Potbelly Corporation, which owns more than a dozen sandwich shops in New York City, will return its $10 million federal loan after outcry from small business advocates and updated guidance from the federal government on what businesses qualify for loans.
"Potbelly's sales dropped dramatically when COVID-19 hit, forcing us to furlough employees, close shops, and significantly cut salaries at all levels of the organization," the company said in a statement on Saturday. "In order to financially support our in-shop employees, and based on SBA guidelines, we applied and qualified for assistance under the Payroll Protection Program."
The $350 billion in funds for the initial round of PPP loans dried up in two weeks. The program was intended for employers with less than 500 employees, but a provision in the program allowed large companies, like Potbelly and Shake Shack, to qualify because each individual location had fewer than 500 employees.
"We were surprised and disappointed when the fund was quickly exhausted, leaving many without help," Potbelly's statement continued. "We are returning the PPP loan after further clarification from the Treasury Department. We will continue to seek alternatives to help support our employees and enable them to return to work so they can serve our loyal customers."
Potbelly announced it would return the loan after the Treasury Department and Small Business Administration indicated in updated guidance that large, publicly traded companies with access to capital markets may not be able to prove the loan request is necessary.
"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," according to guidance from the SBA and Treasury Department.. "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."
Shake Shack said it would return a $10 million loan early last week. Ruth's Hospitality Group, which owns Ruth's Chris Steakhouse, is also returning $20 million in loans it received, according to CNBC.
The PPP loans are intended to help businesses with fewer than 500 employees amid mass job losses during various stay-at-home policies due to coronavirus. The job losses are anticipated to send New York into an economic crisis not seen since the 1970s, and lost tax revenue is expected to slash city and state budgets by billions to make up for it.
Last week, Congress passed another $310 billion to replenish the funds in the loan program, with $60 billion designated for smaller or mid-sized banks and credit unions to help small businesses without previous dealings with large banks access the cash. But the Consumer Bankers Association said Thursday the funding is likely already gone because of how many applications were filed in the first round.
The PPP loans also prioritized wealthier clients, according to various bank employees and financial industry executives who spoke with the New York Times. Owners with at least $10 million in assets or customers of JPMorgan's commercial bank were able to forgo an online portal, for instance, in what one person described to the Times as "concierge treatment."
Senator Chuck Schumer and two other Senators requested the SBA's inspector general investigate those concerns.
The SBA will start accepting loan applications Monday at 10:30 a.m., according to Treasury Department Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. The PPP loans have helped 1.6 million businesses so far, they said on Friday.