Bankrupt Companies to Rush Plan Approvals for Shot at PPP Loans

Bankrupt companies seeking federal pandemic relief funds now have an incentive to speed up their restructuring, following a federal policy shift that qualifies some of them for the popular loan program.

The Small Business Administration previously said bankrupt companies aren’t eligible for Paycheck Protection Program loans. But the agency earlier this month quietly updated its guidance to allow companies with certain court-approved bankruptcy plans to apply, even if their bankruptcy cases are still active.

That clarification—coupled with a May 31 deadline for loan applications—likely will encourage debtors to quickly negotiate reorganization plans that hinge on getting a PPP loan in ...