Some public companies were criticized for getting loans via the Paycheck Protection Program (PPP), which was ostensibly created to help small businesses weather the economic impacts of the pandemic. Since public companies raise capital in the stock markets and have established banking relationships for lines of credit, some critics say Congress should have excluded public companies of any size from applying for funds via the PPP. Under the CARES Act, the PPP allowed companies with up to 500 employees to apply for forgivable loans of up to $10 million.
While a few high-profile public companies gave back their PPP loans under pressure from media scrutiny, a study shows that only a small percentage of public companies returned PPP funds. It also finds, however, that most took out loans of less than $1 million.
SEC Filings On PPP Loans
The study, by law firm Bryan Cave Leighton Paisner, reviewed public company filings with the Securities and Exchange Commission (SEC) for disclosures about the Paycheck Protection Program loans. The firm found:
- 850 borrowers indicated receiving PPP loan approvals.
- 107 of the borrowers (approximately 12%), later disclosed that they either didn’t accept the loan or returned the proceeds without using it.
- About a quarter (25%) of the public companies who returned their loans had borrowed less than the $2 million threshold that would trigger review by the US Small Business Administration. (For details on SBA oversight, see my Forbes.com article on this topic, Paycheck Protection Program News: SBA Provides Good-Faith Certification Safe Harbor To Support Loans.)
- Of the 759 public companies that elected not to return their PPP funds, approximately 27% had PPP loans of more than $2 million, while 73% received $2 million or less.
- About 8% of the public company loan recipients that kept their loans received under $100,000, while over 55% received less than $1 million.
- About 200 public companies with PPP loans over $2 million elected to retain their PPP loans. At about 60% of these companies, the loans ranged between $2 and $5 million. At 36%, the amount was between $5 and $10 million. At 4%, the loan funds were in excess of $10 million (the maximum under the PPP). As the firm explains, some companies could borrow more than $10 million in aggregate because they have multiple subsidiaries; in other cases, companies fell under special rules for the hospitality industry with multiple physical locations (e.g. chain hotels with fewer than 500 employees at each hotel).
When I asked Bryan Cave attorney Robert Klingler, the author of the firm’s study, whether he was surprised by how many public companies went through the effort to take out PPP loans for less than $1 million, he replied that he was not. “While one may not usually think of public companies as small business, and most small businesses are not public companies, you still have a lot of small, but public, companies,” he explained. “Over 70% of all PPP borrowers borrowed less than $100,000; 98% borrowed less than $1 million.”
Public Companies Who Kept Loans Meet SBA Standards
The loan application required all companies to make certain certifications that mirror the wording in the law: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” This undefined condition to certify the need for the loan proved to be a source of controversy and potential abuse.
In its FAQ #31 on the PPP, the SBA explains “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.” For more on that FAQ and its implications, see an earlier Forbes.com article I wrote about this: SBA Says Paycheck Protection Program Loans Are Not For Larger ‘Small’ Businesses With Liquidity Access.
The law firm feels confident, at least for its clients, that public company borrowers will be able to meet this standard should they be challenged: “Given the economic uncertainties present in March and April, we believe the vast majority of these borrowers, if not all of them, will be able to demonstrate the good faith basis of their ‘need’ certification in connection with their PPP loan application.” The firm does recommend that public company borrowers, before filing their PPP loan forgiveness application, should “fully document their ‘need’ certification.”
SEC Disclosures On PPP Loans Under Investigation
The SEC is looking at inconsistencies between a company’s SEC disclosures on its financial situation compared to certifications it made in the SBA loan application about the necessity of funding. According to various law firms, some companies that publicly disclosed getting PPP funds received SEC Division of Enforcement requests for more information (see commentaries from Bryan Cave , Cooley, and Kramer Levin).
Bryan Cave reveals that the information the SEC requested “appears to concern the recipients’ eligibility and need for PPP funds, the financial impact on recipients of the pandemic and government response, and recipients’ assessment of their viability and access to funding.” It’s part of an investigation being referred to at the SEC as In the Matter of Certain Paycheck Protection Program Loan Recipients.