Oops: Treasury asks public companies to return coronavirus loans

Just last week, Treasury Secretary Steven Mnuchin proudly touted the federal government’s $350 billion Paycheck Protection Program as an “unprecedented” success. Over the course of just two weeks, he said, Treasury had coordinated with the Small Business Administration to provide loans to 1.6 million businesses across the U.S.

But not everyone benefited equally. While the PPP was intended to support small businesses, a number of larger, publicly traded companies also qualified for loans. Within days, the first-come, first-serve program was exhausted.

On Thursday, the department issued a change in guidance that suggests the rollout did not go exactly as planned. Buried on the last page of an online FAQ, the Treasury Department added new language that is forcing public companies to reassess the wisdom of taking taxpayer money.

Borrowers have had to certify from the start of the program that their loan request is “necessary” to support ongoing operations amid pandemic-induced economic uncertainty. For public companies, Treasury now writes, it is “unlikely” that applicants can make that argument in “good faith.” Public companies, after all, have access to funding via capital markets.

Treasury is requesting that public companies repay their loans by May 7. For other recipients, the loans will forgiven, as designed.

The seemingly minor clarification is a bombshell for recipients like steakhouse chain Ruth’s Chris, which had used a subsidiary structure to claim $20 million. Following the change in guidance, Ruth’s Chris said it would return its federal loans.

Other companies, including Shake Shack and Sweetgreen, saw the writing on the wall and announced in recent days that they would return their loans.

Lawmakers are preparing to pass a bill that would pump an additional $310 billion into the program later today.