Paycheck Protection Program (PPP)
This bill allows restaurant owners to access a second draw from PPP at 3.5 times your monthly payroll amount. This is a win as all other industries are at 2.5 times their monthly payroll. Restaurant owners are eligible for higher PPP loans overall.
If you already received money, you could apply again, and you will get a LARGER forgivable loan in the second round of funding.
The ability to receive PPP funds was also narrowed with two important criteria to help restaurant owners. First, only those with 300 employees or less are eligible for funding, cutting off large mega chains who got funds the first time around. Secondly, the funding is directed at those most affected and able to show significant declines in revenue over a select time period. You must demonstrate your gross revenue was down at least 25% in one quarter of 2020 and for most restaurant owners, Q2 was the one, even for fast casual businesses that are now doing better with pivots to take-out and delivery.
A provision in the prior act required PPP borrowers to deduct their Economic Injury Disaster Loan advance grant in the amount of $10,000 from their PPP loan forgiveness amount. That is repealed in the latest legislation.
This was a hard-fought change for the GOP who wanted to be sure that aid spent on allowable expenses did not become taxable income. That was corrected in this bill. Two key elements of aids to restaurant owners were specifically addressed. All allowable business expenses paid with PPP loans including payroll, rent, mortgage interest, utilities or other allowable expenses are now deductible meaning the PPP funds are not taxable income. In addition, new expenses were added to the mix that aid restaurant owners including costs for eligible protective personal equipment, cleaning products, reconfiguration f spaces and supplier costs for non-perishable goods can now be forgiven non-payroll expenses.
For restaurant owners that spent a lot of money on outfitting their personnel, cleaning their spaces, reconfiguring booths and tables with dividers, can now see PPP money pick up the cost of those updates.
Free SBA Payments
Restaurant owners can receive an additional eight months of free SBA payments (Both Principal and Interest). If you currently have an SBA loan, you can file for relief with your lender. This is a huge win for restaurant owners as other industries are capped at three months of payments. The extra five months of payments in this bill for restaurant owners are part of the pressure Congress felt to do something for this industry, along with retail stores and salons.
Buyers Get Free SBA Payments Again
Another fix for restaurant owners is the savings for those buying a restaurant. Anyone in the market to purchase will find the guarantee fee waived from now until 9/30/2021. This ranged from 3 percent to nearly 4 percent of the guaranteed amount and will result in savings for buyers on closing costs.
Restaurant buyers will get free principle and interest for six months on new loans approved between 2/1/2021 and 9/30/2021. This means more restaurant owners can feel good about the buy and sell market since buyers liked this program the first time around and will certainly come back into the market under these terms. The only caveat is a limitation of $9000 per month on the waived amount but for most deals we are seeing, this more than handles the amount of the monthly payment.
Lastly, the SBA is now guaranteeing 90% of the loans instead of the traditional 75%. This will mean lenders are willing to take on more risk and approve more deals for restaurant buyers.
Streamlined Forgiveness Applications
Restaurant owners with PPP loans under $100,000 can file and see forgiveness under a new simplified two-page form available to streamline loan forgiveness.
Other Wins for the Restaurant Industry
There is more funding for EIDL or Economic Injury Disaster Loan advances in the bill allowing those who did not previously apply to take advantage of this opportunity.
There is new eligibility for live venue operations which tangentially affects restaurants since many operate in these arenas as the food service. If it helps them survive, then long term, it will be of aid to the industry.
Lastly, there is a return for two years at least, to 100% deductibility for meal deductions. This was a perk eliminated by Congress years ago and one that will hopefully drive companies to dine out and order out food at this critical time, knowing 100% of the amount is deductible.
There is new support in the bill for PPP borrowers with 10 or fewer FTE’s whether it is their first or second time to the well. That should be a win for our small town and independent restaurant owners who are almost always below this limit.
Overall, there are short term wins and ways to both get critical capital to the industry that so desperately needs it as well as put off SBA loan payments that are pending.
The Restaurant Brokers will continue to monitor and provide you important updates on aid to the industry.