Treasury Secretary Steven Mnuchin speaks during the daily briefing on the novel coronavirus, COVID-19, in the Brady Briefing Room at the White House on April 2, 2020, in Washington, DC.
Mandel Ngan | AFP | Getty Images
The Small Business Administration issued new guidance on Thursday that makes it "unlikely" that big publicly traded companies can access the next round of funding for the U.S government's small business relief program.
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 funding, the SBA said. By definition, public companies have access to the capital markets. For instance, Shake Shack said it returned the $10 million it got through the PPP after it sold $150 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."
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 $350 billion round allowed large restaurant and hotel companies to apply for loans of up to $10 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 on 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.
Here's what the SBA said on public companies getting loans:
"Question: Do businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan?
Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, 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."
This is a developing story. Check back for updates.
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US issues new guidance for small business loans to make it harder for public companies to get funds - CNBC
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