Treasury Clarifies Small-Business Loans as Fed Vows Transparency

WASHINGTON — The Trump administration moved on Thursday to ensure that large corporations with access to capital are not improperly taking emergency small-business loans and the Federal Reserve committed to greater immediate transparency about how its bailout funds are deployed, amid growing concerns about how hundreds of billions of dollars of economic relief money are being allocated.

The actions came as Congress passed a $484 billion supplemental relief package to replenish an initial $349 billion program for small businesses, as well as providing more support for hospitals and expanding coronavirus testing capacity.

The Paycheck Protection Program, which gives forgivable loans for small companies that keep workers on the payroll, has stirred controversy as big, well-connected companies received money before many smaller ones. With the government required to provide few details about those recipients, concern has increased that the Treasury Department is shrouding its programs in secrecy — and that the Fed, once its own trillion-dollar efforts are up and running, will do the same.

On Thursday, the Treasury Department warned big publicly traded companies that they must prove they are in need of emergency small-business loans to keep their operations going and have no other option to receive financing or repay the funds.

The department updated its “Frequently Asked Questions” page about the Paycheck Protection Program to urge “large companies with adequate sources of liquidity” to think twice before applying for small-business loans that are backed by the Small Business Administration.

The Small Business Administration’s $349 billion fund to support these loans ran out last week and is expected to be replenished this week with another $310 billion. Anger over the program’s fairness has escalated as some big restaurant chains, including Shake Shack, received $10 million loans for their subsidiaries.

The Treasury Department notes that by law, small-business loans are intended to be taken in cases when the money is “necessary to support the ongoing operations.” It said that borrowers needed to certify that requirement in “good faith” and take into account their ability to gain access to other sources of money, such as issuing stock or selling bonds.

“For example, 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,” the department said.

Treasury Secretary Steven Mnuchin has warned businesses that they will be investigated and could face penalties if they improperly accept small-business money. He has urged businesses to return those funds. The guidance does not, however, force companies to return the money or accelerate repayments.

It remains unclear how the Treasury Department or the Small Business Administration will pursue investigations of loans that were given to borrowers that should not have been eligible. For the loans to be fully forgiven, businesses are required to demonstrate to banks that they met requirements to maintain staffing levels for eight weeks. The documentation that they provide could be subject to audits by the Internal Revenue Service.

The guidance released on Thursday said borrowers that repay loans in full by May 7 will be deemed by the Small Business Administration to have made their certifications in good faith, leaving them in good standing with the government.

At least four public companies, Shake Shack, Kura Sushi USA, Ruth’s Hospitality Group and ItWorks, have said that they have already given back the funds from the Paycheck Protection Program. Sweetgreen, which is privately held, also said it had returned its $10 million loan.

The Fed, which is infusing even more money into the financial system through its various facilities, said on Thursday that it would publicly disclose the names of companies that benefited from several of its lending programs.

The Fed said it would also release the amount borrowed and interest rate charged as well as overall costs, revenues and fees on programs backed by Congress’s recent appropriations. The Fed Board will publish program reports on its website at least every 30 days, without blacking out the information.

Congress has handed the Treasury Department $454 billion to support Fed lending facilities, which are meant to keep credit flowing through the financial system. Using that layer of taxpayer insurance, the Fed has announced programs that are meant to help midsize businesses, state governments, and large corporations.

The Fed chair, Jerome H. Powell, and Mr. Mnuchin are required to regularly report to Congress on the programs, but it was unclear how much detail they would disclose publicly and in real time.

“This is a significant victory for the public,” Bharat Ramamurti, the first member of the Congressional Oversight Commission responsible for overseeing the Fed programs, posted on Twitter after the release. “You will now know on a monthly basis which companies are getting support and how much support they’re getting.”

The policy outlined on Thursday will apply to initiatives backed by new funding, according to the Fed. Those include two corporate bond-buying programs, a municipal bond-buying program and an effort to help midsize business. Those efforts are not underway.

Programs meant to keep short-term markets functioning, which were announced and in some cases activated before the money was appropriated, will continue to report detailed information about participants on a delay.

While the Fed must provide participant information to Congress while the programs are operating, the Dodd-Frank law only requires officials to make detailed disclosures public a year after the programs end.

Fed officials have yet to decide which set of rules will apply to two of their programs — one that effectively buys bundles of consumer and business debt, called the Term Asset-Backed Securities Loan Facility, and another that moves small business loans off bank balance sheets. Neither uses funding from the coronavirus relief bill, known as the CARES Act.

“This seems to me like the Fed trying to pre-empt some of the issues that really plagued them in and around the financial crisis,” said Mark Spindel, who wrote a book about the Fed as a creature of Congress. “There’s no better way to be sensitive to the politics than to be open about who’s getting” the money.

David Yaffe-Bellany contributed reporting from New York.

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