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 percent 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.
And restaurants’ landlords have said widespread restaurant failures could have serious knock-on effects for the real estate industry.
The restaurant industry has been one of the hardest-hit by the virus outbreak and 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 percent 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 percent chance of survival. And at six months, a 15 percent chance.
A PPP loan could be expected to improve to odds – under the right conditions.
“The Paycheck Protection Program is a great program, but it’s not working for restaurants,” says Sean Kennedy, an executive vice president at the National Restaurant Association, an industry group.
Currently, the eight-week window for spending the money poses a dilemma. If, for example, restaurants recalled all their workers after receiving a loan in mid-April, they’d use up the money before government officials allow them to be fully operational. At the end of the eight weeks, many wouldn’t be able to afford all their staffers and they’d have to lay them off again.
Treasury Secretary Steven Mnuchin acknowledged Monday that many restaurants wanted to hold on to their money and use it when it’s most beneficial for them.
“We’ll look at a technical fix,” he said, speaking in an interview on CNBC.
