As a result, the popcorn seller says it is “now on the brink as it desperately tries to keep its employees on.”
The forgivable loan program, a centerpiece of the $2 trillion stimulus package enacted by Congress, aims to keep small businesses and their workers afloat during the pandemic.
“To find out you’ve been left out is disheartening,” Stacy Hawkins-Armstrong, who founded and manages Sha-Poppin, told CNN Business in an interview.
Hawkins-Armstrong was seeking $25,000 in emergency loans from JPMorgan Chase, money that would be used to keep her business afloat and continue paying her employees. Instead, she received just $6,000 through a community bank.
“Chase gave me nothing,” Hawkins-Armstrong said.
The small business was profitable enough to put Hawkins-Armstrong’s two children through college. Now, she doesn’t know if her company will make it through the crisis.
“I’m hoping it can survive, but at this point I just don’t know,” Hawkins-Armstrong said.
‘Damage was done’
“The damage was done,” the lawsuit argues. “Ruth’s Chris’s walk-back cannot undo the lost opportunities, lost time value of money, and unnecessary stress incurred by these small businesses and their owners.”
The plaintiffs say this is the first time a large company is being sued for taking PPP funds. The Trump administration is now strongly urging public companies to repay these loans.
The backlash against banks and large businesses that received loans underscores concerns that the forgivable loan program suffers from a lack of oversight that is causing funds to get diverted away from those that need them most.
The owner of Ruth’s Chris trades on the Nasdaq and has a stock market valuation of $250 million. There are 150 Ruth’s Chris restaurants, including 20 international franchisee-owned restaurants in Mexico, Canada and other countries.
JPMorgan Chase did not provide a comment.
Shake Shack, Sweetgreen return funds
Ruth’s Chris declined to comment on the lawsuit. However, a spokeswoman for Ruth’s Chris said the company never used the $20 million in PPP funds it received. The spokeswoman said Ruth’s Chris has spent $10 million of its own funds since March 15 to cover payroll and pay 100% of health benefits for employees.
“We intended to repay this loan in adherence with government guidelines, but as we learned more about the funding limitations of the program and the unintended impact, we have decided to accelerate that repayment,” Cheryl Henry, Ruth’s Hospitality president and CEO said in an emailed statement to CNN Business on Thursday. “We remain dedicated to protecting our hardworking team. It is our hope that these funds are loaned to another company to protect their employees, just as we intended.”
“The whole point of this bailout was to help the mom-and-pop shops throughout the country,” Jay Edelson, CEO of Edelson PC, the law firm that filed the lawsuit. “It’s incredible how it’s been subverted.”
The loans, which charge just 1% interest, can be used by small businesses with 500 or fewer employees to pay workers’ salaries, rent and utility costs. The loans are forgivable only if the small businesses maintain current employee and compensation levels.
Demand was so strong for PPP loans that the program ran out of money earlier this month, leaving tens of thousands of small businesses without the lifelines they need to get through the crisis.
‘White glove treatment’
t JPMorgan in 2014 after nearly three decades with the bank.
“While Plaintiff sat for hours furiously attempting to access Chase’s website (and never could), Defendant Phunware received the white glove treatment from Chase,” the lawsuit said.
Phunware did not respond to requests for comment.
The White House and the Trump campaign did not respond to requests for comment. The SBA declined to comment.
Big banks accused of hurting small businesses
Banks have been criticized for allegedly failing to process PPP applications on a first-come, first served basis. That left some small businesses without the funding they needed.
The lawsuit against JPMorgan Chase alleges the bank made “all efforts to prioritize processing the loan applications of its favored customers first, and deal with the remainder later.”
That lawsuit was brought by a range of California small businesses, including a cybersecurity firm, an auto repair company, law firms and a frozen yogurt shop.
The lawsuits did not, however, produce any emails or internal documents that suggest this was the intent of the banks.
However, a spokeswoman said that Chase Business Banking, which caters to smaller businesses with $20 million in revenue or less, has funded more than twice as many loans than the rest of the banks combined.
JPMorgan Chase also said that 80% of Chase Business Banking’s PPP loans have been to businesses with less than $5 million in revenue. And more than 60% of these PPP loans went to clients with fewer than 25 employees.