Buzz
Ever feel like you should be frustrated with Shake Shack or Potbelly Sandwich Shop, but you're not sure exactly what went wrong? You're not alone.
That's likely because the Payroll Protection Program, a loan initiative through the Small Business Administration, is incredibly confusing. Launched as part of the $2.2 trillion coronavirus relief bill, the program offers loans up to $10 million to small businesses to help cover costs like payroll, rent, and utilities. If businesses retain their workforce for eight weeks, the loan may be forgiven. If they can't maintain their staff, they must repay the loan with 1% interest.
When the SBA launched the application process, it was chaotic: Small businesses—who needed economic help the most—faced technical glitches and conflicting instructions on how to apply, while banks reported that they had not received any clear guidance on how to proceed.
How small businesses were left behind by the PPP
The funds in the program were depleted in just 13 days. But before that happened, several large companies claimed their portion.
Generally, a business is classified as “small” if it has fewer than 500 employees. However, under the PPP, certain accommodations or food service businesses with more than one location and fewer than 500 employees at each individual site could apply.
Although the government has not released a list of companies that were approved for the PPP, the Associated Press examined regulatory filings and discovered that at least 94 publicly traded companies received aid since April 3. These 94 companies together received $365 million in PPP loans, from the total $349 billion allocated.
They were able to grab the funds partly because they had the means to access them—connections with major financial institutions, extensive legal teams, etc. And they understood how to take advantage of the system: A corporation with subsidiaries could apply for the maximum loan amount for each subsidiary, as long as each had a unique tax ID.
Can you see where this is headed?
Where did the PPP funds actually go?
Here’s a glimpse at some of the businesses—both public and private—that benefited from the PPP funds.
Shake Shack: Received a $10 million loan through the Payroll Protection Program (PPP), which it later vowed to repay. The chain operates approximately 275 locations globally.
Potbelly: Secured a $10 million loan for its 470 locations, and like Shake Shack, promised to return the funds.
Ruth’s Chris Steak House: Secured $20 million in PPP loans, but later decided to return the funds. The chain operates over 150 locations globally.
AutoNation: Acquired more than $77 million in PPP funds, using different tax identifiers for its various 300+ locations. The board opted to return all funds and withdraw any pending applications.
Sweetgreen: Took a $10 million PPP loan, only to return it on the same day. The chain has more than 90 locations across the country.
Taco Cabana and Pollo Tropical: Received $15 million through its parent company, Fiesta Restaurant Group. With 306 locations in Texas and Florida, the company is now reassessing the funds.
Fogo de Chão: Secured $20 million via two separate loans. This Brazilian steakhouse chain has 42 locations in the U.S.
Kura Sushi: Was granted $10 million through the PPP, but announced plans to return the funds. The chain, based in California, operates 25 locations.
J. Alexander’s: Took in $15.1 million spread over two loans. Eventually, the chain decided to return the money. It has about 50 restaurants in operation.
Ashford Hospitality Trust: Secured $29 million to enhance its portfolio of 42 hotel locations nationwide, including a Ritz Carlton in Atlanta.
The Los Angeles Lakers: Received $4.6 million in PPP assistance, but later confirmed to ESPN that it returned the funds.
Why paying the money back doesn’t help (yet)
The government is preparing to release more funds, although it's still uncertain. Recently, Congress approved another relief package that allocates an additional $310 billion to the Paycheck Protection Program (PPP).
During the development of the relief package, the Small Business Administration (SBA) urged companies to consider returning the funds. The initial requirement for businesses applying was simply to confirm that 'current economic uncertainty makes this loan request necessary.' However, the Washington Post now highlights that companies with alternative funding sources likely won't be eligible for PPP assistance.
However, any returned funds from corporations that were initially embarrassed couldn't be immediately redistributed. The SBA had to wait for the passing of the second relief bill before they could proceed with reallocating the funds.
The SBA has clarified that businesses that have already received a PPP loan must fully repay it by May 7 to avoid scrutiny. Treasury Secretary Steven Mnuchin announced today that any business receiving over $2 million from the program will undergo a government audit.
When the SBA application portal reopened on Monday, it struggled to keep up with the overwhelming demand. Funding was expected to be depleted within just 48 hours.
Is holding a grudge really worth it?
Numerous large corporations that received PPP loans have expressed similar sentiments in their public apologies, through press releases, tweets, and blog posts: They didn’t anticipate how quickly the funds would run out, and they regret that many smaller businesses didn’t receive assistance.
At the same time, some businesses are reaffirming their intention to fully utilize the loans they’ve already secured, insisting that they, too, have faced significant challenges. After all, only a fraction of the millions of new unemployment claims have come from employees of small, independent businesses.
The reason corporate subsidiaries and individual business branches were eligible to apply for funds in the first place is that the restaurant and hotel sectors aggressively lobbied Congress in the lead-up to the passage of the CARES Act, the initial coronavirus relief bill.
You may feel frustrated with companies like Shake Shack or Potbelly, or any other similar businesses. But the issues with the PPP extend far beyond the actions of any single company applying for relief.
