FitzGerald said he had concerns about the attention it would draw, in particular to the firm’s investors and board. The company concluded that it might be taking money away from other organizations more in need and that the funds weren’t a long-term fix. The firm, which employed 130 people at the outset of the pandemic, later got a loan from another lender. FitzGerald said the potential questions spurred by the PPP loan “would probably have been pretty distracting.”
“One of our investors was a lead investor on Peloton,” he said. “I don’t think they were super excited about having to answer those questions, even if they weren’t 20 percent owners. We do have VCs on the board. So, in theory, there’s capital.”
A growing list of well-known companies have said they plan to return the funds. Shake Shack was the first major corporation to announce the return of its loan, after it raised $150 million in the markets. The burger chain was followed by other national brands including Potbelly, Ruth’s Hospitality Group and Taco Cabana.
As companies have grappled with the issue, the direction from Washington has been in flux. In a fashion that has become characteristic of the program, the Trump administration in recent days issued evolving guidelines for companies weighing whether to keep the small business loans, veering from safeguards that Congress specified in the law.
The Treasury Department and the SBA first responded to the backlash on April 23. They told borrowers to pay closer attention to the certification they have to make when applying for the loans that states “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” They said it was unlikely that a “public company with substantial market value and access to capital markets” would be able to make the certification and gave firms until May 7 to repay.
The deadline was later delayed to May 14 and then May 18.
Along the way, the Trump administration signaled heightened scrutiny and penalties before walking that back.
On April 28, Treasury Secretary Steven Mnuchin announced that the SBA planned to conduct a “full review” of loans above $2 million, and he warned that borrowers would have “criminal liability” if they falsely certified that they need the funds.
Then, on May 13, the administration indicated a more relaxed approach. It granted that loans below $2 million would be deemed automatically in compliance with the program’s necessity requirement. Loans above $2 million would still be subject to an SBA audit, but companies would have the opportunity to return the funds without an SBA enforcement action if the agency told them they should have been ineligible.
“How this would ultimately play out with regard to how the Justice Department looks at this remains to be seen,” said Derek Cohen, a partner at the law firm Goodwin Procter. “But it certainly is intended to provide some comfort that they’re not looking to get people on the margins who are trying to make difficult calls.”
San Francisco-based Prosper Marketplace, which operates an online lending platform, is holding on to its $8.4 million loan despite guaranteed scrutiny by the government. Spokesperson Sarah Cain said Prosper will use the proceeds to cover payroll for its 400 employees as well as rent and utilities.
“The loan allows us to retain all our employees, which as you’ve seen is not something all companies in our space have been able to do in this environment,” she said.
Rep. Dan Kildee (D-Mich.) said he had some concerns about the impact of shaming companies from taking the money but that limits were necessary.
“If they need it, we want to make sure they’re using it for the purposes that are intended,” he said in an interview. “They have to adhere to the requirement that there’s no other source they could turn to. The vast majority of companies I talk to don’t have any difficulty coming to that conclusion and are willing to deal with the scrutiny because they know this is a matter of life and death for them.”
Lawmakers have started to apply direct pressure on certain companies to give up the funds.
In their first official action, Democrats on the House’s new coronavirus select subcommittee called on five public companies to return $10 million PPP loans that they each received. One, MiMedX, immediately announced repayment. Others defended their decisions to seek the loans.
One of the targeted companies, Quantum Corp., said the loan was “saving American jobs” at the firm and that “without it we would most certainly be forced to reduce headcount.”
“We owe it to our employees — who’ve stuck with us through a long and difficult turnaround — to do everything we can to save their jobs during this crisis,” Quantum spokesperson Bob Wientzen said. “We believe strongly that Quantum not only falls within the technical eligibility requirements of the PPP loan program, but also falls squarely within the spirit of what was intended by the CARES Act.”
