UPDATE: April 27, 2020: Potbelly announced Saturday that it will return its $10 million Paycheck Protection Program loan. “We were surprised and disappointed when the fund was quickly exhausted, leaving many without help,” Potbelly said in statement. “We are returning the PPP loan after further clarification from the Treasury Department.” Potbelly has a market cap of $71.2 million, and is the latest major restaurant chain to return its PPP funding.
UPDATE: April 23, 2020: Ruth's Chris Steakhouse announced Thursday that it will repay its $20 million Paycheck Protection Program loans, CNBC reports. “We intended to repay this loan in adherence with government guidelines, but as we learned more about the funding limitations of the program and the unintended impact, we have decided to accelerate that repayment,” President and CEO Cheryl J. Henry said in a statement.
The Treasury Department also issued new guidance Thursday requesting that publicly traded companies repay their Paycheck Protection Program loans, The Wall Street Journal reports. The department said in new guidance Thursday that it's “unlikely that a public company with substantial market value and access to capital markets” would need federal loans to keep their businesses afloat. The returned funds will be made available as loans to businesses that qualify for PPP funding, a Treasury spokesperson told WSJ. Businesses that relinquish their loans before May 7 will be assumed to have acted in "good faith" when they initially claimed the loans. It's unclear what the consequences will be for companies that do not return their funds by deadline.
- Sweetgreen announced Wednesday that it will return the $10 million loan it received from the Paycheck Protection Program, according to a company post on Medium. “We learned that the money had run out and so many small businesses and friends in the industry who needed it most did not receive any funds,” said Sweetgreen co-founders Jonathan Neman, Nicolas Jammet and Nathaniel Ru said. “Knowing that, we quickly made the decision to return the loan.”
- Kura Sushi said Wednesday it will return the $6 million PPP loan it received. “It's impossible to ignore the face that our finances will allow us to weather financial hardship for a longer period than independent restaurant owners,” Jimmy Uba, Kura Sushi president and CEO, said in a letter on its website.
- Shake Shack on Monday was the first major restaurant to announce that it was returning its $10 million PPP loan.
The Treasury Department's new guidance will no doubt be well received by independent restaurants that were left out of PPP's first round of funding. But Forbes reported earlier this week that loans returned by companies will not be immediately redistributed to smaller restaurants.
“The money will go back in the fund. However, new loans can’t be made against those funds until Congress authorizes new funds,” Jennifer Kelly, a spokesperson for the Small Business Administration, told the publication following Shake Shack's announcement that it would relinquish its $10 million in PPP funds.
PPP was designed with small businesses in mind, but the program's stipulation that companies with fewer than 500 employees at single locations are eligible allowed major restaurants to throw their hat in the ring, regardless of their net worth. Sweetgreen has a valuation of $1.6 billion with $350 million in venture funding, and Kura Sushi has a market value of $82 million as of April 21. Shake Shack is worth $1.8 billion as of the same date. A small restaurant group and a handful of other small business owners have sued four major banks, accusing them of prioritizing clients that would make them money instead of processing applications in the order they were received.
President Trump signed legislation on Friday adding $310 million in funding for the PPP. With this new guidance, other major chains that received PPP loans like Fiesta Restaurant Group could return it, adding to the government's pot of cash. It's unclear, however, what will happen to funds if they are returned after the next funding round begins, or what penalties await major restaurants if they miss the May 7 deadline to return their federal aid.
Though major restaurant chains have deeper pocketbooks that will help them keep operations grinding amid this disruption, the whole of the restaurant industry is being pummeled by this economic crisis. Sweetgreen, for instance, defended its decision to apply for federal aid. In the company's Medium post, its co-founders said its “revenue has been dramatically affected during this unprecedented time. ... 100% of the loan was going to be used to pay the people in our restaurants and hire back furloughed team members faster.” Shake Shack also ensured that it had obtained outside funding before returning its PPP loan.
This move by the Treasury is a good step forward for small restaurants who are struggling to stay afloat, but experts say that the way PPP loans are currently designed could actually hurt restaurant recipients rather than help them.
“Today we learned Congress does not care if local restaurants close forever. The Senate passed new funding for the Paycheck Protection Program but until that program is fixed, it still won't help America's 500,000 independent restaurants reopen or ensure their 11 million employees have a job when this ends,” the Independent Restaurant Coalition said in an emailed statement after the Senate passed a new coronavirus relief package on Tuesday.