As small operations struggle, chains land PPP loans
As moms and dads struggle to get a loan through the Payroll Protection Program (PPP), a number of major restaurant chains are cashing multi-million dollar checks from the relief initiative, a cornerstone of federal efforts to help small businesses weather the COVID-19 crisis.
The parent company of steakhouse chain Ruth’s Chris raised $ 20 million by applying through each of its two subsidiaries. Taco Cabana qualified on a $ 10 million loan and Potbelly Sandwich Shop secured a $ 10 million loan, the largest advance allowed per applicant under the P3.
Kura Sushi, a 25-unit sushi chain, qualified for a loan of just under $ 6 million. CEO Hajime Uba told investors on Tuesday that part of the money would be used for rent due, as permitted by the PPP program.
The funds will also be used to continue paying the chain’s chefs, who have not been put on leave as the chain has temporarily closed all of its restaurants. Management decided that Kura’s menu was not suitable for take out and delivery, but chose to keep kitchen staff on the payroll nonetheless. “We made this decision because we believe the extent of short-term retention will be less than the cost of retraining staff and lost sales due to delayed reopens, ”Uba told financial analysts.
“We want to make a good faith effort to use the funds as intended, which keeps people on the payroll,” said Benjamin Porten, director of investor relations at Kura. “So with that in mind as well as the regulations surrounding the remission, our labor costs are higher than they would be if we hadn’t applied for the loan.”
PPP was among $ 2.2 trillion COVID-19 relief package, popularly known as the CARES law, which was enacted at the end of March. The program provides a $ 349 billion loan to small businesses through the US Small Business Administration (SBA). A small business is defined as an establishment that employs less than 500 employees at that location, a qualification included specifically to assist restaurants that are part of a chain or multi-concept group.
Places that match the bill can borrow up to 2.5 times their payroll, up to a maximum of $ 10 million. The loans mature in two years and carry an interest rate of 1%. But the CARES law specifies that loans will be canceled if the borrower meets certain criteria, including spending 75% of the funds on the payroll.
The program started on April 3 and ran into problems almost immediately. The banks complained that they were not given guidelines to select potential borrowers. The volume of applications has crashed lender websites. The places ran out of money in a short time.
SBA Jovita Carranza and US Treasury Secretary Steve Mnuchin said in a joint statement released Wednesday that “the SBA has processed over 14 years of loans in less than 14 days … The high demand we have seen underscores the need to work hard Americans have access to relief as soon as possible. We want all eligible small businesses to participate and get the resources they need. “
Some restaurateurs have complained about the requirement that employees on leave must be rehired within eight weeks of the loan being granted. Many establishments are completely closed or only offer take-out and delivery. Why increase staff if sales are low or non-existent? Yet failure to do so will threaten the cancellation of their loans.
The National Restaurant Association and other industry groups have expressed hope that restaurants will have 60 to 90 days to rehire.
Ruth’s Hospitality Group, Potbelly, Taco Cabana and Kura have been required to disclose their receipt of loans because all four are state-owned and are obligated to report significant developments to investors. Private channels are not required to post a notice if they are eligible for PPP loans.
According to Stifel, a brokerage and investment banker, the approach taken by Ruth’s Chris’ parent company – each of whose subsidiaries is applying for a loan – will likely be followed by other large restaurant companies. He raised the possibility in a communication to customers that Chili’s Grill & Bar’s parent company, Brinker International, could go down this route to get $ 100 million in PPP loans. Brinker is also the parent of Maggiano’s Little Italy.
Taco Cabana is a subsidiary of the Fiesta Restaurant group, which also owns the Pollo Tropical brand.
The SBA has not disclosed how much of the initial $ 349 billion has been loaned to date. Senate Majority Leader Mitch McConnell has already proposed allocating an additional $ 250 billion to the program, but Senate Democrats have blocked the measure, saying they would prefer a follow-up that provides assistance to hospitals and to the states.
House Speaker Representative Nancy Pelosi and House Democratic Leader Senator Chuck Schumer have since suggested an additional $ 500 billion be allocated to the program.
“We urge Congress to allocate additional funds to the Paycheck Protection Program – a critical and predominantly bipartisan program – to which we will once again be able to process loan applications, issue loan numbers and protect millions of extra paychecks, ”Mnuchin and Carranza said. in their joint statement.