CARES Act - Does Search Fund ownership preclude eligibility?

investor profile

March 26, 2020

by an investor from Harvard University - Harvard Business School in San Francisco, CA, USA

Hope everyone is staying safe and healthy. I'm curious to get a read on whether the broader community believes that search fund companies are eligible for the forgivable loans. There appears to be an attempt to exclude PE-backed companies (link below):

https://www.axios.com/newsletters/axios-pro-rata-f080d6bb-1717-4c56-98a0-77f94bd16347.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosprorata&stream=top


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Reply by a searcher
from University of Pennsylvania in Chicago, IL, USA
Hi Greg, Perkins Coie indicates that the prior SBA provision that disallowed PE-backed companies as "small businesses" (by aggregating the # of employees with employees of other portcos) no longer applies in the CARES act. However it looks like the firm is still updating based on the most recent text of the act.

But even if the new CARES act continues to aggregate employees across a portfolio, a number of search fund portfolios are still small enough so that even in aggregate the total employee count is under the 500-person limit.

link: https://www.perkinscoie.com/en/news-insights/the-cares-act-and-private-equity.html
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Reply by a searcher
from University of California, Berkeley in San Francisco, CA, USA
Keep in mind there is a distinction between PE sponsor vis-à-vis SF. Your SF capital structure maybe quite different than a PE fund (GP/LP structure). SBA normally does have majority owner test for eligibility and PG. I have not read through PC's link or the new guidance that just came out via SBIA.org on CARES Act stimulus to small businesses. I encourage you to consider your own cap structure. An SBA loan officer can save you lots of time.
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