Private equity groups seek US small business rescue loans

Some of the most powerful groups on Wall Street are pressing the Trump administration to allow private equity-owned companies to access hundreds of billions of dollars in loan funds earmarked for US small businesses hit by the coronavirus pandemic.

White House and Treasury officials have been contacted about the issue by industry lobbyists and executives from major investment firms, according to seven people who advised on the discussions, or have spoken directly with the participants.

Congress last week authorised the Small Business Administration to dispense $350bn worth of rescue loans to companies with fewer than 500 workers that have been affected by the coronavirus pandemic. 

The Wall Street groups are taking aim at the so-called affiliation rule, under which small businesses can be barred from accessing the rescue funds if they are backed by a private equity firm whose portfolio companies collectively have a workforce that exceeds the 500-person limit.

In a letter to Treasury Secretary Steven Mnuchin, seen by the Financial Times, one industry body said federal “regulations effectively prevent the small business portfolio companies owned by venture capital or private equity funds from accessing” the rescue programme.

“We see no reason why being owned in a fund structure should result in these businesses having less access to the capital needed to keep their employees on the payroll,” said the letter from Steve Nelson, chief executive of the Institutional Limited Partners Association, whose members include public pension funds that have invested in funds run by Apollo, Blackstone, and other big Wall Street firms.

The pleas echo a warning that private equity executives have delivered to officials at the Treasury and the White House, according to people familiar with the conversations: if their portfolio companies are locked out from the $2tn stimulus package agreed last week, they will be forced to dismiss millions of workers to salvage their own investments. 

“We need to act in the best interest of our own investors, which include pension funds,” said an adviser to one large private equity firm. “If the government wants to limit funding for companies we own just to punish the private equity industry, we will have to take drastic measures . . . That means cutting costs aggressively, and restructuring.”

The American Investment Council, which represents many leading private equity firms, said it would “continue to work with the administration, the Federal Reserve and Congress to request that federal programmes support all businesses, regardless of ownership structure, and their workers”.

Democrats have largely been opposed to helping out private equity firms as part of the coronavirus rescue. Critics say funds aimed at saving mom-and-pop companies should not be diverted to companies backed by investment firms that are sitting on more than $2tn in unspent cash. 

But Nancy Pelosi, the California Democrat who serves as Speaker of the US House of Representatives, wrote to Mr Mnuchin on Tuesday to express concerns about helping small businesses backed by venture capital investors.

“Many small businesses in our district that employ fewer than 500 employees, particularly start-up companies with equity investors, have expressed concerns that an overly strict application of the Small Business Administration’s affiliation rule may exclude many from eligibility” for the so-called payroll protection loans, wrote Ms Pelosi

The White House, the Treasury and the SBA declined to comment.

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