Throws lifeline to publicly traded companies before they can be humiliated and indicted

April 23, 2020

Small businesses, members of Congress and the public are justifiably enraged about big name national corporations receiving Payroll Protection Program (PPP) loans intended to help small businesses survive.

The scandal started when we heard that Ruth’s Chris Steak House chain secured $20 million in PPP loans.  That was quickly followed with Shake Shack announcing that it was returning the $10 million PPP loan it obtained.

Then yesterday we learned of Morgan Stanley’ analysis of the SBA approved PPP loans that showed “at least 90 publicly traded companies” received $243.4 million in loans.

Senator Marco Rubio of Florida is prepared to bring down the hammer on what appears to be abuse of the PPP loan process.  Monday of this week he said, “This fall, the Senate Committee on Small Business and Entrepreneurship will conduct aggressive oversight into the use of the PPP. If companies are not forthcoming, the Committee will use its subpoena power to compel cooperation.”

Televised Senate hearings this fall that would force public traded companies to justify why they took PPP funds away from real small businesses would make great theater but super headaches for the Trump Administration right before a November election.

So, today the Department of Treasury rescued the publicly traded companies in the form of some “Additional Guidance Regarding the Paycheck Protection Program”.

Here is Question 31 of Treasury’s “Frequently Asked Questions” about the PPP.

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.  Lenders may rely on a borrower’s certification regarding the necessity of the loan request.

And here is the life preserver Treasury threw to the publicly traded companies worried about being called before Senator Rubio’s Committee this fall and possible legal problems.

Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Question 31 published April 23, 2020.

There will probably be a lot of publicly traded company checks flowing to private lenders before May 7.

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