Ruth’s Chris Steak House is handing back the $20m loan it received from the US small business rescue fund after a public backlash against big companies taking money at the expense of the small companies the fund was created to help.
The New York-listed restaurant chain’s decision came after the US Treasury department issued guidance on Thursday that suggested publicly traded companies were ineligible for the scheme, known as the Paycheck Protection Program, or PPP.
Congress voted through a dramatic expansion of the fund on Thursday night, adding $320bn to the $349bn approved initially. Bankers are already warning the top-up will be insufficient to meet the massive backlog of demand.
The PPP was created so companies with up to 500 staff could access loans to keep paying their employees for eight weeks, even as their businesses were shuttered by the pandemic. The loans will be forgiven if they are spent on payroll and other specific business expenses.
But a loophole which allowed subsidiaries of companies to apply independently meant that some large companies got assistance, while smaller companies were left with nothing when the scheme ran out of cash on April 16.
More than 100 public companies were among those tapping the programme, some of which recently raised money through the capital markets, the Financial Times reported. Applicants have to declare that PPP funding is “necessary to support [their] ongoing operations”.
In guidelines issued on Thursday, Treasury said: “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.”
A spokeswoman for Ruth’s Chris said the restaurant chain believed it was “eligible for the assistance” and had intended to use the loan to “keep as many of our team members working for as long as possible”.
But the spokeswoman added: “As we learnt more about the funding limitations of the programme and the unintended impact, we have decided to accelerate that repayment.”
Another publicly traded restaurant chain, Shake Shack, made a similar decision to pay back its $10m PPP loan last week in the face of public and political criticism.
The Treasury guidelines say that banks disbursing the funds are not responsible for verifying “the necessity of a loan request”, but banks have come in for criticism themselves.
Republican Marco Rubio, who chairs the Senate small business committee, wrote to big banks on Thursday asking if they had prioritised larger companies over smaller ones.
In a bid to boost the deployment of the second round of funding, the Federal Reserve on Thursday evening announced that it was “working to expand access” to a facility it recently created to buy PPP loans, a scheme designed to free up bank balance sheets so they could lend more.
At the moment only deposit-taking banks are allowed to participate in the Fed’s PPP liquidity facility, excluding institutions such as community development financial institutions. CDFIs serve economically disadvantaged people and communities, and the replenishment of the PPP funding called for a specific pot of money to be allocated to businesses in that category.
Meanwhile, executives at several large banks told the FT that they were concerned the new PPP scheme would be depleted almost as soon as it is reopened with the newly approved funding from Congress.
The banks have spent the past few days talking with the Small Business Administration, the government agency which approves the loan applications, about ways to ensure an orderly relaunch of the programme amid fears its information technology system could seize up as almost 5,000 lenders bombard it with hundreds of thousands of applications.
Bank lobbyists in Washington are also pressing for longer to process the loans and to collect any money that is not forgiven by the government.
“It was good we got this agreed quickly, but there are a lot of unresolved issues still, and it is likely to run out within a week,” said one bank lobbyist. “Congress and the Treasury will need to come back to this issue within days to figure out a longer-term solution.”
Additional reporting by Kiran Stacey and James Politi in Washington
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