Jim Ilaria, CEO of Uno Restaurants, admitted to me earlier this week that he was nervous about the state of the Paycheck Protection Program.
“We’re very nervous the rules are going to change and block access for bigger firms,” he said.
Contrary to popular belief, it seems, not all chains got their funds: Uno was not approved in the first go-round of $349 billion, which has since run out.
As the fund drained, a lot of attention has focused on restaurant chains that received the funds, especially Ruth’s Hospitality Group, which received $20 million, and Shake Shack, which received $10 million before returning it over the weekend.
That backlash generated an effort to ensure that the second round of funds would be aimed at small businesses, though that hasn’t been the case thus far.
For someone like Ilaria, the prospect that chains could be shut out was worrisome. Uno operates 85 locations and has been in decline. Its same-store sales declined 4.2% last year, Ilaria said.
The company, and many midsize full-service chains like it, don’t have the access to capital that a Ruth’s or a Shake Shack might have, making the funds that much more important.
“That’s a lifeline for us,” Ilaria said. “I have a lot of empathy for small and independent operators who go out there and put their life savings on the line every day. But the midsize chains, we have a lot of G&A and have to come out with culinary menus and supporting franchisees in addition to running our own restaurants. It’s significant.”
“The deleveraging of the income statement and cash flows hits everyone the same,” he added.
The PPP fund was poorly designed and underfunded from the get-go. It created a free-for-all that clearly favored larger borrowers who brought banks larger fees.
The program was designed to give chains specifically access to the funds. That way, an 80-unit chain would be able to keep more of its local restaurants open and keep their people employed. Keeping people employed, after all, was the primary function of the program. It’s why the loan is forgiven if three-quarters of it is spent on payroll.
There were no limits on publicly traded firms, and more than 80 such companies received approval for such loans, according to a search on financial services site Sentieo.
Yet once the funds ran out, rather than criticize Congress for the way the program was designed and how much was included in the fund, most of the anger was aimed at restaurant chains.
Take a look, for instance, at almost any Facebook page for a Ruth’s location, and you’ll see comments like one for its Fort Lauderdale restaurant that begins, in all caps, “MORE CORPORATE GREED!!”
Now, even without a change in the funding structure, companies are opting to forgo the loans for which they were approved.
On Wednesday, two more chains returned their funds: Kura Sushi USA, which can get funds from its Japanese parent company, and Sweetgreen, which revealed in a Medium post Wednesday that it had received $10 million but decided not to take it. Sweetgreen was recently valued at $1.6 billion and has some deep-pocketed supporters.
Those companies, along with Shake Shack and its $150 million stock sale, likely made smart decisions to return the funds, as they have access to other forms of capital. Not everybody has that ability, though.
That includes Potbelly Sandwich Shop, which told media out of Chicago that it would not return its $10 million. Potbelly has struggled with weak sales and closing stores. It had an operating loss of $9.2 million last year and a net loss of $23.6 million. Fiesta Restaurant Group, which received $10 million, had an $84 million loss.
It’s important that as many independent operators get access to the funds as possible. A lot of them are going to struggle to make it over the next couple of months, and ensuring that they can get their businesses open again will be vital for the state of the industry and the economy.
These restaurants employ millions of people, and they add to the character of many communities and neighborhoods. The country needs these operators. It’s great seeing those that have received funds start to reopen.
But a lot of smaller and midsize chains have needs, too, and many of them don’t have access to capital like they might have just a few months ago. Without it, a lot more of these companies will permanently close their doors and leave thousands out of work.
In the end, Congress left the industry fighting over scraps. Not surprisingly, many restaurants turned on one another instead of directing their ire where it should have been pointed in the first place.
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