There has been an intense focus in the media over the past several weeks about large companies tapping into the Paycheck Protection Program (the “PPP”), while many struggling small businesses have yet to receive funding. In fact, new research published by Morgan Stanley shows that of the PPP’s $349 billion in initial funding, at least $243.4 million has been allocated to public companies1.
Generally, a business is eligible for a PPP loan if it has fewer than 500 employees. The SBA’s “affiliation” rules, however, require a business to aggregate its own employees with that of its affiliates. Put simply, businesses that share common ownership or control are treated as one applicant. These affiliation rules have excluded most large public companies from the PPP.
But, in what some have called a loophole, the CARES Act waives the affiliation rules for companies in the accommodation and food services industries (NAICS code 72). Accordingly, restaurants and hotels with less than 500 employees per location may apply for a PPP loan. While it appears Congress included the waiver to allow independent businesses that operate under a franchise model to apply for a PPP loan, it has also opened the door for name-brand restaurant chains like Shake Shack and Ruth’s Chris to secure funding2.
Following widespread criticism, on April 23rd, the Small Business Administration (“SBA”) issued new guidance that makes it more difficult for publicly traded companies to access the next round of PPP funding. Companies applying for PPP funds must now certify loans are necessary and that they cannot tap other sources of money. The SBA has noted that it is unlikely that any company with substantial market value or access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate the basis for its certification3.
As always, we will continue to provide updated information as it becomes available. If you have questions about the PPP or the CARES Act, please feel free to contact one of our business and finance attorneys.
 See Luisa Beltran, Restaurant Chains Received Many of the Biggest PPP Loans, BARRONS (April 23, 2020 7:33 AM) https://www.barrons.com/articles/restaurant-chains-received-many-of-the-biggest-ppp-loans-51587573556.
 See Thomas Franck, Here are the largest public companies taking payroll loans meant for small businesses, CNBC (April 21, 2020 9:57 AM) https://www.cnbc.com/2020/04/21/large-public-companies-are-taking-small-businesses-payroll-loans.html.