By Justine Lara Konicki & Peggy Beistel

On Thursday April 23, 2020, the Small Business Administration issued new guidance on the Paycheck Protection Program that discourages large companies from participating in the program. The guidance instructs borrowers to “assess their economic need for a PPP loan” and to consider whether they have access to alternate sources of capital – and take advantage of such sources – before applying for a PPP loan.

The SBA’s new guidance notes that while the CARES Act suspended the ordinary requirement that borrowers must exhaust other sources of credit before seeking a loan from the SBA, borrowers are still required to make a certification, in good faith, that the PPP loan is necessary. It further notes that substantial public companies that are able to access capital markets would be unlikely to be able to make such a certification in good faith.

The new guidance does include a safe harbor provision and provides that public companies that received a loan and that repay the loan in full on or before May 7, 2020, will be considered to have made the required certification in good faith. Companies that are deemed by the SBA to have not made the certification in good faith risk losing any forgiveness of the loan and could also face a range of civil and criminal penalties, including fines ranging from $5,000 to up to $1,000,000 and from one to 30 years in prison[1].

The thrust of this new guidance is that large public companies, with access to capital markets, risk these penalties if they do not repay the funds that were received by May 7, 2020. This guidance came on the same day that it is anticipated the House will vote in favor of an additional $310 billion funding for the PPP loans, and amid public outcry and scrutiny on how large companies – including Shake Shack and Ruth’s Chris – took advantage of the first round of funding for the program, while millions of small businesses could not. Amid this controversy, Shake Shack has announced that it is returning the PPP loan funds it received and it is expected, especially given this guidance, that other large public companies will follow suit. It is unknown at this time whether the banks and other financial institutions that made these loans to public companies will likewise be required to refund the origination fees paid to them in making these loans or whether they will be able to charge a second set of origination fees to the government in relending funds that were already once lent and then repaid.

If you have any questions or would like to discuss further, please reach out to Justine Lara Konicki (; 216.736.7211) or Banking & Finance Chair Anne Corrigan (; 216.736.7227).


[1] See 18 U.S.C. § 1014; 18 U.S.C. §1001 and 3571; 15 U.S.C. § 645.