Shake Shack Gives Back $10M After Large Businesses Get Exposed For Taking VERY Short-Lived ‘Small Business Loan’ Money

Shake Shack - an NY based burger company - applied for a loan that they shouldn’t have and received millions. The money they received from the federal government could have gone to small businesses who actually needed it. Now, they’re giving back. More inside…

Shake Shack – a NY based burger company – is returning a $10 million stimulus loan they didn’t need. In fact, they shouldn’t have even applied for it in the first place, but here we are.

The burger company (with 189 restaurants in the U.S., employing nearly 8,000 team members) announced they’re returning the $10 million they received through the Coronavirus stimulus law that was put in place to help small businesses.

However, the company is likely only returning the money after receiving backlash. They are one of more than a dozen companies with annual revenues in the hundreds of millions that reportedly received money from the Paycheck Protection Program (PPP). The loan program set aside $349 million in the CARES Act ($2.2 trillion coronavirus stimulus package), which was passed to help small businesses affected by the Coronavirus pandemic. So how were they able to qualify?  Due to a loophole that allowed all restaurant and hotel chains, regardless of size, to apply for these specific loans, despite the fact so many other money options are available to those businesses that aren't available to other small businesses.

Not even two weeks after the program started, it ran out of money! And many believe the pool of money ran dry so quickly - with many small businesses being denied - because of companies like Shake Shack receiving funds that they technically shouldn't qualify for or even need.

Shake Shack's CEO Randy Garutti made the announcement about returning the funds in a statement posted to LinkedIn.

In the letter (from both Randy and Danny Meyer - CEO Union Square Hospitality Group, Founder and Chairman of Shake Shack), the company claims the program’s manual was “extremely confusing” about whether a business the size of his should apply for the Payroll Protection Program. The thing is, applying for the stimulus money should have been their last resort.

The multinational burger chain then asked its investors for money. And guess what? They received $150 million!

Peep an excerpt from the press release about the transaction below:

Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE:SHAK) today announced transactions resulting in aggregate $150 million gross proceeds of new equity capital. The Company raised approximately $140 million gross proceeds from the sale of shares of its Class A common stock (the “Underwritten Shares”) in an underwritten offering, and approximately $10 million gross proceeds from sales of shares of its Class A common stock pursuant to the ATM Program announced earlier today. The Company currently intends to use the net proceeds to strengthen its balance sheet, which would include use for general corporate purposes, and to further enhance the Company’s ability to resume execution of its long-term strategic growth plan. The closing of the underwritten offering is expected to occur on April 21, 2020, subject to standard closing conditions.

 

 

Shake Shack got a $10 million small business loan.

They then went to JPMC, Bank of America and Wells Fargo, who helped them underwrite $140 million worth of equity.

The goal? Ensure that their “strategic growth plan” to add to their 280 locations is on track. pic.twitter.com/GWoOthEdLh

— Amanda Fischer (@amandalfischer) April 20, 2020

 

Hmph.

Shake Shack could have taken this route BEFORE seeking government funding so actual small businesses - meaning small in size of employees (usually 50 and under, not 500 and under) and smaller revenues than hundreds of millions a year - could have  achance of staying strong.  Those actual small businesses  could have kept their employees on payroll or hired back employees they had to lay off. Obviously, these mom and pop shops can’t just hit up huge corporations for capital.

Other big businesses that benefited from the PPP include Ruth’s Chris Steakhouse, Potbelly Sandwich Shop, Fiesta Restaurant Group Inc (owner of Taco Cabana), Kura Sushi USA Inc, J. Alexander Restaurant, Hallador Energy and Broadwind Energy. 

While the language of the Stimulus bill was indeed (intentionally) vague, companies should use their best judgment, and their conscious, when applying for such pools of money.  Greed should not be at play.

In Garutti’s announcement, he wrote:

Late last week, when it was announced that funding for the PPP had been exhausted, businesses across the country were understandably up in arms. If this act were written for small businesses, how is it possible that so many independent restaurants whose employees needed just as much help were unable to receive funding? We now know that the first phase of the PPP was underfunded, and many who need it most, haven’t gotten any assistance.

That’s a good question he asked. Why couldn’t these independent restaurants get the help they needed? Inquiring minds want to know.

It may not be the end for small businesses though. The PPP could get expandedwith an additional package of money.

Lawmakers on Capitol Hill are expected to approve measures to expand the program this week, Treasury Secretary Steven Mnuchin said. “I’m hopeful we can reach an agreement the Senate can pass tomorrow and the House can pass Tuesday,” Mnuchin said Sunday on CNN.

Mnuchin said he was discussing a package with Democratic leaders that could include $300 billion in additional funds for the Paycheck Protection Program, $75 billion for hospitals and $25 billion to expand national testing efforts, though the exact sums appeared to still be fluid.

Let's keep our fingers crossed.

Photo: JHENG YAO/Shutterstock.com

source: theybf