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GOP and White House Under Fire: Hotel and Restaurant Chains Helped Deplete PPP Small Business Program

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The White House and the Republican Party are now under fire because big hotel and restaurant chains played a major role in quickly depleting the Paycheck Protection Program part of the economic stimulus program. One big company, Shake Shack, has announced that it’s giving the money it got back. Even some GOPers are either speaking out about it, or moving to try and pass a second installment.

The bottom line: small businesses were left to wither on the vine or die while money went into the coffers of some big companies that already had healthy reserves. The Washington Post:

“The federal government gave national hotel and restaurant chains millions of dollars in grants before the $349 billion program ran out of money Thursday, leading to a backlash that prompted one company to give the money back and a Republican senator to say that “millions of dollars are being wasted.”

“Thousands of traditional small businesses were unable to get funding from the program before it ran dry. As Congress and the White House near a deal to add an additional $310 billion to the program, some are calling for additional oversight and rule changes to prevent bigger chains from accepting any more money.

‘Ruth’s Chris Steak House, a chain that has 150 locations and is valued at $250 million, reported receiving $20 million in funding from the small business portion of the economic stimulus legislation called the Paycheck Protection Program. The Potbelly chain of sandwich shops, which has more than 400 locations and a value of $89 million, reported receiving $10 million last week.”

The backlash is growing and now some Republican Senators are now speaking out:

“Sen. Rick Scott (R-Fla.) criticized the program, saying that “companies that are not being harmed at all by the coronavirus crisis have the ability to receive taxpayer-funded loans that can be forgiven.”

“‘I am concerned that many businesses with thousands of employees have found loopholes to qualify for these loans meant for small businesses,’ Scott said. ‘Unfortunately, when it comes to the PPP, millions of dollars are being wasted.'”

The fund’s depletion by the big corporate players will further reinforce he growing perception that today’s GOP and White House side first with big business even in this case where funds could determine the survival of many small businesses. This means a fix is more likely than not to happen — and happen soon.

Shake Shack explained its decision to return $10 million this way:

“In a statement Sunday night on LinkedIn, Danny Meyer, Shake Shack’s founder and CEO of its parent company, Union Square Hospitality Group, and Randy Garutti, Shake Shack’s CEO, said the company pursued the loan because the law stipulated that it was open to any restaurant location with no more than 500 employees — which describes Shake Shack’s 189 individual U.S. restaurants.

“The program offered to forgive the loans if recipients rehired furloughed and laid-off workers by June, and because Shake Shack and its parent company had already furloughed hundreds of employees, they said, they gambled that “the best chance of keeping our teams working, off the unemployment line and hiring back our furloughed and laid off employees, would be to apply now and hope things would be clarified in time.”

“But they said they had no idea the fund would dry up so quickly, so after they were able to secure separate funding last week, ‘we’ve decided to immediately return the entire $10 million” so restaurants that “need it most can get it now.'”

‘”We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance,’ Meyer and Garutti wrote, urging Congress to ensure that “all restaurants no matter their size have equal ability to get back on their feet and hire back their teams.'”

Popular Information has an excellent report on the impact on small businesses. Here’s the beginning of it:

The pandemic has been devastating for small businesses, particularly independent restaurants that rely on foot traffic. Congress created a $350 billion lifeline called the Paycheck Protection Program. The Paycheck Protection Program allowed small businesses with 500 or fewer employees to receive a loan equal to 2.5 times their monthly payroll costs, up to a cap of $10 million. If the business uses at least 75% of the loan to cover payroll costs, it will be forgiven by the government. The purpose of this money was to keep people employed.

But by April 16, less than two weeks after the program launched, it ran out of money. Many thousands of small businesses, some of the brink of permanent closure, were not able to secure loans.

Some of these companies shared their stories with Popular Information. Divalicious Custom Cakes in Lake Worth, Florida, which employs four people, applied for funds on April 5. But the cake makers were shut out and were forced to close their business permanently. Holy Grail Pub in Plano, Texas, which has 26 employees, applied for the program as soon as it launched. But the pub received no money, and the owners have been forced to take out a second mortgage on their home and draw down on their retirement savings.

But, before the money ran out, Ruth’s Hospitality Group, the parent company of Ruth’s Chris Steak House, was able to secure a $20 million loan. How did a company with thousands of employees and over $441 million in revenue last year — and $86 million cash reserves — benefit from this fund while thousands of real small businesses received nothing?

Read the article in its entirety.

photo credit: Davide Schiano New York – Shake Shack Burger & Hot Dogs via photopin (license)