According to the regulations of small business management, PPP loans can only be used to pay wages and pay mortgage interest, lease or utility bills. As long as PPP funds are stored separately, PPP loan recipients will not be prohibited from using other funds to pay investors.
Despite this, some advocacy groups still believe that companies with enough cash to pay millions of dividends and stock purchases are unlikely to be eligible to participate in the PPP program, which is designed to help troubled companies remove their employees within a few weeks of failing to pay wages. Stay on the payroll due to pandemic-related lock-ups and conduct business.
An SBA spokesperson did not respond to an emailed request for comment. The Ministry of Finance declined to comment on the record of this report.
The question of whether or not some unpopular companies get PPP loans has appeared long ago, when it was known that dozens of listed companies had obtained millions of dollars in loans, even if they could use other sources of funding. The initial rules of the SBA allow companies to self-certify that “current economic uncertainty” makes loans “a necessary condition to support the applicant’s continued operations.”
But in late April, after news broke that many listed companies had received loans, the SBA stated that it was “unlikely” that companies that could use capital elsewhere would qualify and demand repayment of the loans. Some people returned the money, but many did not return it (SBA and Treasury officials declined to say how many people returned it).
How the dividend payment led to this conflict remains to be seen. SBA said that loans of US$2 million or more will be audited. As the government assesses whether a company is eligible for PPP loans, the expenditures of large companies may be subject to close scrutiny.
Amanda Farahany, an Atlanta-based law firm Barrett & Farahany who specializes in employment law, pointed out that a public company “obviously has more ways to obtain capital than a small company.”
Franklin Turner, a government contract lawyer for McCarter & English, a Washington, D.C.-based law firm, said that buybacks and dividends are “definitely something that any government regulator might consider.”
Turner added: “The requirement is not that the company will go bankrupt at the time of application…. The requirement is’Can you make a reasonable good faith decision to determine whether you need to do this.'”
According to SBA records, CRH Medical Corporation is a Canadian medical supplies company with a subsidiary in the United States. The company received a PPP loan of 2.9 million Canadian dollars on April 15 to support 124 employees. According to the company’s press release, the company has completed five acquisitions since obtaining PPP funding.
Moreover, the company has spent money to repurchase its own stock, a strategy often used by companies to increase stock prices. Between April 1 and June 30, the company purchased its own stock worth $228,559. Company representatives did not respond to requests for comment.
Dividends (the dividends paid by companies to shareholders) may be subject to scrutiny by companies such as RCI Hospitality Holdings, which operates restaurants and strip clubs in nine major cities.
This epidemic poses a clear threat to venues owned by RCI, such as Cabaret in Tootsie, Miami, which is described on the company’s website as “the country’s largest adult nightclub”, and a series of military-themed sports bars. Called Bombshells. RCI declared on its website that the celebrity TV personality Anna Nicole Smith “meeted the oil billionaire husband” while dancing in one of the clubs.
But the recent dividend payment of $273,000 may question the company’s loan requirements. RCI’s $4.2 million PPP loan was allocated to its 10 restaurants and two other companies; none of its strip clubs received the money.
RCI spokesperson Steve Anreder said the company abides by all rules.
“RCI believes that it has followed all the rules and guidelines provided by the Small Business Administration regarding salary protection programs,” Anreder said. “In RCI’s business, only the restaurant department, shared service entities, and lounge subsidiaries are granted loans under the “Salary Protection Program”. All these funds are used for employee salaries and other qualified expenditures in these entities.”
The law may have required others to pay dividends.
Whitestone Real Estate Investment Trust, a Houston company that owns 54 shopping centers in Texas and Arizona, acted quickly and released cash when the stock market entered a deep dive in mid-March. It used a $30 million line of credit and stopped buying new properties. It also reduced the usual stock dividends by two-thirds, a move that saved another $30 million. According to SBA and SEC records, the company also used $1.7 million in PPP loans to support 91 employees.
Throughout the process, the law required the company to continue to pay dividends to Wall Street. Whitestone spokesperson Amy Feng said that real estate investment trusts like Whitestone must spend 90% of their income on dividends.
As the business returns to the shopping center, the company continues to pay dividends. It announced on June 16 that it would pay another $4.5 million in dividends, which will be paid in July, August and September.
Feng said that purchasing power parity funds are segregated from other funds in a separate bank account and used to pay employees’ salaries.
Feng said in a statement: “When applying for PPP funding, Whitestone fully complied with all requirements, including proving that economic uncertainty makes loans necessary to support ongoing business, and use these funds to retain workers and maintain wages. .”
In some cases, the company’s need for federal government assistance may have been overshadowed by widespread improvements in business conditions. Crown Crafts, a Louisiana-based children’s product manufacturer, received a $1.9 million PPP loan on April 19. A few months later, on August 12, due to its “strong performance and financial situation”, the company announced that it would resume stock dividends.
For some observers, this situation indicates that the PPP plan is successful.
Scott Pearson, a corporate financial services lawyer for the Washington, D.C.-based companies Manatt, Phelps, and Phillips, said: “Everyone must remember the terrible extent of all these shutdown orders when they occur.” Something is wrong. This may just mean that things are going better than they thought.”