Congress set aside $659 billion to throw a lifeline to small businesses and organizations side-swiped by the coronavirus pandemic and to help paychecks keep flowing to workers who might otherwise head to the unemployment line.
Yet that’s not exactly how it worked out. Among the 650,000 companies on the partial list of recipients released Monday by the Treasury Department were fashion designers such as Oscar de la Renta, the clothing retailer Candie’s and companies that own hundreds of fast-food restaurants including P.F. Chang’s and TGI Friday’s.
While many companies belong to industries hard-hit by state and local government shutdown orders, they also have deep pockets or the backing of private equity firms. All got loans in the millions of dollars.
Loans also went to private equity firms, venture capital firms, law firms and other companies that might have felt an initial pinch from the economic downturn but seem in better position to weather the storm than smaller businesses, including some that didn’t get loans due to issues with the program’s design.
“While the intent of the program should be applauded, the implementation of the program was fraught with inconsistencies and one could have predicted this outcome,” said Katie Vlietstra, a vice president at the National Association for the Self-Employed.
The PPP offered loans up to $10 million to companies with fewer than 500 employees. The most appealing aspect of the program: possible loan forgiveness if most of the money was spent on workers. Otherwise the loan had to be repaid, with an interest rate of 1%.
The bigger companies didn’t break the law when they applied for loans. The statute that created the program didn’t place a ceiling on the amount of revenue a prospective borrower could have, and a business could get a loan even if it had access to credit elsewhere.
That’s why, some experts say, bigger companies with dedicated accountants and attorneys would have been foolish not to take advantage of the program. Even if they ended up paying back the loans with 1% interest.
“This was a cash gift. Who wouldn’t apply for it?” said Bob Phibbs, a retail industry analyst.
Boddie-Noell Enterprises, owner of 346 Hardee’s restaurants, received between $5 million and $10 million, the government said. The Rocky Mount, North Carolina-based company has more than 10,000 employees.
“We applied for the PPP since it was created specifically for payroll and potentially offered much more favorable terms than would have a traditional bank loan,” said Boddie-Noell spokesman Rick Rountree.
But when the loans were first proposed, lawmakers described them as a rescue for small businesses and their employees. Outrage followed when big players got money in the program’s first round of funding while many smaller businesses were left waiting as the initial $349 billion ran out.
In April, soon after loan money began flowing, it was learned that well-financed big companies including two publicly traded restaurant chains, Ruth’s Chris Steak House and Shake Shack, and the NBA’s Los Angeles Lakers had gotten loans. Many of the companies gave the money back under pressure from the public and Treasury Department; the government said $30 billion in return funds included the money those companies sent back.
Treasury Secretary Steven Mnuchin soon said the government would audit loans above $2 million, though some experts have their doubts.
“The SBA will have its work cut out for it in terms of scrutinizing loans to ensure these recipients fully complied,” said Karen Kerrigan, president of the advocacy group Small Business & Entrepreneurship Council.
The government didn’t release exact loan amounts on Monday, but listed companies within a range. P.F. Chang’s China Bistro said its loan of between $5 million and $10 million helped keep 12,000 workers employed as it transitioned its over 210 restaurants to take-out. The Scottsdale, Arizona-based company said it is using the money for employee salaries and benefits.
P.F. Chang’s is owned by the private equity firm TriArtisan Capital Advisors. The same firm owns TGI Friday’s, which owns or franchises more than 500 restaurants around the country and which got a loan between $5 million and $10 million. TGI Friday’s said the forced shutdowns left it with no more than 20% of its revenue, and that the loans allowed it to rehire furloughed staffers.
Muy Brands, a San Antonio, Texas-based owner of more than 750 Wendy’s, Taco Bell and Pizza Hut franchises, received between $15 million and $30 million between three entities. CEO James Bodenstedt is also a major donor to President Donald Trump, according to federal campaign finance records. Neither company responded to requests for comment.
The Small Business Administration issued a caveat alongside the data which noted that businesses on the list may ultimately not be deemed eligible for loan forgiveness. Moreover, the agency said, some companies on the list might have been approved for loans but did not actually receive the money.
Congress boosted the program to $659 billion in late April. There is still about $130 billion left over. Congress has extended the program until Aug. 8.
“It would have been a much bigger problem if they had run out of money, because suddenly the little tailor who applied for $2,000 and couldn’t get it because it was taken by public traded companies,” Phibbs said.
The list also included well-known fashion and retail names whose revenue plunged amid store closings across the country. Among them: Iconix Brand Group, a publicly traded company that owns the Candie’s, Joe Boxer and Ed Hardy brands, which received between $1 million and $2 million. It did not respond to a reporter’s request for comment.
Untuckit, which has 85 shirt stores, received a loan between $5 million and $10 million; the company said it used the money to keep paying its workers. High-end designers Oscar de la Renta, Carolina Herrera and Vera Wang, which collectively employ 300 workers, each got loans in the $2 million to $5 million range. None of the companies responded to a request for comment.
Private equity firms that buy and sell companies with price tags in the millions of dollars also appeared on the Treasury’s list. Aliera Companies, a private equity firm specializing in healthcare, got a $5 million to $10 million loan. Aliera said the loan would help “pay our more than 250 employees during these difficult and uncertain times.”