After Shake Shack controversy, Treasury says SOEs should pay back loans

While small business owners struggled to secure loans under the Paycheck Protection Program in the two weeks before the $ 350 billion fund ran out, dozens of companies listed in The stock market has secured hundreds of millions of dollars in funding, drawing criticism from watchdog groups and lawmakers.

In update advice on the implementation of the CARES law, the Treasury Department and the Small Business Administration said Thursday “it is unlikely that a state-owned enterprise with substantial market value and access to capital markets will be able to do the required good faith certification “attesting to his need for the loan.

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The new direction came when Congress voted to replenish the small business fund and set aside about $ 60 billion for small lenders and their clients.

Dozens of publicly traded companies, including some that recently reported income, have secured hundreds of millions of dollars in program loans through an exemption for businesses with multiple locations and fewer than 500 employees.

Some had already pledged to repay their loans, after facing backlash from lawmakers, small business owners and government officials who criticized their use of the program, and feared some had obtained loans inappropriately.


The initial $ 350 billion program, part of the historic $ 2.2 trillion CARES ACT coronavirus relief program, was designed to help millions of small business owners across the country stay afloat for the coronavirus epidemic.

The loans, which are capped at $ 10 million, have a 1% interest rate and are forfeited as long as the money is mostly used on payroll – keeping all employees on staff for eight weeks – with rent and utilities, according to the SBA.

With more than a million potential borrowers flooding banks with loan applications, the program ran out of money after nearly two weeks. As of April 16, the agency has approved more than 1,661,000 loans from nearly 5,000 lenders.

While the average loan size was $ 206,000 and about three out of four loans were $ 150,000 or less, more than 40 percent of the $ 340 billion was issued to businesses in need of more. ‘a million dollars – with almost 10 percent of all funds. to those who needed more than $ 5 million.

“You have relatively large, sophisticated businesses competing with independent mom and family businesses that may not even have a prior banking relationship with a commercial lender,” John Lettieri, president and chief, told ABC News. of the management of the Economic Innovation Group.

“With a limited pot, you’re going to expect the more sophisticated companies to step up to the head of the line, and start to capture those limited resources and leave a lot of others out in the cold.”


Designed for businesses with 500 or fewer employees, the initiative also included exceptions for large restaurant and hotel chains, as well as franchises, with fewer than 500 employees per location.

This opening allowed some publicly traded restaurant and hospitality companies to seek and obtain millions of low-interest loans from the government.

Shake Shack, the leading publicly traded quick and casual burger chain with nearly 200 restaurants and 8,000 employees, secured a $ 10 million loan through JP Morgan on April 10, according to documents filed by the company with the Securities and Exchange Commission.

After fierce backlash and criticism, the company announced that it had returned its loan nine days later after accessing “additional capital that we needed to ensure our long-term stability through a share transaction. on public procurement, ”wrote CEO Randy Garutti in a Linkedin article. .

Kura Sushi, a publicly traded sushi chain with hundreds of locations in Japan and 30 in the United States, also got a nearly $ 6 million loan from Bank of the West, but returned the funds before it ‘They won’t be used, according to an SEC filing.

“It was a difficult decision because our employees are extremely important to us, but it is impossible to ignore the fact that our finances allow us to endure financial difficulties longer than the independent restaurateurs”, the company, which had foreseen to recruit some workers on leave with the loan, said in a statement.

Ruth’s Hospitality Group, the catering company behind Ruth’s Chris Steak House, signed $ 20 million in SBA loans on April 7, according to an SEC filing, but announced Thursday that it would also repay the funding. .

It is not clear that all SOEs that have guaranteed loans plan to repay the administration for the loans, which will be made available to borrowers in the next funding round, according to the SBA.

Ashford Hospitality Trust, a luxury real estate investment trust, received approximately $ 29 million of the $ 30.1 million PPP loan requested from Key Bank through its subsidiaries, which include the Ritz Carlton Atlanta, the Sheraton Anchorage and the Melrose Washington Hotel in Washington, DC. Georgetown neighborhood.

CEO Monty Bennett told CBS News in March that Ashford laid off or laid off 95% of its workforce due to the coronavirus crisis.

“There is no money to service our debt,” CEO Monty Bennett told CBS News in March, saying the company has laid off or laid off 95% of its workforce. “We can’t make the numbers work. Nobody can.”

The company defended its loan requests ahead of the new direction on Thursday, telling ABC News that Ashford Hospitality Trust “requested funds from the government in the exact manner the government intended at the time.” Ashford needs this money to save jobs. “

During a White House press briefing earlier this week, Treasury Secretary Steven Mnuchin said the fund was intended for “businesses that needed this money.”

“The intention of this money was not for the large state-owned companies that have access to capital,” he said, adding that there would be “serious consequences” for any company that falsely certified that she needed the money because of the state of the economy during the coronavirus pandemic.


The House voted Thursday to approve another round of funding for the small business loan program, sending President Trump’s office an emergency measure to invest an additional $ 310 billion in the P3 program.

The measure also sets aside $ 60 billion for smaller lenders more likely to serve small mom-and-pop businesses unlikely to have existing relationships with banks. It also includes $ 60 billion to replenish a second fund for emergency disaster loans.

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  • While the new arrangements – along with updated Treasury Department guidelines – could help ensure more small businesses successfully apply for loans, experts and industry officials believe it will quickly run out again. .

    “The real story is the massive demand and need for assistance which led to the approval of 1.6 million loans and the rapid depletion of the fund,” said Neil Bradley, House policy director. commerce, at ABC News. “As we think about that next installment, there’s a good chance that in a few days maybe the second installment will be sold out.”

    ABC’s Trish Turner and Sarah Kolinovksy contributed to this report.

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