Why Shake Shack qualified for PPP small business loans

On Monday, Shake Shack reported that the fast food company would hand back its recently received $10 million PPP small business loan. Yahoo Finance’s Dan Roberts joins The Final Round panel to discuss why it qualified to apply and what questions this raised about the PPP program.

Video Transcript

MYLES UDLAND: Let's bring in Dan Roberts now to add a little bit more. Speaking of small businesses, and I think a not that small business that really caught the ire of this program in the last 24 hours, is Shake Shack. They took the $10 million, then they gave back the $10 million. Where do things stand with Shake Shack? And I guess it really brings up, what is a small business? I'm actually sympathetic to the idea that Shake Shack is a fairly small business in a pool where, like, Verizon, and you know, Amazon, and Facebook and others are considered big businesses, but this does get to where we know the program is going, which is the politics of how the money is given out and who gets it and what they do with it.

DAN ROBERTS: Well, first of all, I'm with you on Shake Shack kind of being in the middle. I think to the average person, A, a company being publicly traded-- as we know, a company can be public and still be small. But the idea that, you know, Shake Shack has stock out there-- and same with Potbelly, same with Ruth's Chris Steakhouse-- those are all publicly traded companies, they have thousands of employees-- certainly more than the 500 mark. So in terms of how the PDP defines small business, originally it was 500 employees or fewer.

But your point is well taken, that even before this controversy about big restaurant chains getting PPP loans, a lot of people were saying, gosh, I'm competing for a loan with companies that have 500 employees. I have six employees. And that is part of the argument right now in the division in Washington that we just heard about from Jess Smith-- the idea that, well, if we're about to put another $300 billion in the PPP chamber, it should be protected, or at least part of it should be protected and specifically go to much smaller businesses.

So that's kind of the outrage. And the average actually started not with Shake Shack but with Ruth's Chris, which actually got $20 million in PPP loans. And that's because the company applied for a loan on behalf of two subsidiaries, and that worked. So the cap was supposed to be $10 million. It outraged people enough already that some chains got $10 million. Ruth's Chris got $20 million. But yeah, Shake Shack became part of the conversation, got $10 million. Potbelly, as I mentioned, got $10 million. Also Jay Alexander's, which is a restaurant chain, got $15 million-- same kind of strategy as Ruth's Chris, applied on behalf of two subsidiaries, so it got even more than that initial $10 million max.

Now, where do things stand? Shake Shack announced last night in a LinkedIn post from CEO Randy Garutti and also Danny Meyer, the chef and head of Union Square Restaurant Group, that it was giving the $10 million back. And I think the nature of the post-- it came out on Sunday night, it looked a little hasty-- made people say, oh, total PR stunt. You know, the backlash worked, people criticized the company, now the company is saying, all right, we're giving the loan back.

And it's important that people understand that it wasn't just giving it back out of goodwill, but that, as the company reveals, it also ended up getting money through a different vehicle-- you know, offering up new shares and selling $140 million of class A shares that way. So A, it got money a different way. And then B, Shake Shack's LinkedIn post kind of tried to put the onus on the government saying, well, look, the program was so confusing, it all happened so quickly, that everyone applied right away because it wasn't clear how long the money would last.

So Shake Shack kind of tried to say, we know some of you didn't like this, we understand that, but it was the program. It wasn't our fault for taking advantage of the exemption that the program allowed for hotels and restaurants that are chains. And that's really-- you know, if you have beef with Shake Shack getting a loan, your beef is with the fact that there was an exemption provided for restaurant chains and hotel chains.

MYLES UDLAND: Well, and the stock trading higher today even though they issued new shares, which are dilutive, I think indicates that the market is celebrating the good PR that the company gets out of this.

DAN ROBERTS: Something like that.

MYLES UDLAND: Shake Shack will probably avoid being the bad guy, I guess, in all of this. And so that is reason for optimism, I suppose.