America's big businesses tap funds meant for small firms

More than a dozen listed entities with revenue of over $100m secure money from $349bn lending facility

A view of the US Capitol building. Congress is negotiating a further stimulus deal that would add a further $250bn to the small business funding programme. Bloomberg

More than a dozen publicly-traded companies with revenue of over $100 million (Dh367m), including Shake Shack, Potbelly and a Tex-Mex restaurant chain with more than 10,000 employees, received loans through a massive relief programme aimed at small businesses.

With a $349 billion lending package for small business owners now exhausted, a review of regulatory filings shows that restaurant chains and companies in industries ranging from mining to manufacturing and cruise travel received large amounts, while much smaller businesses like neighbourhood eateries and hair salons received nothing.

The disclosures could fuel calls for Congress to provide another round of funding to keep thousands of small firms afloat amid state lockdowns.

Negotiations to replenish the tapped-out fund hit a stalemate last week, with Republicans calling for more money to be added and Democrats demanding changes to ensure smaller firms get loans, plus more funding for state and local governments and hospitals.

As talks stretched into the weekend, President Donald Trump signalled a possible compromise that could add $75bn for health facilities, in addition to $250bn more for the small business programme. House Speaker Nancy Pelosi said Congress is “very close” to striking a bipartisan deal in an interview with ABC News on Sunday.

Many small firms that flooded banks with applications are livid that they were left out in the cold. One of them is Florida business owner Edgar Comellas, owner of Aces Wild Entertainment, which supplies “Vegas-style” activities and staffing for birthday parties, fundraisers and corporate events. He said he tried to get $10,000 from Bank of America, but was unsuccessful.

Mr Comellas said he’s upset that money went to larger businesses like Ruth’s Hospitality Group, which operates the Ruth’s Chris Steak House chain and received $20m in loans, according to a Securities and Exchange Commission filing. Ruth’s Hospitality didn’t respond to a request seeking comment.The restaurant chain racked up $468m in sales last year and employed about 5,700 people.

Ruth’s Hospitality has individuals to “work the papers and lobby and get things to what they need to get $20m”, Mr Comellas said. “We don’t.”

Some business owners like Lupe Rose found the process disheartening. The co-founder and chief executive officer of SHE Beverage, a Lancaster, California, beverage manufacturer and distributor, unsuccessfully applied for a loan through Wells Fargo as well as online companies PayPal Holdings and Kabbage. Ms Rose said she and her team “jumped on a conference call and literally cried with each other” when they heard the money had run out.

“It’s just pretty disgusting that you hear about all of these other businesses who have been funded and who are able to pay for their employees”, she said. “While you have businesses like mine that are being buried, small businesses being buried because we believed what we heard.”

The rescue financing – known as the Paycheck Protection Programme – is intended to help companies that employ up to 500 people pay workers and expenses such as rent for two months. Loans convert to grants if a company maintains its payroll and salaries.

But because the 500-employee cap refers to a single location operated by hotel and restaurant companies, chains like Shake Shack could apply.

Shake Shack is one of the fastest-growing restaurant companies in America, with $595m in annual sales. While the burger chain has fewer than 500 workers at each site, it had about 7,600 employees spread across numerous locations as of the end of last year. It received the maximum $10m allowed under the programme. The company didn’t respond to a request seeking comment.

The US Small Business Administration programme, working with almost 5,000 lenders that disburse the loans, approved applications for $342.3bn in just 13 days, with the rest of the $349bn going in fees and processing.

“The vast majority of these loans – 74 per cent of them – were for under $150,000, demonstrating the accessibility of this programme to even the smallest of small businesses,” a statement from the SBA and the Treasury Department said.

However, an SBA report showed that about 2 per cent of the firms approved for loans accounted for almost 30 per cent of the funding. The National Federation of Independent Business, the largest group representing small businesses in the country, is calling on Congress to approve $400bn more for the programme – with not less than $200bn going to firms that have 20 or fewer employees.

Nine percent of the pot went to companies, such as Fiesta Restaurant Group, that received loans of at least $5m. Fiesta, which owns and franchises Pollo Tropical and Taco Cabana restaurants, said in a regulatory filing that it got $10m. The company’s annual sales totalled $661m and it had about 10,500 employees at the end of last year.

Sandwich chain Potbelly, which had sales last year of $410m and employed 6,000 people, also received $10m.

Other companies that reported getting small-business funding are Zagg, which makes protective coverings for smartphones and had $522m in sales last year; Hallador Energy, a coal -mining company with $323m in 2019 revenue; adventure travel and cruise company Lindblad Expeditions Holdings, which reported $343m in sales last year; and data storage company Quantum, with $403m in sales.

A Potbelly spokesman said Congress allowed funding for restaurants because their workers are “vital to our economy”. Representatives for the other companies didn’t respond to requests for comment.

John Arensmeyer of Small Business Majority, an advocacy group for small firms, said he has been disappointed that larger companies have been able to take advantage of the loan programme ahead of smaller ones.

“Most of the money has gone to much larger entities and the very small entities for the most part have been left behind,” he said. “We’re dealing with finite dollars,” Mr Arensmeyer added. “Even if more money is put into the system, we really need to prioritise very small businesses over publicly traded companies.”

When asked early in the rollout about concerns from small-business owners that they wouldn’t get funding, Mr Trump praised the programme.

“It’s been flawless so far, far beyond our expectations,” he told reporters on April 4. “These are great loans. These are loans that get immediately paid off. These are loans that get businesses back.”