Shake Shack pays off $ 10million small business loan after being criticized
Shake Shack, one of many large restaurant chains heavily criticized for receiving federal loans for small businesses under the Paycheck Protection Program (P3), will repay the $ 10 million he received government, founder Danny Meyer and CEO Randy Garutti announced Sunday.
“Shake Shack was fortunate last Friday to be able to access the additional capital we needed… through a public market share transaction,” Meyer and Garutti wrote on LinkedIn. “We are grateful for this and have decided to immediately return the full $ 10 million PPP loan we received last week in [Small Business Administration] so the restaurants that need it most can get it now.
The $ 350 billion allocated to PPP loans, intended to help small businesses during the COVID-19 crisis, sold out on April 15, leaving countless independent restaurants without a cut. According to a report From the Small Business Administration, which manages the program, about $ 30.5 billion of approved loans went to the hospitality and food industries as of April 16. Shake Shack, a publicly traded company with 8,000 employees and 189 restaurants in the United States, 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 decision to return the funds was met with skepticism, with some questioning why the loan was available to the chain in the first place. In one confusing tweeteven Steven Mnuchin, Secretary of the Treasury, seemed to agree with this sentiment. “I was happy to see that @shakeshack would return the #ppploan,” Mnuchin wrote.
Other big restaurant chains have also taken advantage: Ruth’s Chris Steak House, at 140 locations, received $ 20 million in SEC filing funding – twice the limit of $ 10 million, because the company applied through two subsidiaries. Potbelly, a sandwich chain with 470 branches, also received two loans of $ 10 million. The parent company of Mexican fast-casual chain Taco Cabana, which has 164 branches nationwide, 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 they do not have existing relationships with the big banks. CBS News reported. JP Morgan Chase, for example, administered the loans from Ruth’s Chris and Potbelly. The irony, it seems, is that previous strong banking relationships also allowed restaurants to seek funding beyond the federal program, just as Shake Shack ultimately did.
Facing strong criticism for their use of P3 funds, Shake Shack executives in turn blamed the federal government for the program’s underfunding. “It is inexcusable to leave the restaurants aside because no one told them to line up when the funding dried up,” Meyer and Garutti wrote. “It unfairly pits restaurants against restaurants. ”
To improve PPPs, they call for adequate funding – a deal for more is under construction – and by assigning each candidate restaurant to a local bank. “Too many restaurants have been excluded from the program simply because they did not have a pre-existing banking or loan relationship,” they admitted.
PPP loans are, as the name suggests, intended for the payroll: they are forgivable for companies that spend 75% on the payroll, although loan cancellation is reduced for restaurants that do not rehire. of staff made redundant by the end. of June. (Meyer and Garutti also suggest extending this deadline depending on when restaurants can reopen to the public).
Spending a $ 10 million loan just on payroll without rehiring workers can be difficult for small independent restaurants, but for companies with a large executive payroll, it is very possible. This is what Ruth’s Chris could have in mind, Popular Information blog speculates. Its current CEO made $ 6.1 million in 2018, and its former CEO still receives $ 500,000 per year; For the purposes of the PPP, $ 100,000 is the maximum personal salary that can be taken into account for the cancellation of the loan.
This post has been updated to include a tweet from Steven Mnuchin.