US agencies tightened the rules on a popular emergency lending program for small businesses Thursday, and gave large chains two weeks to return funds following a public uproar.
Companies that inappropriately received funding under the Paycheck Protection Program (PPP) have until May 7 to return the funds to the US Small Business Administration, the Treasury Department said in the updated guidelines.
The policy follows outrage over news the lifeline meant for mom-and-pop businesses and their workers, that ran out of money in just two weeks, gave millions in loans to large chains, including some listed that are on the stock market.
Applicants to the program "must certify in good faith that their PPP loan request is necessary," the guidelines said, but it is up to the companies not the banks to weigh whether they have access to other funding sources.
"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 SBA, upon request, the basis for its certification," the guidelines said.
US Treasury Secretary Steven Mnuchin warned Tuesday that companies that exploited loopholes in the initiative would face "consequences."
Congress is poised to approve another $320 billion in funds for the program after the original $349 billion tranche was fully tapped in less than two weeks.
Businesses with fewer than 500 employees can apply for PPP funding, which covers eight weeks of payroll and other expenses, and converts to grants if companies maintain their employees or rehire laid-off workers by June 30, and use three-quarters of the funding on wages.
Hotel and restaurant chains are eligible for funding under the program under certain conditions.
Upscale burger chain Shake Shack, which has nearly 8,000 US workers, on Sunday returned a $10 million PPP loan, saying it did not realize that the PPP funds would run out.
The company, which said its individual restaurants have only about 45 employees, obtained financing from private sources.
Two other large chains, Potbelly Sandwich Works and Ruth's Hospitality Group, owner of Ruth's Chris steak houses, also received PPP loans, securities filings show.
The new Treasury guidelines say a company that owns multiple restaurants and no affiliates may apply for a PPP loan "if it employs 500 or fewer employees per location, even if the total number of employees employed across all locations is over 500," the guidelines said.
The definition of small business also includes those with a net worth of no more than $15 million.