Texas restaurants say paycheck protection program a gamble
‘I’m afraid to spend it’: Requirements for payback is concern
WASHINGTON — As restaurants across Texas struggle to stay afloat during the coronavirus pandemic, restaurateurs say the federal loan program meant to keep them and other small businesses alive is of little help.
They fear they can’t meet the stringent requirements for the socalled paycheck protection loan to be forgiven — which would force them to spend double what they typically would on labor costs, even as they make a fraction of their usual sales — and they face having to pay it back within two years, when the industry still may be “limping along.”
“They’re going to have to rethink the whole thing if they don’t want the industry to collapse,” said Tracy Vaught, who with her husband, Hugo Ortega, owns and operates Houston restaurants Hugo’s, Backstreet Café, Caracol and Xochi.
And while the government works to bail out big businesses such as airlines, restaurant owners across the state are wondering why their industry — the second largest private employer in the nation — is stuck working within the bounds of a program with rules they say make little sense for them as they compete for federal funding that already has run out once.
The Texas Restaurant Association estimates half the state’s restaurants missed out on the first batch of federal stimulus money.
Some 688,000 restaurant jobs could be lost by the end of the month, the group expects, as 1 in 50 Texas restaurants have shut down for good. And cities like Austin already have lost longtime institutions, including Threadgill’s and the original Magnolia Cafe, to the outbreak.
“We are part of the fabric of ev
ery community in America,” said Pete Cortez of San Antonio’s La Familia Restaurants, which owns Mi Tierra, Mi Familia, La Margarita and others. “We are generally the first place where people come to celebrate, to mourn, when they need a contribution for the school event. But yet, there’s not a program that’s tailored to the needs of our industry and the unique nature of our industry.”
It’s the latest problem to surface with the popular Paycheck Protection Program, which has emerged as a hallmark piece of the historic $2 trillion stimulus package Congress passed last month, but has faced similar complaints from other small business owners that it was supposed to help.
The program provides loans of up to $10 million that can be forgiven if 75 percent of the proceeds go toward keeping workers on the payroll and paying eight weeks of wages.
Congress last week replenished the program, now totaling more than half a trillion dollars, before many small businesses had a shot at a loan. By the time the initial allocation ran dry, $28.5 billion in loans had been approved for 134,737 Texas businesses, according to Small Business Administration data.
That was the second most of any state in the nation, yet only a fraction of the eligible businesses in Texas received the loans. The state has more than 546,000 businesses that could have qualified, according to the most recent data from the Texas Workforce Commission.
“The number of restaurants I talk to who are saying they’re hanging on by a thread — it’s a lot,” said U.S. Rep. Chip Roy, a Central Texas Republican whose district, which stretches along I-35 from Austin to San Antonio, is home to the most restaurants per capita in the state.
Among the problems restaurants owners say they face with the paycheck protection loans is a requirement that they spend 75 percent of the loan on payroll — which typically accounts for just about 30 percent of their expenses — for it to be forgiven.
Also, they have to show they’re paying out that much in wages over the first eight weeks they have the loan, a time when even those offering takeout are doing about a third of the business they typically do.
Those that have had to lay off staffers, meanwhile, say they’re struggling to get them to come back because they’re now making more on unemployment than they did waiting tables or washing dishes after Congress boosted the maximum unemployment benefit by $600.
Even as Texas loosens restrictions so some restaurants can open, they’ll be able to do so at up to just a quarter of their capacity — and several are unsure it’s worth it at this point.
And if they don’t meet the requirements to have the loan forgiven, they have to pay it back in two years — when many still doubt they’ll be back to business as usual.
Cortez said a restaurant that received a $1 million loan — a tenth of the maximum under the program — would have to pay $55,000 a month over the 18-month repayment window, if it isn’t forgiven.
“You almost have to decide whether you’re going to spend the money or even just give it back,” Cortez said. “That is a huge amount of money, absolutely huge amount of money.”
“I’m afraid to spend it,” Vaught said. “If I were to go deeply into it and then have to pay it back in two years, I think that could hurt our business.”
“If we have to spend the money in way where it’s gone before we even have a chance and then we’re barely able to break even and it’s owed in two years, then we’re in bad shape,” said Lonnie Schiller, co-owner of the Grove and Lake House restaurants in downtown Houston.
Cortez said he was “blessed” to get a loan in the first round of applications.
“It’s a lifeline in a lot of ways,” he said. “But we’re having to spend a lot of time trying to navigate all the rules when the reality is, it would be fantastic if they would quickly understand how this could be made better.”
The state restaurant association has been working with Roy and others in Congress, including U.S. Rep. Lizzie Fletcher, D-Houston, to tweak the rules for the program. Roy said he believes there is growing bipartisan support to do so.
But the House won’t be back in D.C. until mid-May at the earliest. And Anna Tauzin, chief Chief Revenue and Innovation Officer at the Texas Restaurant Association, said: “We’ve basically been told by Congress they’re not going to take this up again.”
She said the group is working with lawmakers, including U.S. Sen. John Cornyn, R-Texas, to get the Trump administration to make what changes it can without congressional approval.
Roy said something needs to be done quickly.
“We’re doing serious long-term harm to some small businesses and restaurants,” Roy said. “You’re rolling the dice you can get all or part of the loan forgiven if you meet certain requirements you can’t meet.”