By Andrew Kragie

Law360 (April 28, 2020, 6:39 PM EDT ) Treasury Secretary Steven Mnuchin said Tuesday that companies will face close scrutiny for any loans over $2 million received through the Paycheck Protection Program, which is meant to help small businesses make payroll during the COVID-19 pandemic.

Mnuchin announced the review policy after public outrage over the larger and publicly traded companies that qualified for the loans, which can be forgiven if used for payroll and certain other expenses such as commercial rent and utilities.

"Any loan over $2 million will have a full review for forgiveness before they're repaid," he said at a White House news conference. "I want to assure the American public and the American taxpayers: We will make sure that these certifications were done accurately, or the loans won't be forgiven and there will be liability."

Mnuchin was referring to the certifications required to apply for the Small Business Administration-backed loans. He said that agency would conduct the reviews.

"This was a program designed for small businesses," he said on CNBC. "It was not a program that was designed for public companies that had liquidity."

Mnuchin and SBA Administrator Jovita Carranza praised "the large number of companies that have appropriately reevaluated their need for PPP loans and promptly repaid loan funds" in a joint statement Tuesday.

They said the SBA "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.  Regulatory guidance implementing this procedure will be forthcoming."

The Treasury Department did not immediately respond to an inquiry Tuesday about formal guidance on the reviews that Mnuchin announced.

The Paycheck Protection Program guarantees private two-year loans of up to $10 million, at a 1% interest rate, to cover payroll costs, health care benefits, mortgage interest payments, rent and more. The loans will be forgiven if businesses — including small law firms — keep their end of the deal by retaining employees on payroll through the crisis. Companies are eligible if they have fewer than 500 workers or meet certain industry-based size and affiliation standards.

President Donald Trump touted SBA data showing a lower average size — $111,000 this week versus $207,000 — for the second batch of loan approvals, which started Monday morning after Congress last week authorized an additional $310 billion for the program on top of the nearly $350 billion budgeted in March. Despite reports of glitches and system overload on Monday, the SBA reported it had approved nearly $52.2 billion for over 475,000 loans as of noon Tuesday.

The Associated Press last week found 94 publicly traded companies reported receiving a collective $365 million in low-interest, government-backed and potentially forgivable loans. Some major corporations have returned their loans early, including Ruth's Hospitality Group and Shake Shack. Earlier Tuesday, Mnuchin dunked on the Los Angeles Lakers basketball team for taking one of the loans, which the team has since returned.

The Treasury Department said last week that, although eligibility for the Paycheck Protection Program is not conditioned on a company's being unable to get loans anywhere else, borrowers must still confirm that "current economic uncertainty makes this loan request necessary."

The department's new guidance last week shooed away publicly traded companies: "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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification."

The department added that companies that returned the money by May 7 would be considered to have acted in good faith.

Many franchise businesses were eligible for small-business assistance. The Subway sandwich shop's CEO said Wednesday that almost all franchisees had applied for PPP loans. The chairman of the Senate Small Business Committee said that was appropriate.

Subway "franchisees are generally eligible for #PPP because of preexisting [SBA] rules,NOT because of any special provision," Sen. Marco Rubio, R-Fla., tweeted on Wednesday. "Most workers at these independently owned stores live paycheck to paycheck & are EXACTLY who the program was meant to protect."

--Additional reporting by Jon Hill. Editing by Peter Rozovsky.

Update: This article was updated Wednesday with the joint statement from Mnuchin and Carranza along with Rubio's tweet.

For a reprint of this article, please contact reprints@law360.com.