Restaurants Can Now Tap a $284 Billion Pool of Forgivable PPP Loans

The Paycheck Protection Program, the U.S. government’s central lifeline to bars, restaurants, and other small businesses hammered by the COVID-19 pandemic, will begin accepting loan applications today for the first time since the policy lapsed in August. Congress has made $284 billion available through the revamped PPP, specifically targeting the hospitality industry for extra help — and setting aside aid for low-income communities and first-time borrowers who were shut out from funding last year.

Smaller borrowers who never received PPP financing will have first dibs today. Businesses in underserved neighborhoods hoping for a second loan will get early access, too; they’ll be able to submit applications on Wednesday. The Small Business Administration will open up the program to everyone else soon afterward. All bars and restaurants will be able to apply for a second PPP loan that’s up to 40 percent larger than their initial one.

Venues that abide by the program’s tight rules will see those loans convert to grants, providing them with tens or hundreds of thousands of dollars to stay afloat as the pandemic reaches another peak. Those who don’t follow those rules will have to pay back those loans with interest.

Businesses should apply for the PPP expeditiously. The debut $350 billion round of funding last April was exhausted in under two weeks, a period during which banks often prioritized pre-existing customers and billion-dollar restaurant chains over smaller, independent outfits — and local businesses run by Black or Latinx people. All told, only 8 percent of last year’s paycheck loans went to the food service and hotel industry, even though those businesses suffered from unemployment rates more than double those of sectors like construction or health care, which received a much larger percentage of loans.

Some good news: The new PPP will prevent public companies like Shake Shack or Taco Bell from applying; the rules will direct funding toward smaller businesses whose revenues have taken serious hits during the pandemic. The bill also carves out about $90 billion for first-time loan recipients, smaller-scale borrowers, and community financial institutions that focus their lending to the BIPOC community and other underserved groups. Loans under $150,000 will have shortened forgiveness applications, in an effort to attract borrowers who can’t afford to employ professional accountants. Restaurants will also be able to use funds to pay vendors or to help erect outdoor dining setups.

Some bad news: The bulk of the loan must go toward worker salaries, which isn’t always a priority for restaurants looking to streamline their operations in New York City, Los Angeles, San Francisco, and other cities with indoor or outdoor dining bans. Some of the largest restaurant groups with thousands of employees can still apply, potentially crowding out more cash-strapped venues. The program also prohibits funding for establishments that opened after February 15, 2020, meaning that a struggling cafe or takeout shop that launched in the middle of the pandemic will be out of luck.

Most importantly, the PPP is only designed to last a few months; it won’t serve as the type of full-fledged bailout envisioned by the RESTAURANTS act, a stymied proposal that would direct larger blocks of grant money to the hospitality industry, something the U.S. government has already done for shuttered music venues. Here’s everything you need to know about PPP 2.0.

What are the general requirements for the PPP?

Restaurants and bars can apply for a “second-draw” PPP loan if they meet all of the following criteria:

  • Their gross receipts declined by 25 percent.
  • They were actually open for business by February 15, 2020, except for seasonal employers.
  • They have fewer than 300 employees per location. First-time borrowers can have up to 500 employees per location.
  • They are not a publicly traded company.

If your restaurant meets all the PPP requirements, how much funding can you access?

Hospitality establishments that meet the PPP guidelines can apply for a second-draw forgivable loan calculated at 3.5 times their monthly payroll, up to $2 million. First-time borrowers can receive up to $10 million. Those loans will convert to grants if restaurants abide by a variety of strict requirements. Businesses must spend at least 60 percent of the funds on payroll. Those venues will still have to maintain their employee headcount, as reaffirmed by updated guidance, a particular challenge for the hospitality industry given operational restrictions on bars and restaurants in New York, California, and elsewhere.

The remaining 40 percent of funds can be used on a variety of other expenses, like interest on a mortgage, utilities, rent, or, in a new development, on a variety of measures designed to protect workers or on supplier costs.

What are the new things that restaurants can spend PPP funds on?

Bars and restaurants can use non-payroll funds on worker protection measures like sneeze guards, drive-thru windows, air ventilators, health screening, and even outdoor dining build-outs. Hospitality industry venues can also now use paycheck funds to pay their suppliers for current or previous orders of “perishable goods,” which is to say the regular shipments of food or alcohol that restaurants must purchase to stay in business.

What type funds did Congress set aside for low-income and underserved communities?

The new stimulus carved out over $90 billion to target disadvantaged groups. That’s a welcome change from the early days of the PPP last year, where banks fast-tracked larger and more deep-pocketed borrowers, to the exclusion of independent New York City restaurants and bars. Per the new law, $15 billion in PPP funds will be disbursed through community development financial institutions — credit unions and banks that focus their lending on low-wealth, low-income, BIPOC communities.

Another $15 billion will go toward recipients with 10 or fewer employees or in amounts no greater than $250,000, provided that their businesses are located in low-income or moderate-income communities. About $35 billion more will go to first-time PPP recipients, while an additional $25 billion will be allocated to small venues applying for their second draw of funds. During the first round of funding last spring, only 7 percent of companies in the Bronx received loans, compared with 18 percent of companies nationwide, the Associated Press found. Those numbers, however, improved when community lenders were brought into the program.

Can large restaurant groups with thousands of employees still apply?

Yes. Most businesses employing more than 300 people total can’t qualify for a loan, but the National Law Review reports that the new stimulus retains an exception for hospitality industry businesses, which can employ up to 300 people per location. Translation: Big restaurant groups like Momofuku and Danny Meyer’s Union Square Hospitality Group should still be able to draw from the same pot of funds as smaller venues — though there are other carve-outs for less-sizable establishments.

What if business owners or workers aren’t citizens or are undocumented?

This is a pressing question for the restaurant industry, where a sizable portion of the workforce is undocumented or foreign-born. According to online guidance by the AARP, you must be a citizen or be a legal permanent resident to actually apply for a PPP loan, but even businesses that have more than 51 percent ownership by non-U.S. entities or persons might still be eligible, according to attorneys at Paul Hastings LLP.

There does not appear to be anything in the PPP that would exclude using loan proceeds on undocumented workers. In fact, a PPP loan might be one of the best ways to keep undocumented people from falling into poverty, as those individuals are generally ineligible for state or federal unemployment benefits or stimulus payments.

How are loan sizes calculated?

It’s 3.5 times average monthly payroll for a bar or restaurant. What precisely constitutes average monthly payroll is a more complicated question, however. The stimulus bill calls for determining that amount by either a business’s revenues from 2019, or from the one-year period before the loan was disbursed, an accounting choice that is up to the restaurant itself. Most venues will likely choose the 2019 option, assuming Before Times revenues result in a larger loan.

Can restaurants with no employees apply for a loan?

Yes, solo entrepreneurs can apply for a PPP. Loan amounts will be calculated by multiplying net monthly profit times 2.5. Unlike failing businesses with employees, solo-ventures that are not profitable aren’t eligible for any loan funds at all, according to the SBA. This particularly unfair provision explains why some small businesses received just $300 or less last year, per the New York Times.

How long do you have to use the funds?

Businesses can elect to use the PPP funds over either an eight-week period, or stretch it out over a longer 24-week period. Any non-forgivable portions of the loan carry an interest rate of one percent and must be repaid within five years.

Will you have to pay back a portion of the loan if your restaurant can’t rehire to pre-pandemic levels?

Possibly. Last summer’s updated PPP law stated that forgiveness levels won’t be impacted if a venue is unable to rehire due to government-issued COVID-19 regulations — such as the city’s ban on indoor dining. But that exception, which the hospitality industry relied on, had a very explicit expiration date: December 31, 2020. Nothing in the new bill appears to mention extending that provision; an accountant told Eater last week that the SBA might have to issue further guidance on this matter.

What do you need to know about the simplified forgiveness application?

Restaurants, bars, and other businesses borrowing $150,000 or less can apply for full loan forgiveness by submitting a single-page application attesting to the retained employees. Those taking out larger loans will have to submit to a more rigorous forgiveness test with more substantial documentation. The purpose of this new policy is to encourage more small businesses to apply for these PPP loans in the first place — and to ensure they aren’t burdened with complicated paperwork when seeking to convert the loans into grants.

Can restaurants reduce worker pay?

Yes, businesses can still apparently cut worker salaries by up to 25 percent without risking any reduction in forgiveness. It’s a policy that sets an unfortunate and dangerous precedent for the hospitality industry, where historic wage theft, tipped wages, and other policies structurally guarantee one of society’s most underpaid workforces. Further cutting worker salaries could reverse any type of marginal wage growth among senior line cooks, junior managers, sous chefs, and beverage staffers.

Are some restaurant salaries too high for the PPP?

Yes. Salaries above $100,000 are excluded from loan calculations, which roughly means that if a general manager earns $125,000 per year, the upper $25,000 doesn’t count toward determining how much you can borrow. What’s more, venues that want their PPP to remain forgivable can’t use the loan proceeds to pay people over $100,000.

This provision serves to chip away at the middle-class status of career restaurant workers, many of whom won’t experience corresponding drops in the rent or child care costs. What’s ironic is that the government doesn’t require drastic salary limits with respect to airline industry aid, where those making between $425,000 and $3 million will simply be ineligible for raises — unless those raises are mandated by collective bargaining agreements. No such union agreements are cited in the PPP provisions of the law.

Can your business apply for a PPP if it is temporarily closed?

Yes. Restaurants in hibernation can still apply.

Can you apply if you’re a convicted felon?

For non-financial crimes, convicted felons that ended their incarceration over a year ago, or whose parole or probation commenced over a year ago will be able to apply for PPP loans, thanks to an updated rule from last summer, which aims to promote an individual’s “rehabilitation” into society. Previously, the waiting period for those individuals was five years, a policy that discriminated against people caught up in our country’s mass incarceration system — a system that disproportionately targets Black people and other members of the BIPOC community.

Where are the application forms?

Right here.

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