Updated April 1, 2020
After days of deliberation and negotiation, President Trump signed the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) Act into law on Friday.
The bill contains provisions for restaurant businesses and expands loan options for small business owners, though not all programs are available today, and there’s no official timeline yet for when operators can expect to receive money.
“There’s no other way to say it: we’re in days now, not weeks, that many of these businesses can stay open," said Emily Williams Knight, president and CEO of the Texas Restaurant Association. "Many of them will not reopen if they close. Now that the act is passed, we have to get real cash into their hands."
Restaurant operators are seeking clarity on what exactly this legislation means for them, and lawyers and financial services professionals are working to turn the lengthy legislation into actionable information for clients. Of course, there’s no one-size-fits-all solution.
“You know your business better than anyone,” said Margot Bloch, a Los Angeles-based financial restaurant consultant. “If you are considering applying for any loans or relief right now, it's very important you have a very solid understanding of your current financial position.”
Here's what we know right now:
The Paycheck Protection Plan (PPP), a huge part of the overall bill, allots $350 billion to entice businesses to keep employees on the payroll. Under the program, small businesses are eligible for loans of up to 2.5 times monthly payroll (averaged over the year prior to the loan date). This loan or portions of it can be forgiven when used toward payroll or other fixed costs like mortgage or rent and utilities.
Restaurant businesses with fewer than 500 workers per location that were operational through February 15, 2020, can apply to the program. The new legislation expands upon the traditional SBA 7(a) loan process, carrying far fewer restrictions.
Applicants aren’t required to prove hardship; only sign in good faith that their business was impacted by the coronavirus. There’s no “credit elsewhere” test, previously a determining factor in the SBA process that required borrowers to seek other avenues for funding (like personal loans) first. And business owners don’t have to guarantee the loan or include collateral—like a personal residence—to secure it.
“Our guidance to our members is that everyone should be going after the CARES Act, and in particular the paycheck protection program. Because it’s a new relief channel which is separate from the traditional SBA loan program we feel that we won’t have the same number of denials that perhaps our members are fearful of,” Knight said.
The clear aim of this program is to keep workers employed, but for many in the industry, future timelines are completely uncertain. Even if a restaurant can reopen now—or next week—with an adjusted business model, maintaining a workforce is a daunting proposition when there’s no real timeline on an end to regional shelter in place directives, or even the virus’s spread.
In San Francisco, Laurie Thomas is the owner of two small restaurants and the acting executive director of the Golden Gate Restaurant Association. “I’m thinking we’re not going to be able to open up until some time in May,” she said. “And I would be thrilled if it were May 1 at this point.”
According to information provided by the U.S. Chamber of Commerce, in order to be forgiven, the money must be spent during the eight-week period beginning on the date of the origination of the loan. Forgivable portions can be further reduced if a business lays off workers down the line, or reduces their wages over 25 percent. It does allow a little bit of time for recovery. The amount of loan forgiveness can’t be reduced as long as a business has rehired its employees by June 30.
“Hopefully on the other side of that there’s some official relief of the economy and society turning into something more normal, but who knows,” said Meghan Blair-Valero, managing director of Fogged In Bookkeeping, a Massachusetts-based company with about 100 restaurant clients.
Emergency Disaster Relief
The CARES Act also allots an estimated $10 billion in grants to supplement Economic Injury Disaster Loans (EIDL), an existing program invoked mainly during natural disasters, like hurricanes. Qualifications were recently expanded to cover businesses impacted by COVID-19. Businesses can apply for up to $2 million in aid directly from the SBA, repayable at a 3.75 percent interest rate over 30 years.
The legislation makes these funds, like those available under the PPP, more accessible to anyone who needs one. Loans can be approved based solely on an applicant’s credit score, and loans under $200,000 don’t require a personal guarantee.
Businesses applying to the EIDL program can request an emergency $10,000 grant at the time of application, and they’ll get the cash in three days. This grant does not need to be repaid.
Knight said her organization has encouraged all of its members who qualify to apply for EIDL assistance.
While a business can apply for multiple types of relief, there are limitations on what the money can be used for: payroll, rent or mortgage interest, and utilities. Additionally, a business can not receive funds under both the PPP and EIDL programs to cover the same expenses. That is, you can’t take out two loans for the exact same thing—though money from one could be used to fund, say, April’s payroll, and the other, May’s.
The new bill includes tax benefits for businesses, too, in the form of deferred payroll taxes and temporary changes in the way losses are claimed to allow for more relief.
Workers will receive extended unemployment benefits, including a longer benefit period and a $600 per week increase for the first four months of collection. Benefits extend to gig workers and freelancers were previously ineligible for this type of aid. The plan does not address undocumented or cash workers, a gap that many private relief organizations are working to fill.
“I know very few restaurants in the world that haven’t had a cash employee at some point in time,” Blair-Valero said.
What Happens Next
The Small Business Administration has 15 days to operationalize this legislation and open up applications, and it’s likely to take the full two weeks. Loans will be serviced through approved lenders, like major banks. Business owners should confirm with their current or preferred bank that they are an approved SBA lender.
Owners should immediately get a handle on payroll and operating costs. Blair-Valero recommends thinking in terms of what it will cost to move forward, not what it costs today, and probably not what it’s going to cost when business is back in full swing. Then, get in line by filing your paperwork, the sooner the better. (Think about it like standing in line at any government agency, like when you’re renewing your drivers’ license, she said.)
How to Get Help
Blair-Valero said she thinks every business owner is capable of navigating the self-serve applications, though it requires “slowing way down and reading everything, which can be hard for a lot of us.”
It's not too late to find a trusted bookkeeper or accountant. Many are offering reduced-fee or pro-bono work to support the industry, said Blair-Valero. Local chambers of commerce might offer guidance, too. Knight strongly recommended seeking guidance from state or local restaurant associations.
“It can be a very confusing process so take advantage of industry resources to help you navigate loan applications and understand what is available to you,” Bloch said.
Understandably, these programs will be popular and systems will likely be put under stress. Last week, the Wall Street Journal reported small business owners were reporting trouble accessing the online application, or getting kicked off the site before finishing. Eventually, the process changed, instead asking applicants to submit a PDF form.
Operators should also think realistically. “If you were in trouble before, this probably isn’t the magic bullet to get you out of trouble,” Blair-Valero said. Though she said these programs are “a great choice” for restaurants with strong seasonal businesses, especially those who were just gearing up for spring and summer.
In the meantime, business owners should do everything they can to get their books in good shape. “It can be pen and paper,” she said. “This stuff can be simple. Go old-school lemonade stand if you have to, but get that information together.”
Update, April 1:
The Independent Restaurant Coalition has also published a helpful guide to navigating the Paycheck Protection Program and EIDL loans and grants.
Updated guidance has been posted on the the Treasury Department website. Here are a few key things to keep in mind:
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Here are a few key things to keep in mind:
It's anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for six months.
Although the program is open until June 30, 2020, applicants are encouraged to apply as quickly as they can because there is a funding cap, and lenders need time to process the loans.
How to request loan forgiveness: You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
Reminder: The CARES Act is just one avenue for relief; there are many additional resources for businesses beyond federal aid. As with any complex legislation, it may take professionals some time to sort through hundreds of pages of text. It’s also possible that details, including dates, outlined in the CARES act will change in the future.