Restaurants

The restaurant industry has been one of the hardesthit by the virus outbreak. Thousands have been shut down completely, which means no revenue coming in but bills like rent, utilities and insurance still to be paid. Many others have been restricted by state and local governments to serving customers with takeout and delivery, but that is only a small fraction of their usual business. And reopening doesn’t mean a return of the lunch and dinner crowds — social distancing requirements means restaurants can’t serve the usual number of diners.

All these obstacles are stymieing an industry that operates on the thinnest of margins. The shutdowns and curtailed revenue led to the layoffs of 6 million workers during March and April.

Many restaurants fear for their survival, according to a study released in April by the National Bureau of Economic Research. The study found that restaurateurs believed they had a 72% chance of survival if the crisis caused by the virus outbreak lasted a month, but if it lasted four months, they believed they had only a 30% chance of survival. And at six months, a 15% chance.

A PPP loan could be expected to improve to odds — under the right conditions.

A report by the Small Business Administration’s inspector general’s office released Friday, while not mentioning the restaurant industry, found fault with the rules and predicted they would force tens of thousands of businesses to have to repay part of their loans.

According to the report released Friday, the law that created the loan program didn’t specify the amount of loan money that must be used for employees’ pay; the SBA added the restriction. The SBA responded in the report that “75% is an appropriate percentage” given the law’s focus on keeping workers paid and employed.

The report also noted that while the law allowed for loan terms to be as long as 10 years, the SBA imposed the requirement that loans be repaid within two years, making payments substantially larger.

“The Paycheck Protection Program is a great program, but it’s not working for restaurants,” says Sean Kennedy, an executive vice president at the National Restaurant Association, an industry group.

Restaurant owners may be getting some help from Congress. A bill introduced by House Democrats Tuesday would give small businesses including restaurants more options and breathing room in using their loan proceeds.

The House bill would allow business owners to use their loan money for whatever bills they need to cover. The bill would also give businesses 24 weeks or until Dec. 31, whichever is earlier, to spend the money.

Currently, the eight-week window for spending the money poses a dilemma. If, for example, restaurants recalled all their workers after receiving a loan in midApril, they’d use up the money before government officials allow them to be fully operational. At the end of the eight weeks, many wouldn’t be able to afford all their staffers and they’d have to lay them off again.