Kura Sushi to repay $ 6 million federal loan after outrage
Kura Sushi USA is probably not what you would consider a “small business”.
The Irvine-based restaurant chain has 25 establishments, $ 24 million in cash and access to an additional $ 20 million thanks to a loan from its majority shareholder, a Japanese company.
Nonetheless, the company applied for and obtained a loan of $ 5.9 million from a federal small business program affected by the coronavirus.
Kura Sushi USA did not arouse the same anger as Shake Shack, the national restaurant chain that received, and quickly returned after general outcry, a $ 10 million loan from the Paycheck Protection Program.
UPDATE April 22: Kura Sushi officials said they would repay the loan. In a report CEO Jimmy Uba said:
Today we made the decision to repay our PPP loan. It was a difficult decision as our employees are extremely important to us, but it is impossible to ignore the fact that our finances allow us to overcome financial difficulties longer than independent restaurateurs. We hope that these funds will be shared fairly among deserving applicants.
But this is another example of how some
sophisticated national companies have cashed in on the $ 349 billion loan program that Congress created for small businesses as part of the Coronavirus Aid, Relief and Economic Security Act.
“The PPP was for small businesses, and to see the money go elsewhere is an insult to the moms and dads who drive our economy forward,” said John Kabateck, California state manager of the National Federation of Independent Businesses.
At least 12 California-based publicly traded companies have received PPP loans, including several pharmaceutical companies, a company that leases cars to Lyft and Uber drivers, and a major auto parts distributor, according to Securities and Exchange Commission documents.
THE KURA EXPERIENCE
Kura Sushi calls itself a “rotating sushi bar”. Guests are seated in booths next to a conveyor belt, which slowly moves portions of pan-seared beef, garlic tuna steak, and Hokkaido scallops around the room. All food on the mat is covered with a patented plastic dome, called “Mr. Fresh”, which opens when customers bend down to grab a dish.
Kura opened his first American restaurant in Irvine in 2009, and has since expanded to over two dozen restaurants in five states. When the company went public in August 2019, investors predicted he would soon operate 300 restaurants across the country and rival chains like Olive Garden and Chili’s.
But then the coronavirus pandemic struck.
On March 18, Kura closed all of its restaurants, according to Securities and Exchange Commission documents. Because customers come for the “Kura experience,” the company has decided not to offer takeout or delivery, CEO Jimmy Uba told investors on an April 14 call, according to a transcription published by the financial site The Motley Fool.
In that same call, Uba said that Kura had access to a $ 20 million loan from its parent company, Kura Sushi Japan. But he reassured investors that he had not yet borrowed money and that he had no plans to do so “in the immediate future”.
Why? Because Kura had “about $ 24 million in cash and no debt.”
Uba valued the company was spending $ 1 million a week, meaning it would have enough money to stay afloat for almost six months.
In comparison, most restaurants have an average cash reserve of 17 days, according to Karen G. Mills, former head of the Federal Small Business Administration under President Obama and current senior researcher at Harvard Business School.
Crowdfunding VS. STOCK EXCHANGE
In addition to its abundant liquidity, as a publicly traded company, Kura could raise more money by issue more shares.
Kabateck of the NFIB said:
“It is outrageous that companies that know they have funding available to them are asking for this kind of money. We call on those other publicly traded companies that have the money at their disposal … to return this money. money.”
Small private businesses, on the other hand, are much more limited in their ability to raise funds. Small business owners who need cash often find it difficult to apply for loans from banks. Some collect money from relatives or crowdfunding. Others put their homes as collateral to secure loans or borrow for retirement.
Only 3% of California small businesses received PPP loans during the program’s first round of funding.
KEEP PEOPLE ON THE PAYROLL
Kura Sushi appears to be using its PPP loan for its intended purpose: to pay employees.
“We want to do our best to use the funds as intended, which keeps people on the payroll,” Uba, the CEO, said during the April 14 investor call.
He said the company had put “a small group of support staff on leave,” but was paying the full cost of health insurance for its employees on leave, “to support our team during this difficult time.”
Kura Sushi did not respond to multiple requests for comment.
Despite high profile cases like Kura and Shake Shack, the majority of PPP loans appear to have gone to small businesses. According to Small business management data, 74% of the program’s first round loans were less than $ 150,000.
However, larger loans absorbed more of the program’s liquidity: Loans over $ 5 million accounted for only 0.27% of all loans, but accounted for 9% of total disbursements.
Tuesday, Congress reached agreement to allocate an additional $ 320 billion for the small business loan program. This time around $ 60 billion will be set aside for lenders who have better access to very small minority-owned and rural businesses.
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