Restaurants frustrated with Paycheck Protection Program
The CARES Act just passed includes roughly $350 billion dollars for PPP or ‘Paycheck Protection Program’ aimed at small business with fewer than 500 employees. It is really about making sure employees continue to receive a “paycheck” while businesses are closed due to COVID-19
In addition business can also apply for support:
Economic Injury Disaster Loans - $10k
Debt relief on existing loans
Express bridge loan - $25k
The CARES Act was rushed through Congress and signed off by Trump on 27th March. For restaurants this will mean if you have fewer than 500 staff you could borrow up to 2.5 x your average monthly payroll from your previous year (2019) up to $10 million dollars.
As far as is known loans will be forgiven if all criteria are met – so restaurants and other small business applying for assistance should look closely at the details when applying and ask the necessary questions. The SBA PPP is providing forgivable loans that are meant to help retain and continue to pay payroll throughout the epidemic.
Size of your loan based on last year’s 2019 payroll forms (W3)
Loan forgiveness determined by your 2020 items
The small business administration (SBA) and Treasury announced that the taking of applications would start from 3rd of April. Only one week after act was signed which has caused a ‘we’re not ready’ but will have to ‘muddle through’ feeling amongst lenders.
CARES Act signed 27th Mar
Taking Loan Applications date announced 3rd April
Lender Guidelines released 2nd April Only hours before accessing applications
FRUSTRATIONS FOR LENDERS
No time to prepare
There have been a number of problems lenders are facing the first being the lack of time to prepare - they are just not ready – PPP guidelines and requirements were issued one day before they were expected to begin processing applications. The PPP Guidelines have resulted in more questions than answers for both lenders and businesses alike.
Inadequate Tech
On top of possible weeks of working through an absolute mess, many lenders have been struggling with website crashes due to the share volume of website visitor traffic and inadequate tech infrastructure to support the increased demand.
More clarification needed
Lenders are seeking more clarification around the PPP regulations and their liability with the loans and therefore many banks and other lending organisations are prioritising applications based on existing customers and customer history first instead of first in first served. With that in mind and thousands of businesses applying at the same time, it then makes sense to apply through a lender you have an existing relationship with first
FRUSTRATIONS FOR RESTAURANTS, CAFES, BARS, and the like
The CARES Act was supposed to help restaurants from potential financial ruin while navigating the current COVID 19 crisis. The U.S has approx. 500k independently owned restaurants employing some 11 million staff and contributing almost 900 Billion annually to the economy. The emerging consensus is that it does little to help restaurants and other food service providers overall situation as it is currently written.
Only addresses staff
The PPP only covers employee payroll, which is about 75% of restaurant expenses leaving restaurant owners to somehow cover the remaining 25% this includes expenses like utilities, rent, and the interest on mortgages.
8 Weeks is not enough
What restaurants (and other small businesses) are applying for is 8 weeks of financial support for payroll. The kicker here is that’ employees and compensation levels’ need to continue at near pre crisis levels.
This won’t work for the hospitality industry especially in food service where most have had to completely shut their doors until… we will just have to wait and see.
Restaurants will be hoping for at least an extension if the federal government continues to keep their doors closed beyond the initial 8 week period.
Relief when restaurants re-open
A big unknown and concern to restaurants is what happens when the Federal Government allows businesses to re-open – How fast will they get back to pre COVID 19 numbers? and will they need to lay staff off if it’s slow to rebound?
Will there be ongoing financial support through that initial re opening stage if restaurants are comparably down on the same time last year?
There is likely to be another round of funding from Congress over the next few weeks the hope is that as a minimum it will extend the PPP out to at least 12 weeks and extend repayment periods.
Website crashes stopping applications
Even big banks like Wells Fargo, City Bank, and Chase are struggling with the intense pressure on their tech systems. One report of an application taken 73 minutes to complete and that is after enduring at least 13 website crashes.
Many lenders have already maxed out their lending caps meaning you would need to start the process all over again with another lender. So if you don’t have an existing financial relationship with that lender that would mean basically being sent to the back of the line.
Long delays in processing and approvals
Between the dates lenders were given the guidelines and the date they needed to receive applications was just one day.
Lenders even big banks like Wells Fargo and Chase were simply not ready, their tech was not ready to cope with the load - with thousands of online applications being submitted for processing it’s no wonder it’s being a complete nightmare.
Also add the additional layer of lenders having to manually enter details directly into the SBA system which is fast becoming a bottle neck and has even caused the SBA system to crash at least once already.
How long will the recovery take?
Predictions are suggesting a long slow recovery and may last until the fourth quarter or 1st quarter of 2021 and how quickly the economy will bounce back is purely dependant on the type of stimulus the Federal Government creates and how well the country gets control of this health crisis.