Shake Shack, Ruth’s Chris and other restaurant chains got big P3 loans when small businesses couldn’t
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The latest news on Paycheck Protection loans (April 19):
According to Danny Meyer, CEO of Union Square Hotel Group and founder and chairman of Shake Shack, Shake Shack will repay its $ 10 million PPP loan.
(CNN) – For local DC bakery Sweet Potato Cake, $ 23,000 would have gone a long way.
The bakery, known for its small eponymous desserts, applied for a COVID-19 relief loan from the Small Business Administration to keep its seven workers, four of them full-time, on the payroll. The money would have given the bakery a chance to complete an order for 11,000 cakes – a lifeline thrown by one of its grocery partners.
Instead, on Friday, co-owner April Richardson advised three of her employees to file for unemployment.
In less than two weeks, funds from the Paycheck Protection Program (PPP), a $ 349 billion stimulus effort heralded as a way to help small businesses across the country pay their workers and maintain operations, were exhausted. Owners like Richardson, however, didn’t even get a taste of the loot: his rejection letter arrived at noon on Saturday.
“It’s a reminder to small businesses that our voices are being stifled,” Richardson told CNN Business. “Why are we doing this? Why are we in business just to be told we’re not good enough because we’re not big enough? “
Following a heavily requested exemption, the largest catering companies obtained loans of $ 10 million from the PPP. These include Potbelly Sandwich shop and Shake Shack, which has over $ 100 million in cash on site, as well as Fiesta Restaurant Group Inc., the owner of Taco Cabana.
Kura Sushi USA Inc., the largest revolving sushi chain in the United States, has revealed a loan of nearly $ 6 million. Operators behind Ruth’s Chris and J. Alexander’s steakhouses restaurant chains received $ 20 million loans and $ 15.1 million, respectively.
Non-catering companies have also secured large loans, including coal miner Hallador Energy, which announced its $ 10 million PPP loan alongside other liquidity maneuvers such as suspending dividends and amending its credit agreement to release an additional $ 50 million; and wind turbine maker Broadwind Energy, which said its subsidiaries received $ 9.5 million in PPP loans.
As of April 16, the SBA had approved more than 1.66 million loans worth more than $ 342.2 billion, according to a agency report. Of these, 4,412 were $ 5 million and over. High value loans represented 0.3% of the total number of loans and 9% of the aggregate dollar value.
Put money in the pockets of workers
The amount of money offered through PPP was never going to be enough to meet the immense demand, said Jacob Vigdor, professor of public policy and governance at the University of Washington.
“It was always going to end up in some people’s pockets and not others,” he said.
Part of the rationale behind targeting small businesses that employ less than 500 workers is that these businesses don’t have as many opportunities to access capital as larger entities, he said.
“I think in theory it would be great if we found a neutral way to target exactly the right companies and deliver the money to the places where the money would make the biggest difference,” he said.
However, the bureaucratic process to create an independent commission without lobbying pressure would take time. To be faster, the government offered loans on a first come, first served basis.
And that process favored those who already could afford to sit at the table, he said.
“Offer a different perspective: the ultimate goal was to put money in the pockets of the workers,” said Vigdor. “What if you work for a large restaurant chain or if you work for a small restaurant chain? The idea is that it was to help put money in your pocket.
That’s where Potbelly’s loan proceeds go, Matt Revord, the quick sandwich chain’s human resources director, said in an emailed statement to CNN Business.
“Like many other restaurants, Potbelly requested the PPP,” he said. “Every penny will be used to financially support the employees of our stores. Congress specifically qualified restaurants for the P3 loan program because restaurant workers are essential to our economy. “
Last month, as waves of hold-up orders the dining rooms of closed restaurants across the country, the National Restaurant Association said its industry risked losing $ 225 billion in sales and between 5 million and 7 million jobs in three months.
As these restrictions have been extended, fears have only grown for independent restaurateurs. A week after the start of the PPP application process, only 20% of the 1,400 respondents to a James Beard foundation investigation said they were certain they could survive the Covid-19 crisis.
Even if large restaurants and other entities were kept out of the process, Vigdor said the outcome would have been the same.
“When the number of people who want it exceeds the number available by such an order of magnitude, no matter how you distributed that money, there would be a lot of stories about the companies being left out,” he said. declared.
On shaky ground
Over the past two weeks, Mark Elliott has written to Governor Roy Cooper and his representatives in Congress from North Carolina, pleading for their help and pointing out the blind spots of the PPP.
Elliott operates two restaurants and a cafe in Pinehurst, North Carolina, a tourist village known for its historic golf course. In businesses he built from scratch, the first of which opened two decades ago, he has laid off 80% of his 100 employees and lost nearly $ 200,000 in revenue in just 14 days.
Not only were restaurants like his competing with other businesses that experienced limited or no downtime, but the lending terms were also not ideal for operations subject to public health shutdown mandates, he said. Elliott writes in letters, which he shared with CNN Business.
“Loan limits encourage rehiring of employees on leave regardless of the current economic market,” he wrote. “How to justify the rehiring of staff when after two months under these conditions, I could be forced to dismiss them again?
He applied for three loans, totaling just under $ 367,000, and his bank told him they had been approved and the money had not yet been released. Elliott, who noted that other bigger and better funded operators were getting big loans quickly, told CNN Business that future programs should be merit-based.
“It was the small businesses that needed to be on the front line of the help line,” Elliott said. “At the best of times, small businesses are fragile. In our industry, in particular, we may be a few inches from closing our doors. “
Other small business owners, like Liana Tremmel, fear their situation will become even more precarious.
The Chicago-area dentist has applied for a $ 46,000 PPP loan that would have helped pay employees and return her Regency dental care to fuller operations when stay restrictions are expected to be lifted in two weeks.
When she heard the news that the PPP money had been used up, Tremmel was taken aback.
“You do everything by the book; you are trying to live the ‘American dream’ and come to this country, work hard and do your part in the economy, ”said Tremmel, who emigrated from Romania over 15 years ago to pursue a career dental clinic and finally bought his own practice. “But when is it the other way around to help us in this crisis? It is not fair.”
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