Public corporations have been criticized for getting loans through the Paycheck Protection Program (PPP), which was supposedly created to help small businesses weather the economic impact of the pandemic. With publicly traded companies raising capital in the stock markets and building credit lines banking relationships, some critics say Congress should have banned publicly traded companies of all sizes from applying for funds through the PPP. Under the CARES Act, the PPP allowed companies with up to 500 employees to apply for yielding loans of up to $ 10 million.
While some well-known public corporations returned their PPP loans under pressure from media scrutiny, a study shows that only a small percentage of public corporations returned PPP funds. However, it also turns out that most have borrowed less than $ 1 million.
SEC filings on PPP loans
The study, of the law firm Bryan Cave Leighton Paisner, has reviewed public companies filings with the Securities and Exchange Commission (SEC) for disclosures regarding Paycheck Protection Program loans. The company found:
- 850 borrowers reported having received PPP loan approvals.
- 107 of the borrowers (approx. 12%) later stated that they either did not accept the loan or had repaid the proceeds without use.
- About a quarter (25%) of publicly traded companies that paid back their loans had borrowed less than the $ 2 million threshold that would trigger a US Small Business Administration review. (For details on SBA oversight, please see my Forbes.com article on the subject, Paycheck Protection Program News: SBA Offers Good Faith Safe Harbor Certification to Support Loans.)
- Of the 759 publicly traded companies that did not want to return their PPP funds, about 27% had PPP loans greater than $ 2 million, while 73% received $ 2 million or less.
- Approximately 8% of public company loan recipients who kept their loans below $ 100,000, while over 55% received less than $ 1 million.
- About 200 public companies with PPP loans over $ 2 million have chosen to keep their PPP loans. About 60% of these companies had loans between $ 2 million and $ 5 million. At 36%, the amount was between $ 5 million and $ 10 million. At 4%, loan funds were over $ 10 million (the maximum under the PPP). As the company explains, some companies could borrow more than $ 10 million in total because they have multiple subsidiaries; in other cases, companies with multiple physical locations were subject to special hospitality rules (e.g. hotel chains with fewer than 500 employees per hotel).
When I asked Bryan Caves attorney Robert Klingler, the firm’s author of the study, if he was surprised at how many public corporations were trying to get PPP loans for less than $ 1 million, he replied that they weren’t be. “Although public companies are not normally thought of as small businesses, and most small businesses are not public companies, there are still many small but public companies,” he said. “Over 70% of all PPP borrowers have borrowed less than $ 100,000; 98% have borrowed less than $ 1 million. “
Public companies whose loans meet SBA standards
The Loan application required all companies to submit certain certifications that reflect the wording of the law: “The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations. ” This undefined credit requirement certification has proven to be a source of controversy and possible abuse.
In his FAQ # 31 Regarding the PPP, the SBA states: “It is unlikely that a publicly traded company with significant market value and access to the capital markets will be able to carry out the required certification in good faith.” For more information on this FAQ and its implications, see a previous Forbes.com article I wrote about it: SBA says paycheck protection loans are not suitable for larger “small” businesses with access to liquidity.
The law firm is confident, at least for its clients, that public company borrowers can meet this standard should they be challenged: “Given the economic uncertainties in March and April, we believe the vast majority, if not all of them, will be in be able to demonstrate the good faith of their ‘Needs’ certification in connection with their PPP loan application. ”The company recommends borrowers from public corporations before submitting their PPP Application for a loan, should “fully document their ‘need’ certification.”
SEC information on examined PPP loans
The SEC is investigating inconsistencies in a company’s SEC disclosures about its financial condition versus the evidence it provided in the SBA loan application for funding. According to various law firms, some companies that publicly announced that they had received PPP funding received requests from the SEC Division of Enforcement for more information (see comments from Bryan Cave , Cooley, and Kramer Levin).
Bryan Cave reveals that the information requested by the SEC determined “the eligibility and needs of recipients for PPP funds, the financial impact on recipients of the pandemic, and the government’s response, and the recipient’s assessment of their viability and access to funding affect”. It is part of an investigation filed by the SEC as. referred to as In relation to certain Paycheck Protection Program Loan recipients.