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What Houston startups need to know about PPP loans

Startup founders seek answers to how PPP loan funds provide their companies security and support. Miguel Tovar/University of Houston

Unless you've been vacationing on Mars for the past six months, you know that a $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently approved by Congress. Business owners are sifting through the fine print to see if they qualify for PPP loans for startups.

The stimulus package carries provisions that will surely assist startups and small business during our current state of national emergency. The most notable part of this legislation is known as the Paycheck Protection Program, or PPP.

"Under the PPP, startups can qualify to attain a forgivable loan of 2.5 times the average monthly payroll, with restrictions, of course," explained the vice president of communications for Zeni Inc., Emilie Pires.

Emilie Pires oversees Zeni, a company that helps startups manage financial affairs and helps clients apply for PPP loans.

The federal government has a history of lending to small businesses through the Small Business Administration. The PPP loan differs from past loans, however, because it can be forgiven, and because it doesn't require a personal guarantee.

"Loan forgiveness is the most notable aspect of the PPP. It is significant because if you comply with the requirements, the loan actually functions like more of a grant. It's non-dilutive capital from the federal government to keep your company alive," Pires continued.

Perks of PPP

According to Bloomberg business writer Sara McBride, not requiring a personal guarantee gives startup founders a much needed boost.

"If a loan requires a personal guarantee, the founder would likely be weighed down with heavy personal debt if the startup ended up failing. A loan like this is not very appealing, so it's a big deal that the PPP loan doesn't require a personal guarantee."

Here are the two requirements if you want the loan to be forgiven. Per Bloomberg:

1) You must spend the money within 24 weeks of receiving funds, and;

2) You must use the loan on payroll, rent, mortgage, interest, or utilities.

The affiliate rule

Here's where it gets a little dicey. First off, it's best to consult a lawyer regarding the specifics of the affiliate rule. The affiliate rule essentially states that, if you own multiple startups, you have to count all the employees of all your companies when determining if you qualify for the PPP loan, which requires you to have less than 500 employees total to qualify.

With that said, here is an interpretation given by tech industry venture capitalist and lawyer Ed Zimmerman: "You might be able to skate by the affiliate rule if no one who owns other companies has more than a 20 percent stake in your company, and if no one in your company has enough control to veto any actions from your board."

Qualifying for PPP

Zimmerman also lays out a three-question test that might help you determine if your venture capitalist-supported startup qualifies for a PPP loan. The three questions are:

1) Does your venture capitalist hold 50 percent of your company's equity?

2) Even aside from that, does at least one venture capitalist control the majority of the company's board?

3) Further, does any venture capitalist control large portions of protective provisions, allowing him or her to veto corporate action, giving this venture capitalist control of the startup?

According to Zimmerman, if your answer to any one of the above is yes, you should attain legal counsel. If you answered no to all three, that's great news for you (but should still seek out legal counsel).

It is worth noting that the CARES Act does offer a program for companies with up to 10,000 employees. But those rates will be higher and will come with much bigger caveats.

Again, it's best to consult a lawyer to decide if you qualify to avoid the affiliate rule.

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This article originally appeared on the University of Houston's The Big Idea. Rene Cantu, the author of this piece, is the writer and editor at UH Division of Research.

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Self-driving pizza delivery goes live in Houston

Domino's and Nuro announced their partnership in 2019 — and now the robots are hitting the roads. Photo courtesy of Nuro

After announcing their partnership to work on pizza deliveries via self-driving robots in 2019, Dominos and Nuro have officially rolled out their technology to one part of town.

Beginning this week, if you place a prepaid order from Domino's in Woodland Heights (3209 Houston Ave.), you might have the option to have one of Nuro's R2 robot come to your door. This vehicle is the first do deliver completely autonomously without occupants with a regulatory approval by the U.S. Department of Transportation, according to a news release.

"We're excited to continue innovating the delivery experience for Domino's customers by testing autonomous delivery with Nuro in Houston," says Dennis Maloney, Domino's senior vice president and chief innovation officer, in the release. "There is still so much for our brand to learn about the autonomous delivery space. This program will allow us to better understand how customers respond to the deliveries, how they interact with the robot and how it affects store operations."

Orders placed at select dates and times will have the option to be delivered autonomously. Photo courtesy of Nuro

The Nuro deliveries will be available on select days and times, and users will be able to opt for the autonomous deliveries when they make their prepaid orders online. They will then receive a code via text message to use on the robot to open the hatch to retrieve their order.

"Nuro's mission is to better everyday life through robotics. Now, for the first time, we're launching real world, autonomous deliveries with R2 and Domino's," says Dave Ferguson, Nuro co-founder and president, in the release. "We're excited to introduce our autonomous delivery bots to a select set of Domino's customers in Houston. We can't wait to see what they think."

California-based Nuro has launched a few delivery pilots in Houston over the past few years, including the first Nuro pilot program with Kroger in March 2019, grocery delivery from Walmart that was revealed in December 2019, and pharmacy delivery that launched last summer.

From being located in a state open to rolling out new AV regulations to Houston's diversity — both in its inhabitants to its roadways, the Bayou City stood out to Nuro, says Sola Lawal, product operations manager at Nuro.

"As a company, we tried to find a city that would allow us to test a number of different things to figure out what really works and who it works for," Lawal says on an episode of the Houston Innovators Podcast. "It's hard to find cities that are better than Houston at enabling that level of testing."

Steam the episode here.

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