The U.S. Small Business Administration has issued new guidance for the federal government’s small business relief program amid an outcry over publicly-traded companies receiving loans.
To obtain funds from the Paycheck Protection Program, applicants must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
With a second round of PPP funding in the pipeline after the initial $310 billion was exhausted, the SBA clarified Thursday that in making the required certification, borrowers must take 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,” the new guidance says.
As CNBC reports, the update came “after a public furor that large companies tapped the facility … for hundreds of millions of dollars in loans while thousands of small businesses have yet to receive funding.”
“By definition, public companies have access to the capital markets,” CNBC said, noting that burger chain Shake Shack said it returned the $10 million it got through the PPP after it sold $150 million in new shares.
According to a National Small Business Association survey, 52% of small businesses with 20 employees or more received approval for a PPP loan in the first round of funding, while only 18% of those with 10 or fewer employees received approval.
The House passed a nearly $500 billion interim coronavirus bill on Thursday that includes another $320 billion in PPP funding. The program provides forgivable loans to small businesses that keep their employees on payroll.
“The SBA’s clarification will help businesses know better whether they qualify for the loan, reduce some of the legal risks in its hardship certification, and perhaps slow the rush for PPP loans to prevent them from again being quickly depleted,” Forbes said.