Last updated on March 2nd, 2021 at 10:11 am
The federal government’s CARES Act will be a shot in the arm for many small businesses across the country, but the $2.2 trillion coronavirus relief package may not be enough to save independent restaurants from one of the darkest times the industry has ever faced.
“The loans that are part of the CARES Act, because of the way they were structured, are not being anywhere near as helpful as what they were made out to be when the bill was passed,” said Susan Quam, executive vice president of the Wisconsin Restaurant Association.
The main problem lies within one of the bill’s key provisions, the $350 billion Paycheck Protection Program, which provides forgivable loans to small businesses that keep staff on payroll during the coronavirus pandemic.
Loans are totally forgivable under the conditions that 75% of the funds are used to pay employees “over the eight-week period after the loan is made” and if “employee and compensation levels are maintained,” according to the U.S. Treasury Department. The remaining 25% can be used for mortgage, lease and utilities payments, and additional wages paid to tipped employees.
“If you’re a non-restaurant business that’s open and has all of your folks already on staff and you’re just hoping to keep them going, then it works great,” said Quam. But it’s a different story for the restaurant industry that’s been forced into a tailspin, she said.
Over the past few weeks, government-imposed restrictions on bar and restaurants have led to closures and mass layoffs across the industry as businesses scale back to carryout and delivery service only or shut down all together.
“Through no fault of our own, we have unemployed people and businesses that might not get to reopen unless we figure something out,” said Quam.
The PPP loan can still be forgiven if employees have been laid off, as long as full-time employees are rehired and salary levels are restored by the program’s June 30 deadline.
“Whether you have something (for employees) to do or not,” said Quam.
Cleaning or maintenence projects could supplement normal work for re-hired employees while restaurants are still closed, but filing for unemployment may be a more attractive option at that point, she said.
What’s more, it’s still unclear when the government will allow restaurants to return to full service, so it’s possible the eight-week loan period would expire before that date, which is when restaurants would need it most.
“Who knows if we open at June and if we open at June and this is (the PPP) deadline, we’re opening up in a recession, and on top of it, if we’re still social distancing, I can only do 10 to 20% of the business I was doing before,” said Justin Carlisle, James Beard Award nominated chef and owner of Ardent, Red Light Ramen and Laughing Taco.
He has applied for a PPP loan and is worried it will end up hurting him much more than helping him.
Carlisle has temporarily laid off almost all 50 of his three restaurants’ employees so they could file for unemployment. In the meantime, he and his wife are manning carryout service at Red Light and a pop-up site for Burgers by Ardent at the Laughing Taco space– doing whatever they can to keep cash flowing in order to pay unemployment tax for his employees, he said.
If he doesn’t rehire all employees, the loan will not be fully forgiven. If the loan isn’t fully forgiven, the business could accrue up to $100,000 worth of debt, in addition to any other late payments it may owe upon reopening.
In the midst of all the chaos, Red Light Ramen, located at 1749 N. Farwell Ave. on Milwaukee’s East Side, was robbed last Friday. Carlisle estimates $500 to $700 worth of clothing, cash and 12 bottles of alcohol were stolen, but luckily no one was hurt.
Carlisle wonders if at one point he and his partners will decide to stop filling out paperwork for government assistance that doesn’t actually help.
“For once in my life, in the 27 years I’ve been doing this and the seven years of owning restaurants… there’s an end in sight and there’s nothing I can do,” said Carlisle.
The Independent Restaurant Coalition, which represents the 500,000 independent restaurants across the U.S., earlier this week sent a letter to congress on Monday, asking for amendments to the PPP as well as a restaurant stabilization fund, new tax rebates and business interruption insurance coverage. As of Friday, the letter has gotten 24,096 signatures from operators and supporters.
Carlisle’s business won’t survive if that kind of assistance doesn’t become available, and he fears that’s the reality for most independent restaurants.
“We need help,” he said.
Barkha Limbu Daily, owner of The Cheel Nepalese restaurant in Thiensville, expressed similar worries about being buried in PPP loan debt later on. Hers was one of the signatures on Independent Restaurant Coalition’s letter.
“I don’t know when we’ll be in full service,” she said. “I can’t employ 100% of my employees because we are not operating like a normal business as we used to and if I use (the loan) differently it might not be forgiven. I don’t want to have so much debt that I can never get out.”
The restaurants PPP loan request was approved for $120,000, but Daily is still waiting to receive those funds.
Her main complaint is that the PPP loan funds cannot be used to pay food and alcohol vendors. Even during normal operations, inventory is a far greater expense than staffing, she said.
That’s especially the case now as the restaurant gears up to reopen for curbside service Wednesday through Saturday, starting April 15.
“I need food, I need to backpay all my invoices and that’s not included in (the PPP loan),” she said. “I need those products to sell in order to create the cash flow.”
The Cheel temporarily closed down on March 23, but thanks to an online fundraising campaign and donations from customers, the business has been able to hang on while continuing to provide health insurance for its employees.
Only seven or eight of The Cheel’s 32 employees will be working when the restaurant reopens. $20,000 has already been spent on restarting operations, a process that feels like starting at ground zero, Daily said.
Whether or not the PPP loan is fully forgiven or the government eventually provides more assistance, The Cheel and other restaurants will have to pay off the debt that has built up as a result of a dangerous waiting game.
“We can’t just operate thinking it’s coming, it’s coming and not knowing so we have to be incurring so much debt,” said Daily. “I was reading an article about restaurants and to be fully functioning like a regular day, they’re thinking September 1 and that’s a long time. But it might take the next two years after this to really get back from it.”
Read more news and insights in the digital edition of BizTimes Milwaukee.