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Shake Shack is returning a $10 million loan it received from a federal emergency fund meant to help small businesses stay afloat during the coronavirus pandemic.
The fast-food chain announced Monday via an open letter on LinkedIn that it was giving back the money it was awarded under the Paycheck Protection Program, which is part of the $2 trillion Coronavirus Aid, Relief and Economic Security Act.
The $349 billion Paycheck Protection Program was supposed to offer loans to small businesses to cover payroll, rent or utilities. If the borrower avoided layoffs, the loan was forgiven — essentially covering workers’ wages for free.
Unfortunately, the program ran out of funds in less than two weeks.
Danny Meyer, Shake Shack’s founder and CEO of its parent company, Union Square Hospitality Group, and Randy Garutti, Shake Shack’s CEO, said they applied for the loan because the law stipulated the program was open to any restaurant business with no more than 500 employees at a single location — which describes the burger chain’s 189 individual stores across the United States.
“Few, if any restaurants in America employ more than 500 people per location,” they said in their open letter. “That meant that Shake Shack — with roughly 45 employees per restaurant — could and should apply to protect as many of our employees’ jobs as possible.”
They also said they had no idea the fund would dry up so quickly.
Happily for Shake Shack, they were able to obtain additional capital “through an equity transaction in the public markets.” Therefore, Meyer and Garutti said, they will return the federal loan so restaurants that “need it most can get it now.”
Shake Shack said in a filing on Friday that it expects to raise $75 million from investors by selling shares, per CNN.
The executives also expressed their frustration with the Paycheck Protection Program in their open letter, saying there wasn’t any “fine print, anywhere, that suggested: ‘Apply now, or we will run out of money by the time you finally get in line.’”
The program “came with no user manual and it was extremely confusing,” they added.
Shake Shack wasn’t the sole restaurant chain to go after money from the program. Potbelly and Ruth’s Chris Steak House also obtained loans of $10 million and $20 million, respectively, BuzzFeed News reports.
“Unfortunately, they were in line as soon as the window opened for this program and took a lot of resources away from those small business owners where this was their only option,” Holly Wade, director of research with the National Federation of Independent Business, told BuzzFeed.
According to the outlet, Potbelly revealed that it had paid a $100,000 signing bonus to a new executive the same day it announced it had received the federal loan.
Garutti told CNBC that it decided to return the funds Shake Shack secured after hearing so many stories from small business owners who weren’t able to access the program.
“I was just texting with a buddy of mine in Seattle, who owns three small restaurants, who has applied for this loan and hasn’t gotten it yet,” he said. “The reason [why we are] returning our $10 million [is] so guys like him can get the money that they need. And so that this industry can rise together.”
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