Shake Shack is responding to an outcry over the US government’s emergency program to help businesses deal with the coroanvirus crisis by returning its $10 million loan.
The burger chain cancelled the loan awarded through the Trump’s administration’s Paycheck Protection Program, part of the $349 billion coronavirus stimulus package, amid growing backlash to the way bigger companies received the distributed funds which ran out last week.
The decision was announced by Shake Shack CEO Randy Garutti and chairman Danny Meyer in an open letter on Monday announcing the New York City-based chain would be returning the loan which was part of funding to help stave off layoffs to mainly companies with fewer than 500 employees.
“With slim margins in our industry to begin with, restaurants of all sizes and flavors were vulnerable and laying off people by the hundreds,” Meyer and Garutti wrote in a post on LinkedIn, saying they initially “cheered with a big sigh of relief” when the $2.2 trillion CARES Act was passed last month, promising financial assistance as the economy tanked under the effects of shutdowns from the spreading pandemic.
The men explained that “there seemed to be a lot to like in the bill” which “arrived just in the nick of time,” but added that the program “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 furloughed and laid off employees, would be to apply now and hope things would be clarified in time,” they wrote.
Meyer and Garutti contended that there was no indication that there was a limit of funding and were glad that restaurant chains like their own were eligible along with the smaller businesses.
But as the funds were exhausted quickly, backlash grew over reports that small businesses were unable to secure any assistance as chain restaurants, publicly traded corporations and hotels had applied and received the available money from the relief program.
Ruth’s Chris Steak House, a chain valued at $250 million that has 150 locations, reported receiving $20 million in funding from the PPP and sandwich chain Potbelly, with more than 400 locations and valued at $89 million reportedly got $10 million last week, according to The Washington Post.
“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,” the letter continued.
But the Shake Shack loan was being returned as they were “fortunate to now have access to capital that others do not.”
“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. We’re thankful for that and we’ve decided to immediately return the entire $10 million PPP loan we received last week to the SBA so that those restaurants who need it most can get it now,” the CEO and chairman wrote.
“Until every restaurant that needs it has had the same opportunity to receive assistance, we’re returning ours,” they added.
Treasury Secretary Steven Mnuchin was “glad to see” Shake Shack’s decision.
— Steven Mnuchin (@stevenmnuchin1) April 20, 2020
But while Mnuchin touted the success of the program, others were more critical, including U.S. Sen. Rick Scott.
“I am concerned that many businesses with thousands of employees have found loopholes to qualify for these loans meant for small businesses,” the Florida Republican said. “Unfortunately, when it comes to the PPP, millions of dollars are being wasted.
U.S. Sen. Marco Rubio of Florida also addressed the previous delays and problems as he laid out a probable timeline for the refunding of the program
Three messages this morning based on questions I received over the weekend:
— Marco Rubio (@marcorubio) April 20, 2020
Meyer and Garutti called on Congress to ensure increased funding to the program as lawmakers are poised to reach another agreement for additional PPP funding.
“It’s inexcusable to leave restaurants out because no one told them to get in line by the time the funding dried up. That unfairly pits restaurants against restaurants,” Meyer and Garutti wrote.
They also suggested restaurants applying for the loans should be assigned to a local bank as “too many restaurants have been left out of the program simply because they lacked a pre-existing banking or loan relationship.”
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