Bye Felicia: Hedge Funds Barred From Paycheck Protection Program Loans

Hedge funds need not apply for Paycheck Protection Program funding.

Summary Of The Paycheck Protection Program:

President Trump signed a $484 billion coronavirus relief bill on Friday, injecting much needed funds to support the Paycheck Protection Program (PPP). The program provides loans of as much as $10 million for payroll costs and other expenses to keep workers on small business company payrolls. The original allocation of $349 billion was part of the CARES Act, but was depleted within two weeks for an onslaught of applications. Only 1.6 million business owners received funds, which represents only 6% of small businesses in the U.S.; 94% of small business owners were left with nothing. In this new tranche of funding, $370 billion was earmarked for small-businesses with $310 billion going to replenish the PPP fund. Luckily, the Small Business Administration, which adminsters the loans, has used this opportunity to rightly tighten up eligibility criteria to channel aid to struggling small businesses.

PPP Loopholes And Outrage

There was outrage when it was revealed that public companies and large chains, like Shake Shack, Ruth’s Chris, and Potbelly had received PPP funding. Many questioned why these companies even qualified since the PPP was designed for small-businesses with 500 employees or less. As is the answer to much of the indignation around coronavirus relief bills, the answer is “because of Congress”. Specifically, thanks to lobbying from The National Restaurant Association, a carveout was inserted for restaurants and hotels regardless of their employee base. In total, the lax rules of the PPP have allowed more than 200 publicly traded companies to obtain loans totaling more than $750 million. 

MORE FROM FORBESStop Criticizing Harvard For Receiving $9 Million In Stimulus Money; Blame Congress

But there was an arbitrage that also had many incensed: the potential for hedge funds to access the PPP funding. As PPP details were communicated, law firms and others started touting how hedge funds could qualify for the loans. Bloomberg reported that some hedge funds did in fact apply, “filling out forms attesting that they have fewer than 500 employees” and meet other conditions of the loan, including that it was “necessary to support ongoing operations.”

For many, this was just another example of bailout money being routed to well-connected companies at the expense of small-businesses who truly neeeds support. “Leave it to the Trump administration to execute a program meant for America’s small businesses in a way that instead gives relief to hedge fund managers who don’t need it — while mom and pop shops are forced to wait in line,” said a spokesman for Joe Biden. “The Trump administration has shown its hand: their priority is to take care of the wealthy and well-connected as fast as possible and with as few conditions as possible.”

MORE FROM FORBESHow Some Rich Americans Are Getting Stimulus ‘Checks’ Averaging $1.7 Million

New Funding, New Rule:

As the PPP was replenished on Friday, the Small Business Administration (SBA) issued an interim rule barring hedge funds from applying for PPP loans. The rule stated that because hedge funds “are primarily engaged in investment or speculation,” they are “therefore ineligible to receive a PPP loan.” The rule elaborated, “the Administrator, in consultation with the Secretary, does not believe that Congress intended for these types of businesses, which are generally ineligible for section 7(a) loans under existing SBA regulations, to obtain PPP financing.”

This course correction is a small step towards fairness as small businesses fight for survival in the face of the COVID-19 pandemic. With the SBA set to resume processing PPP loans on Monday at 10:30am ET, the race to secure a portion of the $310 billion will begin. While only some small businesses will secure funding, at least Americans can take solace knowing that no hedge funds will be among them.

Further Coronavirus-Related Reading:

These 10 States Are Suspending Payments For Millions Of Private Student Loan Borrowers

Elizabeth Warren And Sherrod Brown Unveil Sweeping 6-Prong Consumer Protection Proposal

Kamala Harris, Bernie Sanders To Mnuchin: Exempt Stimulus Checks From Private Debt Collection

Stop Criticizing Harvard For Receiving $9 Million In Stimulus Money; Blame Congress

Tracking Your Stimulus Check? Here’s How To Decode The Confusing “Payment Status Not Available” Error Message

How Some Rich Americans Are Getting Stimulus ‘Checks’ Averaging $1.7 Million

Small Business, Big Heart: How One Restaurateur Is Taking On Coronavirus

Spread Financial Empathy Instead Of Coronavirus

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