“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,” the guidance states. “Borrowers still must certify in good faith that their PPP loan request is necessary.”
The guidance states that 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. ... 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.”
The PPP program was intended to benefit workers at businesses and nonprofits with fewer than 500 employees that are unable to obtain credit elsewhere, according to the Small Business Act, which formed the basis for the program.
But after intensive lobbying by the restaurant and hotel industries during the weeks leading to the passage of the $2 trillion Cares Act stimulus package, Congress allowed separate subsidiaries and locations to apply as businesses, even if they were part of a national or international chain.
More than 140 publicly traded companies in an array of industries — including owners of large hotel chains, restaurant chains, energy firms and manufacturers — received PPP money, SEC records show. Some of the companies are worth hundreds of millions of dollars based on their share values, and many of them pay executives seven-figure compensation packages. Others have boosted their share prices in recent years through share buybacks and dividend payments.
While the SBA has refused to release a list of companies that received loans under the PPP, dozens of publicly traded companies have disclosed receiving the loans in filings with the Securities and Exchange Commission. The SBA has said it intends to release information on which companies received PPP loans at some point in the future but has not said when.
Among those disclosures so far, one of the largest loans appears to be more than $30 million to Ashford Hospitality Trust Inc. The company runs a chain of more than 40 hotels including the Ritz Carlton Atlanta and numerous Marriott and Hilton properties, which each received loans ranging from $86,000 to $3.7 million.
When the money ran dry last week, news that many large corporations had received loans sparked fierce criticism from small-business advocates and policymakers from both parties. Since then, a handful of the chain restaurants have announced they would return the money, including Shake Shack, Kura Sushi USA and Sweetgreen, which is privately held.
On Thursday, Ruth’s Chris Steak House, a chain that has 150 locations and is valued at $250 million, agreed to return the $20 million it had received. The company said it intended to repay the loan “in adherence with government guidelines.”
Some of the companies receiving money, including Ruth’s Chris, are clients of JPMorgan Chase, adding fuel to criticism that Wall Street banks had helped their clients obtain large amounts. The bank put out a statement Sunday saying that it is “proud to have secured more funding for small businesses than anyone else in the industry” and that 80 percent of its PPP loans have been for businesses with less than $5 million in revenue.
Juleanna Glover, a public policy adviser who is tracking the SBA loan program, said Thursday’s guidance is less of a formal rule change than a warning to businesses.
“You’re going to have to defend that judgment that you’ve decided to take the money not just in a judicial court, but in the court of public opinion,” Glover said. “I would argue the court of public opinion is going to be much more hazardous for businesses across the country.”
Although it relies on borrowers to certify their own eligibility, the SBA could audit loan recipients once the crisis passes. Violating the Cares Act rules would amount to breaking the law and submitting false information to a federally insured lender carries stiff penalties.
“I think there is going to be a lot of business owners asking outside lawyers to read the tea leaves here,” Glover said. “It’s going to be a value judgment for business owners as to whether they can defend taking the loan in order to keep their employees or rehire their employees. That’s the intent of the legislation.”