While our nation continues to combat the ongoing coronavirus pandemic and its massive effect on various aspects of society, one of the hardest hit sectors has undoubtedly been small businesses. As such, many were rightfully outraged to learn that some of the much-needed economic relief appropriated for these entities was ending up in the hands of large corporations. After backlash on the issue, some of these companies agreed to return their approved funds back to the loan program. Government agencies also responded to the controversy by modifying the criteria and language regarding the grants to deter big corporations. Lastly, in an effort to make more financial aid available to small businesses who need it the most, federal lawmakers overwhelmingly approved a new coronavirus relief package last week which is largely focused on replenishing the loan program’s exhausted funds.
The Paycheck Protection Program (PPP) is a loan program that was established to help small businesses, sole proprietors, and self-employed workers continue paying their workers and retain employees. The program was designed to help these types of companies that have been severely and adversely affected by the coronavirus health crisis. An alarming 43% of small businesses have stated that they will be forced to permanently close within six months if they don’t receive financial aid, according to a Market Watch survey. The PPP initially received $350 billion last month and drew incredible demand. Within days of becoming available, the funds had been completely exhausted, and many small businesses reported problems in getting the aid.
Large corporations including Shake Shack, Marriott, Ruth’s Chris Steak House, and Potbelly were surprisingly among the recipients of substantial funds from the PPP. While one might wonder how this was allowed to happen, the answer is simple: the program criteria gave these companies access to the financial aid. As written in the CARES (Coronavirus Aid, Relief, and Economic Security) Act – the legislation that created the PPP – any business that is classified as an accommodation or food service that has 500 or fewer employees at its individual locations is eligible. So ultimately it is this loophole that opened the door for Shake Shack and others to apply, since their thousands of employees are spread out in a manner that conforms to the program’s guidelines.
Shake Shack and Ruth’s Chris Steak House announced that they would be returning their PPP loans in the wake of the backlash that they justifiably received. Shake Shack stated it would give back the $10 million it had been granted, while Ruth’s Chris Steak House is set to do the same with its $20 million in funds. Both companies used JPMorgan Chase as their lender, and will have their loans cancelled and returned to the bank. After the names of large publicly-traded corporations which had received PPP loans began to make headlines, Secretary of the Treasury Steven Mnuchin warned that the program was not intended for these types of recipients and that there would be penalties if the money was not returned.
Additionally, the Treasury Department and Small Business Administration (SBA) also responded by making it more difficult for these larger corporations to take advantage of the loans designed for small businesses. When the PPP was initially made available, businesses merely had to attest that the current environment of economic uncertainty brought about by the COVID-19 pandemic made the loan request necessary in order to support their ongoing operations. It was this vague standard that allowed several big corporations to apply for and secure millions of dollars in financial aid. However, following these controversial grants, the Treasury Department and SBA did issue new guidance that companies “should be prepared to demonstrate to the SBA, upon request, the basis for its certification” and that “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.” These modifications to the guidelines were clearly aimed at large, publicly-traded corporations in an effort to prevent them from applying to the program moving forward, especially with the prospect of a new coronavirus aid relief package to refill the PPP.
Last week, lawmakers in both houses of Congress passed new legislation to replenish the PPP’s funds, and President Trump signed the bill into law on Friday. The $484 billion coronavirus relief package includes an additional $321 billion for the PPP, close to the same amount that was originally put into the program upon its creation back in March. The bill passed in both houses of Congress with overwhelming support, first being approved in the Senate on Tuesday before sailing through the House of Representatives on Thursday. The fact that such a significant portion of this latest relief package has been designated for small business aid, and the near unanimous support it received, demonstrate the urgency and high priority that has been given to assisting this critical sector of society.
Considering the dire circumstances facing the nation’s small business community in the midst of the ongoing coronavirus pandemic, the backlash against large corporations getting their hands on financial aid through the PPP was completely justified. It also helped shed light on a loophole in the grant application process which some of these big companies were able to take advantage of, and prompted government agencies to respond to the controversy in order to attempt to alleviate the problem. Furthermore, lawmakers were able to work in conjunction with the Trump administration to prioritize making increased funding available to the small businesses who desperately need it. While some of the undeserving recipients of the financial aid have done the right thing and pledged to return the funds they were granted, others have refused to do so or said that they are still mulling over the situation. It will be interesting to keep an eye on these corporations and monitor how they decide to proceed in the coming weeks and months, as well as whether they take a major hit in the court of public opinion for their actions.