Shake Shack Receives $10 Million Small Business Loan, Still Furloughs Workers

Shake Shack received a $10 million loan from the federal government due to the coronavirus pandemic, but on Friday it announced that it is still furloughing 1,000 employees. The New York City-based fast food chain is also temporarily closing down 17 locations in total because of the economic fallout of the virus. Shake Shack's corporate office is taking a temporary pay cut as well, according to a report by The Street.

On Friday, April 10, Shake Shack received $10 million loan through the U.S. government's new Paycheck Protection Program, or PPP. It is part of the first stimulus package the U.S. Congress passed on the coronavirus pandemic and meant to ensure that restaurants can pay their employees and keep their property through this crisis. However, a week later on April 17, the company announced 1,000 furloughs and layoffs. The news has raised a few eyebrows about how the company is using federal aid.

Shake Shack reported on first-quarter sales results for 2020, saying that its performance in January and February was in line with expectations. It had sales of $143 million — up over $10 million from the same time last year — but as a restaurant, it was hit hard as soon as the COVID-19 outbreak began. Shake Shack said that it saw "an immediate and acute impact from COVID, leading to a (sales) decrease of 28.5 percent year over year."

The company is reportedly burning through cash at a rate of about $1.5 million per week, between paying rent and utilities on locations and continuing to pay those employees that it can. The PPP loan was given through J.P. Morgan, and brought the company's total cash on hand up to $12 million. That means that Shake Shack should break even with its earnings on May 4.

The furloughs and layoffs are presumably meant to forestall that outcome, though it may be a long time before business returns to normal in the fast food industry. Meanwhile, some are now questioning why Shake Shack and other similar franchises qualified for the Paycheck Protection Program at all.

According to a report by Eater, the PPP is available to any companies that do not hire more than 500 people in one location. That includes most fast food restaurants, even if they do not fall into the standard definition of a "small business."

Loans through the PPP come with no interest rate as long as the company shows that the funds went mostly towards paying employees through this crisis. For all others, the interest rate is just 1 percent. Many New York City restaurants are taking advantage of the program in the hopes of reopening when the coronavirus pandemic has passed. With a huge percentage of the city's population working in the service industry, the continuing paychecks will likely go a long way in stabilizing daily life.