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The federal government’s $670 billion program to aid small businesses will come under a spotlight when Congress rolls back into action, with many lawmakers planning to target what they say are shortcomings in the program, the Wall Street Journal reported. Proposals include extending the number of weeks that small businesses can spend money from the government’s forgivable loans under the Paycheck Protection Program, and allowing businesses to use more of the funds for overhead costs. Some lawmakers want to create new funding vehicles, including allocating aid to local governments to disburse as they see fit amid the coronavirus pandemic. Sen. Ron Wyden (D-Ore.) said that the smallest businesses have struggled to access loans through the PPP. He has proposed direct cash payments equal to 30 percent of gross receipts, up to $75,000, to firms with $1 million or less in gross receipts and 50 or fewer employees. Proposals for additional funding could face obstacles from lawmakers who say they are concerned about the debt being accrued. “I think it’s also time to begin to think about the amount of debt that we’re adding to our country and the future impact of that,” Senate Majority Leader Mitch McConnell (R-Ky.). The Senate plans to return to Washington, D.C., on Monday, while the House delayed its return date due to health concerns over the coronavirus pandemic. Read more. (Subscription required.) 

In related news, White House economic adviser Larry Kudlow said yesterday that he would not rule out anything in a new relief bill to ease the “tremendous hardships” of the coronavirus outbreak, including more money for state and local governments and small businesses, Reuters reported. More than 30 million Americans have joined the unemployment benefit rolls over the past six weeks and lawmakers on Capitol Hill are discussing a fourth coronavirus relief bill. Democrats are pushing for additional aid to help cities and states cope with lost revenue from a shut-down economy and some governors have warned of massive layoffs if they fail to get it. Some advisers to Republican President Donald Trump have said the need for another stimulus bill is not yet clear. But Kudlow said that “there may well be additional legislation” as officials study how the billions included in the last bill take effect. Read more.

Publicly traded companies have received more than $1 billion in funds meant for small businesses from the federal government’s economic stimulus package, according to data from securities filings compiled by the Washington Post. Nearly 300 public companies have reported receiving money from the fund, called the Paycheck Protection Program, according to the data compiled by the Post. Recipients include 43 companies with more than 500 workers, the maximum typically allowed by the program. Several other recipients were prosperous enough to pay executives $2 million or more. After the first pool of $349 billion ran dry, leaving more than 80 percent of applicants without funding, outrage over the millions of dollars that went to larger firms prompted some companies to return the money. As of Thursday, public companies had reported returning more than $125 million. Read more.

Dan Bearden thought that getting a $947,000 COVID-19 relief loan would be just the lifeline that Dancor, his trucking company, needed to survive bankruptcy reorganization. But the U.S. Small Business Administration denied Dancor Transit Inc.’s application for the Paycheck Protection Program because the company is in chapter 11 bankruptcy, Arkansas Business reported. Dancor, like several other companies across the country in bankruptcy restructuring, sued the SBA for preventing firms in bankruptcy from accessing forgivable loans under the federal Coronavirus Aid, Relief & Economic Security Act. Dancor filed a complaint against the SBA on April 20 inside its case in U.S. Bankruptcy Court in Fort Smith. It wants the judge to remove the phrase on the loan application that asks if a company is “presently involved in any bankruptcy.” “Without a PPP loan, it is questionable whether Dancor can meet payroll, rent, utility, or debt obligations as they continually come due,” Dancor’s attorney, Kevin Keech of Little Rock, wrote in the filing. “Without a PPP loan, Dancor may cease to be a viable company and may have to convert its case to a chapter 7 liquidation, which will result in many of its creditors receiving little to no payment in satisfaction of their debts.” Meanwhile, Dancor has reapplied for a PPP loan, and a case in Texas offers some encouragement. A bankruptcy judge there criticized the SBA for denying the Hidalgo County Emergency Service Foundation’s PPP loan just because it is in bankruptcy. Read more.

Read more about In re Hidalgo County Emergency Service Foundation in the RDW.

The federal government’s $660 billion aid program for small businesses coping with the coronavirus pandemic threatens to leave hundreds of thousands of companies struggling to survive because of its limits on nonpayroll expenses, the Wall Street Journal reported. The Paycheck Protection Program requires that 75 percent of the funds go for employee salaries, and no more than 25 percent on rent, mortgage interest and utility payments. That is proving to be a deal breaker for many small businesses with modest payrolls and high rent costs, such as restaurants, salons and shops in urban areas including New York, Los Angeles and Chicago. Many of these businesses have been forced to close, and their owners said a more pressing need is for rent and other costs they must still pay. But to have their loans forgiven, the federal program requires the businesses to rehire workers they have already laid off and don’t currently need. Small-business advocacy groups are pushing for changes to the regulations and have won support from some members of Congress and even two conservative economists who helped craft the PPP plan. The 25 percent cap on nonpayroll expenses wasn’t stipulated in the legislation approved by Congress and signed by President Trump but was imposed in the regulations crafted by the Small Business Administration and the Treasury Department, they said. Read more. (Subscription required.) 

In related news, the Justice Department has begun a preliminary inquiry into how taxpayer money was lent out under the Paycheck Protection Program and has already found possible fraud among businesses seeking relief, a top official said, Bloomberg News reported. Assistant Attorney General Brian Benczkowski, who runs the department’s criminal division, said that prosecutors have contacted 15 to 20 of the largest loan processors and the Small Business Administration, which oversees one relief program, as part of an effort to police the trillions of dollars in federal aid being pushed out hastily to blunt the economic impact of the coronavirus pandemic. The review has already turned up several red flags in the data prosecutors have examined over the past week, Benczkowski said yesterday. Issues were found in both approved and rejected applications. “Whenever there’s a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork in an attempt to get access to that money,” said Benczkowski, a former partner at Kirkland & Ellis LLP in Washington who has been running the criminal division for almost two years. He went on: “There are unfortunately businesses that are sending in loan applications for large amounts of money that are overstating their payroll costs, overstating the number of employees they’ve had, overstating the nature of their business.” The criminal division has tapped the fraud section’s market integrity unit to oversee PPP-related investigations and coordinate with various U.S. attorneys, Benczkowski said. That unit has been responsible for prosecuting Wall Street crime, most notably allegations of market rigging at major banks including JPMorgan Chase & Co. and Deutsche Bank AG. Prosecutors will also work closely with inspectors general and other monitors, he said. Read more. 

The Small Business Administration on Wednesday said it would temporarily restrict applications for emergency small business loans to only those submitted by the country's tiniest lenders, an unprecedented move by the agency as it tries to field hundreds of thousands of incoming requests for aid, Politico reported. The SBA told banks that for the rest of the day, starting at 4 p.m. and ending at 11:59 p.m., its systems would only accept Paycheck Protection Program loan applications from lenders with less than $1 billion in assets, representing the smallest in the industry. "SBA and Treasury will evaluate whether to create a similar reserved time again in the future," the agency said. The announcement was the Trump administration's latest sudden shift in the program, which Congress created to help fight layoffs during the pandemic but which has been dogged by problems since it was launched on April 3. Lenders have seen huge demand for the small business loans, which can be forgiven if employers keep their payrolls. The new policy further inflamed tensions between the SBA and big banks, which have complained they've received little clarity on how the agency will handle their massive backlog of applications. Large lenders have said they have no idea how the agency is handling hundreds of thousands of applications that they submitted in bulk filings this week.

Treasury Secretary Steven Mnuchin yesterday announced new plans to scrutinize the largest recipients of emergency small business loans and signaled potential criminal penalties if big companies misrepresented their financial situation to secure the money, Politico reported. Mnuchin in a CNBC interview scolded Wall Street-backed firms that received tens of millions of dollars in Paycheck Protection Program loans, which can be forgiven if businesses maintain their payrolls. "The purpose of this program was not social welfare for big business," he said. "The purpose of this program was to help small businesses." Mnuchin said the Small Business Administration planned to do a "full review" of any loans above $2 million before the loans are forgiven. He warned that borrowers have "criminal liability" if they falsely certified that they needed the funds to support operations. Shake Shack, Ruth's Hospitality Group and other well-known publicly traded companies were among the corporations that received loans before the first wave of funding ran out on April 16. Many have started to return the money amid pressure from the Trump administration and the public.