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Financing

Restaurant chains grabbed the PPP lifeline

A third of Top 500 concepts, though mostly smaller chains, received federal stimulus loans, as did many of their franchisees.
Photo courtesy of Mooyah

When the government first started processing Paycheck Protection Program loans in April, Plano, Texas-based burger franchise Mooyah worked with a lender to process loans for both the company and many of its franchisees.

They didn’t get approved in time to get the funds. “When they shut it down, that was the opposite of a good day,” said Mike Sebazco, the fast-casual chain’s vice president of operations.

The company and its lender, Apple Pie Capital, regrouped, and when Congress injected the program with additional funds later that month, Mooyah and its franchisees applied and were approved.

“That was a good day,” Sebazco said, noting that the funds have helped stabilize the company and its operators.

“We’re stable,” he said. “Having the benefit of hindsight, I think we would have made it without it. But it would have been extremely tight.”

Mooyah was not alone among restaurant chains that received PPP funds. At least a third of the chains on the Technomic Top 500 Chain Restaurant Report were recipients, according to a Restaurant Business analysis of nearly 49,000 loans of $150,000 or more made to restaurant companies. The recipients were more likely to be among the smaller of those chains, yet eight chains in the Top 100 received loans.

The analysis is notable as Congress considers its next round of stimulus, and restaurant industry advocates push for more specific aid to save a large number of locations that are expected to close even with the funds.

Overall, lenders made 4.9 million loans to various businesses through the program as of July 10, loaning a total of $517 billion, or an average of about $105,000. The vast majority of loans were under $150,000. Few Black-owned restaurants received such loans.

Exactly how many restaurants received such funds is uncertain, but about 8% of the loans went to accommodations and food services businesses, and they received $41 billion in total. Four other industries received larger percentages of the loans.

Nearly 50,000 restaurants received more than $150,000, making their names publicly available.

There is at least some evidence that the loans worked as intended: to get companies to start employing people again. Restaurants added nearly 2.9 million employees in May and June, according to federal data, helping the industry lead the overall economy in job growth during that period.

“We did not have to furlough any employees,” Taco John’s CEO Jim Creel said. “Our stores were able to pay their people a little bit of a premium.”

It’s also possible that the funds delayed many closures. A number of independent operators have told us they fear they are still in danger of going out of business as their loans run out and states continue to restrict dine-in service, which has kept sales to a minimum at many locations.

The program was put in place with an initial injection of $349 billion in April. The result was a mad dash for the funds over several days that favored larger lenders with existing banking relationships and frustrated many small businesses.

It also led to a backlash as many publicly traded restaurant chains revealed they received the funds, including Ruth’s Chris Steak House and Shake Shack, along with Potbelly, J. Alexander’s and the owner of Pollo Tropical and Taco Cabana.

Public pressure led these companies to return those funds, but Restaurant Business found plenty of publicly traded firms that kept their loans. That included Famous Dave’s and its recently purchased Granite City Food & Brewery, as well as Luby’s.

Those weren’t the biggest. Seven of the largest 100 chains on the Top 500 received funds, many of them owned by private-equity firms, such as P.F. Chang’s.

TGI Fridays, Ruby Tuesday, Firehouse Subs, Long John Silver’s, Boston Market and O’Charley’s also received funding.

One chain on the list, Bojangles, applied for and received funding but, according to the company, opted not to take the loan—there have been numerous reports of errors associated with the list of PPP loans. 

For the most part, however, smaller chain restaurants were far more likely to take PPP funds than larger ones. Mooyah, for instance, was No. 482 on the Top 500 last year. Half of the chains ranked from No. 401 to No. 500 received Paycheck Protection Program money.

An uncertain, but likely very large, number of franchisees received the funds. We found dozens of franchisees of McDonald’s, Subway and Wendy’s, for instance. Many of those chains saw considerable sales recovery beginning in late April, after consumers began receiving government stimulus payments and extra unemployment insurance.

Smaller franchises, including both Taco John’s and Mooyah, said their franchisees received funds. And as typically small businesses, such franchisees needed the funding to hire people at a time when sales were a fraction of their year-ago level.

“It helped them immensely,” Sebazco said. “It calmed them. They were not in position to make really poor decisions. That’s one thing in our industry. You cannot cut your way to prosperity.”

He also noted that the funding helped at a time when most operators couldn’t get financing otherwise, especially a small chain such as Mooyah and its mostly small franchisees. “We don’t have access to the capital markets,” Sebazco said. “We don’t have it as a franchisor. Our small business owners certainly don’t have it.”

“Nobody’s getting rich,” he added. “Nobody’s winning at a great rate. But we’re stable.”

UPDATE: This story has been updated to add Bojangles' comment that it did not ultimately take a PPP loan. 

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