Inside a Kura Sushi restaurant in San Diego. Kura Sushi USA, which went public last year, had to shut down all its restaurants as of March 18.
Photo: Frank Duenzl/DPA via ZUMA PressPublic companies that have been pushed to repay federal stimulus loans to cover payroll costs are confronting a tough reality: They have few options for keeping workers on their payroll.
Many companies had looked at the Paycheck Protection Program, which provides forgivable government loans to companies that use at least 75% of the funds to cover payroll, as a way to keep employees paid as they waited out the coronavirus lockdown orders across many states and for consumers to feel safe returning to restaurants and shops.
But recent policy changes closed that program to most public companies after many small businesses—the intended recipients of the loans—were unable to submit applications before the program temporarily ran out of money last month.
Kura Sushi USA Inc., which went public last year and operates 25 sushi restaurants in five states, said it intended to use the nearly $6 million loan received under the program to rehire employees who were furloughed in April after its restaurants closed on March 18.
Without revenue from its restaurants, Kura has tapped into cash reserves to pay rent and salaries of corporate employees and sushi chefs, but has furloughed its other restaurant staff, according to Jeremy Hamblin, an analyst at Craig-Hallum Capital Group LLC who tracks the company. The company had about $24 million in cash as of April 13, and access to a line of credit, according to its latest quarterly earnings report.
Unlike small businesses such as hair salons and coffee shops that operate on thin margins, public companies typically have cash reserves and access to bank loans.
But uncertainty about the long-term impact of the coronavirus pandemic has pushed companies to conserve these resources. And borrowing money—even at low or below-market interest rates—to cover payroll is unattractive when storefronts are closed and revenue is plunging.
“The number of employees has to coincide with the amount of business activity, and a closed storefront can’t optimally employ anyone,” said Tom Arnold, a finance professor at the University of Richmond in Virginia.
Payrolls in April plunged by a record 20.5 million and the unemployment rate rose to 14.7% as employers shed jobs due to the coronavirus pandemic. Job losses from business closures stemming from virus-related lockdowns produced the steepest monthly decline on record back to 1939.
A key calculation that companies hoping to rehire low-wage workers have had to make is whether those employees would be nearly as well off on unemployment insurance as on the corporate payroll, according to Philip Bond, a finance and business economics professor at the University of Washington in Seattle. Lawmakers in March boosted unemployment benefits by an extra $600 per week. Still, some states have struggled to process the surge in claims, Mr. Bond noted.
“With the Paycheck Protection Program, we assumed all restaurant employees would be able to continue being paid, regardless of where they worked, and that the funds would be enough for everyone,” Jimmy Uba, Kura’s president and chief executive, said in a public letter posted on the company’s website. “This was a wrong assumption.”
Kura Sushi said it intends to return the money.
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AutoNation Inc., the nation’s largest car dealership, said last month that it was giving back $77 million in forgivable loans that it applied for on behalf of its 7,000 furloughed employees, roughly 28% of its workers.
Asked whether the company was considering other options, Marc Cannon, a company spokesman, said: “None,” and pointed to the lack of forgivable loan programs.
The Paycheck Protection Program is among several government programs aimed at helping companies weather the coronavirus pandemic. The Federal Reserve has also launched its Main Street Lending Program, which offers loans of up to four years with below-market interest rates to companies.
While public companies can also access capital markets, smaller companies may find that difficult at a time when investors are skittish about taking on risk, Mr. Arnold said.
His suggestion is for smaller companies giving back Paycheck Protection Program loans to negotiate a bank loan with flexible terms before returning the money, which is due by May 14.
Shake Shack Inc., the burger chain, gave back $10 million it received through the Paycheck Protection Program after raising capital from stock investors. Shake Shack last month laid off or furloughed more than 1,000 employees, or about 13% of its staff. Corporate executives also took pay cuts, though the company committed to paying the general managers of its stores in full.
CEO Randy Garutti during the company’s earnings call on Monday said it is bringing back some of its furloughed workers as sales have increased in recent weeks as online orders have picked up. He didn’t provide details about how many employees have returned to work.
“Our recruiting function is hard at work as we restart hiring in Shacks for a continued gradual recovery and a return to the growth we expect ahead,” he said.
Write to Kristin Broughton at Kristin.Broughton@wsj.com
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