Shake Shack returning $10 million virus-linked small business loan
The burger chain Shake Shack says it has obtained new funding and will return a government small-business loan it got to help weather the coronavirus crisis. Shake Shack has laid off or furloughed hundreds of its employees and needed the assistance, its CEO, Randy Garutti, and its founder, Danny Meyer, said in a statement seen Monday.
But the publicly traded company, whose stock price is down 60% from a 52-week high of more than $102 a share last September, said it was able to get extra funding late last week through an "equity transaction" and decided to "immediately return" the $10 million Paycheck Protection Program loan it obtained through the CARES Act.
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It said, "We're fortunate to now have access to capital that others do not. Until every restaurant that needs it has had the same opportunity to receive assistance, we're returning ours."
The letter said shutdowns due to the coronavirus pandemic threaten $800 billion in U.S. restaurant spending and are a severe challenge to both Shake Shack and to Meyer's Union Square Hospitality Group.
Shake Shack has 189 restaurants in the U.S. that employ nearly 8,000 people. It said it's still operating many outlets while closing its dine-in facilities. Union Square Hospitality Group, with more than 2,000 employees, suspended its business in March. Both qualified for the government loans, the statement said, because their individual restaurant outlets employ fewer than 500 workers each.
The Paycheck Protection Program is supposed to encourage companies to retain and keep paying employees even if businesses were shut. The nearly $350 billion in forgivable, low-interest loans were in general limited to companies that had 500 employees or less.
An exception was given to companies in the hotel and restaurant industry. A number of large restaurant chains beyond Shake Shack appear to have taken advantage of the exception, CBS MoneyWatch reported last week. as the federal money for the program was fast running out. Meantime, numerous small businesses have complained they cannot even apply for help.
The owner of Ruth's Chris Steak Houses, for example, got $20 million from the small business loan program, despite having more than 5,000 employees and $468 million in revenue last year. That was double the $10 million limit that any one borrower was supposed to be allowed to receive from the fund. Ruth's Hospitality Group applied for loans for two of its divisions separately.
Funding for the loans has fallen far short of what is needed. The Trump administration and Congress expect an agreement Monday on an additional aid package of up to $450 billion to boost the small-business loan program that has run out of money and to add funds for hospitals and COVID-19 testing.
"We 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," Garutti and Meyer said. "Fund it adequately. 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."