It's no secret that the COVID-19 pandemic has devastated the restaurant industry.
The CARES Act, which was signed into law on March 27, contained $376 billion in relief for American workers and small businesses, but the first round of Payroll Protection Program (PPP) funding created so much confusion that many small business owners lost out. This summer, the more sweeping RESTAURANTS Act, which would create a $120 billion Treasury fund to provide small grants to restaurants, was introduced into both the Senate and House of Representatives, but has so far failed to gain traction.
Which brings us to now. In late December, Congress passed a $900 billion COVID-19 relief bill, but what exactly does that mean for independent restaurants? While the industry-specific relief of the RESTAURANTS Act was not included, Congress did not forget restaurants entirely.
To start, the bill provides a bridge for independent restaurants and bars into 2021, including several key changes that the Independent Restaurant Coalition fought for, such as "expanding applicable costs for PPP to include PPE and supplies, as well as providing new ways for small businesses to access loans through CDFIs rather than banks." Further, $284 billion in additional funding was allocated to PPP, and some are referring to this as Round 2 PPP funding.
Here, attorney Paul Petruska of Greensfelder, Hemker & Gale, P.C. explains the key takeaways in Round 2 PPP funding for restaurant operators. To learn more, read the full article here.
New Allowable Uses May Be Key to Restaurants
I suspect restaurants are disappointed that money was not set aside for the restaurant industry specifically. This is disturbing for many reasons, but restaurants were given some new benefits in the PPP that other industries will not use. As you may recall, in the original PPP a small business could apply for a loan in varying amounts, but the loan was only forgivable if the loan proceeds were used for limited and expressly identified allowable uses. Round 2 of the PPP has the following new allowable uses:
- Covered operation expenditures
- Covered property damage costs
- Covered supplier costs
- Covered worker protection expenditures
In case this is not clear enough, the bill specifies this may include “the purchase, maintenance, or renovation of assets that create or expand”:
- a drive-thru window
- an indoor air ventilation, air pressure, or air filtration system
- an outdoor air ventilation, air pressure, or air filtration system
- an expansion of additional indoor, outdoor, or combined business space
- an onsite or offsite health screening capability
- and/or a physical barrier such as a sneeze guard
- additional miscellaneous items such as personal protective equipment
I find this provision to be vital for any forward-thinking small business, especially a restaurant. I have been working with mechanical engineers and public health experts for the past few months that have recommendations for restaurants to make indoor eating safer. Round 2 of the PPP will allow restaurants to get forgivable loan proceeds to make changes, such as installing outdoor heating systems, portable air filtration systems, new HVAC systems or even ultraviolet lights, during the covered period.
New Simplified Forgiveness Application
As with the original PPP, the borrower must seek forgiveness. It is not automatic. However, in Round 2, Congress is making the forgiveness application even easier for loans up to $150,000. A form will be created that must be no longer than one page. The administrator of the PPP has 24 days to create this form. Once it is made public, a PPP borrower with a loan up to $150,000 will get forgiveness simply by completing the form, and maintaining records to prove what the funds were used for over a period of time (three or four years depending on the expenditures). For loans greater than $150,000, the borrower will need to submit certain identified documents to the lender to prove how the funds were used. If used properly, the loan becomes a forgivable loan.
Consistent with the prior goal of the original PPP program, Round 2 has a mandate that 60 percent of the loan proceeds must be used on employee payroll costs. The original PPP’s primary goal was ensuring employees of these small businesses continued to receive paychecks.
$284 Billion in New Money is Available
In Round 1 of the PPP, $350 billion was disbursed to small businesses in just two weeks. In Round 2, a total of $284 billion is technically available, but the total is misleading. For example, $35 billion is set aside for those small businesses that have never received PPP funding, and an additional $40 billion is set aside for small businesses with less than 10 employees OR an employer located in a low-income area seeking less than $250,000. These set-asides for limited groups seem to indicate the $284 billion will be not be available for long. Those who are prepared to apply for the loan immediately will have an advantage.
The Calculation for the Loan Maximum is Similar to the Original PPP
Round 2 of the PPP offers an applicant two options to decide how to calculate the average total monthly payment for payroll costs. The applicant can use 2019 numbers or the one-year period prior to the application. Once the average total monthly payment for payroll costs is calculated, the average small business applicant can multiply the result by 2.5 to determine the maximum amount of the loan. Restaurants can multiply the result for 3.5, which will result in a higher maximum loan amount.
For example, if a restaurant has 20 employees making $3,000 a month in wages and tips and another $1,000 per month per employee for other expenses allowed to be included in total monthly payroll costs, that restaurant can apply for a maximum amount of $280,000. Other small business would only be able to apply for a maximum of $200,000.
New Criteria for Qualification
There are multiple factors to consider with respect to eligibility for a Round 2 loan. While businesses, non-profits, self-employed individuals, and independent contractors may be eligible, there are exclusions. For example, a restaurant that was not doing business on Feb. 15, 2020, is ineligible for a Round 2 loan. The gross receipts of the applicant in each quarter of 2020 are also relevant in determining eligibility. The total number of employees and the number of locations will be factors in determining eligibility and/or how much the applicant can get. In a very general sense, a restaurant with fewer than 300 employees, very few locations, and a loss of at least 25 percent in gross receipts in at least one quarter of 2020 compared to that same quarter of 2019 will be eligible for a Round 2 loan.
To read more, visit Petruska's blog.