Stimulus program update — one reason why funds have run out

Shake Shack is a huge burger chain that I love and that many others around the country and world also love.

And many people will be tempted to love them even more since they just returned a $10 million loan back from the stimulus program designed for small businesses — the Payroll Protection Program (PPP).

But this is actually extremely problematic to me. 

First, the PPP recently ran out of funds and there are hundreds of thousands if not millions of businesses currently on a wait list of sorts to receive funding.

Hundreds of thousands of businesses have shuttered and there are millions of employees currently not receiving wages and relying on things like a $1,200 stimulus check to carry them for weeks if not months.

So it makes you wonder why did the PPP run out of funds so quickly?

Obviously, demand is outrageous but perhaps one reason is because they are loaning huge companies like Shake Shack millions of dollars who did not need it in the first place?

Shake Shack reportedly has $112 million in cash reserves, and they are reportedly burning through 1.3 to 1.5 million a week, which would give them around 74 weeks of cash from their reserves.

But more importantly, they have a huge market cap of $1.6 billion and investors that they can’t rely on for cash infusion.

In fact, that’s exactly what they just did.

And they came out with $150 million.

The CEO Randy Garutti authored a post on LinkedIn and remarked that the PPP application process was “extremely confusing” regarding whether or not a huge business like Shake Shack should apply for the program designed for small businesses.

I think there is shared blame here.

Number one, the government should not be issuing out tens of millions of dollars to huge publicly traded companies who can easily call on cash reserves or investors to bridge difficult times. While they might still be supporting employees, they don’t need the loans to do that (meanwhile other real small businesses do).

These huge companies should also have the common sense to use a government program designed for small businesses as a last resort, after they have exhausted alternatives like calling on investors or cash reserves.

Other large companies have landed millions in loans from the PPP like Potbelly (PBPB), Fiesta Restaurant Group Inc (FRGI)., the owner of Taco Cabana, Kura Sushi USA Inc (KRUS)., the largest revolving sushi chain in the US, Ruth’s (RUTH) Chris steakhouses, the list goes on. 

Many of these restaurants employ a lot of people so I like that they are still able to support employees but in many cases these large companies don’t need the funding because they can secure it in many other ways. But that is not the case for many small businesses around the country — they can’t simply call on huge cash reserves, investors, or play around with dividends, etc.

Congress is reportedly very close to agreeing on a second round of funding for the PPP. Hopefully, there will be new restrictions and clarification for what type of businesses these funds were designed for so that they can be distributed more fairly.

If a huge publicly traded corporation does not need a loan because they have (easy) access to capital in some other form, they should not be given a small business loan.

H/T