The Chicago-based sandwich restaurant chain Potbelly announced Saturday it will return a $10 million federal loan after taking heat for accepting the relief money that was meant to go to small businesses struggling to stay afloat during the coronavirus pandemic.
Potbelly was among a handful of big companies that took a share of $349 billion in relief dollars under the federal Paycheck Protection Program, which launched earlier this month and was aimed at companies with fewer than 500 employees.
That prompted the Small Business Administration to issue an advisory Thursday implying that unless those larger companies could prove their eligibility, the money should be returned by May 7.
Potbelly Sandwich Works, which has 474 restaurants and 7,000 employees, said last week it had received a $10 million PPP loan.
“We are returning the PPP loan after further clarification from the Treasury Department,” the Potbelly Corporation said in a statement Saturday. “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.”
The company said its “sales dropped dramatically when COVID-19 hit, forcing us to furlough employees, close shops, and significantly cut salaries at all levels of the organization.” They noted they “applied and qualified for” the PPP assistance.
“We were surprised and disappointed when the fund was quickly exhausted, leaving many without help,” Potbelly officials said.
The PPP funds ran out last week, but the House gave final approval to $310 billion in additional funds Thursday.
Potbelly’s return follows an Associated Press investigation that documented how dozens of publicly listed companies collectively received hundreds of millions of dollars of loans from the program’s first round. According to data compiled and analyzed by AP, through Wednesday at least 147 publicly traded companies disclosed receiving $555 million since the program opened April 3. Some had market values well over $100 million. Many had executives that were paid millions each year.
After a swift public backlash, several companies have announced they’re returning their loans, including the New York-based burger chain Shake Shack, which got a $10 million loan, and Kura Sushi, which is based in Irvine, California, and got nearly $6 million. A third company, Boston-area biotechnology company Wave Life Sciences USA Inc., told the AP that it started the process to repay the $7.2 million loan it received.
Florida-based Ruth’s Chris also announced it is returning its $20 million in loans.
The SBA’s new guidelines require companies to certify with their lender that they need the loan and cannot access the money from other sources. Given that public companies have access to capital markets, the SBA says it is unlikely they “will be able to make the required certification in good faith.”
The initial rules of the program allowed bigger companies such as restaurants and hotels with under 500 workers per location to apply for the loans.
The program approved more than 1.7 million loans. It was clear from SBA data released last week that the agency had approved large loans early in the program, including those that went to big companies. As of April 13, the average size of a loan was nearly $240,000, while by April 16 it had fallen considerably to $206,000 — the result of many more small loans that likely went to small businesses.
Those large loans meant less money was available for small companies including thousands with applications still pending when the money ran out.
Before Thursday’s House vote, the Small Business Committee held a hearing in which other lawmakers testified to the hardships they were hearing from their home districts.
“We are also aware that at least 90 publicly traded companies got PPP loans and, in some cases, more than one. This is unacceptable, and I have called on the SBA to use its administrative authority now to prevent further misuse,” committee Chairwoman Rep. Nydia Velazquez, D-NY, said in her opening remarks. “Congress will also be exploring ways to address this breach of the public trust in the next relief package.”
Contributing: Associated Press