Construction companies were among the biggest recipients of funds from the Paycheck Protection Program aimed at helping small businesses during the COVID-19 pandemic.
The top three sectors receiving the funds were: Health care, including dentist offices and home-care companies, which got 12.9% of the loans, professional services, including accounting businesses and advertising companies, with 12.7% of the funds, and construction firms, which got 12.4% of the money, according to a report from the Small Business Administration last week.
Construction projects were put on hold during April and May by stay-at-home orders in many U.S. states that only exempted necessary work such as healthcare and public safety. The PPP, a small-business lending program contained in the CARES Act passed by Congress at the end of March, is aimed at keeping workers on the payroll, even if they are idled.
The construction sector got $64.6 billion of loans, distributed to 466,221 businesses, the SBA said in the report on the $521.5 billion allotted through June 30.
About $15.6 billion from the PPP has gone to 245,697 real estate companies in the U.S. – including sales, leasing and maintenance firms.
That’s about 3% of the PPP loans distributed by the SBA, the federal department overseeing the $669 billion small-business rescue program.
About $12.2 billion went to 168,462 financial companies, an industry classification that includes securities traders, lenders and banks. That represents about 2.3% of the overall PPP disbursements.
The manufacturing sector got 10.4% of the loans, and the hard-hit hotel and restaurant industries got 8.1%.
PPP loans are forgivable, meaning they don’t have to be paid back, if the funds are used for payroll costs, mortgages, rent, and utilities. At least 60% of the forgiven amount must be used for payroll, according to the SBA.
The loans are made by private lenders including some of the nation’s largest banks and have a 1% interest rate if they are not forgiven. The maximum loan amount is $10 million.
The top five PPP lenders, according to the report, are: JPMorgan Chase, which distributed $29.1 billion of the funds, Bank of America, which lent $25.2 billion, Truist Bank, at $13.1 billion, PNC Bank, at $13 billion, and Wells Fargo, at $10.5 billion.
The maximum amount of a PPP loan businesses qualify for equals 2.5 times the applicant’s average monthly payroll costs.
While the program is only for businesses with fewer than 500 employees, some of the nation’s largest restaurant and hotel chains qualify because of an amendment that allows each location to apply as if they were a small business.
Shake Shack and Ruth’s Chris Steak House got millions in loans – then returned them. Monty Bennett, the owner of luxury hotels and a major donor to the Republican Party, at first refused to return the $70 million he got. Then, he changed his mind.
After Shake Shack returned its PPP loan, founder Danny Meyer received about $11 million for his other restaurant business, Union Square Hospitality Group, and has no plans to return it.
“The situation for most independent, full-service restaurants in New York City remains dire, largely due to the uncertainty of not knowing when people can get back into our restaurants,” Meyer told Bloomberg. “PPP loans have been one of the few pieces of hope the restaurant industry has been provided in recent months, and so of course we applied.”
Treasury Secretary Steven Mnuchin has said any PPP loan larger than $2 million will be audited to ensure companies qualified for the larger sum.
On April 23, almost a month after the first loans were handed out, the Treasury added new eligibility guidance that, in an unusual step, it said it would apply retroactively. Anyone who met the initial qualifications but not the updated standard was ordered to return the funds.
According to the new rules, PPP loans can only go to firms that faced imminent “significantly detrimental” financial harm because of the COVID-19 pandemic. The firms also have to certify to the SBA that the current economic uncertainty made their loan request necessary to support ongoing operations.
“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,” Treasury’s updated guidance said.
Whether a retroactive change in rules is ultimately enforceable remains to be seen, said Jeff Hauser, executive director of The Revolving Door Project, a government watchdog group at the Center for Economic and Policy Research in Washington D.C.
“Basic contract law would limit the ability of the Treasury Department to play a bait and switch with money that’s already approved, but a lot of big companies and trade associations – repeat players in Washington – have become more sensitive to public perception that they’ve abused the process, so some have returned the money,” Hauser said.
The deadline to apply for a PPP loan was initially June 30, 2020, and was later extended to August 8. There’s still $147.5 billion of funds left in the program, as of June 30.
