Update (1458ET): JPMorgan is working with the Treasury department to adjust the distribution qualifications for the next round of PPP stimulus in order to 'end loopholes allowing major restaurant chains and hedge funds' to access the next virus aid package, according to Fox News, citing sources inside the bank.
The changes will allow "real businesses" to access the funds ahead of larger entities.
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Shake Shack plans to return the $10 million support loan it tapped from the Paycheck Protection Program (PPP) amid brewing outrage over large businesses accessing government funds that were intended to save small businesses during the coronavirus pandemic.
According to Bloomberg, over a dozen publicly traded companies with revenue topping $100 million participated in the stimulus before the $349 billion rescue package ran out of money within two weeks of being launched.
"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," said Shake Shack CEO Randy Garutti in a joint statement with founder Danny Meyer.
"Shake Shack was fortunate last Friday to be able to access the additional capital we needed to ensure our long term stability through an equity transaction in the public markets," the statement continues. "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."
The pair also lobbed criticism at the PPP, which 'came with no user manual and was extremely confusing.'
“Late last week, when it was announced that funding for the PPP had been exhausted, businesses across the country were understandably up in arms,” Garutti and Meyer said. “If this act were written for small businesses, how is it possible that so many independent restaurants whose employees needed just as much help were unable to receive funding? We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance.” -Bloomberg
According to an SEC filing, the US-based burger chain which employs approximately 45 employees at each of its 275 locations, received the $10 million on April 10 through JPMorgan. The company is facing operating losses of more than $1.5 million per week, according to the statement.
Shake Shack made an operating profit of $128 million on revenues of $595 million in 2019, according to the Financial Times, while Bloomberg notes that it's one of the fastest-growing restaurant companies in America.
According to the National Restaurant Association, 417,000 restaurant employees lost their jobs in March - a 6x increase in the record monthly decline set in October 2000. The sector employs approximately 15.6 million people in the US.
The sight of big companies getting aid while mom-and-pops complained they’d been frozen out of funding has sparked criticism of who was rescued by taxpayer dollars and who wasn’t. Asked whether such large, publicly-traded companies should be eligible for PPP funds, President Donald Trump on Sunday spoke about the role of franchisees as small businesses.
“I don’t know much about any of those companies. But a lot of times they’re owned by franchisees, where they own one or two places,” Trump said at a White House press briefing. “So a lot of that would depend on what the formula is." -Bloomberg
According to Shake Shack's website, they do not franchise - unlike some Ruths Chris steak houses and Potbelly sandwich stores, which accessed PPP funds. Potbelly defended their loan in a statement to Yahoo! Finance, saying that their workers are "vital to our economy."
Ruths Chris is another story altogether worth checking out.
.@RuthsChris had $42.2 million in profits last year, spent $5.2M buying its own stock, and pays its CEO $6.1M— Judd Legum (@JuddLegum) April 20, 2020
It has $86M in cash reserves
It just received $20M in taxpayer money from a fund meant to keep "small businesses" afloat
But it gets worsehttps://t.co/nDAhzjAnvq
The Small Business Association approved $342.3 billion in loans just 13 days after the PPP was launched - with the rest of the $349 billion going towards fees and processing.
The SBA said in a statement with the Treasury Department that the "vast majority of these loans -- 74% of them -- were for under $150,000," however an SBA report revealed that 2% of applications for the program accounted for nearly 30% of the funding.
Nine percent of the pot went to companies, such as Fiesta Restaurant Group Inc. that got loans of at least $5 million. Fiesta, which owns and franchises Pollo Tropical and Taco Cabana restaurants, said in a regulatory filing that it got $10 million. The company’s annual sales totaled $661 million and it had about 10,500 employees at the end of last year.
Sandwich chain Potbelly Corp., which had sales last year of $410 million and employed 6,000 people, also received $10 million.
Other companies that reported getting small-business funding are Zagg Inc., which makes protective coverings for smart phones and had $522 million in sales last year; Hallador Energy Co., a coal-mining company with $323 million in 2019 revenue; adventure-travel and cruise company Lindblad Expeditions Holdings Inc., which reported $343 million in sales last year; and data storage company Quantum Corp., with $403 million in sales. -Yahoo Finance
Last week we reported that hedge funds had also come under fire for participating in the program, which again, was designed for small businesses to cover payroll, rent and utilities for up to eight weeks.
"Most of the money has gone to much larger entities and the very small entities for the most part have been left behind," said John Arensmeyer of the Small Business Majority - an advocacy group for small companies. "We’re dealing with finite dollars," he added. "Even if more money is put into the system, we really need to prioritize very small businesses over publicly traded companies."
Over the weekend, Congress was in negotiations for an $310 billion extension to the PPP which has been held up by House Speaker Nancy Pelosi (D-CA), who rejected the idea of a "clean" which would only help small businesses - and has instead insisted that Democratic interests be included in the next package. The upcoming legislation will reserve no less than $200 billion for firms which have 20 or fewer employees.