When American companies recently applied for U.S. government loans meant to help small businesses survive the coronavirus crisis, they had to certify they needed the cash to cover basic needs like salaries and rent. The money, up to $10 million, was meant to tide them over for eight weeks, Reuters reports.
Some recipients, though, had considerable cash on hand. Forty-one publicly traded companies that got the emergency aid already had enough to cover basic expenses for two months or more when they applied for the funds, a Reuters analysis found — even if their revenue dropped to zero. Thirty had three months or more of cash. Six had enough to last at least until December, according to the review, which was based on average monthly operating expenses from 2019.
All told, these relatively flush 41 companies were able to secure $104 million in government aid, at a time when legions of smaller companies with little in their coffers were being turned down. Seventeen of the 41 recipients had market capitalizations of at least $100 million.
“It’s disheartening to see relief spending go to companies that don’t appear to desperately need a lifeline,” said Danielle Brian, executive director of the Project On Government Oversight, a Washington-based non-profit that monitors government spending. “This shows just how urgently we need more oversight of this program and the rest of the federal government’s relief spending.”
Reuters examined the latest available financial information for 276 publicly traded companies that applied for the forgivable loans in the first round of the U.S. government’s Paycheck Protection Program (PPP) in April. The list includes companies tracked by data provider FactSquared through the end of April.
The PPP program, crafted by Congress to aid small businesses, has come under wide criticism. One critique is that publicly traded companies who received the cash could have raised funds elsewhere, given their easier access to capital markets. Until now, though, the accuracy of the borrowers’ claims about their financial needs to the government has not been closely scrutinized. The Reuters analysis is the most comprehensive to date.
As part of the loan application, company executives had to certify in good faith that “current economic uncertainty makes this loan necessary to support” their ongoing operations. In regulatory filings and in press releases, some of the 41 recipients sounded a different note as they took the loans, signaling optimism about their finances. At least five of the 41 made statements attesting to solid financial health or projecting additional revenues because of the crisis.
Among them was biotech company Athersys Inc. It issued an upbeat outlook in an April 15 securities filing for a $50 million share offering, in which it also said it had secured a $1.3 million PPP loan, Reuters adds.
“As of the date of this prospectus supplement, the COVID-19 pandemic has not had a significant adverse effect on our business,” the company said.
Other recipients issued bright outlooks. Medical device maker Repro Med Systems Inc and electronics supplier Micropac Industries Inc said the pandemic had not had a significant impact on their businesses.
Diagnostics company Enzo Biochem Inc said it expected COVID-19 related products to partially offset revenue declines. Infectious disease testing business Accelerate Diagnostics Inc said its first-quarter sales were expected to rise – and entered into a collaboration for coronavirus testing.
In a statement to Reuters on Tuesday, Athersys said that it fully met the program certification requirements when it applied, due to the uncertain outlook and upcoming costly clinical trials. It said it returned the money after the Treasury Department said in late April that many public companies were unlikely to satisfy the certification criterion. The company was planning to disclose the loan’s return on Thursday, when it releases first-quarter financial results.
“There was uncertainty regarding whether we might be able to complete a financing, given market chaos and uncertainty, as well as other factors,” the company said in explaining why it sought the loan. “If we had not applied for the funding at the time we did, we risked missing the opportunity altogether.”
The U.S. Treasury, which oversees the program, referred Reuters to Secretary Steven Mnuchin’s recent comments. Mnuchin told reporters last week that he was shocked that some large companies had taken the loans, and said the certifications had been put in the loan application forms to force borrowers to read the requirements. He said there were 26,000 loans over $2 million, and those would likely be audited.
The small business loan program was initially funded with $349 billion. Congress had to top it off with another $310 billion because the money, which was supposed to be handed out on a first-come, first-served basis, ran out while many applicants were still awaiting the grants.
Mnuchin said on Monday that 2.2 million loans worth an average $79,000 had been made in the second round. The $104 million the 41 public companies were granted would have been enough to keep some 1,300 small businesses afloat with an average grant.