Virus Relief Loans Meant for Small Firms Capped at $20 Million

(Bloomberg) -- The Trump administration limited to $20 million the value of loans that corporate groups can get from a popular coronavirus relief program after outrage over reports that large companies and brand-name chains got funds.

The Small Business Administration and Treasury Department issued a new rule on Thursday for the Paycheck Protection Program, which was intended for small businesses to get loans of up to $10 million that convert to grants a company uses the proceeds to keep workers employed.

The new rule says that corporate groups shouldn't get more than $20 million in total loans, which applies if businesses are “majority owned, directly or indirectly, by a common parent.” The limit is effective immediately for any loan not yet fully disbursed as of Thursday, the agencies said.

It's the latest change to constantly shifting rules governing the PPP program, which have frustrated banks and business owners alike -- in particular after a loophole allowed big restaurant chains and hotel groups, among other large companies, to rake in millions in low-interest loans while mom and pop shops couldn't access the program.

The new guidance also laid out criteria allowing non-bank lenders to handle loans “to ensure broad and diverse lender participation.”

Borrowers who have applied for or received more than $20 million in loans must withdraw or cancel any pending application or approved loan over the limit, according to the guidance. Failure to do so will be considered using funds for “unauthorized purposes, and the loan will not be eligible for forgiveness.”

At least 23 public companies have returned loans totaling $161 million so far, according to data compiled by FactSquared. Treasury and the SBA and have said the program wasn't intended for large companies with access to other capital and urged firms that shouldn't have applied to return the money by May 7 without penalty.

Earlier: U.S. Toughens Guidance on Who Can Get Small-Business Funds

Treasury Secretary Steven Mnuchin has said that loans above $2 million will be audited by SBA and warned that borrowers have criminal liability if they improperly certified that they needed the loans.

The program relaunched Monday with more than 5,000 lenders and an additional $320 billion approved by Congress, after an initial $349 billion was exhausted in just 13 days. As of Wednesday evening, the SBA had approved nearly $90 billion in loans from more than 960,000 applications in the second round.