Shake Shack shares, which he won applause on Twitter, increased pressure on Potbelly and other large restaurant chains that have become a focal point of ire from the true small businesses that have so far been excluded from rescue loans. Those loans of up to $ 10 million can be forgiven in two months if beneficiaries use most of the money to keep workers on the payroll.
The loans, guaranteed by the Small Business Administration, are distributed through the banks. For Shake Shack, that’s JPMorgan Chase, which acquired the $ 10 million in taxpayer-backed funding.
in a March 20 Disclosure, Potbelly CEO Alan Johnson said a separate $ 40 million loan from Chase, this one not backed by taxpayers, would help the company weather the cash crisis in the coming weeks.
“With cash on our balance sheet and lowering our revolver,” Johnson said, “we believe we have taken the necessary steps to address potential short-term volatility in current market conditions.”
A week after that, President Donald Trump signed the law creating PPP loans. Around April 3, when the show launched and two weeks after Johnson’s statement, Potbelly applied through Chase for the $ 10 million he got.
The cash on Potbelly’s balance sheet at the end of 2019 was $ 19 million.
Labor costs in the second quarter of 2019 totaled $ 32 million, so Chase’s $ 40 million combined with cash on hand could theoretically have risen through June even with revenue substantially depleted, as it surely is.
And, although it hasn’t said it, Potbelly (like most fast food chains) has probably already laid off workers, so costs for those still on the payroll are likely lower than last year.
In a open letter Today, Shake Shack founder Danny Meyer, along with CEO Randy Garutti, explained why they sought the funds in the first place and acknowledged that their company had granted hundreds of licenses before doing so. They wrote: “Shake Shack was fortunate last Friday to be able to access the additional capital we needed to ensure our long-term stability through an equity transaction in the public markets. We are grateful for that and have decided to immediately repay the entire $ 10 million PPP loan we received last week to the SBA so that the restaurants that need it most can get it now. “
Potbelly’s action also raises questions for Chase. The nation’s largest bank had more than 27,000 applications approved in the first round of APPs, financing more than $ 14 billion in loans, according to the SBA. The average per loan was $ 515,304, the highest average of any of APP’s top 15 lenders.
Given that Chase had loaned $ 40 million to Potbelly while its income was falling, an additional $ 10 million of taxpayer-backed money that can be converted into a grant in 60 days theoretically helps protect the $ 40 million that Chase has lent to the chain and is at risk. to lose if Potbelly defaults.
“Larger clients were not prioritized,” Chase spokesman Brian Hanover wrote in an email. “In fact, we finance more than twice as many loans for smaller businesses than the rest of the company’s clients combined. We have different lines of business that serve different types of clients. Each business worked separately on loans for its clients. Business Banking, Chase’s bank for our smaller business clients, generally processed loan applications in a sequential manner, understanding that a given loan may take more or less time to process. Our intention was to serve as many clients as possible, not to prioritize any client over others. “
Chase’s small business unit financed about 18,000 loans to businesses that employ about 350,000 altogether. Chase’s other units that serve larger businesses made about 8,500 loans to businesses that employ more than 750,000 altogether, he said.
Assuming there is a second round of PPP loans, and Congress is reported to be close to a deal With the Trump administration at $ 310 billion more, there will be a flood of applications from Chase alone. It said last week in investor disclosures that it had 300,000 applications at various points in the approval process totaling $ 36 billion. Before the SBA funding window closed, recipients in the first round totaled just 9 percent of those who applied through Chase.