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Shake Shack Returns $10 Million Paycheck Protection Loan After Securing Funding Elsewhere

By Rich Duprey – Apr 20, 2020 at 8:22AM

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The high-end burger chain was criticized for taking a loan when other smaller businesses were frozen out.

Shake Shack (SHAK -0.13%) says it will return the $10 million Paycheck Protection Program (PPP) loan it received before the program ran out of money last Wednesday.

The high-end fast-casual burger chain, which was criticized for securing a loan as it generates almost $595 million annually in sales, said it was able to secure equity funding through other means.

Shake Shack worker serving a burger

Image source: Shake Shack.

Chain restaurants took large chunks of money

The $349 billion PPP was created as part of a larger $2.2 trillion economic rescue plan to help small businesses survive the coronavirus pandemic, yet numerous chain restaurants like Shake Shack, Potbelly (PBPB -8.30%), and Ruth's Hospitality Group (RUTH -0.55%), which runs the upscale Ruth's Chris Steakhouse, secured large loans from the PPP.

Shake Shack and Potbelly received $10 million each while Ruth's got a $20 million loan.

Almost 1.7 million loans were processed by the Small Business Administration, though only 4,400 were valued at $5 million or more. While such loans accounted for just 0.3% of the loans processed, they represented 9% of the total value of the loans made. 

Shake Shack CEO Randy Garutti and founder and chairman Danny Meyer justified their applying for a loan in a LinkedIn account post saying the program stipulated no restaurant with more than 500 employees would qualify.

While they admit very few restaurants actually employ so many, they said the PPP "came with no user manual and it was extremely confusing." They further blamed the PPP for being underfunded, but said Shake Shack was able to secure additional capital "through an equity transaction in the public markets" and would immediately return the $10 million they received so others could use the money.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Shake Shack Inc. Stock Quote
Shake Shack Inc.
SHAK
$44.82 (-0.13%) $0.06
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$237.92 (-1.27%) $-3.06
Ruth's Hospitality Group, Inc. Stock Quote
Ruth's Hospitality Group, Inc.
RUTH
$16.36 (-0.55%) $0.09
Potbelly Corporation Stock Quote
Potbelly Corporation
PBPB
$4.53 (-8.30%) $0.41

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