Paycheque protection program rebuilt, but still many loopholes

The Trump administration has closed several gaping loopholes in a coronavirus Small Business Relief Program that allows hundreds of larger businesses to claim federal loans. Still, gaps remain, heightening fears that Main Street could be ruled out even in this second bailout.

Demand for the forgivable, low interest Paycheck Protection Program Loans remains intense, especially after the money started flowing again on Monday after Congress injected an additional $ 310 billion in funding. But the biggest players, including publicly traded companies, can still access PPP funds. Examples include:

  • Hotels and restaurant chains, regardless of their size, remain eligible for PPP loans. This is even after a public review led a number of leading restaurant chains, including the owners of Ruth’s Chris Steak House and Shake Shack, to repay their same day loans of $ 20 million and $ 10 million, respectively. In contrast, the Ashford hotel management chain has refused to return nearly $ 60 million he has already received under the program.
  • Manufacturers who have outsourced their production in recent years also remain eligible for the program. This is because PPP loans are based on the number of employees of a company in the United States, not the larger global workforce of companies.
  • Many industries still qualify for special exemptions from the program’s requirement that employers have no more than 500 workers. For example, kombucha bottler New Age Beverages, which has nearly 1,000 employees, secured a loan of nearly $ 7 million in the first phase of PPP funding. Notably, he would still be eligible for the program, as a loophole stipulates that soft drink manufacturers can have up to 1,250 employees and still be eligible for a loan.

Some loopholes have been closed

The government released guidelines last week that corrected some of the loopholes used by large businesses to get help for small businesses under the Paycheck Protection Program. The biggest change was in publicly traded companies.

According to an analysis of public documents by CBS News, 230 state-owned companies borrowed a total of nearly $ 800 million in the first round of nearly $ 350 billion PPP funding. On Thursday, the Treasury Department discouraged other state-owned companies from seeking the loans and encouraged some companies that had previously obtained loans to repay them.

As of Monday, 17 state-owned companies announced they were making nearly $ 115 million in PPP loans, according to CBS News analysis. the the Los Angeles Lakers of the NBA also said it would return its nearly $ 5 million PPP loan.

 

Minority-owned businesses hope for help

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The Treasury Department has said that borrowers of PPP loans must certify that they cannot get money elsewhere. This standard applies retroactively to any organization that has received funds.

“It is unlikely that a state-owned enterprise with substantial market value and access to capital markets will be able to make the required certification in good faith,” the latest Treasury guidelines say.

Another major loophole that the government has closed concerns hedge funds and private equity firms. The original PPP loan legislation made it clear that banks and other financial firms, including investment firms, were not eligible to take advantage of the program.

Still, some hedge funds have reportedly asked banks if they are eligible for the program. On Friday, the Small Business Administration clarified that fund managers at wealthy individuals and institutions, as well as private equity firms, are not eligible for PPP.

Despite these measures to preserve PPP funds for small businesses, gaps remain.

“We’re frustrated,” said Jeff Hauser, a government watchdog who is the founder and leader of the revolving door project. “We are not convinced that PPPs operating through the SBA [and] Cash is a better solution than going through the IRS and invoking something like that [other countries] was doing. ”

PPP jobs still available for hotels

The Treasury Department has left the biggest loophole wide open. Hotel and restaurant chains, regardless of their cumulative size, remain eligible for PPP loans for their individual sites with fewer than 500 workers. The rationale is that the hospitality industry has been particularly damaged by the impact of the coronavirus on the economy.

That’s right: vacancy rates of around 90% have been common in hotels across the country since the coronavirus shutdown. But public backlash has prompted some hotel and restaurant chains to repay their PPP loans. Not all of them, though: The Red Lion hotel chain has received $ 4.3 million in small business support. It has 1,000 locations, most of which operate as franchises.

 

Mnuchin Announces “Full Review” of Large PPP Lo …

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During the weekend, CBS MoneyWatch reported that Monty Bennett, whose Ashford hotel management chain and related entities oversee 130 hotel properties, not only planned to keep the more than $ 60 million he had already received from the small business program, but continued to seek $ 66 million additional dollars in PPP loans in the second tranche.

Bennett said his company had virtually no income, would be excluded from a separate Federal Reserve aid package for other businesses its size, and would have difficulty borrowing elsewhere.

Welcome, offshorers

President Donald Trump has repeatedly berated companies that have moved American manufacturing jobs to other countries. But the paycheck protection program actually allows some companies that have moved jobs overseas to get help. And they’re not always small businesses.

Culp, the largest national manufacturer of mattress and other furniture fabrics, employs nearly 1,500 people. This would appear to have the effect of expanding the business from paycheck protection program funds, but the business landed a $ 7.6 million loan. The loophole: Many Culp employees are no longer in the United States

Two decades ago, the High Point, North Carolina-based company made almost all of its products in the United States. But since the late 1990s, it has transferred much of its production abroad. Culp now has manufacturing plants in Vietnam and Haiti.

The PPP only counts a company’s U.S. employees during the eligibility review, which appears to have made Culp eligible for the program. In its latest financial report, the company said that only about a third of its 500 employees in its upholstery division are in the United States, the rest are in China. The company is not disclosing its full U.S.-based workforce, and Culp has not returned CBS MoneyWatch’s request for comment.

 

Business owners struggle with the PPP program

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Companies can only apply for a loan to cover the salaries of their American employees. But Culp has moved closer to the maximum of $ 10 million that most borrowers are eligible to receive. The company announced time off on April 3, the same day the PPP loan program began accepting applications, but did not say how many employees were affected.

Some industries get a pass

The program is generally offered to businesses with 500 or fewer employees. But a number of industries have obtained exceptions to this cap. Ammunition makers, for example, can have up to 1,500 American workers and can still benefit from PPP funding.

Such exceptions are allowed under the normal SBA loan eligibility rules, which were enacted long before the paycheck protection program was launched. It is not clear why the exceptions exist, but at least some are incorporated into the SBA rules to promote industries, like manufacturing, that had been declining in the United States.

Other industries have less obvious exceptions, such as soft drink bottlers like kombucha vendor New Age Beverages. The include:

  • Companies that specialize in chartering private jets are allowed to have up to 1,500 employees and are still eligible for a PPP loan.
  • Used car dealers do not have an employee limit until they exceed $ 27 million in annual sales. (It is not clear whether this loophole helped AutoNation, with 350 dealerships and a total of $ 21 billion in total sales, receive nearly $ 80 million in PPP loans before the Fortune 500 company returned the money last week.)
  • Even the yacht industry has a loophole: Boat dealers can have up to $ 35 million in annual sales and still be eligible for the PPP program.

Additional reporting by Megan Towey of CBS News.

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About Perry Perrie

Perry Perrie

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