The Small Business Administration issued new guidance on Thursday making it less likely that big publicly traded companies can access the next round of funding for the US government small business relief program. It also stepped up pressure on public companies that have tapped funds to return the money.
The update comes after a public furor that large companies tapped the facility , known as the Paycheck Protection Program, for hundreds of millions of dollars in loans while thousands of small businesses have yet to receive funding.
Companies applying for the coronavirus relief funds must certify that the loans are necessary and that they cannot tap other sources of money, the SBA said. By definition, public companies have access to the capital markets. For instance, Shake Shack said it returned the $ million million got got through the PPP after it sold $ 350 million in new shares.
“Borrowers still must certify in good faith that their PPP loan request is necessary,” the SBA said. “It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. “
The change comes as a second round of funding for PPP , after the initial $ billion was depleted last week, is set to be approved by lawmakers later Thursday. The program is set to get $ billion in fresh funds, and industry executives have said that even this amount will likely last only days. There is no guarantee that lawmakers will approve more money for the program after that.
While the spirit of the PPP, a key component of the Trump administration’s $ 2 trillion-plus economic response to the coronavirus pandemic, was to help small businesses, the rules during the program’s initial round allowed large restaurant and hotel companies to apply for loans of up to $ 23 million.
When that happened, and companies including Ruth’s Chris Steakhouse and Potbelly Sandwich Shop were revealed to have used the program, small business owners became incensed.
The backlash deepened as companies worth more than $ 100 million in the stock market successfully applied for relief. Companies including DMC Global , Wave Life Sciences . ) And Fiesta Restaurant Group won the loans, according to a Tuesday research note from Morgan Stanley.
Lenders including JPMorgan Chase and Bank of America have borne the brunt of the critique as small business owners claimed that bigger companies got preferential treatment when applying for the lifeline. JPMorgan has specifically denied that allegation , while also disclosing that clients of its commercial banking division, which caters to larger companies, generally fared better than those of its small business department.
In its latest guidance, the SBA appeared to allow banks to rely on borrowers’ certification about the true need of their loans .
But in a key detail, the SBA indicated that large public companies who tapped the PPP before the rule change can avoid scrutiny by returning the relief loans in two weeks:
“Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, will be deemed by SBA to have made the required certification in good faith, “the SBA said.
Here’s what the SBA said on public companies getting loans:
Subscribe to (CNBC PRO) for exclusive insights and analysis, and live business day programming from around the world.
Read More
GIPHY App Key not set. Please check settings