Today is the last day for companies that believe they have violated the terms of the Paycheck Protection Program in applying for loans to repay their money.
The Small Business Administration implemented this deadline after a quick backlash after it became known that dozens of public corporations had borrowed millions of dollars through the program while millions of mom and pop stores closed.
To be eligible for a loan, companies had to certify that they could not obtain funding from any other source.
Because publicly traded companies have both cash value in the form of stocks and access to capital markets (where they can buy and sell bonds, for example), the SBA said it was “unlikely” to be able to show this certification.
Within days of the news breaking, several publicly traded companies, including Shake Shack and Ruth’s Hospitality Group, started operating Ruth’s Chris Steak House return their loans.
Last month, Treasury Secretary Steven Mnuchin called that the government plans to fully scrutinize every $ 2 million small business loan to prevent public companies with access to the capital markets from completing the second round of the PPP program.
He warned that large corporations falsely claiming that the money was being prosecuted could face “criminal liability” even though the SBA took its position on the 13th, wrongly granting loans, demanding the money back.
Legal experts are skeptical that companies will have real consequences if they don’t return the money. “I honestly don’t see anyone convicted,” says Scott Pearson, partner at Manatt, Phelps & Phillips, said CNBC. “What will put people off is the threat of charges. To suggest that a company may be prosecuted if there is good reason to argue that the structure of the CARES Act makes it eligible for these loans is ridiculous. “
Earlier this month, and General report of the inspector noted that in implementing the PPP, the SBA was not following the mandates of Congress by failing to issue guidelines instructing lenders to prioritize underserved borrowers. Two days later, the Justice Department made his first arrests for PPP-related fraud: Two men applied for more than half a million dollars in loans after claiming they had dozens of people in four different companies when in reality there were no employees at all.
The paycheck protection program was incorporated into the $ 2.2 trillion CARES bill, the historic stimulus package passed by Congress in late March. It was intended as a lifeline for small businesses struggling in the wake of the coronavirus crisis, and offered forgivable loans to cover wages and overheads for two months. The program got off to a bumpy start, with a rushed start and Computer failureS. After the initial $ 350 billion allocated to the PPP dried up in just two weeks, lawmakers tried to top up the program with another $ 310 billion.
UBS analysts believe the PPP 2.5 million unemployment claims prevented over a period of 3 weeks. “We find that state-level PPP loans are negatively correlated with unemployment claims,” the researchers write. They also predict that the second round of the PPP has the potential to prevent another 1.5 million claims over the next few weeks.
Disclosure: Forbes Media LLC confirmed on July 6, 2020 that it received a $ 5 million to $ 10 million paycheck protection program loan on April 15, 2020.