Shake Shack, one of several large restaurant chains roundly criticized for receiving federal loans intended for small businesses through the Paycheck Protection Program (PPP), will return the $10 million it received from the government, founder Danny Meyer and CEO Randy Garutti announced on Sunday.
“Shake Shack was fortunate last Friday to be able to access the additional capital we needed... through an equity transaction in the public markets,” Meyer and Garutti wrote on LinkedIn. “We’re thankful for that and we’ve decided to immediately return the entire $10 million PPP loan we received last week to the [Small Business Administration] so that those restaurants who need it most can get it now.”
The $350 billion allocated for PPP loans, intended to help small businesses during the COVID-19 crisis, ran out on April 15, leaving countless independent restaurants without a cut. According to a report from the Small Business Administration, which is running the program, roughly $30.5 billion of the approved loans went to the hotel and food industries as of April 16. Shake Shack, a publicly traded company with 8,000 employees and 189 restaurants in the U.S., was included in the program thanks to a rule that allowed any business with 500 or fewer employees per location (not in total) to apply.
Shake Shack’s move to return the funds was met with skepticism, as some questioned why the loan was available to to the chain in the first place. In a baffling tweet, even Steven Mnuchin, Secretary of the Treasury, appeared to agree with that sentiment. “I was glad to see that @shakeshack will be returning the #ppploan,” Mnuchin wrote.
Other major restaurant chains benefitted, too: 140-location Ruth’s Chris Steak House, received $20 million in funding per SEC filings — twice the $10 million limit, because the business applied through two subsidiaries. Potbelly, a 470-location sandwich chain, also received two $10 million loans. The parent company of the fast-casual Mexican chain Taco Cabana, which has 164 locations throughout the country, also received $10 million.
Independent restaurants, meanwhile, have struggled to access the loan program, which is administered by banks and private lenders, in part because of they don’t have existing relationships with big banks, CBS News reported. JP Morgan Chase, for example, administered the loans to Ruth’s Chris and Potbelly. The irony, it seems, is that strong previous banking relationships also let restaurants seek funding beyond the federal program — just like Shake Shack eventually did.
Facing intense criticism for their use of PPP funds, Shake Shack’s executives in turn blamed the federal government for underfunding the program. “It’s inexcusable to leave restaurants out because no one told them to get in line by the time the funding dried up,” Meyer and Garutti wrote. “That unfairly pits restaurants against restaurants.”
To improve PPP, they call for adequate funding — a deal for more is in the works — and assigning each restaurant applicant to a local bank. “Too many restaurants have been left out of the program simply because they lacked a pre-existing banking or loan relationship,” they acknowledged.
PPP loans are, as their name implies, intended to go toward payroll: They’re forgivable for businesses who spend 75 percent of them on payroll, though loan forgiveness will be reduced for restaurants that don’t rehire laid-off staff by the end of June. (Meyer and Garutti also suggest extending this deadline based on when restaurants can reopen to the public).
Spending a $10 million loan on payroll alone without rehiring workers might be difficult for small, independent restaurants — but for corporate ones with serious executive payrolls, it’s definitely possible. That’s what Ruth’s Chris might have in mind, the blog Popular Information speculates. Its current CEO earned $6.1 million in 2018, and its former CEO still receives $500,00 a year; For the purposes of PPP, $100,000 is the maximum personal salary that can count toward loan forgiveness.
This post has been updated to include a tweet from Steven Mnuchin.
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April 20, 2020 at 10:44PM
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Shake Shack Returns $10 Million Small Business Loan After Facing Criticism - Eater
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