Defense contractor Frequency Electronics Inc. in Uniondale is returning a $5 million Paycheck Protection Program loan – becoming the second public company on Long Island to do so.
In a securities filing this week, Frequency said it has “elected to repay the PPP loan in full.” Three weeks ago, the company disclosed the loan, which was to be used to pay its 280 employees for eight weeks.
A Frequency executive didn’t respond to an email seeking comment.
Public companies with PPP loans have been criticized by small business owners who haven’t secured funding. But since the PPP program started on April 3, public companies have been eligible to participate if they can sign a certification form, stating, “current economic uncertainty makes this loan request necessary to support the [company’s] ongoing operations.”
BNB Bank CEO Kevin O’Connor said last month the U.S. Small Business Administration, which oversees the PPP, “did not specifically exclude public companies in the legislation, so the granting of loans to these companies was appropriate at the time.”
The bank, based in Bridgehampton, made PPP loans to two local public companies: CPI Aerostructures Inc. in Edgewood and P&F Industries Inc. in Melville.
The public outcry occurred after the PPP exhausted its first round of $349 billion in federal loan guarantees on April 16, with many small businesses left out and public companies disclosing their loans in required securities filings. Those who rely on consumers, such as Shake Shack, Ruth’s Chris Steak House and Potbelly Sandwich Shop, soon announced plans to return their PPP loans.
After bipartisan criticism from Capitol Hill, SBA administrator Jovita Carranza and Treasury Secretary Steven Mnuchin on April 23 said the PPP isn’t meant for companies that can raise funds by selling additional stock. The pair set a May 7 deadline, which has been extended to May 14, for public companies to return the loans.
Although the CARES ACT, which established the PPP, “suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere…borrowers still must certify in good faith that their PPP loan request is necessary,” states an April 23 directive from Carranza and Mnuchin. “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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”
SBA could potentially prevent a loan from being forgiven, forcing the borrower to repay the loan at 1% interest over the two-year term. Mnuchin has warned of “severe consequences” for public companies that don’t return PPP loans – but so far not specified the punishment.
Still, hotdog seller Nathan’s Famous Inc. in Jericho cited Mnuchin’s warning in announcing last week that it will return its $1.2 million loan that was slated to pay its 149 employees for eight weeks.
A dozen public companies on Long Island have secured nearly $38 million in PPP funds to sustain more than 2,330 jobs, securities filings show.
Nationwide, 377 public companies have disclosed receiving a total of $1.2 billion in PPP loans; 46 companies have returned $347 million so far, according to the data provider FactSquared in Washington.
Under the Paycheck Protection Program, banks and other private lenders make federally guaranteed loans of up to $10 million, generally to businesses with 500 or fewer employees. The entire amount is forgivable in some instances. Newsday has secured a $10 million PPP loan.