Hedge fund and private equity firms are not eligible for the types of US government loans designed to provide relief to small businesses from the economic hardship of the coronavirus outbreak, the Small Business Administration said on Friday.
“Hedge funds and private equity firms are primarily engaged in investment or speculation, and such businesses are therefore ineligible to receive a PPP (Paycheck Protection Program) loan,” the SBA wrote in an update to clarify which businesses may apply for relief under the program.
The loans are designed to support smaller businesses ranging from hair dressers to restaurants to help cover employee payroll and rent, as large swaths of the economy have been shut down to keep the virus from spreading.
US lawmakers on Thursday approved a new $484 billion aid bill, the fourth passed to address the coronavirus crisis to fund small businesses and hospitals. It includes $310 billion for PPP loans, replenishing the program’s recently depleted $349 billion initial pot.
Reuters has not been able to identify firms that may have asked for or received the loans, but bankers and lawyers said there was speculation that some financial firms had applied for the program.
Many Americans expressed anger that government aid might go to these types of firms, sometimes run by billionaire founders who fly in private planes and own second and third homes in exclusive vacation enclaves.
Investment adviser Aksia wrote a letter to firms it invested with on April 8 saying it felt “strongly that the PPP’s loan forgiveness should not be going to alternative asset managers” whose fee revenues were not significantly affected by the COVID-19 crisis.
The SBA on Friday issued the update guidance, saying that it “does not believe that Congress intended for these types of businesses…to obtain PPP.”
To be sure, not all hedge funds and private equity firms are run by wealthy financiers and some are struggling to stay in business as the historic stock market sell-off hit returns and investors have asked for their money back.
As the wave of criticism grew this week, a few US publicly traded companies, especially in the hospitality industry, began refusing PPP loans they were just awarded. That accelerated after the Treasury Department said on Thursday that public companies would have a hard time proving they needed the funds.
One firm to turn down a PPP loan was Manning & Napier, an investment firm but not a hedge fund manager. The company, which had $17 billion under management as of March 31, said on Thursday it had “immediately rescinded” its already approved applications for $6.7 million in PPP loans for two subsidiaries following the new SBA guidance.
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