By Christopher Hubbert & Cary Zimmerman

There has been widespread outrage directed at large publicly traded companies that took loans under the Paycheck Protection Program (PPP) intended to help smaller companies struggling with the pandemic. The controversy only intensified when the PPP program ran dry after just 13 days, leaving many smaller companies locked out (the program was subsequently replenished). Several high-profile public companies like Shake Shack (NYSE: SHAK), with a $1.9 billion market cap, have agreed to return the loans ($10 million for Shake Shack). NBC News has compiled a list of companies that are returning PPP funds and data analytics firm FactSquared has launched a site listing every public company that received a PPP loan based on SEC filings.

On April 23, 2020, the Small Business Administration (SBA) issued new guidance on PPP loans that discourages large companies from participating in the program (the FAQ was updated again on the 28th and 29th). The SBA’s 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 certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The guidance goes on to state that “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.” During an interview with FOX Business on May 28, Treasury Secretary Steven Mnuchin indicated that the federal government will perform a full audit of companies that receive a PPP loan of more than $2 million. “Before we forgive these loans, we’ll check every single one over two million,” Mnuchin stated.

In the midst of all the outrage, it’s important to note that not all public companies have market caps measured in the billions of dollars or ready access to capital, particularly in the current market. However, even smaller public companies have to consider carefully whether their PPP loan was necessary. For companies that conclude that the loan was not necessary to support their ongoing operations, the SBA guidance provides that any borrower that applied for a PPP loan prior to the April 23, 2020 and repays the loan in full by May 7 will be considered to have made the required certification in good faith.

All businesses that apply for PPP loans should carefully document the reason why the loan was necessary and how the proceeds are utilized. Public companies, particularly those that received loans of more than $2 million, can expect increased scrutiny and should be prepared to defend their decision to take the loan. In its April 23 guidance, the SBA stated that companies must take “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

Management must analyze the expected impact of the pandemic on their business and detail why other sources of funding might not be available or, even if available, only on terms that would be harmful to the business. Smaller public companies with limited access to the capital markets should note that fact in their analysis as well.

In the rush to apply for the PPP loans before the funds ran out, not every company had an opportunity to carefully document its analysis. Now that companies have received their loans, it is critical to prepare a detailed document including current expectations instead of waiting and potentially being judged with the benefit of hindsight during an SBA forgiveness audit.

If you have any questions or would like to discuss further, please reach out to Christopher Hubbert at or 216.736.7215 or Cary Zimmerman at or 216.736.7275.