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Large Public Companies Must Return Federal Loans

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The federal government wanted its coronavirus relief loans to go towards small, “Main Street” businesses. However several large public companies took advantage of a loophole. Now, Uncle Sam wants his money back.

On Thursday, the Small Business Administration issued new guidance that makes it even harder for large companies to access federal loans. It said companies that apply for coronavirus relief loans must certify that the loans are necessary. Additionally, the company cannot tap other sources of funding. Public companies have access to capital markets by definition, so it seems unlikely that any could truthfully fulfill the certification. Any company that tries to sneak in will risk drawing the ire of the Treasury Department. The said department will undoubtedly come down hard on anyone that tries to play the system.

Over $550 million in forgivable loans were approved for roughly 150 large, publically traded companies through the Paycheck Protection Program. The program’s guidelines specifically restrict loans to businesses with 500 or fewer employees. However, certain businesses, particularly hospitals and restaurants, managed to skirt around this requirement. To make matters worse, large companies also applied for multiple loans through their subsidiaries. Therefore, some companies were about to rack of tens of millions of dollars in forgivable federal loans.

Big Businesses Getting Loans

The issue began to attract controversy last week when reports indicated that several companies with market values well above $100 million were receiving loans from the program. Meanwhile, smaller businesses were having trouble accessing any type of funding at all. Small business owners were incensed when they found out giant public companies like Shake Shack and Ruth’s Chris Steakhouse were tapping the program. The controversy sparked a public outcry which led the Treasury Department to clarify its lending guidelines last week.

After the controversy began to heat up, Treasury Department officials released a statement encouraging public companies to return the money. The Treasury 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.”

The PPP loan application requires businesses to certify that “current economic uncertainty makes the loan necessary to support … ongoing operations.“ The Treasury Dept.’s statement indicates that public companies will have a tough time justifying that they made that certification in good faith, and they could get in big trouble for lying on their applications if it came down to it.

The Treasury Department wants these large public companies to give back the money so that they can recycle it back into the program. However, the department granted a grace period for businesses to return the money without penalty. The Small Business Administration will deem any business that returns the funds by May 7th “to have made the required certification in good faith.”

Abusing a Loophole

Two dozen of the companies that received loans had more than 500 employees. However, many squeezed into the program through a loophole that excluded restaurants and hotels from this requirement. At least 15 companies that received loans had market values exceeding $100 million. DMC Global has a value of over $405 million and it received $6.7 million in forgivable loans. Molly Bennet, a large hotel chain, secured dozens of loans totaling almost $60 million by applying through several of its subsidiaries.

The House ratified the second round of PPP funding on Thursday. The new bill provides an additional $320 billion for the program. U.S. businesses rapidly depleted the $350 billion allocation for the PPP in the first round. So, the program needed financial ammunition in order to continue operating. Now the bill will head to the White House for President Trump’s final approval.

In the grand scheme of things, the $550 million in loans received by large businesses is only a small portion of the soon-to-be $670 billion PPP fund. Although, the idea of large corporations raiding federal emergency funds definitely didn’t sit well with many Americans.

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4 Comments

4 Comments

  1. Avatar

    Art Wilerson

    April 25, 2020 at 11:20 AM

    I am almost 60. I am trying to build a business to leave to my daughters when I due. The Fucked up credit reporting system in this country only leaves my only source of working capital as PayDay Lenders.

  2. Avatar

    Vivien Timmons

    April 25, 2020 at 2:25 PM

    This is disgusting that big business would be so callous. I’m glad the government is making them give it back.

  3. Avatar

    Jeff Sanchez

    April 25, 2020 at 4:56 PM

    Big company’s put out these adds making people think that they will a free what ever, but it’s to bug you for business, you’re getting nothing free.
    I’ve done plenty of these questionnaires and all I get is 20 phone calls a day from people telling
    me that their product is the best, I’m tired of it, all I do is curse those people, I don’t need it, and
    besides, it’s all bullshit nothing is free, you’re a bunch of crooks

  4. Avatar

    GomeznSA

    April 25, 2020 at 6:41 PM

    Several things come immediately to mind – how much is the SBA managing to skim while mismanaging the entire process? Are the bureaucrats administering the program that easily fooled by big businesses – like say the TWENTY FIVE million given to the Kennedy Center?
    I’ve said before on several other blogs that if that 25 million had been used to create 25 local millionaires they would have gotten way more bang for their bucks. Never mind the 350 million for migrant assistance……….
    The blatantly obvious graft from top to bottom is INSANE.

    Full disclosure – I said if I were granted one of those millions I’d pass it on to the local food bank – minus 5 bucks for my gas to deliver it to them – they are doing a fantastic job. I’ve decided I need PIZZA so I’d keep a sawbuck to cover that and the gas.

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