Large restaurant and hotel chains obtained exemption to obtain small business loans

A delivery man waits to pick up an order at an empty Shake Shack restaurant in Manhattan on March 18. The company, with annual sales of $ 500 million, plans to apply for a new government-guaranteed small business loan. (REUTERS)

Shake Shack Inc. hardly looks like a small business, with 7,600 employees, roughly $ 500 million in annual sales and a net profit of $ 24 million last year. Despite this, he plans to apply for a new government guaranteed small business loan.

The New York-based fast food chain says it needs help weathering the novel coronavirus pandemic. Many of its roughly 140 company-owned U.S. stores are in high-traffic urban areas, now largely closed by the virus. Sales are down 70% on average, the company said, and it has laid off or laid off 20% of its staff.

“We are looking at everything,” said a spokesperson for the company. “To the extent that we believe we are eligible and there are parts of the package that will benefit the business, then we will seek to research applicable options.”

While the new $ 350 billion paycheck protection program targets businesses with 500 or fewer employees, the wording of the $ 2,000 billion federal stimulus bill allows large restaurant chains and d ‘hotels to participate regardless of the number of people they employ.

Sean Kennedy, executive vice president of the National Restaurant Association, which has been pushing for restaurant and hotel exceptions, said size shouldn’t matter.

“The restaurant industry is particularly affected by this pandemic,” he said. “It was the first industry to shut down. We believe we deserve a unique response from the federal government.”

But John Lettieri, president of the Economic Innovation Group, a Washington think tank, said large companies should rely more on their own resources or other federal stimulus packages.

The small business loan program is “the only lifeline we offer to these categories of businesses,” he said. “It extends the intent of the law beyond recognition to apply to national entities.”

Some small franchisees and owners fear that large companies will ask them for loans if the fund runs out.

“This stuff is for me, the little one,” said Daniel Krause, who owns two Cracked Breakfast restaurants in Illinois. “If it all ends up going to the big dog, it’s so hard,” he said. With sales down 80%, he’s worried that others will beat him out of funding and that he’s even more in the red.

On Monday, more than 5,000 chefs, restaurateurs and restaurant workers sent a letter to Congress asking for program fixes that could help small establishments tap the funds, including one that would allow a longer reopening period.

Stephanie O’Rourk, partner in the hotel division of consulting firm CohnReznick LLP, said she has spoken to hundreds of clients concerned about the program. “The conversation is literally going from 8 am to 1 am. Everyone is concerned,” she said.

Portland, Oregon restaurateur and cookbook author Naomi Pomeroy said she applied for a loan with her bank on Friday and was told funds were already drying up. She and other prominent leaders fear that large chains have an advantage in accessing funds over smaller institutions, many of which do not have sophisticated accounting operations.

“A lot of people are applying and that money is running out very, very quickly. We’re going to need more money for restaurants to reopen,” Pomeroy said. “It’s just kind of a nightmare the way it’s put together.”

Almost every state in the US last month banned eating in restaurants, although the preparation of take-out or delivery is allowed. Many independent restaurants have chosen to close their doors rather than trying to put implementation programs in place – and therefore need more time to rehire staff and be eligible for loans. Large fast food chains, especially those offering drive-through services, remain operational and have retained more of their staff as demand has not declined as sharply.

“We know Chili’s and Denny’s are looking at this. Everyone has access to that same finished pie,” said Cheetie Kumar, owner of Raleigh, North Carolina-based restaurant Garland, who applied for the program. payment last week but fears the funds will dry up. Ms. Kumar closed her farm, putting most of her employees on leave.

Trump administration officials have said they will seek additional funds if the money runs out. Congressional support is likely, said an aide to Sen. Marco Rubio, the Florida Republican who chairs the Senate Small Business and Entrepreneurship Committee. “It was by far the most bipartisan initiative” in the stimulus bill, he said.

Loans are made by banks, credit unions and other lenders and have an interest rate of 1%. They are designed to keep employees on the payroll for eight weeks. If a borrower does not fire the workers, the government plans to cancel the loan, including the interest. Borrowers can also use the money for rent and utilities. The maximum loan is $ 10 million.

In addition to the exemption for hotel and restaurant chains, a second exemption has been granted to franchisees in any industry that employ more than 500 people, provided that no outlet employs so many. .

This will help Todd Recknagel, who employs more than 2,000 people at the 68 Massage Envy outlets he owns in the United States. to lend.

“We are a bunch of small businesses,” said Recknagel, who said he would apply for the maximum loan of $ 10 million.

While officials from the Small Business Administration, which oversees the PPP, made no comment, a spokeswoman for Senator Rubio said Mr Recknagel would only be entitled to a loan based on one location and that Shake Shack would not qualify for a loan because it was not listed in an SBA franchise directory.

Rep. Kevin Hern (R., Okla.), A McDonald’s franchisee, lobbied for the franchisee exception. He says this is justified because franchisees operate like small businesses in different communities. If they don’t have access to PPP, they would be forced to lay off workers, making the slowdown worse, he says.

“Franchising has been the real gateway to getting into small businesses with limited risk,” he said.

But he says he doesn’t agree with the exemption for company-owned department stores, such as Shake Shack.

“The intention was that the franchisees” be included in PPP, says Hern. “There are other opportunities for companies with more than 500 employees.”

The Federal Reserve and Treasury, for example, are setting up a Main Street lending facility for midsize businesses, although it has yet to be unveiled.

Dine Brands Global Inc. reported nearly $ 1 billion in revenue last year. He owns Applebee’s, including 69 restaurants operated by the company in the United States; approximately 1,600 Applebee are franchised. Dine also owns IHOP, which is a franchise operation. A spokeswoman said the company is considering applying for its company-owned locations, but is focusing first on ensuring its franchisees have access to the funds.

“The goal here for all of us in this industry is to keep restaurants open and minimize as much of an impact on all restaurant team members and guests,” she said.

Other large catering companies contacted by the Wall Street Journal said they would not apply for loans for company-owned locations, even if they are eligible.

They include McDonald’s Corp., which owns approximately 700 of its fast food restaurants, and Chipotle Mexican Grill Inc., the California burrito chain that owns all of its 2,600 locations in the United States.

“We don’t think this is the right thing to do right now,” said David Tovar, McDonald’s vice president of US communications. “We feel like we’re in a good financial position right now.”

McDonald’s owns the real estate of its franchisees and is deferring rent payments to its approximately 2,000 US owners for April and May, Tovar said.

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