The Coronavirus Aid, Relief, and Economic Security Act, the $2.2 trillion federal program known as the Cares Act, isn’t giving much love to the restaurant business. So say chefs and owners who have pinned their hopes on government aid to keep their industry afloat amid a coronavirus outbreak that, some say, could decimate independent restaurants.
During a conference call with reporters Monday, three founding members of the Independent Restaurant Coalition expressed frustration with the limitations of the Cares Act for America’s 500,000 independently operated restaurants, which, according to the group, employ 11 million workers and generate $880 billion in annual revenue. They said the act’s major provision — the $350 billion Paycheck Protection Program designed to provide loans to small businesses affected by covid-19 — will not help the restaurant industry as it is written. The coalition sent a letter to Congress on Monday, laying out the revisions that members would like to see in the program.
The Paycheck Protection Program, administered by the Small Business Administration, will provide loans equal to 2.5 times a company’s average monthly payroll for 2019. Most of the loan (75 percent) must be used to cover payroll expenses, given that the thrust of the program is to keep the paychecks flowing into workers’ hands. The remaining 25 percent can be used for rent, mortgage interest and utilities. But a key component of the program is that the loan will be forgiven if a company’s employees are paid over the “8-week period after the loan is made” and that “employee and compensation levels are maintained” at nearly pre-virus levels.
As restaurateurs explained on the call, these conditions may work for businesses that are still operating, but they won’t work for a hospitality industry that is either limping along as a carryout/delivery operation or shut down completely. Over the past few weeks, jurisdictions across the country have ordered restaurants to seal off their dining rooms to prevent the spread of the coronavirus, and operators have no clue when governments will allow them to reopen — or whether diners will even return once they do reopen.
“We don’t want to get into a situation where we’re paying our staff and then we’re [forced] to lay them off because we’re still not open, and then rehiring them again after that,” said Naomi Pomeroy, a James Beard Award-winning chef and restaurateur in Portland, Ore., and a founder of IRC. “It’s just kind of a nightmare the way it’s set up.”
The coalition’s letter asks lawmakers to remedy the situation by increasing the maximum loan, to cover payroll and other costs for three months after restaurants are allowed to reopen; by extending the repayment period from two years to 10 years, so that restaurants are not immediately burdened with a potentially huge loan; and by increasing the amount of money available in the $350 billion program. (The coalition may get its wish on the last request; House Democrats were working on another relief package that would extend unemployment aid and small-business assistance for additional months.)
There’s a sense the giant PPP account is already being drained, as tens of thousands of businesses apply for loans, and that banks have already reached their lending capacities, said Pomeroy and Tom Colicchio, the New York restaurateur, “Top Chef” head judge and co-founder of IRC. Banks just started accepting PPP applications Friday, and Pomeroy said her bank indicated it was already “overrun with applications, and they’re not accepting any new ones. If people didn’t get in on Friday, at least in Portland, they may not get in.”
James Beard Award-winning chef and restaurateur Hugh Acheson, with several restaurants in Georgia, encountered similar issues when he applied for a PPP loan with Wells Fargo. “Wells Fargo is utterly failing in the PPP/SBA application process,” Acheson tweeted, then forwarded what he said was the bank’s canned response to the overwhelming number of applicants.
Wells Fargo is utterly failing in the PPP/ SBA application process.
— Hugh Acheson (@HughAcheson) April 6, 2020
“We have received forms from customers expressing interest in the PPP that we expect will fill the company’s capacity to lend under the program, as Wells Fargo continues to operate under existing asset cap.
Given the exceptionally high volume of requests we have already received, we will not be able to accept any additional requests for a loan through the Paycheck Protection Program.
— Hugh Acheson (@HughAcheson) April 6, 2020
It’s not even clear to IRC founders whether banks will make restaurants a priority as they allocate PPP money. Colicchio and Pomeroy have both heard that banks are prioritizing businesses that already have loans with the financial institutions. What’s more, Colicchio said, banks are still waiting for guidance on whether they are going to be liable for the loans they generate. Typically with SBA loans, he said, banks will forward the applications to the federal agency, which will determine who gets the money.
“Right now the banks are making that determination, and it’s not going back to the SBA. The guidance is still unclear whether the banks will be personally liable for any loans that they make that go bad,” Colicchio said.
In an email to The Washington Post, an SBA spokesperson noted that the “loans are 100 percent guaranteed by the SBA,” meaning the banks will not be on the hook for them.
On Tuesday, Treasury Department officials were preparing to ask Congress for an additional $200 billion or more to replenish the already-drained funds made available to small businesses through the Cares Act, according to a Post report.
The potential roadblocks independent restaurants are facing are among the many reasons the IRC was formed in mid-March, not long after President Trump held a conference call with executives from national restaurant chains, including Domino’s Pizza, Subway, McDonald’s, Papa John’s and others. No independent restaurateur was on the call. In the days since that call, Trump has seemingly downplayed the effect the pandemic will have on restaurants, quoting from a recent National Restaurant Association survey, which reported that 11 percent of operators said they may close permanently in the next 30 days.
“I’ve heard 3 percent could be lost, and you could go as high as 10 or 11 percent, but they’ll all come back in one form of another,” Trump said at a late March news conference. “Might be a different restaurant. But it’s going to be a great business for a lot of people.
The quotes and phone calls from the White House have been a “call to action for us,” Colicchio said. Independent restaurateurs have pooled their resources to impress upon lawmakers how much power they wield in the U.S. economy. An estimated 70 percent of restaurants are independents, and the economic activity they generate, the IRC claims, accounts for 4 percent of the nation’s gross domestic product. To get these points across, the IRC has hired a lobbying firm, Thorn Run Partners, and a PR firm, Precision Strategies. Even Sam Kass, the former White House chef and senior policy adviser for nutrition under President Barack Obama, is on board.
Both Colicchio and Kwame Onwuachi, an IRC co-founder and the chef at Kith and Kin in Washington, said that their group is not at cross purposes with the lobbying efforts by the National Restaurant Association. “When we say ‘independent restaurants,’” Colicchio said, “we’re not just talking about restaurants that are known or where a celebrity chef is involved. We’re talking about the mom-and-pop on the corner, or the recent immigrant who saved all her money and opened up a small restaurant.”
Onwuachi amplified the importance of advocating for all restaurateurs, not just those with deep pockets.
“As a black operator and a minority owner, I feel like we’re especially vulnerable during this crisis,” Onwuachi said. “Black-owned and minority-owned businesses often face difficulties in accessing capital, in addition to higher scrutiny in access to small business loans.”
The IRC founders say chefs, restaurateurs and other hospitality workers have always stepped up to help their communities in a time of need. Fundraisers, donations, chef appearances, whatever is needed. Now the industry needs help in return, including assistance from the very government officials who shut them down in the first place, the founders said.
“This is our generation’s World War II, and we need to get our arms around this. We actually need to work together,” Colicchio said.
But are independent restaurateurs entering the politics game too late to make a difference with federal relief funding? Alessandro Borgognone, the restaurateur behind the respected Sushi Nakazawa counters in New York and Washington, said, “There’s only so much that the coalition can do for me at this point.” Borgognone is not a member of the IRC, but like many who are, his restaurants are hurting. He’s shut them all down. He said he has laid off 500 employees. “My guys are suffering. I’m suffering,” he said.
“I’m not saying it’s too little too late” for the IRC, Borgognone said. “We just didn’t get there in time. We should have represented the restaurant business a long, long time ago. We are a tremendous bloc, and they should have a tremendous amount of respect for us.”
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