Impact of the Recently Signed COVID-19 Stimulus Bill on Restaurants

On December 7, the National Restaurant Association sent the latest restaurant survey results to the leaders in Congress. The report stated that 17%, or 110,000 restaurants, had closed permanently with 10,000 closings just within the last three months. These restaurants had been in business, on average, for 16 years.

Sean Kennedy, Executive Vice President for Public Affairs, stated, “What these findings make clear is that more than 500,000 restaurants of every business type—franchise, chain, and independent—are in economic free fall. And for every month that passes without a solution from Congress, thousands more restaurants will close their doors for good.”

The National Restaurant Association urged the Senate and House to support and pass the RESTAURANTS Act, a $120 billion restaurant revitalization fund and listed nine restaurant industry priorities for a second draw of the Paycheck Protection Program (PPP). The too little, too late relief bill, just signed by President Trump on December 27, addressed a few of the association’s requests, but not enough to save an industry that faces additional shutdowns as COVID-19 cases spike across the country.

How Does the $908 Billion COVID-19 Stimulus Package Help Restaurants?

The relief package addressed a few conditions designed to help independent restaurants.

  • The new bill increased the amount restaurants and hotels can borrow, raising it from 2.5 times the average monthly payroll costs to 3.5, with a maximum loan amount of $2 million.
  • Increased flexibility on loan expenditure means that 40% of the loan can go to personal protective equipment, training, customer modifications for protection, and perishable items. Particularly important to restaurants, allocating some funds to perishable items helps purchase needed inventory as restaurants close, open, and then close yet again.
  • Tax deductions on business expenses covered by PPP loans help restaurants and hotels that were facing a tax bill at the end of the year.
  • Several stipulations may help independent restaurants get their fair share of the relief fund. No publicly traded companies or businesses with more than 300 employees may apply for a loan. Businesses must also show a 25% drop in revenue during at least one quarter in 2020 as compared to 2019.
  • As with the last relief bill, owners may apply for loan forgiveness if they adhere to spending guidelines. Many restauranteurs that followed spending restrictions after receiving the last PPP loan are still uncertain if the government will forgive their first loan.

Where Does the Relief Bill Fall Short?

Everyone, including government officials, seems to agree that the restaurant industry has been particularly hard hit throughout the pandemic. Yet, the just-signed COVID-19 relief bill granted $16 billion to the airlines, $15 billion in grant money to movie theaters and concert venues, and $45 billion for the transportation sector.

What’s left are the PPP loans, a lifeline that failed with the first toss. According to the Independent Restaurant Coalition, a group created to help save independent restaurants and their employees affected by COVID-19, the first round of PPP loans did not work for restaurants and bars, leaving little faith that they will work this second time around.

Kevin Boehm, co-founder of the Coalition, shared this in a press release, “The first round of Paycheck Protection Program loans did not work as advertised for restaurants and bars. More than one in six restaurants are already permanently closed and two million restaurant workers remain unemployed, more than any other industry. Today, the situation for restaurants is worse than it was when PPP was first passed in the spring… This proposal is a Band-Aid on a bullet wound.”

Under the new relief bill, those two million unemployed restaurant workers will receive just $1,200 per month, half of what it entitled them to under the first $2.2 trillion relief fund known as the CARES act.

Most of the PPP loan, 60%, remains devoted to payroll, a percentage that seems out of touch with reality considering the closures, reduced capacity restrictions, and the 17,000 lost jobs in November alone. Currently, the leisure and hospitality industry’s unemployment rate remains 134% higher than the national average.

Some restaurant owners in the San Francisco Bay Area believe the PPP funds will help them survive for only a few more months, at most. On December 18, California’s stay-at-home order went into effect as well as a 10-day quarantine for those coming to San Francisco from outside the Bay Area. The historic Cliff House and Japantown’s upscale OzaOza are just two of the recent casualties in a sea of permanent closures.

According to the National Restaurant Association’s survey, one in three operators are considering temporarily closing until conditions improve.

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