Now the government is hoping the others pay up.
“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, and such a company should be prepared to demonstrate to Small Business Administration, upon request, the basis for its certification,” according to the Treasury guidance released Thursday. ” … Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by SBA to have made the required certification in good faith.”
In other words, the Treasury wants its money back.
And later that day, Ruth’s Chris said it would oblige.
“We intended to repay this loan in adherence with government guidelines, but as we learned more about the funding limitations of the program and the unintended impact, we have decided to accelerate that repayment,” Cheryl Henry, Ruth’s Hospitality president and CEO said in an emailed statement to CNN Business. “We remain dedicated to protecting our hardworking team. It is our hope that these funds are loaned to another company to protect their employees, just as we intended.”
They included restaurant chains, energy companies, CBD firms and real estate investment trusts.
The original SBA guidelines weren’t specific enough to target actual small businesses, allowing larger companies to legally swoop in and claim the loans, said economist Richard Prisinzano, director of policy analysis at the Penn Wharton Budget Model, a fiscal policy research initiative out of the University of Pennsylvania’s business school.
“One, I think it’s a definition problem,” Prisinzano said. “Two, I don’t think the bill was really targeted at the small guys.”
People hear “small business” and think of the mom-and-pop shop down on Main Street; but by US Small Business Administration standards and the terms of the PPP, the vast majority of American businesses now are considered to be small enterprises, he said.
“Funds from any canceled loans will be returned to the PPP program,” Shannon Giles, an SBA spokesperson said in an emailed statement to CNN Business. In the event that a loan is canceled after the PPP funds expired last Thursday, those funds cannot be used until Congress reauthorizes additional funds for the program as to not violate the Anti Deficiency Act.”
Some of the public companies that received the loans told CNN Business that their situations warrant the federal assistance.
“Even though we’re a public company, we’re not a big company,” said Joseph Dowling, chief executive officer of CV Sciences, a San Diego-based company specializing in hemp-derived, CBD-based pharmaceuticals and consumer products. “We understood the guidelines to be for smaller companies like us.”
He added: “Not every public company has the same access to capital.”
“We’re like everybody else, we’re affected by this,” Dowling said. “We’re a little bit dependent upon brick-and-mortar retailers who are dependent upon customers.”
In a response to a request for interview and questions from CNN Business on Wednesday, an Ashford spokesperson said only that the company has “very few” avenues to access capital.
“The PPP program was specifically designed for companies with fewer than 500 employees per location that are in NAICS Code 72, such as hotel and restaurant chains since many, such as Ashford, don’t qualify for the Main Street Lending program,” Jordan Jennings, an Ashford spokesperson wrote.
But when choosing to apply for these loans, the larger and publicly traded companies are walking a line between what is legal and what is ethical, said Chris Allieri, founder and principal of branding and public relations firm Mulberry & Astor.
“If you are not a small business, you better not touch this thing; this is going to be toxic if you do,” he said. “If you’re in that mix, you’re basically seen as going head to head with small businesses, and that’s as un-American as it gets.”
Some public companies made the point to state they weren’t taking PPP loans.
“The SBA provisions of the CARES Act appears to us to be designed to help small businesses and their employees,” Laurie Schalow, Chipotle’s chief corporate reputation officer, said in an emailed response to a CNN Business query. “Our business is different, and we have managed it in a way so that we can support our employees financially even with today’s uncertainties and hope to be able to do so in the future as well.”
Customer-facing brands, such as restaurant chains like Ruth’s Chris and Shake Shack, likely will bear the brunt of consumer backlash, Allieri said, adding that their reputation could be tarnished once Covid-19 stay-in-place orders are lifted.
“I think that we’re going to see this ‘buy local,’ and this real commitment to independent restaurants like we never saw before,” he said. “I think that this is going to push that even further.”
Correction: This article was updated to reflect that the Treasury guidance about the Payment Protection Program was issued Thursday.