The Small Business Administration is cracking down on public companies applying for Paycheck Protection Program loans. This comes following outrage that big public companies snagged so 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 a frequently asked questions document suggests that large companies will have to prove they actually need the funds--and that doing so might prove difficult.
The question reads: "Do businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan?"
"[B]efore 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,' " the guidance reads. "[I]t 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 update seems to amount to more of a clarification than a change. The actual text of the new legislation, which the Senate approved on Tuesday, does not address the issue of public companies applying for loans.
The SBA requires that most companies have 500 employees or fewer 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 that distinction, Shake Shack was able to apply for and receive a $10 million loan, the maximum size under 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, and then announced it was returning its loan.
Public companies combined are set to receive at least $243 million in PPP loans, according to research from Morgan Stanley. Fifteen of those companies have market caps well over $100 million, including oil and manufacturing firm DMC Global ($405 million), biotech company Wave Life Sciences ($286 million), and pharma company MannKind ($273 million).
Update, April 23, 8:00 p.m. ET: The Treasury Department says that companies that applied prior to the new guidance being issued have until May 7 to return their loans to remain in good standing with the Treasury.