U.S. Government Covid-19 funding measures – what is available to Fintech-focused companies?

As a global firm, we have been actively tracking and assessing the varied measures that governments across the world have introduced to support businesses in response to the Covid-19 pandemic. This post is the final and identifies funding measures that may be available in the U.S. specifically to Fintech companies, ranging from small and medium-sized enterprises (SMEs) to start-ups. 

Paycheck Protection Program

As part of the Senate’s US$2 trillion stimulus package, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (read more), approximately US$350 billion initially was allocated for small business loans of up to US$10 million each, to cover certain expenses for up to eight weeks.  Known as the Paycheck Protection Program (PPP), this program is administered by the Small Business Administration (SBA) and involves individual banks and other financial institutions extending the credit, which is backed by an SBA guarantee.

Although, due to high demand, the PPP initially exhausted its funding on April 17, 2020, on April 23, 2020, Congress adopted the Paycheck Protection Program and Health Care Enhancement Act, which was signed into law the next day.  This new law allocated to the PPP an additional  US$310 billion, permitting it to resume processing new loan applications. The PPP is expected to continue to be made available through the end of June 2020, unless its funding is exhausted sooner.

Under the PPP, loaned funds spent on payroll, rent, or utilities could be forgiven if companies retain their current payrolls and satisfy certain other criteria.

  • The PPP is available to companies organized and located in the United States with fewer than 500 employees or that the SBA otherwise considers “small business concerns.” 
  • Under the SBA’s “affiliation rules,” private equity portfolio companies or companies with significant VC investments may be required to look at the number of employees across the PE/VC firm’s whole portfolio (including other portfolio companies) rather than merely their own on a stand-alone basis, depending on the size of the fund investment and any other management rights exercised by the fund. FinTech companies should evaluate their individual circumstances to determine whether the PPP is available to them.
Federal Reserve Main Street Lending Program

In connection with its Main Street Lending Program under the CARES Act (read more), the Federal Reserve will fund a special purpose vehicle (SPV) that will acquire, at par value, either 95% or 85% participation in loans or upsized tranches of existing loans made to companies with fewer than 15,000 employees, or annual turnover of US$5 billion or less, that are organized, and have significant operations and a majority of their employees, in the United States.  In determining whether it satisfies these quantitative criteria, a potential borrower must apply the SBA “affiliation” rules referenced above, and so companies with significant PE or VC investments will need to carefully assess their eligibility for the Main Street Program.

Loans made under the Main Street Lending Program are capped at US$25 million for new loans and US$200 million for upsized loans, and are subject to certain borrower leverage limitations.  While such loans are not subject to forgiveness, they  are competitively priced.  Borrowers under the Main Street Lending Program are subject to limitations with respect to, among other things, their ability to make dividend payments and capital distributions, and conduct stock buybacks.  They are also subject to limitations on certain employee compensation (read more).

For more information, please contact a member of the Linklaters team.