After Shake Shack controversy, Treasury says public companies should repay loans

Some public companies have been slammed for obtaining the small business loans.

April 24, 2020, 5:11 AM

The Treasury Department issued new guidance on Thursday encouraging publicly-traded companies to return their coronavirus stimulus loans by May 7 as Shake Shack and other public companies have faced backlash for receiving funds meant for small businesses.

While small business owners struggled to secure loans under the Paycheck Protection Program in the two weeks before the $350 billion fund ran dry, dozens of publicly traded companies secured hundreds of millions of dollars in funds, drawing criticism from watchdog groups and lawmakers.

In updated guidance on the implementation of the CARES Act, the Treasury Department and Small Business Administration said Thursday "it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith" attesting to its need for the loan.

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The new guidance came as Congress voted to replenish the small business fund, and set aside roughly $60 billion for smaller lenders and their customers.

Dozens of publicly traded companies, including some that recently reported revenue, secured hundreds of millions of dollars in loans from the program through a carve out for businesses with multiple locations staffed by fewer than 500 employees.

Some had already committed to returning their loans, after facing backlash from lawmakers, small business owners and administration officials critical of their use of the program, and concerned that some may have been obtaining the loans improperly.

“The goal here always was that we would reach companies that could not get money like that from anywhere else, meaning they weren’t covered in other parts of the CARES ACT, and they couldn’t get money from the private market,” Sen. Marco Rubio, R-Florida, the chairman of the Senate Small Business Committee, said in a video posted on Twitter Monday. “I think unfortunately there probably are a couple companies that qualified for this, and entities that qualified for this, who were not what we intended.”


The initial $350 billion program, an element of the historic $2.2 trillion CARES ACT coronavirus relief package, was designed to help millions of small business owners across the country stay afloat during the coronavirus outbreak.

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

PHOTO: Treasury Secretary Steven Mnuchin speaks about the coronavirus in the James Brady Press Briefing Room of the White House, April 21, 2020, in Washington.
Treasury Secretary Steven Mnuchin speaks about the coronavirus in the James Brady Press Briefing Room of the White House, April 21, 2020, in Washington.
Alex Brandon/AP

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 approved more than 1,661,000 loans from nearly 5,000 lenders.

While the average loan size was $206,000, and roughly three-in-four loans were for $150,000 or less, more than 40 percent of the $340 billion was issued to businesses who needed more than $1 million – with nearly 10 percent of all the funds going to those who needed more than $5 million.

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

“With a limited pot, you’re going to expect to see the more sophisticated companies get in the front of the line, and start to capture those limited resources and leave many others out in the cold.”


Designed for businesses with 500 employees or less, the initiative also included exceptions for big restaurant and hotel chains, along with franchises, with less than 500 employees per location.

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

Shake Shack, the prominent and publicly-traded fast casual burger chain with nearly 200 restaurants and 8,000 employees, secured a $10 million loan through JP Morgan on April 10, according to the company’s filings with the Securities and Exchange Commission.

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

Kura Sushi, a publicly-traded sushi chain with hundreds of locations in Japan and 30 in the United States, also obtained a nearly $6 million loan from Bank of the West, but returned the funds before they were used, according to an SEC filing.

“This was a difficult decision because our employees are extremely important to us, but it’s impossible to ignore the fact that our finances allow us to weather financial hardship for a longer period than independent restaurant owners,” the company, which had planned to hire back some furloughed workers with the loan, said in a statement.

Ruth’s Hospitality Group, the restaurant company behind Ruth’s Chris Steak House, inked $20 million in loans through the SBA program on April 7, according to an SEC filing, but announced on Thursday that it would return the funding as well.

It’s not clear that all public companies that secured loans are planning to repay the administration for the loans, which will be made available to borrowers in the next round of funding, according to the SBA.

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

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

"There is no money to make our debt service," CEO Monty Bennett told CBS News in March, saying the company had furloughed or laid off 95 percent of its workforce. "We can't make the numbers work. No one can."

The company defended its loan requests ahead of the new guidance on Thursday, telling ABC News that Ashford Hospitality Trust “applied for monies from the government in the exact manner the government intended at the time. Ashford needs the dollars to save jobs.”

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

“The intent of this money was not for big public companies that have access to capital,” he said, adding that there would be “severe consequences” for any companies that falsely certified that they needed the money due to the state of the economy during the coronavirus pandemic.


The House on Thursday voted to approve another round of funding for the small business loan program, sending to President Trump’s desk an emergency measure to put another $310 billion into the PPP program.

The measure also sets aside $60 billion for small lenders more likely to service mom-and-pop small 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 provisions – together with the updated guidance from the Treasury Department – could help ensure that more small businesses successfully apply for loans, experts and industry officials believe it will quickly run out once again.

“The real story is the overwhelming demand and need for assistance that drove 1.6 million loans to be approved and the fund to be quickly exhausted,” Neil Bradley, the chief policy officer of the Chamber of Commerce, told ABC News. “As we think to this next tranche, it’s quite likely that perhaps in a matter of days that the second tranche will be exhausted.”

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