COVID-19 Business Relief Loans Update

Originally intended as COVID-19 relief loans for smaller companies lacking other funding options, the Paycheck Protection Program (PPP) implemented in the United States as part of the federal CARES Act, has also lent money to quite a few large firms. Amid the controversy, some of these larger companies have returned the PPP money. While many of them have been coerced into giving back the funds, others would defy the critics and hold out against the naysayers. We are here to share more information about the situation and will also let you in on some program updates that are of critical importance to small business owners.

In the first round of PPP funding totaling $350 billion USD, over 245 public companies applied for more than $905 million USD, according to data analytics firm FactSquared and reported by CNBC. In fact, three companies affiliated with one particular hotelier in Texas applied for a grand total of $126.4 million USD. One of these firms, Ashford Hospitality Trust, took advantage of a loophole in the law by counting each property as an individual business. Therefore, the firm was able to apply for $76 million USD and obtain $38 million USD in PPP loans as of April 26th. This large sum was the highest disclosed by any company, and neither of the three hospitality firms in question actually plan to return the money, according to the article. Additionally, a total of $243.4 million USD of the PPP funding was awarded to public companies, according to a Morgan Stanley analysis in April. Due to more recent company disclosures, that figure has risen since the analysis was published.

In response to these public company actions, the Small Business Administration (SBA) ruled that large public companies “with substantial market value and access to capital markets” would have to return the funds. 15 firms had returned $116 million USD as of April 26, including Shake Shack, Ruth’s Hospitality Group, and Potbelly. Currently, we are in the second round of PPP funding totaling $310 billion USD, with over $140 billion remaining, as reported by NPR on May 28.

Adding to the confusion, an SBA FAQ document updated on May 27 still includes the guidance it issued in April, appearing to respect some of the practices that these large companies have been using to obtain loans. Specifically, the document stipulates special rules for businesses utilizing NAICS codes beginning with 72, including food service providers and many other businesses in the hospitality industry. Question 24 specifically states: “SBA’s affiliation rules (13 CFR 121.103 and 13 CFR 121.301) do not apply to any business entity that is assigned a NAICS code beginning with 72 and that employs not more than a total of 500 employees. As a result, if each hotel or restaurant location owned by a parent business is a separate legal business entity, each hotel or restaurant location that employs not more than 500 employees is permitted to apply for a separate PPP loan provided it uses its unique EIN.” Interestingly, the SBA FAQ states that a borrower with more than 500 employees may also qualify for the program if they meet the definition and regulatory requirements of a “small business concern,” as defined under section 3 of the Small Business Act, 15 U.S.C. 632. Additionally, PPP funding is not just for businesses. Nonprofits, tax-exempt veteran organizations, and tribal business concerns may also qualify.

On May 28, the U.S. House of Representatives passed the Paycheck Protection Program Flexibility Act. If it passes the Senate, the Act will increase the flexibility of the loans and loosen restrictions on loan forgiveness, as reported by CNN. For instance, the Act would extend the eight-week timeframe to 24 weeks, giving businesses more time to use the loans. In addition, it includes looser usage restrictions on the funds to qualify for loan forgiveness, with 60% or more to be spent on payroll and 40% or less on other expenses. Contrast that with the current 75/25 rule, which requires 75% or more of the funds to be used for payroll to qualify for loan forgiveness.

Readers Are Welcome to Weigh In

After reviewing the information above, what’s your opinion? Do you believe that large companies are still receiving too much PPP funding? Has the Paycheck Protection Program helped you or someone you know? Let us know in the comments section. We are looking forward to hearing from you!