The $350 billion Paycheck Protection Program part of the CARES Act ran out in under two weeks(!) and now the race is on to get in for the second round before it, too, runs out.
The program was plagued by many banks running out of funds early in the process (you can read more about that here, here, and here), some of which ended up generating some massive class-action lawsuits (and they say plaintiff work is down in the crisis!!)
If you want to dig into the numbers so far, you can check out Covid Loan Tracker, which seems like a cool idea, but I cannot speak to its accuracy. As of the date of this post, the largest source of PPP loans appears to be small and regional banks. So, this may provide you an insight if you’re still looking to get funded.
Now, for the details of “Round 2” of the PPP
As an introductory disclaimer, the Senate version has passed, but the House has not passed the bill yet (a vote is expected on THURSDAY).
In the previous version of the PPP contained in the CARES Act, many changes were made from the Senate-passed version to the House-passed version that eventually became law. Accordingly, if a similar situation occurs with this version (not an unlikely prospect, given the disagreements about what “other stuff” (e.g. the amount of funding for testing, hospital, etc.) is included in this bill), WHAT I DISCUSS BELOW MAY NOT BE THE FINAL VERSION OF THE BILL THAT PASSES THE HOUSE AND IS SIGNED INTO LAW. Please proceed with caution.
As of the date this post is written, the bill contains:
- Additional $60 billion for small business disaster loans/grants (EIDLs)
- Additional $75 billion for hospitals
- Additional $25 billion for testing
- and…. the big one…. Additional $320 billion for the PPP
- Of that $320 billion, $60 billion is specifically set aside for smaller lending institutions such as credit unions and community banks
But, as you might have expected, this additional funding does not come without some strings. Both President Trump as well as several members of Congress were unhappy about large businesses applying for and getting large loans that were means for small businesses.
Reuters noted that the following 500+ employee companies received the maximum $10 million under the PPP: Shake Shack* [subsequently returned], Ruth Hospitality Group Inc [Ruth’s Chris], Potbelly Corp and Fiesta Restaurant Group [Texas Taco Cabana], and Hallador Energy Co [coal mines]), and various other media outlets also picked up the story (with some reports expanding the “name and shame” list to as much as 80 public companies(!!)).
President Trump went so far as to publicly request that Harvard (whose endowment clocks in around $40B) and large businesses return the money.
At least one of those large businesses determined that it would give the loans back once they realized that they were taking money away from small businesses (the original intent, if not the letter, of the law). Major kudos to Shake Shack for doing the right thing and supporting America’s small businesses. I have not heard of other large businesses giving the loans back, but if you have, please let me know in the comments.
In any event, in the regs you can likely expect more focus on specific small business eligibility and a bit less leeway for those who are not the “intended” beneficiaries.
In the meantime, many banks are expecting this round of PPP loans to fill up even more quickly than the first round, so I strongly recommend that you reach out to your banker as soon as possible.
Also, as ever, it always pays dividends to have a competent transactional attorney on your side!