A $320 billion fund was approved by the Senate Tuesday that will replenish the depleted federal loan program for distressed small businesses, but scores of restaurants around the country are still left without help or answers after the first round of funding.
Of the initial $350 billion federal aid package allocated to small businesses, only 4.5% of it went to the restaurant industry, according to a recent report from the Texas Restaurant Association.
Restaurants, like other qualifying small businesses, were able to apply for the Paycheck Protection Program (PPP) ― part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act stimulus package ― to receive funds to help them hire back staff and continue to operate. But the program’s efficacy has been called into question as stories emerge of large restaurant chains receiving funding and other smaller businesses being turned down by banks.
Eligibility requirements for the small business rescue program state that businesses must have less than 500 employees at any one location, not in the company as a whole. Because of this, large restaurant chains like Ruth’s Chris Steak House and Shake Shack were able to qualify.
“At a time when the nation’s restaurant industry is on the verge of collapse due to government mandated closures, the one item promised to them by the Federal Government ― dedicated relief ― did not arrive,” the Texas Restaurant Association said in a written statement.
The additional $320 billion allocated for the PPP includes $60 billion set aside specifically for small lenders for the purpose of steering funds to businesses, such as small restaurants, that tend to have a hard time getting approved for loans, but there are still concerns that the program falls short in providing meaningful aid to the restaurant industry.
The PPP is a rescue loan program designed to help small businesses keep employees on their payrolls. In order to have the loan forgiven, businesses must keep all employees on payroll for eight weeks, use 75% of the funds for employee pay, and allocate the rest of the funds to mortgage interest, rent and utilities. The loan has a 2-year maturity and 1% interest rate.
Many restaurants were unable to apply for the loan because their lenders weren’t participating in the program, and they were turned down by big banks since they didn’t have existing lines of credit. Other restaurants like TJ’s Seafood Market & Grill and Malibu Poke in Dallas were able to apply and get approved, but haven’t received any money.
“I am in a very strange limbo,” said Jon Alexis, who owns TJ’s Seafood and Malibu Poke. “I applied for all six of our corporations. We were told five of them were approved but not funded. We don’t know what that means. … Does that mean our approved ones are earmarked? Are they approved but awaiting funding?”
He hasn’t been able to get an answer on whether or not he will ever receive that money, but even if he does, he isn’t exactly sure how he would utilize the money since the program isn’t structured to address the specific needs of the restaurant industry, he said.
“It is comically insufficient for restaurants for a number of reasons. It is based on a number of employees. The restaurant business does not think that way. We think in numbers of shifts,” Alexis said. “Also, our industry is literally being decreed by the government that we can or can’t be open and in what form. A lot of people are getting PPP money and they’re told they have eight weeks to get people back on the payroll when they’re not allowed to be open. That timeline makes no sense for the restaurant industry when we don’t know when we can reopen.”
Alexis normally operates all of his restaurants with a staff of 85 people. Since the outbreak, 40 percent of those employees have been furloughed.
Alexis said he doesn’t have a problem with the fact that tens of millions of dollars of the PPP fund went to large restaurant chains such as Ruth’s Chris and Shake Shack (On Sunday, Shake Shack said it would forfeit the money) as long as they qualified fairly. If the point of the loan program is to get paychecks to people who need them, it doesn’t matter if those people work for big restaurant chains or small independent restaurants, Alexis said.,
The issue he has with the program lies in the fact that there wasn’t enough money to go around, and that it isn’t structured to also help restaurants stay in business.
“The money isn’t for you, the business owner. The money is for your staff. We are almost being asked to be arms of unemployment, really, because the unemployment system is so over capacity right now,” he said. “But it also doesn’t solve our business problems. There needs to be a way to marry these priorities. How do we both get money in the hands of out-of-work staff … and how do we solve the problems that are going to put 40% of restaurants out of business in the next six months?”
Dino Santonicola, owner and head chef of Partenope Ristorante, said he applied for the loan on April 3 but hasn’t received a response and is unable to get answers from his bank. Julien Eelsen of Whisk Crepes Cafe said he also applied for his two restaurant locations, but aside from receiving confirmation that his application was received, he has not been told if his application was approved or not. He said he has been trying to get ahold of his bank, Bank of America, with no success.
Owner of Empire Baking Company, Meaders Ozarow, said she considers herself one of the lucky ones. Her business is one of the few to receive a PPP loan, which she is using to pay all 65 of her employees.
“My personal interpretation of this is that I am being used as an unemployment office and probably a more efficient unemployment office," Ozarow said. "So I don’t especially look at this specific program as saving me as much as it is allowing me to keep a group of people who have been very hard workers and very loyal to me and give them an opportunity to make house payments, loan payments, car payments and feed their families.”
She credits her ability to receive the loan to pure luck and clear communications with her bank that allowed her to apply quickly.
It’s possible that she might have to let some employees go when the eight weeks is up as 85% of the company’s business is dependent on restaurant and hotel customers, she said, but she’s hoping for the best and holding out hope that maybe additional federal funding will be made available.
The CEO of restaurant chains Bellagreen and Original ChopShop, which each received $1.5 million in PPP funds, has a different take on the loan program and believes it will actually leave his restaurants better off than they were before.
Jason Morgan, who oversees about 800 employees at 23 locations between the two restaurant brands, including 15 locations in Texas, said many restaurants that receive funds will likely treat it like a loan and choose not to spend 75 percent of it on hiring all of their staff back as is required in order to have the loan forgiven.
“That’s not the direction we’ve taken,” he said. “I believe there’s an arbitrage in the way the math works. The arbitrage is that for every dollar I spend in payroll, I’m able to get more than a dollar back in forgiveness. It all hinges on that 75 percent ratio. What we’ve done is we said we’re going to spend the entire amount. We’re going to bring back employees and we’re going to reopen stores where it makes sense to reopen stores. … We’re going to staff the stores as if we’re doing two times the sales that we’re actually doing.”
Select stores will be reopened, such as the Bellagreen Plano location at Preston Road and Park Boulevard that reopened last week, and additional employees will be used for street team marketing efforts, curbside pickups, delivery services, and deep cleaning restaurants, he said. The companies employ 370 people in North Texas normally. They were able to re-employ more than 65 team members in North Texas because of the PPP loan so far.
“We’re going to find something for these folks to do for the 8-week time period, because by maximizing the spend, we also maximize forgiveness," he said. "And we end up with all the money we would have spent anyway because basically it’s a free pass to us. So for us, we’re going to end up in a pretty good spot at the end of the eight weeks and in an even better spot if businesses are more back to normal sometime soon after that.”
Many in the restaurant industry, though, do not believe restaurant dining rooms will open any time soon and are concerned that if they use PPP money to hire back all of their staff, they will have to let them go again at the end of the eight weeks since dining rooms might still be closed and business will be minimal.
Morgan said it is a possibility that the employees they rehire with the PPP loan will have to be let go again.
“In the worst of worst of worst case scenarios, we employ these folks for eight weeks, which is the intention of the program, and then we end up scaling it back if sales don’t improve,” he said. “Likely for us, we would probably scale it back to something that looks like a breakeven number in that ninth week ... We would run the stores efficiently going forward, and then the forgiveness dollars that we would have associated with the PPP loan will probably give us two to three months of running it like that, so we’re no worse off.”
Although he believes he’s found a way to make the federal loan program work for his business, Morgan said that restaurants, his included, would be far better off if they could use the funds to rehire staff when it is actually permitted and safe for them to fully open.
