Question

As a financial consultant, evaluate the recent financial decision made by Shake Shack to return the $10 million loan received from the paycheck protective program (PPP). Research this piece of news in the media to contribute your opinion and comment on the opinion of another classmate.

Answer 1

The restaurant industry is one of the hardest hit due to the coronavirus pandemic. The chances of an economic recovery in the industry are grim amidst lockdowns and limitations on public gatherings. This has affected the business of many small restaurants who work on low margins. The paycheck protection program was a part of the 2.2 billion stimulus package the congress adopted to help the nation survive this crisis. The aim of the PPP was to help small businesses to keep people employed through loans that are forgivable if workers are kept on payroll. The Small Business Adminstration which is running the Paycheck Protection Program said in a report that it approved around 1.66 million loans, with 4412 approved for $ 5 million or more. This was part of a $ 349 billion fund Congress created as a part of CARES Act to fight against the economic impact of Coronavirus.

Why did Shake Shack return the 10 million loan it received as part of PPP?

While Shake Shack and lot of other restaurant chains with turnover of 100 million + received such loans, critics claimed that these chains have access to other sources of capital and it is the small businesses who required these loans. There were reports of the loans being rejected for certain small businesses while larger companies including restaurant chains, hoteliers and other publicly traded corporations have received huge loans.

This wide spread criticism led to the decision of returning the loan so that it is routed back to those who really need it. The PPP program had maxed out and stopped accepting claims after lot of such businesses were financed leaving out the small ones. So Shake Shack claimed that " Until every restaurant that needs the loan has the same opportunity as us, we are returning ours". The growing backlash over the distribution of funds under the program led to such a decision by Shake Shack.