Gov't relief loans to restaurant chains draw complaints

Friday, April 17, 2020, Vol. 44, No. 16
The Associated Press

Some big restaurant chains have obtained loans under a small-business relief program, leading business groups to cry foul even though the loans are within the guidelines of the lending program.

Shake Shack, Ruth's Chris Steakhouse and Potbelly's all announced last week they'd obtained the maximum $10 million loans under the Paycheck Protection Program. The $350 billion program, designed to help businesses stay afloat during the coronavirus crisis, ran out of money Friday, leaving some small businesses shut out.

Shake Shack, the New York burger chain, said Monday it will return its loan to give smaller restaurants a chance to get government money. Shake Shack employs nearly 8,000 workers across 189 outlets. The company said it secured alternate funding.

The government program, which is overseen by the Treasury and administered by the Small Business Administration, limits loan recipients to businesses with fewer than 500 employees and revenue of less than $2.5 billion. But it makes an exception for restaurants and other food service businesses that employ fewer than 500 people per location, meaning that restaurant chains are as eligible for the loans as a neighborhood restaurant or bar.

Karen Kerrigan, president of the advocacy group Small Business & Entrepreneurship Council, said the program is flawed and has obsolete rules.

"Some of these rules and provisions disproportionately hurt the chances of the smallest of businesses accessing this capital, or not getting sufficient and proportionate relief to help salvage their businesses," she said.

The Trump administration and Congress expect to reach agreement Monday on an aid package that could include up to $300 billion to boost the loan program.

The small business lending program is part of the Coronavirus Aid, Relief, and. Economic Security Act, or CARES act. The intent of the law may have been to encourage restaurants of all sizes to reopen and bring back their laid-off workers — the larger companies are likely looking at their locations with an eye to closing underperforming ones. When restaurants do reopen, it will also restore revenue for small businesses that supply food, liquor and services to restaurants in their area.

Many restaurants are scrambling to shore up their finances as their business drops off sharply as customers obey stay-at-home orders. U.S. restaurant sales were down 41% the week ending April 7, according to NPD Group, a data and consulting firm. The dropoff has been sharpest for sit-down restaurants that have closed their dining rooms.

Other chains have also accessed PPP funds. Potbelly Sandwich Works, which which has 474 restaurants and 7,000 employees, said last week it received a $10 million loan. Ruth's Chris Steakhouse, which has 150 restaurants and more than 5,700 employees, received two loans of $10 million each.

Ruth's Chris recently announced it drew down $120 million available under an existing credit line, suspended its dividend and had top level executives agree to reduce their salaries. Darden Restaurants — which owns the Olive Garden chain — took out a $270 million loan earlier this month. McDonald's took out a $1 billion loan and has cut executives' pay.

"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."