Food Venture Financing News - Weekly Issue No. 6
In This Issue:
- SBA's EIDL Program
- Other SBA Funding
- SBA Affiliate Rules
- SBA Interim Rules/Important Clarifications
- SBA Loans/Impact of Bankruptcy
- Convertible Notes and SAFE Rounds
- Links to Relevant Content and Webinars
- Food System and Disaster Relief Efforts in Our Industry
SBA's EIDL Program
The SBA did not resume accepting applications for EIDL loans yesterday because the additional money authorized by Congress could be exhausted by previous applicants.
The SBA's EIDL loan program offers qualified companies emergency cash advances of up to $10,000 on low-interest loans of up to $2 million that are repayable over 30 years. The SBA stated last week that it has processed more than 755,000 EIDL loan advances totaling more than $3.2 billion, and has approved nearly 27,000 loans worth more than $55 billion since the COVID-19 outbreak. The SBA has received more than 5 million EIDL loan applications in the last month.
Other SBA Funding
The SBA is still offering traditional financial assistance under its "7(a)" loan program. (Click here)
SBA Affiliate Rules
- The Department of Treasury clarified last week that a minority shareholder would not be deemed an affiliate of an otherwise eligible company if the minority sharholder irrevocably waives any control rights that conflict with the company's eligibility.
- The borrower will not need to amend or amend/restate its charter to this effect. Rather, the company can provide other documentation that the minority shareholder has waived its control rights. Borrower will not need to amend or amend/restate its charter. It can provide documentation that the minority shareholder has waived its control rights.
SBA Interim Rules/Important Clarifications
- The SBA released a new interim rule (link) that provides important clarifications regarding its implementation of the PPP.
- The SBA's FAQ page is being updated on an ongoing basis and can be found here.
- The SBA is expected to provide guidance regarding its interpretation of the forgiveness of PPP loans as set forth in the CARES Act this week. Borrowers and their banks are anxiously seeking this guidance.
SBA Loans/Impact of Bankruptcy
The SBA issued interim rules last week that prohibit companies in bankruptcy from applying for or receiving PPP, EIDL, or Main Street Lending Program funds:
- If the applicant or owner is a debtor in bankruptcy, at the time of the application or any time before disbursement, the applicant is not eligible.
- If the applicant or owner later becomes a debtor in bankruptcy before loan disbursement, they must notify the lender and cancel the application.
Convertible Notes and SAFE Rounds
- Convertible notes and SAFEs continue to be favored instruments for investments in the current business environment.
- Terms will continue to be investor friendly and will likely include higher interest rates, higher discounts, and valuation caps.
- Maturity periods should be carefully negotiated to ensure that companies have sufficient time to raise a priced equity round.
- Companies may need to offer additional rights – such as Board observer rights, negative covenants, and information rights – to incentivize lead investors.
- Companies may need to mimic certain terms typically offered in priced equity rounds if the economic situation remains volatile for an extended period.
Links to Relevant Content and Webinars
- Paycheck Protection Program Loans - Best Practices (DWT)
- Coronavirus upends food industry: What's in, what’s out in era of pandemic eating
- Functional food and beverages persist during coronavirus
- Food startups grapple with financial roadmap as coronavirus sows uncertainty
- We have plenty of food, so why are grocery store shelves so empty?
- 'The Opportunity Of A Lifetime': Young Brands Leverage Amazon To Challenge Incumbents During Pandemic
- The Collaborative Raises $7M to Fuel U.S. Expansion of Coconut Yogurt Empire
- Kraft Heinz invests in $110m Series B for cloud retail robotics startup Fabric
- Beyond Meat enters China for the first time via Starbucks partnership
- Danone invests $10 million in Laird Superfood
- Coronavirus-driven CO2 shortage threatens US food and water supply, officials say
We recommend the following webinars this week on key topics for food ventures in the COVID-19 business environment:
- Naturally Bay Area: Visionary Leadership
Date/Time: Thursday, April 30th at 1:00pm-2:00pm PST
Blair Kellison: CEO, Traditional Medicinals
Miyoko Schinner: CEO & Founder, Miyoko's
Xavier Unkovic: President, Amy's
Mike Dovbish: Executive Director, Nutrition Capital Network (Webinar Moderator)
- Bernstein Private Wealth Management: Consumer Packaged Goods and US Food Industries
Date/Time: Wednesday, April 29th at 2:00pm-3:15pm PST
Steve Fox: CFO, EO Products
Alexia Howard: Senior Analyst, US Foods, Bernstein
Stuart Landesberg: CEO, Grove Collaborative
Xavier Unkovic: President, Amy's Kitchen
Contact Jeffrey.Kragel@bernstein.com for registration information.
Food System and Disaster Relief Efforts in Our Industry
Farmers and ranchers are on the frontlines of the current COVID-19 food system support. Kitchen Table Advisors provides personalized, in-depth business advising support to over 60 sustainable family-run farms and ranches in Northern California. KTA is helping those farms and ranches navigate a variety of business challenges, including cash flow planning, emergency financing applications, new sales accounts, and other mission-critical functions. Consider supporting the long-term success of these farm and ranch businesses by making a gift to Kitchen Table Advisors. Contact Noelle Fogg Elibol at email@example.com.
Visit the links below to learn more about organizations that are working on COVID-19 relief efforts:
At Davis Wright Tremaine LLP (DWT), we are proud to have one of the largest Food & Beverage legal practices in the country, with over 40 attorneys representing food innovators, entrepreneurs, and investors at every level of the food chain, from Farm to Label.
Please contact our Food and Beverage team if we can assist you in any way in these unprecedented times.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.