Restaurants are getting a lifeline with PPP lending changes

On Wednesday, the US Senate unanimously passed the Paycheck Protection Program Flexibility Act, which provides a much-needed lifeline for restaurants across the country. The bill is now on President Donald Trump’s desk.

There are several important changes that operators have requested since the PPP came into play. The National Restaurant Association pointed out five in particular:

  • Extension of the reimbursement period from eight weeks to 24 weeks
  • Reduction of the salary quota to 60 percent
  • Extension of the loan period from two to five years for new loans
  • Allow wage tax deferral for PPP recipients
  • Extension of the reinstatement period to June 30th

The first postponement was one of the biggest pain points for restaurants to begin with – a 75/25 requirement that forced owners to spend 75 percent of the loan on payroll in order to be able to forgive it. But many complained that 25 percent was nowhere near enough to cover other expenses. Namely rent and utilities, especially in high dollar markets like New York City.

Additionally, it proved unrealistic for restaurants to spend 75 percent of the loan on reduced staffing levels, which is also in line with the extended reinstatement period. Restaurants reopening today do so under limited capacity mandates. So there aren’t that many positions to walk around. The restaurant takes time to gradually increase its staff as the dine-in business expands.

Demanding that this be done in full by June 30th was a noble request.

First Watch, for example, will reopen with around 10 employees per unit at the beginning.

The Association’s EPP of Public Affairs, Sean Kennedy, issued the following statement in support of the bill’s passage:

“Today’s action in the Senate is a win for restaurants and small businesses across the country. The Paycheck Protection Program was launched exactly 68 days ago. It has helped countless companies, but the restaurant industry has a unique business model and a particularly uncertain path to recovery – and these PPP improvements will help restaurants make effective use of this important tool, “he said. “The National Restaurant Association was one of the first to call for improvements to PPP to preserve our vulnerable industry. At a time when political discord is the norm and agreements are fleeting, the voice of the restaurant business was a unifying theme. This law was passed because Congress heard from us loud and clear. “

“We appreciate the work of Majority Leader Mitch McConnell, Democratic Leader Chuck Schumer and so many others in securing support for these important changes,” added Kennedy. “The PPP has been improved for many, but our industry faces ongoing challenges and needs to remain engaged in Washington. We look forward to continuing to work with Congress and the government to provide the support the country’s second largest private employer needs to recover. “

The Independent Restaurant Coalition, one of the most consistent critics of the PPP throughout the process, said Congress was giving “independent restaurants a chance to reopen” by making PPP funding more flexible.

“Even with these changes, many restaurants will still find it difficult to weather the crisis we are in. Social distancing measures are forcing restaurants and bars to work with dramatically reduced income for the foreseeable future, which will not be sustainable in the long term. ” The pandemic is a long-term problem and these PPP fixes are just the beginning of a solution. We need an independent restaurant stabilization fund like the one proposed by Rep. Earl Blumenauer to ensure that 500,000 independent restaurants can reopen, stay open and re-employ 11 million Americans, “the coalition said.

Here is a breakdown of some of the changes. (This article goes through them too).

In the original CARES Act, borrowers had eight weeks to trigger their PPP loan. Now they have 24.

In order to achieve full forgiveness, restaurants had to bring staff levels up to pre-COVID-19 or higher by June 30th. It was extended until December 31st.

It is also significant that there is relief if the restaurant fails to bring people back. This has surfaced throughout the pandemic for operators wonder whether employees will return to jobs where they make less money than when they are unemployed with the add $ 600 per week. Or if they essentially have to “force” their employees because they are threatened with discontinuing their extended services.

As already mentioned, the question also remains whether restaurants simply need the same number of staff. Maybe ever. As part of the previous PPP loan issuance guidelines, many operators tried to set these numbers, whether they needed it or not, just to convert the loan into a grant.

What the new language says:

(7) EXEMPTION DUE TO EMPLOYEE AVAILABILITY. – During the period beginning on February 15, 2020 and ending on December 31, 2020, the amount of the loan waiver will be determined in accordance with this section without taking into account a proportional reduction in the number of full loans -time-equivalent employees, if an eligible recipient in good faith-

“(A) is able to document –

“(I) the inability to reinstate any person who was an employee of the Eligible Recipient on February 15, 2020; and

“(Ii) the inability to recruit similarly qualified employees for vacant positions on or before December 31, 2020; or

(B) is able to document that compliance with the requirements or guidelines of the Secretary for Health and Human Services, the Director, is unable to return to the same business that was operating this business prior to February 15, 2020 was the Centers for Disease Control and Prevention or the Occupational Safety and Health Authority during the period from March 1, 2020 to December 31, 2020 in relation to compliance with standards of hygiene, social distancing or other workers or customer safety requirement related COVID-19. “

Some other notes

Restaurants can continue to apply the eight-week period if they so choose. Those granted forgiveness were excluded from a provision in the CARE Act that allowed the payment of wage taxes to be deferred. This exclusion of PPP borrowers from the forbearance payment has been lifted.

If a restaurant does not meet the requirements for forgiveness, the minimum repayment term is now five years.

Previously, each payment was postponed for six months. It has been postponed until the time the loan amount is transferred to the lender. If the restaurant has not asked for forgiveness, the grace period is 10 months.

About Alexander Estrada

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