While coronavirus continues to take lives, wreak havoc on our economy and cause hardships for workers and businesses of all sizes, small businesses, especially startups, are facing unique challenges with their limited resources. Even in normal and prosperous times, startups operate in a tenuous environment – fighting each month to keep their doors open. Now more than ever, policymakers should ensure these job creators receive the support they need to survive this tumultuous era. People’s jobs, the ongoing COVID-19 response and America’s innovation leadership depend on it.
Before COVID-19, startups had been steadily increasing in number since the economy began to recover in 2010, creating jobs, growing the economy and serving as a primary source of innovation. In 2019, venture-backed startups employed 2.27 million workers across our nation.
However, the reality remains that about 90 percent of startups fail. And now, COVID-19 has injected unprecedented challenges to this already precarious reality for startups. The result has been job losses and stalled innovation. While the government has taken historic steps to protect the economy with unprecedented speed, the policy response so far for startups has not provided the timely and certain relief that is so desperately needed.
For example, the Paycheck Protection Program in the Coronavirus Aid, Relief, and Economic Security Act was created to help small businesses retain their workers. Many lending institutions and financial technology companies like PayPal and Intuit have successfully operationalized this loan program for countless small businesses across America. However, many startups have been left out of the program or struggled to navigate eligibility guidance addressing the Small Business Administration’s affiliation rules.
Likewise, the Federal Reserve initially announced that its Main Street lending programs would determine loan size and eligibility based on the borrower’s earnings before interest, taxes, depreciation and amortization, a measure that approximates a firm’s profitability. To access these loans, borrowers would need to have had a positive EBITDA in 2019. But many promising startups and growth-stage businesses had a negative EBITDA in 2019 because they invested in growth before the pandemic. These investments are vital for a business’s long-term success and the health of the American economy, even though they result in an accounting loss in the short term.
The administration has welcomed input on these rules, but the practical impact of these recent experiences have been too much red tape, uncertainty and time lost for many startups. Without additional and clearer policy actions, the potential to reverse the positive trend of an increasing number of jobs created by startups is a serious one. We know from the efforts of many members of Congress that strong bipartisan support exists for ensuring that small, fast-growing businesses can tap these emergency relief programs.
As Congress considers a Phase 4 relief package, this is an opportunity to ensure that no small business, including innovative startups, are left behind. By waiving affiliation rules, reducing red tape and allowing flexibility within the qualification requirements, Congress and the administration can help even more businesses survive this pandemic.
Beyond the immediate emergency relief, we need long-term action to stimulate America’s startup economy, such as reviving the JOBS and Investor Confidence Act of 2018, a package of 32 bills that passed with near-unanimous bipartisan support in the last Congress. In addition, Congress should pass a series of tax proposals to give startups tools that could provide immediate liquidity to invest in keeping their employees working. Specifically, these reforms should allow startups to access the value of their net operating losses, enhance the value of NOLs for expenses related to production and distribution of products needed to fight COVID-19, make research and development credits temporarily refundable and double the research and development credit value for startups researching technologies to combat COVID-19.
Failing to prioritize startups now will mean both short-term and long-term consequences. It is worth noting that some of the most iconic companies in the world were once startups – Facebook, Google, Amazon, eBay and many others. As today’s startups waited for the initial policy responses by Congress, these tech companies filled the void with relief for small businesses. Tech companies have also turned their resources to securing millions of N95 masks, powering temporary hospitals, providing meals to vulnerable communities, helping students and employees stay connected to their important work, and so much more.
If we fail to prioritize America’s startup workers now, we may find ourselves during a future crisis wondering why there aren’t more companies stepping up like we have seen during COVID-19.
Linda Moore is the president and CEO of TechNet.