Brex is letting its customers apply for federal small business loans during the coronavirus crisis, but has these key guidelines for any startup hoping to qualify for relief
- In a hosted webinar on Thursday, fintech startup Brex provided guidelines to startups hoping to apply for the federal government's Paycheck Protection Program.
- The small business loans are intended for those that would otherwise have to cut or furlough staff, but many startups have eyed the $250 billion reserves as a solution to immediate budget crunches.
- Erica Dorfman, VP of Cash at Brex, said that while Brex is an approved PPP lender, meaning startups can apply for the loans with Brex, it is currently prioritizing applicants that have an existing relationship with Brex and its partner bank Radius.
- Dorfman walked through the requirements startups need to meet in order to qualify for PPP loans, including having UU Employer Identification Numbers for all major investors, if and when they choose to apply.
- See the full presentation outlining Brex's guidelines for other startups hoping to apply for these loans.
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Brex, the $2.6 billion fintech startup that offers banking services for startups, has taken on the challenge of navigating the federal government's new small business loan program, a task so confusing and gargantuan that even traditional banks like Bank of America and Wells Fargo have thrown in the towel.
In its ongoing webinar series for other startup founders, Brex on Thursday laid out guidelines for startups hoping to apply for the Small Business Administration's new Paycheck Protection Program. The goal of the $250 billion loan program is to help small businesses keep payroll unchanged as the business community reels from the fallout of the coronavirus-led economic uncertainty.
As Erica Dorfman, VP of Cash at Brex, explained to the hundreds of founders tuning in to the segment, the loan is intended to cover payroll costs when startups would otherwise have to cut or furlough employees to make ends meet.
"It's a little vague in the rules, and you have to think about answering this question - am I doing this in good faith?" Dorfman said. "If that's the case, you likely do need this to keep payroll up. You have to ask, does this make sense and is it something you need based on your budgeting needs for the next year."
Startups have been particularly on edge about the PPP program, and some experts have maligned the venture-backed founders for taking funds that they believe are intended for other hard-hit industries like bars and restaurants. But Brex, which is itself an approved PPP lender with partner bank Radius, told founders on Thursday that they are still responsible for employees' livelihoods the same way a restaurant owner is to their waitstaff.
But Dorfman cautioned against founders inflating costs or attempting to get more funding just to keep the lights on. "You cannot hire more people with the money from the loan, this is only for keeping your current headcount," she said. "When you sign up for these funds, you are attesting to the fact that you need this funding and you are attesting that to the government. There are severe consequences if you defraud the government."
Dorfman explained that 75% of the funds, once allocated, must be used for payroll costs if founders want to be eligible for loan forgiveness down the road. The remainder can be used for operational needs, like lease payments or service costs, that keep the business operating as normal.
But not all startups can qualify, and it's still difficult to apply. Brex is only accepting applications for PPP loans from current Brex customers that also have a relationship with its partner bank Radius. Startups also have to list US Employer Identification Numbers for investors that own at least 20% of the company, which could prove an additional challenge for founders that have taken on significant foreign investors.
Given all the moving pieces, Dorfman emphasized that whether or not startups should apply for PPP loans needs to be a case-by-case decision. She said that all teams should meet with board members and any additional stakeholders to evaluate all the options, and get started on gathering the mountains of information needed to complete the PPP application if that's what's decided.