New SBA Guidance Encourages Restaurant Chains to Return PPP Loans

Ruth's Chris steakhouse

After a week of public outrage over millions in Paycheck Protection Program (PPP) funds going to publicly traded restaurant chains, the Small Business Administration (SBA) added new guidance to its FAQ about the program. Item 31 states:

Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, 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, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

According to NBC News, “After names of publicly traded companies who had received funds under the program started making headlines, Treasury Secretary Steven Mnuchin warned that PPP was not intended for these kinds of companies and said there would be penalties unless they gave the money back.”

Shake Shack rendering
A rendering of the Shake Shack in Houston’s Rice Village neighborhood. Rendering courtesy of Shake Shack.

Earlier this week, even before the new guidance was issued, Shake Shack decided to return its $10 million loan. Today, Ruth’s Chris Steakhouse, which circumvented the $10 million cap on PPP loans by applying through two subsidiaries to get twice the maximum amount, announced it was returning the $20 million it received. Kura Sushi, which was loaned almost $6 million, and Sweetgreen, a chain specializing in salads and grain bowls, both announced yesterday that their PPP funds will be returned. Kura Sushi CEO and president Jimmy Uba posted a statement to the company website homepage, while Sweetgreen’s owners posted a letter on Medium.

With Congress adding more funds to the PPP program and SBA issuing new guidance about the ineligibility of chains with significant access to capital, it seems likely that more owners of actual small businesses will receive loan approvals and a much-needed infusion of emergency funds.

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