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Private Equity Denied Access Again in Senate’s New Loan Bill (1)

April 8, 2020, 7:56 PM

Private-equity firms have been dealt a setback in their latest attempt to get companies they own access to billions of dollars of loans that the U.S. government is doling out to help small businesses hit hard by the coronavirus pandemic.

The next bill in the U.S. Senate doesn’t give the industry relief it has been seeking as lawmakers negotiate another round of economic stimulus, according to two people familiar with the matter who asked not to be named because the discussions are private.

Read More: Private Equity Frets That It’s a Loser in $2 Trillion Virus Bill

Private equity has been lobbying aggressively in recent days to get Congress to clarify that portfolio companies controlled by the industry are eligible for the Small Business Administration loans.

The problem: In rules laid out by the SBA and the massive $2 trillion rescue bill that Congress passed last month, firms with more than 500 employees don’t qualify for the loans. That number counts affiliates –- a definition that could include the workers at all the portfolio companies that a private-equity firm invests in.

Administration’s Request

Senate Majority Leader Mitch McConnell on Thursday will try to unanimously pass a bill that simply reflects the White House request for more funding, without changing the program’s rules. Treasury Secretary Steven Mnuchin asked Congress Tuesday to add $250 billion to the $350 billion that lawmakers have already authorized for the small-business lending effort, known as the Paycheck Protection Program.

Democrats have outlined several demands for the pending legislation and so far have not sought the private equity changes.

Congress is expected to debate a wider stimulus package sometime after April 20 that will give private equity another chance to try access the program. In the meantime, lawmakers sympathetic to their complaints are trying to work with the administration on rules changes, said one of the two people.

The issue over how employees are counted is also affecting venture-capital firms, which have funded a number of tech startups. That has prompted industry executives to attempt to lobby House Speaker Nancy Pelosi, whom they hope may be sympathetic. The Democrat’s district in San Francisco is near Silicon Valley.

Stumbling Block

But a potential stumbling block is the deep resentment Capitol Hill progressives have toward private equity. Senator Elizabeth Warren and other Democrats have made the industry a target of attacks, particularly in an election year that has been focused on themes of economic fairness and income inequality. It doesn’t help that some private equity leaders, including Blackstone Group Inc.’s Stephen Schwarzman, have close ties to President Donald Trump.

Private equity lobbyists have repeatedly said they are also holding discussions with the SBA and Treasury Department in the hope that those agencies will issue guidance clarifying that portfolio companies can obtain loans. But SBA officials told industry executives privately last month that buyout shops should use their own cash piles to bail out struggling businesses, according to people familiar with the matter.

In a sign of the lobbying heft, 10 trade groups, including the Club For Growth and Heritage Action for America, wrote a letter on Tuesday to Mnuchin and SBA Administrator Jovita Carranza urging them to cut private equity a break.

“We urge to use your authority to waive the SBA’s ‘affiliation’ rules that, without relief, will act as a direct regulatory barrier to job retention and creation at some of the most innovative and exciting companies in our economy,” the groups wrote in the letter. “Make no mistake: some are using the crisis of COVID-19 to punish investors and private businesses that they do not like for political purposes.”

--With assistance from Ben Bain, Heather Perlberg and Robert Schmidt.

To contact the reporter on this story:
Erik Wasson in Washington at

To contact the editors responsible for this story:
Jesse Westbrook at

Anna Edgerton

© 2020 Bloomberg L.P. All rights reserved. Used with permission.