Restaurants owners across the U.S. are worried that a loan from the government’s coronavirus relief program could wind up being a burden instead of a blessing.
The Paycheck Protection Program has disbursed more than 4.3 million loans worth more than half a trillion dollars to small businesses in about six weeks. A PPP loan can be forgiven if owners spend the money within eight weeks of receiving it and put at least 75% of it toward employees’ pay and the rest toward rent, mortgage interest and utilities.
For those who own and run restaurants, however, those terms can seem out of sync with the realities of their business. Many restaurants either remain closed or are doing just a fraction of their former business as cities and states only begin to lift stay-at-home orders. Instead of essentially paying workers not to work, owners might want to hold onto the loan money or use it for more pressing needs; but doing so carries a risk.
Sarah Trubnick’s restaurant in San Francisco has been closed since mid-March. She recently got a relief loan — but she’s hardly celebrating.
Trubnick hopes to reopen The Barrel Room within the next eight weeks, but it will cost thousands of dollars to buy food and equipment needed to be operational again. She needs to use some of the loan money to pay those expenses. But that portion of the loan might not be forgiven, leaving her with a big debt to pay off in two years.
“The terms are not realistic for us,” says Trubnick. “I think this is going to leave us in a worse position than before.”
The restaurant industry has been one of the hardest-hit by the virus outbreak. Thousands have been shut down completely, which means no revenue coming in but bills like rent, utilities and insurance still to be paid. Many others have been restricted by state and local governments to serving customers with takeout and delivery, but that is only a small fraction of their usual business. And reopening doesn’t mean a return of the lunch and dinner crowds — social distancing requirements means restaurants can’t serve the usual number of diners.
All these obstacles have stymied an industry that operates on the thinnest of margins. The shutdowns and curtailed revenue led to the layoffs of 6 million workers during March and April.
Many restaurants fear for their survival, according to a study released in April by the National Bureau of Economic Research. The study found that restaurateurs believed they had a 72% chance of survival if the crisis caused by the virus outbreak lasted a month, but if it lasted four months, they believed they had only a 30% chance of survival. And at six months, a 15% chance.
A PPP loan could be expected to improve to odds — under the right conditions.
A report by the Small Business Administration’s inspector general’s office released Friday, while not mentioning the restaurant industry, found fault with the rules and predicted they would force tens of thousands of businesses to have to repay part of their loans.
According to the report released Friday, the law that created the loan program didn’t specify the amount of loan money that must be used for employees’ pay; the SBA added the restriction. The SBA responded in the report that “75% is an appropriate percentage” given the law’s focus on keeping workers paid and employed.
The report also noted that while the law allowed for loan terms to be as long as 10 years, the SBA imposed the requirement that loans be repaid within two years, making payments substantially larger.
https://www.usnews.com/