The New York-based fast-food chain says it needs the help to get through the new coronavirus pandemic. Many of its roughly 140 company-owned U.S. stores are in high-traffic urban areas now largely shut down by the virus. Sales are down 70% on average, the company said, and it has furloughed or laid off 20% of its corporate staff.
“We’re looking at it all,” said a company spokeswoman. “To the extent we believe we’re eligible and parts of the package will benefit the company, then we’ll look to pursue applicable options.”
While the new $350 billion Paycheck Protection Program is aimed at businesses with 500 or fewer employees, language in the $2 trillion federal stimulus bill allows big restaurant and hotel chains to participate regardless of how many people they employ.
Sean Kennedy, executive vice president for the National Restaurant Association, which lobbied for the restaurant-and-hotel exception, says size shouldn’t matter.
“The restaurant industry is uniquely affected by this pandemic,” he said. “It was the first industry shut down. We think we deserve a unique response from the federal government.”
But John Lettieri, president of the Economic Innovation Group, a Washington think tank, says big companies should rely more on their own resources or other federal stimulus programs.
The small-business-loan program is “the only lifeline we’re offering to these classes of businesses,” he said. “It stretches the intent of statute beyond recognition to apply it to national entities.”
Some smaller franchisees worry that the big firms could elbow them out for loans if the fund gets depleted.
“This stuff is meant for me, the little person,” said Daniel Krause, who owns two Cracked breakfast restaurants in Illinois. “If it all ends up going to the big dog, that’s so hard,” he said. With sales down 80%, he worries others will beat him out of the funding and then he will be further in the red.
Trump administration officials have said they would seek additional funding if the money runs out. Congressional support is likely, said an aide to Sen. Marco Rubio, the Florida Republican who chairs the Senate Committee on Small Business and Entrepreneurship. “It was by far the most bipartisan initiative” in the stimulus bill, he said.
The loans are made by banks, credit unions and other lenders and have a 1% interest rate. They are designed to keep employees on the payrolls for eight weeks. If a borrower doesn’t lay off workers, the government plans to forgive the loan, including interest. Borrowers may also use the money for rent and utilities. The maximum loan is $10 million.
In addition to the exemption for hotel and restaurant chains, a second exemption was granted for franchise owners in any line of business who employ more than 500 people, as long as no single outlet employs that many.
That provision will help Todd Recknagel, who employs more than 2,000 people at the 68 Massage Envy outlets he owns around the U.S. Mr. Recknagel says he has been able to pay his employees so far, but he can’t continue to do that without a loan.
“We’re a collection of small businesses,” said Mr. Recknagel, who says he will seek the maximum loan of $10 million.
Rep. Kevin Hern (R., Okla.), a McDonald’s franchisee, pushed hard for the franchisee exception. He says it is justified because franchisees operate as small businesses in different communities. If they don’t have access to PPP, they would be forced to lay off workers, deepening the downturn, he argues.
“Franchising has been the true gateway to get into small business with limited risk,” he said.
But he says he doesn’t agree with the exemption for large company-owned stores, such as Shake Shack.
“The intent was for franchisees” to be included in PPP, Mr. Hern says. “There are other opportunities for those companies above 500 employees.”
The Federal Reserve and the Treasury, for instance, are putting together a Main Street Lending Facility for midsize companies, though it has yet to be unveiled.
The Small Business Administration, which oversees PPP, didn’t respond to requests for comment.
Dine Brands Global Inc. had revenue of nearly $1 billion last year. It owns Applebee’s including 69 restaurants operated by the company in the U.S.; about 1,600 Applebee’s are franchised. Dine also owns IHOP, which is a franchise operation. A spokeswoman said the company is considering applying for its company-owned locations but is first focused on making sure its franchisees have access to the funds.
“The goal here for all of us in this industry is to keep restaurants open and minimize as much impact for all restaurant team members and guests,” she said.
Other big restaurant companies contacted by The Wall Street Journal say they won’t apply for the loans for the company-owned locations even though they are eligible.
They include McDonald’s Corp., which owns about 700 of its fast-food restaurants, and Chipotle Mexican Grill Inc., the California-based burrito chain that owns all of its 2,600 U.S. locations.
“We don’t think it’s the right thing to do right now,” said David Tovar, McDonald’s vice president of U.S. communications. “We feel like we are in a good financial position right now.”
McDonald’s owns the real estate of its franchisees and is deferring rent payments for its roughly 2,000 U.S. owners for April and May, Mr. Tovar said.