The Small Business Administration is cracking down on public companies that demand Paycheque Protection Program ready. It comes after outrage that large state-owned companies have swept up much of the first round of emergency funding, which quickly ran out.
The SBA updated its PPP guidance on Thursday, the same day the House of Representatives is expected to approve $ 320 billion in new funds for the PPP program. A new entry to frequently asked questions document suggests that large companies will have to prove that they really need the funds – and that that could prove difficult.
The question reads: “Are companies owned by large companies with sufficient sources of liquidity to support the ongoing operations of the company eligible for a PPP loan?” “
“[B]Before submitting a PPP application, all borrowers should carefully review the required certification that ‘[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations, ”the document said.[I]A state-owned enterprise with substantial market value and access to capital markets is unlikely to be able to perform the required certification in good faith, and such an enterprise must be prepared to demonstrate to the SBA, upon request, the basis of its certification. “
The update appears to be more of a clarification than a change. The very text of the new legislation, which the Senate approved on Tuesday, does not address the issue of public companies seeking loans.
The SBA requires most businesses to have 500 or fewer employees to be eligible for PPP loans, but there are exceptions. Restaurant and hospitality chains, for example, are eligible if their individual locations employ fewer than 500 people.
Thanks to this distinction, Shake Shack was able to apply for and receive a loan of 10 million dollars, the maximum size of the PPP. Ruth’s Chris Steak House received two separate loans, one for each of its subsidiaries, totaling $ 20 million.
After a public outcry, Shake Shack sold new shares to raise capital, then announced that he was repaying his loan.
Combined state-owned enterprises are expected to receive at least $ 243 million in PPP loans, according to research by Morgan Stanley. Fifteen of those companies have market caps well over $ 100 million, including oil and manufacturing company DMC Global ($ 405 million), biotech firm Wave Life Sciences ($ 286 million) and pharmaceutical company MannKind ( $ 273 million).
Update, April 23, 8 p.m. ET: The Treasury Department says companies that applied before the new guidelines were released have until May 7 to repay their loans in order to stay in good standing with the Treasury.