Restaurant, bar owners finding PPP super-difficult to navigate

Back in early April I spoke with a group of restaurant and bar owners reeling from the COVID shutdowns. All had applied for federal assistance from the Paycheck Protection Program, or PPP, the small business program initially passed in late March and then expanded in April, due to overwhelming small business demand.

All received some money from the PPP, which helped somewhat. But all have found the program restrictions difficult to navigate.

Launched during nationwide shutdowns, the PPP had three main goals:

• Subsidize businesses primarily by covering an important source of their costs — up to eight weeks of payroll.

• Keep employees from being fired, and off the unemployment rolls.

• Be limited in scope, by limiting subsidy to mostly payroll, and only for an eight-week period.

Moving an estimated $511 billion in two months from the federal government through banks to small businesses — despite delays and frustrations — undoubtedly has helped keep many people’s finances, and many businesses’ finances, afloat.

We also know — and this was borne out by checking in with the folks I initially interviewed — that the PPP’s design is super difficult to deal with, especially for the bar and restaurant owners devastated by shutdowns. The PPP stipulates that the loan is forgivable only if the money is spent in the 56 days following receipt of funds, and only to the extent that 75 percent of the money goes to payroll.

For Rob Martindale of craft beer purveyor Big Hops, the timing of the $30,000 PPP loan he received has been particularly unhelpful. It came about a month too late to keep his employees on payroll, and too early to rehire them.

They had all already filed for unemployment.

“This situation has been devastating to our business and our industry,” Martindale said, “and I hope the PPP loan details will be changed so they actually help small businesses recover from this shutdown.”

Martindale also laments the costs of licensing, utilities and taxes, and wonders what kind of relief could be offered for businesses like his. He is frustrated by the lack of communication from local officials.

Now, with just a few weeks remaining on his loan’s eight

week payroll term, employees he rehires clearly will take a pay cut versus their unemployment benefits, something nobody wants. Martindale said his employees agreed to return to work, but he needed an extension of the PPP time period for his business to get the full benefit — which is uncertain at this time.

For Damien and Lisa Watel of French-style Bistr09, the PPP funds arrived two weeks too late. They had furloughed all of their employees. Now, five weeks into their eight-week period, they have rehired everyone who was willing to come back, including some new staff, and used funds to pay bills and their landlord this month.

They received 80 percent of the funds they requested, but they too find the restrictions difficult to navigate. Because the PPP loan may be forgiven only if it’s spent in the 56 days following receipt, they cannot use the money for the bills that stacked up during the first month of the shutdown.

Restaurant and bar workers typically survive on tips. By law, employers may legally pay below the minimum wage, with the assumption that tips make up a significant part — even the majority — of workers’ take-home pay.

The PPP design, however, hits employees and employers in the bar and restaurant industry particularly hard. Since the size of loans and forgivable grants were based on payroll, and that’s low because compensation is paid in customer tips, PPP will

undervalue the size of employee pay.

It makes all the sense in the world therefore that unemployment benefits — bolstered by an extra $600 per week in federal stimulus funds — would be significantly larger than restaurant wages. Now, with restaurant and bar businesses operating at 50 percent of their pre-COVID capacity, both owners and employees likely will take a huge hit in pay.

Denise Aguirre is an owner of the bar, food truck, and coffee place known as The Point Park and Eats.

While the restaurant and bar scene has been allowed to reopen, Aguirre has reduced hours to Thursday through Sunday only.

After working for weeks and “jumping through hoops” with

her local bank, she applied for a PPP loan through her payments processor Square. Square got her a loan of $2,000 within a week, after her regular bank turned her down.

That was enough to pay a few bills, but fell far short of covering the economic damage stemming from the COVID-19 shutdown.

She remains somewhere between hopeful and frustrated in applying for an SBA economic injury disaster loan — a process she started in early April — as well as looking for assistance from other local sources. Meanwhile, she says her business revenue since partially reopening has all gone to paying bills, primarily a weekly partial payment to her landlord.

One hope for owners is that Congress will extend the time period for PPP spending from eight weeks to something longer, like 16 or 24 weeks.

Congressman Chip Roy (RDistrict 21) authored bipartisan legislation, which passed the U.S. House on May 27, to extend the PPP time period and relax rules on how business owners could qualify for loan forgiveness.

This bill, if passed, would allow business owners like Aguiree, Martindale and the Watels to largely spend their PPP funds on employee compensation, and therefore qualify for full loan forgiveness.

Loans are nice, but outright grants are better.

Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates.” michael@michaelthesmartmoney .com | twitter.com/michael_taylor