Publicly traded restaurant chain Shake Shack has come under fire for securing $10 million in government aid through the Paycheck Protection Program, a forgivable loan designed to incentivize small businesses to keep workers on the payroll.
When the government announced that the $349 billion PPP loan program had run out of money, smaller companies reported that they had been locked out of the emergency funding.
The loan program was part of the stimulus package known as the CARES Act. Less than two weeks after it started, the program was out of money, NBC reported.
Larger companies like the New York-based Shake Shack managed to secure loans. According to Bloomberg, Shake Shack’s market capitalization is $3.4 billion. A single Shake Shack location is worth nearly $50 million. Shake Shack reported revenue of $594.5 million in 2019. And since 2013, its sales have increased at least 28 percent annually. There are 275 Shake Shack locations. The company employs nearly 8,000 people at its 189 U.S. restaurants.
Faced with criticism, executives at the publicly traded burger chain decided to return the entire $10 million received from the U.S. government loan.
“We’re thankful for that and we’ve decided to immediately return the entire $10 million PPP loan we received last week so that those restaurants who need it most can get it now,” said Danny Meyer, CEO of Union Square Hospitality Group and founder and chairman of Shake Shack; and Randy Garutti, CEO of Shake Shack. The made the comments in a joint statement they posted on LinkedIn.
Shake Shack isn’t the only large company that took the government loan meant for small companies. Ruth’s Chris steak house received a PPP loan. More than a dozen publicly traded companies with revenue of more than $100 million received funds before the program ran out of money, according to a Bloomberg review of regulatory filings.
Lawmakers in Congress are said to be near an agreement to top up the loan program, while also providing new funds for hospitals and coronavirus testing, Bloomberg reported.
To weather the economic downturn, Shake Shack said it sold $150 million of equity and filed to offer as much as $136 million more to underwriters.
Treasury Secretary Steven Mnuchin posted on Twitter that he was “glad to see” that Shake Shack will return the loan.
In their joint statement, Meyer and Garutti claimed they were confused about the terms and purpose of the PPP program.
“The ‘PPP’ came with no user manual and it was extremely confusing. Both Shake Shack (a company with 189 restaurants in the U.S., employing nearly 8,000 team members) and Union Square Hospitality Group (with over 2,000 employees) arrived at a similar conclusion. The best chance of keeping our teams working, off the unemployment line and hiring back our furlough and laid off employees, would be to apply now and hope things would be clarified in time,” they wrote.
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“While the program was touted as relief for small businesses, we also learned it stipulated that any restaurant business – including restaurant chains – with no more than 500 employees per location would be eligible. We cheered that news, as it signaled that Congress had gotten the message that as both as an employer, and for the indispensable role we play in communities, restaurants needed to survive. There was no fine print, anywhere, that suggested: ‘Apply now, or we will run out of money by the time you finally get in line,’” they continued.
Since each Shake Shack location had fewer than 500 employees, the pair figured the company should qualify.
“That meant that Shake Shack – with roughly 45 employees per restaurant – could and should apply to protect as many of our employees’ jobs as possible,” the two Shake Shake execs explained on LinkedIn.
They also used their statement to urge Congress “to ensure that all restaurants no matter their size have equal ability to get back on their feet and hire back their teams.”
The Small Business Administration’s challenging PPP rollout has left many entrepreneurs discouraged. The problem is exacerbated for Black small business owners.
“I feel like the application is a black hole and they’re going to apply all these criteria that we can’t meet as Black business owners,” Vania Bredy said in an interview with Moguldom. Bredy owns Bredy Physical Therapy & Sports Rehabilitation clinic in South Florida with her husband, Yonel Bredy.
