Do you feel like you should be mad at Shake Shack or Potbelly Sandwich Shop right now, but you can’t explain exactly they did wrong?
That’s probably because the Payroll Protection Program, a loan program offered through the Small Business Administration, is confusing as heck. The program, launched as part of the $2.2 trillion coronavirus relief legislation, provides loans of up to $10 million dollars to small businesses so they can keep paying essential expenses like payroll, rent and utilities. If recipient businesses avoid laying off staff for eight weeks, the loan can be forgiven. If they can’t maintain their payrolls, they must repay it with 1% interest.
When the SBA opened applications, it was a shitshow: Small businesses—the ones most in need of an economic boost—faced technical difficulties and received conflicting messages about how to apply, while banks often reported they hadn’t yet received guidance about how to proceed.
How small businesses got left out of the PPP
The money in the program ran out in 13 days. But before it did, a bunch of big companies scooped up their share.
Typically, a business is considered “small” if it has fewer than 500 employees. But under the PPP, accommodations or food service business with more than one physical location and fewer than 500 employees per location could apply.
A list of companies accepted into the PPP has not been released by the government, but the Associated Press reviewed regulatory filings and found that at least 94 companies that received aid since April 3 are publicly traded. Those 94 companies received a combined $365 million in PPP loans, out of a total pot of $349 billion.
They scooped up the cash in part because they had the resources to go get it— relationships with big financial institutions, large legal teams, etc. And they knew how they could game the system: A corporation with subsidiaries (smaller companies under it) could apply for the maximum amount for all of its subsidiaries so long as they all had different tax IDs.
You see where this is going?
Where the PPP money went
Here’s just a smattering of the companies (both publicly traded and private) that got a PPP payday.
Shake Shack: Borrowed $10 million under the Payroll Protection Program (PPP), which it later promised would be returned. The chain has about 275 locations worldwide.
Potbelly: Got a $10 million loan for its 470 locations, then said it, too, would return it.
Ruth’s Chris Steak House: Got $20 million in PPP funds, but later said it would return it. The chain has more than 150 locations worldwide.
AutoNation: Received more than $77 million. It used separate tax numbers for some of its 300+ locations to apply for the funds. The board voted to return all PPP funds and cancel all pending applications.
Sweetgreen: Received a $10 million PPP loan, but decided to return it the same day. The chain has more than 90 locations.
Taco Cabana and Pollo Tropical: Received $15 million via its parent company, Fiesta Restaurant Group. The company, which is now “reevaluating” the funds, has 306 locations in Texas and Florida.
Fogo de Chão: Received $20 million over two loans. The restaurant chain has 42 locations in the U.S.
Kura Sushi: Received $10 million from PPP, but said it would return it. The California-based chain has 25 locations.
J. Alexander’s: Received $15.1 million across two loans. Later, it said it would return the money. The chain has about 50 restaurants.
Ashford Hospitality Trust: Received $29 million to boost 42 hotel locations across the country, including a Ritz Carlton in Atlanta.
The Los Angeles Lakers: Got $4.6 million in PPP funds, but told ESPN it returned it.
Why paying the money back doesn’t help (yet)
More money is coming, sort of. Maybe. Congress recently passed another relief bill that puts another $310 billion into the PPP.
While that relief package was in the works, the SBA asked businesses to consider returning the funds, clarifying its initial requirement that applying businesses simply verify that “current economic uncertainty makes this loan request necessary.” Now, the Washington Post notes, companies with other sources of cash probably won’t be considered for PPP funds.
But in the meantime, returned funds from the embarrassed corporations couldn’t be immediately redistributed to other businesses—the SBA had to wait for the second relief bill to pass first.
The SBA has also noted that companies who have already received a PPP loan have until May 7 to repay it in full in order to avoid scrutiny. Treasury Secretary Steven Mnuchin said today the government will audit any company that gets more than $2 million from the program.
When the SBA application site reopened Monday, it struggled to function due to demand. Funding was expected to run out within 48 hours.
Is it worth holding a grudge?
Many of the big businesses who have received PPP loans have echoed similar messages in their mea-culpa press releases, tweets and blog posts: They didn’t realize the funds would be depleted so fast, and felt bad that many small businesses were left out.
Meanwhile, others are doubling down on their commitment to utilize the loans they already received, arguing that they, too have been impacted. After all, only a portion of millions of new unemployment filings have been submitted by people who work at mom-and-pop organizations.
But the reason that corporate subsidiaries and individual business locations could apply for funds at all is because the restaurant and hotel industries lobbied the heck out of Congress in the weeks leading up to the passage of the CARES Act, the first coronavirus relief package.
So you can be mad at Shake Shack, or Potbelly, or any of the others. But the problem with the PPP goes far beyond any one company’s individual application for aid.