An industry trade group said it’s highly likely that many restaurants will return loans from the U.S. Small Business Association’s (SBA) bailout program, the Financial Times reported.
The National Restaurant Association (NRA) said regulations for the federal Paycheck Protection Program’s (PPP) forgivable loans don’t meet the needs of eateries, given that many remain closed and the money must be spent within eight weeks.
“As restaurant owners learn about the program and learn what the rules are, many are realizing it is not actually going to provide them the assistance they need … (and they are) highly likely to return those loans,” Sean Kennedy, the association’s spokesman, told the news service.
Under the terms of the program, the debt will be forgiven as long as employee and pay levels are maintained, and the cash is used to cover payroll, mortgage interest, rent and utilities over two months after the loan is made. If owners are unable to comply, recipients must pay back the loan at a 1 percent interest rate within 24 months.
Stephen Weinstock, the owner of two Harrisburg, Pennsylvania restaurants, told the FT he was approved for an $185,000 PPP loan, but that was before he discovered how to qualify for forgiveness. “It was a great idea in the beginning, but it turned out to be another loan that I don’t need,” he said.
Weinstock isn’t sure when his eateries will be allowed to open and at what capacity. In addition, he told the newspaper that the added $600 weekly unemployment benefit his employees are receiving from the federal government means many workers are making more money staying home.
The NRA’s Kennedy said U.S. restaurants have laid off or furloughed an estimated eight million of the 12 million workers employed before the coronavirus pandemic. He had hoped Congress would initiate a federal rescue program geared to restaurants.
“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 has suggested the eight-week rule should commence when restaurants are allowed to reopen. It also argues that they should be permitted to use more than 25 percent of their loan funds on non-payroll expenses.
Donna Purnomo, who owns two restaurants in Albany, New York with her family, told FT they haven’t spent any of their PPP loan of nearly $200,000. Still, Mick Owens, a restaurant owner in Lancaster, Pennsylvania, said he’s made good use of his $700,000 in PPP funds. He’s brought back all but 15 of 125 employees who were laid off from his four restaurants.