By Canadian Press

Gov’t relief loans to restaurant chains draw complaints

Apr 20, 2020 | 11:27 AM

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

The Paycheck Protection Program exhausted its $350 billion in funding last week and many small businesses were unable to obtain loans they desperately need to stay afloat. Congress and the White House say they’re close to an agreement on additional funding, but small business groups say the program needs to be changed to be fairer to the smallest of businesses.

Restaurant chains Shake Shack, Ruth’s Chris Steakhouse and Potbelly’s each announced last week they’d obtained loans worth a combined $40 million loans under the program. 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 neighbourhood restaurant or bar.

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

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“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 $2.2 trillion rescue package approved by Congress last month. 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.

Small business advocacy groups say changes are needed before the next round of funding is doled out. The National Federation of Independent Business says a portion of the money should be set aside for companies with 20 or fewer employees. While the NFIB did not mention small restaurants specifically, they would be among the beneficiaries under the NFIB plan.

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 drop-off has been sharpest for sit-down restaurants that have closed their dining rooms.

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.”

In a statement, Shake Shack CEO Randy Garutti and its founder Danny Meyer said, “It’s inexcusable to leave restaurants out (of the PPP) because no one told them to get in line by the time the funding dried up. That unfairly pits restaurants against restaurants.”

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Durbin reported from Dearborn, Michigan.

Joyce M. Rosenberg And Dee-Ann Durbin, The Associated Press