UPDATE: Aug. 17, 2020: This article has been updated to include statements from Potbelly. 

Dive Brief:

• Potbelly received a $10 million loan from the Payment Protection Program (PPP) last week just after the application deadline on Aug. 8, an SEC filing shows. The sandwich chain’s use of a low-interest loan offered under the Coronavirus Aid, Relief, and Economic Security (CARES) Act is an unexpected reversal from its move in April to return the $10 million it received in the first round of PPP funding approved by Congress. 
• Like restaurant chains across the country, Potbelly has faced financial difficulties from the effects of the novel coronavirus pandemic, having temporarily closed 55 shops earlier this year. However, CFO Steven Cirulis indicated the company was rebounding in its Q2 earnings call, predicting that 13 of the closed stores should open before September.
• "While we qualified for a loan in the first round of the Payroll Protection Program, we returned it when it looked like many other companies would be left without help. In the next round, the program was about to close with billions of dollars in available funds still remaining," according to a Potbelly statement emailed to Restaurant Dive. "To protect our employees’ jobs, and support their families that rely on Potbelly for their livelihoods, we applied for and received a loan. The funds will go to our dedicated employees, to preserving jobs and to keeping shops open."

Dive Insight:

In April, large national chains attracted swift criticism for taking out PPP loans intended for small businesses when the fund reached its $350 billion limit before many independent operators could access it. Those chains included Shake Shack, Sweetgreen, Ruth's Chris and Potbelly, all of which announced they would return their PPP loans. Amid the controversy, the U.S. Treasury Department requested that publicly traded companies repay their PPP loans, citing access to capital markets and substantial market value as reasons why large public companies did not require this degree of federal assistance to remain financially viable. 

Potbelly has not been immune from the economic effects of the pandemic. The chain ended Q2 with a 46.8% decline in total revenue and a 41.5% decline in same-store sales for its company-operated locations. In May, the chain said it was considering permanently shuttering up to 100 of its 440 stores, though Cirulis said on the company's Q2 earnings that just 16 shops have been shut permanently, and estimated fewer than 50 permanent closures. Potbelly was also struggling in May to fulfill its annual debt obligations, though it has since amended its credit facility to lower borrowing costs. 

On the call, Cirulis detailed investments Potbelly has made in developing new partnerships with third-party delivery services, expanding curbside pickup and launching "Potbelly Pantry," where customers order Potbelly ingredients to recreate sandwiches from home. The sandwich chain is also taking steps to move away from its traditional reliance on lunch traffic from office workers, a market which analysts expect to remain sluggish well into 2021. 

Potbelly’s off-premise investments and attempts to diversify its offerings in recent months reflect the greater ability of large public companies to pivot their operations to respond to changing consumer habits, while independent restaurants struggle just to cover basic operating costs, including rent. 

PPP funding attracted over five million applications for an available $521 billion, but has faced criticism from small restaurant operators for not sufficiently covering their costs. The PPP’s required allocations toward payroll have failed to adequately ease operators’ mounting rent, utility, personal protection equipment and insurance costs. A Goldman Sachs survey predicted that around 84% of the mom-and-pop stores that received PPP loans will have exhausted their funds by early August.

Potbelly’s decision to take on a PPP loan after all could attract renewed backlash seen during the first wave of loan allocations, as legislators consider re-upping another stimulus bill. Advocates for the smallest business-owners have expressed fears that funds in a second stimulus will again go toward larger companies and mid-sized businesses. The Small Business Administration, which runs the program, mostly supports companies with between 100 and 500 employees, and rarely deals with the smallest businesses with fewer than 50 employees, advocates claim. James Beard Foundation CEO Clare Reichenbach said in April that many restaurant owners were “swimming upstream against an enormous, sophisticated lobby for all of small business.”