Many privately owned restaurants are “highly likely” to repay loans they have received from the US small business rescue fund, reckoning that the rules for using the money are ill-suited to their industry, a trade group says.
The National Restaurant Association said the owners — many still waiting for permission to reopen — were particularly worried about a provision in the Paycheck Protection Program that links loan forgiveness to the money being spent within eight weeks, including 75 per cent on payroll.
“As restaurant owners learn about the programme and learn what the rules are, many are realising it is not actually going to provide them the assistance they need,” said Sean Kennedy, the association’s executive vice-president of public affairs, adding that many of the businesses were “highly likely to return those loans”.
The resistance of the restaurant owners marks the latest setback for a programme that was quickly engulfed in controversy when it emerged that listed food chains such as Ruth’s Chris Steak House and Shake Shack had received millions of dollars in PPP loans. Both returned the money after criticism that the funds were meant for owners of smaller businesses.
Congress has appropriated $660bn for the PPP, which is designed to keep businesses with up to 500 employees afloat during coronavirus shutdowns. The money is being distributed in the form of loans that will be forgiven if they are used for payroll and other business costs. Otherwise, recipients have to pay back the loan — with a 1 per cent interest rate — in two years.
Stephen Weinstock, the owner of two Harrisburg, Pennsylvania, restaurants and an events venue, said he was approved for an $185,000 PPP loan before he learnt that to qualify for forgiveness, he had to spend the money within eight weeks of receipt.
He sees that as impractical. He has no guarantee his restaurant will be allowed to operate at its previous capacity or even reopen. At the same time, he said the expansion of unemployment benefits during the crisis means many of his employees are making more money staying at home than they would by returning to his payroll right away.
“It was a great idea in the beginning — but it turned out to be another loan which I don’t need,” Mr Weinstock said. “I have plenty of loans already. The attraction to this was the forgiveness.”
Mr Kennedy of the restaurant association said the industry — which has laid off or furloughed an estimated 8m of the 12m people that it employed before the coronavirus pandemic — had hoped for a federal rescue scheme of its own. But he said Congress “ultimately chose to address this issue through one programme — PPP — for all businesses”.
“We don’t fault Congress for the Paycheck Protection Program,” he said. “We’re just saying it’s not an effective relief tool.”
The association is arguing that the eight-week rule should only start when restaurants are allowed to reopen. It also wants restaurants to be allowed to spend more than 25 per cent of their PPP money on non-payroll costs, given the high property expenses facing many eateries.
“Restaurants are a very capital-intensive business,” Mr Kennedy added. “To come back online and hire provisions and equipment and food as well as to bring people back online . . . is going to be really difficult for an industry that typically has 15 days cash on hand.”
Brian Casey, the owner of Oak Hill Tavern in North Kingston, Rhode Island, which employs about 30 people in the off-season and about 50 during the summer, said he received a $100,000 PPP loan within 10 days of applying and was grateful “right up until the morning I signed the paperwork”.
When he learnt he would have to spend the money by mid-June, he debated whether to take the $100,000. Ultimately, he did, and has used $30,000 of the loan to pay his mortgage and utilities, which means he might have to pay the money back with interest in two years.
“If I used the whole amount — and have to pay it back over the next two years — I don’t know if I could pay it back,” he said.
Donna Purnomo, who owns two connecting restaurants in Albany, New York, with her husband and son, said they have yet to spend any of their PPP loan of a little less than $200,000. She said she has become worried about interpreting the PPP rules correctly after talking with an “alphabet soup” of government bodies and trade groups known by three-and four-letter acronyms.
“I’m drinking out of a fire hose and breathing out of a paper bag,” she said, calling herself the type of business owner who found even the risk of a New Year’s Eve power outage stressful. “I’m a Virgo. I need a plan.”
Mick Owens, a restaurant owner in Lancaster, Pennsylvania, struck a more positive note, saying he was using his approximately $700,000 in PPP funds to bring back most of the 110 — out of 125 — employees that he had laid off at his four restaurants.
He said his employees were running food out to take-out customers in cars, or doing odd jobs, like painting and cleaning. “Nothing good happens to a closed restaurant,” he said.
But Mr Owens added that restaurants would eventually need more help — including additional money for businesses that are still not able to reopen after eight weeks.
“If there‘s not an extension of the PPP or a significant loan forbearance, we’re going to have lay everyone off again,” he said.