Some chains like Shake Shack and Ruth's Chris have already given the money back. “There are severe consequences for people who don't,” Treasury Secretary Steven Mnuchin said.

By Mike Pomranz
April 24, 2020
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OLIVIER DOULIERY / Contributor/Getty Images

The distinction between what’s legal and what’s moral can be decidedly gray. For instance, when large public companies applied for Paycheck Protection Program (PPP) loans, it’s easy to say that those loans were intended for small businesses—in no small part because they are administered by the U.S. Small Business Administration (SBA). But at the same time, if the government makes larger companies eligible, it’s also easy to see why they also applied.

Still, the court of public opinion was not happy upon hearing that national restaurant chains like Ruth’s Chris, Fogo de Chao, and Potbelly received millions in government funds due to a loophole allowing companies with less than 500 employees per location to apply. Faced with the outcry, the $2 billion-valued Shake Shack almost immediately said it would give its $10 million back. But defining gray areas is part of the point of government—and now, the feds are asking all big businesses to give their SBA loans back… or face “severe consequences.”

According to updated guidance issued by the Treasury yesterday, the PPP’s FAQs now included this doozy: “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” Hmm, I wonder where this is going….

The answer explains that “all borrowers must assess their economic need for a PPP loan,” and though “the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere … borrowers still must certify in good faith that their PPP loan request is necessary.” Of course, the SBA isn’t going to flat out name—say—Ruth’s Chris here, but the guidance does specifically state, “For example, it is unlikely that a public company with substantial market value and access to capital markets” will qualify.

For the record, as of yesterday, Ruth’s Hospitality Group was valued at $250 million on the NASDAQ; at its peak last year, the company was worth nearly $1 billion. Ruth’s Chris has now said it will be returning their money. And though the upmarket steak house may be an easy target, it's not alone: According to the Wall Street Journal, about 150 public companies received nearly $600 million in PPP funds, with a third of those businesses reporting more $100 million in revenue over their most recent fiscal year.

Meanwhile, the new guidance is more than a verbal critique. It specifically states that these companies should repay their loans in full by May 7 to be deemed “in good faith.” And Treasury Secretary Steven Mnuchin took an even firmer stance: “There are severe consequences for people who don't attest properly to this certification,” he said according to Business Insider. “And again, we want to make sure this money is available to small businesses that need it, people who have invested their entire life savings.”

Beyond these returned funds, this week, Congress has also authorized an additional $310 billion to replenish the PPP, nearly doubling the amount of money put into the program.