Reacting to news that the Los Angeles Lakers of the National Basketball Association received a coronavirus aid loan meant for small businesses, U.S. Treasury Sec. Steven Mnuchin said Tuesday all such loans over $2 million will be audited. Some companies that applied for the loans may be criminally charged, he said.
“I think that’s outrageous,” Mnuchin told CNBC, in response to a question about the Lakers receiving a loan worth $4.6 million from the Paycheck Protection Program (PPP), a $349 billion fund meant to prop up small businesses struggling under mandatory shutdowns during the coronavirus pandemic. A second round of PPP funding was released earlier this week.
“Anybody that took the money that shouldn’t have taken the money, one, it won’t be forgiven and two, they may be subject to criminal liability, which is a big deal,” Mnuchin said in an interview on Fox Business. “I encourage everybody to look at this and pay back these loans now so we can recycle the money if you made a mistake.”
The Lakers are the second-most valuable NBA franchise, according to Forbes, with an estimated value of $4.4 billion. The team said it would return the loan and explained in a statement to ESPN that it qualified for the PPP program as a business with less than 500 employees.
Mnuchin’s office released new guidance about the PPP loans late Tuesday.
“To further ensure PPP loans are limited to eligible borrowers, the [Small Business Administration] has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application,” the statement reads. “Regulatory guidance implementing this procedure will be forthcoming.”
The SBA, which is administering the PPP program, released updated guidance last week to clarify that large businesses would likely not qualify for PPP loans. Large companies have until May 7 to return the loans without penalties, the SBA said.
Loan rules had prohibited companies with more than 500 employees from applying, but as many as 200 large, publicly traded companies circumvented the rule by applying with smaller subsidiaries.
The Lakers are joined by at least 17 other large companies to return loans initially applied for and received, according to The New York Times. Among the companies returning PPP loans are AutoNation ($77 million); Penske Automotive Group ($66 million); Ruth’s Hospitality Group, which operates the Ruth’s Chris Steakhouse chain ($20 million); J. Alexander’s Holdings ($15 million); and Shake Shack ($10 million).
One of the public companies that intends to keep its PPP loan is Ashford Inc., a Dallas-based hotel chain that applied for $126 million, according to the company.
”We plan to keep all funds received under the PPP, which were provided as a result of the application process and other specific requirements established for our industry by Congress,” the company said in a statement. If the SBA determines it has to return the money, the company will do so.
“Without the PPP program, no other programs exist to help larger hotel ownership companies survive the crisis and bring their employees back to work,” Ashford said. “We believe it is just as important to bring employees back to work at larger companies like Ashford Hospitality Trust (AHT) and Braemar Hotels & Resorts (BHR) as it is at smaller companies.” AHT, BHR, and Ashford are connected and all applied for PPP loans, the company said.
The PPP loans can be forgiven if, after 60 days, companies can show they were used to pay employee salaries and other expenses that allowed them to stay in business. Employee salaries cannot be cut by more than 25 percent.
Ashford said under the terms of the loan, it will likely not qualify for loan forgiveness and will have to pay it back in two years.
The first round of PPP loans were distributed on a first-come, first-serve basis, not on a determination of which businesses might need them most, noted Joan Harrington, director of social sector ethics at Santa Clara (Calif.) University.
That leaves many businesses big and small facing an ethical quandary: Do we really need these loans?
“Shouldn’t organizations consider the common good when making the decision about whether to apply for limited funds?” Harrington wrote in a blog post.
“Under the Paycheck Protection Program, applicants were provided with little guidance on who should apply other than the need to ‘support ongoing operations.’ Based on this language, many organizations legally qualified for loans,” she wrote, adding: “But in this unprecedented crisis, it is clear that the government will be unable to provide enough funds to address all of the need. This is the time that small businesses, both for profit and nonprofit, should be considering whether they can survive without government funds so that there will be enough for the neediest.”