NEW YORK, NY - MARCH 29: A view outside Shake Shack in Herald Square as people remain at home to ... [+]
The $10 million Paycheck Protection Program loan that Shake Shack
The $349 billion Paycheck Protection Program ran out of funds last week, locking out small businesses that were unable to secure access to the emergency lending program that is being run by the federal government’s Small Business Administration.
Shake Shack, the popular burger chain founded by celebrity chef Daniel Meyer, said that it would be returning the $10 million it received from the Payment Protection Program after the company faced intense criticism for applying for the emergency financing intended for small businesses.
“The money will go back in the fund. However, new loans can’t be made against those funds until Congress authorizes new funds,” said Jennifer Kelly, a spokesperson for the Small Business Administration.
The Paycheck Protection Program was offering two-year loans of up to $10 million that carried an interest rate of 1%, with the principal forgivable if the funds are used largely for payroll, mortgage interest, rent and utilities. The loans were means for small businesses that had fewer than 500 employees.
But the Paycheck Protection Program did allow for restaurant companies like Shake Shack that did not employ more than 500 people at a single location to obtain loans. Shake Shack received a $10 million loan under the program through JPMorgan Chase
The Shake Shack Payment Protection Program loan was met with skepticism by some because of the large size of the company, which has a stock that is traded on the New York Stock Exchange. On Friday, Shake Shack, which has a market valuation of $1.7 billion, was able to raise $150 million in an equity offering.
Shake Shack said on Friday that prior to the equity offering it had $112 million of cash on hand. The company had 7,603 employees at the end of 2019, but had recently furloughed or laid off some 1,000 employees.
“The ‘PPP’ came with no user manual and it was extremely confusing,” wrote Meyer and Randy Garutti, Shake Shack’s CEO, in a LinkedIn post on Monday. “We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance.”
“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.”
But the SBA will not be able to funnel the $10 million of loan proceeds Shake Shack returned to other small business unless Congress authorizes the SBA to do so. The Trump administration has been working with Congress to try to provide a new round of funding and replenish the program to provide emergency and potentially forgivable loans to American small businesses.
Disclosure: Forbes Media LLC confirmed on July 6, 2020 that it received a Paycheck Protection Program loan of $5 million to $10 million on April 15.
