Shake Shack CEO Says PPP 'Extremely Confusing' After Restaurant Chain Returns $10 Million Loan

Food chain Shake Shack will return its $10 million Paycheck Protection Program (PPP) loan to the U.S. government to help smaller restaurant businesses gain access to the funds needed to stay open during the coronavirus pandemic.

According to a LinkedIn post by Danny Meyer, founder and CEO of the Union Square Hospitality Group and chairman of Shake Shack, and Randy Garutti, CEO at Shake Shack, the company applied for the loan as part of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) Act after the outbreak of the virus, which meant restaurants had to close up and down the country.

"With slim margins in our industry to begin with, restaurants of all sizes and flavors were vulnerable and laying off people by the hundreds. Indeed, both Shake Shack and Union Square Hospitality Group needed to make those tough decisions too, furloughing or laying off hundreds of team members throughout our respective companies—one a publicly-traded company, the other an independent restaurant group," the post says.

The restaurant industry was projected to make sales of $899 billion in 2020, but the outbreak of the novel coronavirus has had a big impact on the industry. Marvin Irby, interim president and CEO of the National Restaurant Association, told Newsweek in March that this "unique time" in the country's history has already meant "sales have slowed" and will mostly affect smaller businesses.

"There are more than 1 million restaurants in the U.S., employing 15.6 million people," he says. "More than 70 percent of these restaurants are small businesses that support their local communities. These local restaurants run on razor-thin pre-tax margins, and they are facing an unprecedented cash flow crisis."

The aid provided by the CARES Act was supposed to help businesses that would struggle and potentially close due to social distancing and lockdown measures. "The CARES Act was touted as the largest economic stimulus package in U.S. history and on its initial face, for restaurants, there seemed to be a lot to like in the bill," the post from Shake Shack says.

According to the Tax Foundation, a leading independent tax policy nonprofit, the CARES Act, which was approved by Congress in late March 2020, includes certain relief measures to aid restaurants to keep their staff employed or to be able to reemploy them once the pandemic restrictions have been lifted. These measures include an additional $600 per week unemployment insurance payment to each recipient for up to four months and extended benefits to self-employed workers, as well as a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis to employers.

As they meet the criteria for financial assistance—Shake Shack and Union Square Hospitality Group have a combined total of 189 restaurants and around 10,000 employees—and feeling the "immediate drop in business due to the virus," the companies made the decision to apply. "After careful consideration, Union Square Hospitality Group opted to apply for PPP loans, taking on the risk in order to hire back laid-off employees as soon as possible," explains the post.

However, after the revelation last week that the funding for the PPP had been exhausted and it became clear that many independent restaurants across the country weren't getting the assistance they needed, the company made the decision to pay back its "entire $10 million PPP loan."

"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," the post goes onto say. "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 [Small Business Administration] so that those restaurants who need it most can get it now."

According to a release issued on April 17, 2020, Shake Shack Inc. announced the selling of shares through J.P. Morgan, BofA Securities and Wells Fargo Securities on The New York Stock Exchange. The release says that the company intends to use the net proceeds from sales of the shares under the ATM Program primarily to strengthen its balance sheet, which would include use for general corporate purposes.

"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," the Shake Shack LinkedIn Post continues. "We are an industry of 660,000 restaurants with nearly 16 million employees. While it is heartening to see that an additional $310 billion in PPP funding is about to be approved, in order to work for restaurants, this time we need to do it better."

Other large organizations such as Harvard University have received aid under the CARES Act—Newsweek reported that the institution had received around $8.655 million in federal aid, despite having a $40 billion endowment.