for more than three months amid the current conditions caused by the coronavirus outbreak.
For Many Startups, the Money Wouldn’t be Material
The capital available for many startups would not materially change their runway. Yet for other small businesses, it is the difference between staying in business and going out of business.
Questions to Ask Before Applying
- Will the money materially impact your startup’s runway?
- Have you asked your investors for help?
Of course, some startups should apply and I’m not advocating that no startups seek this support. I suggest startups think critically about their needs and other funding outlets. I hope to hear stories of startups doing what’s right and VCs stepping in to help startups in need.
Be Safe,
