New York restaurants shut out of a federal aid program are about to get another chance at COVID-19 financial relief, hopefully with better odds this time. President Donald Trump signed into law on Friday a bill adding $310 billion to the depleted Paycheck Protection Program, with a sizable portion going toward small business — a crucial development for a policy that’s been criticized for its deference to chains like Potbelly, Ruth’s Chris, and Shake Shack.
The paycheck program should relaunch on April 27, Senator Marco Rubio wrote on Twitter. Initial funding ran out by April 16, less than two weeks after it began accepting applications. As a result of the shortfall, many smaller venues — often without established relationships with banks — didn’t get a fair shot at the forgivable loans.
The new measure seeks to direct funding to smaller institutions by reserving $30 billion for community-based lenders, and another $30 billion for mid-sized banks and credit unions. A separate disaster loan program, which includes grants up to $10,000, will receive an additional $50 billion in funding.
Federal money for hospitals and testing brought the full cost of the bill to $484 billion.
Larger issues with the paycheck fund, including provisions that are particularly strict for the battered New York restaurant community like tight rehiring timelines, won’t be addressed until the next round of stimulus legislation in May.
Republicans attempted to replenish paycheck funding earlier this month, but it was delayed due to Democrats’ demands that it direct more funds to small business. Those requests carried added resonance following reports that big chains received $10 million loans — while many smaller restaurants reported being shut out. Shack Shack announced it was returning its paycheck loan following public outcry.
An early draft of the CARES act, which established the paycheck program, limited funding to small businesses, but that provision was later amended to allow for larger restaurants to apply as long as they didn’t employ more than 500 workers at a given location. That change allowed virtually any larger restaurant group to apply.
Indeed, over 44 percent of loan dollars from the first stimulus bill went to businesses requesting $1 million or more, per a new Small Business Administration report. Within that group, nearly two-thirds of loans were between $2 and $10 million.
For context: A restaurant with 224 full-time employees earning minimum wage, including a higher paid general manager and executive chef, would likely receive under $900,000, based on the program’s loan calculation figures.
Actual small businesses appear to have been pushed to the back of the line during the loan process. A Brooklyn Chamber of Commerce report showed that 84 percent of small businesses surveyed had not received funding as of April 17. Of that group, just over 40 cafes, bars, and restaurants participated, none of which received paycheck funds. BentoBox, which runs the websites of 5,000 restaurants across the country, has been helping clients navigate the federal loan process, and the majority of them have not received any funds, according to Krystle Mobayeni, chief executive officer of the company.
Those larger overviews align with what individual restaurateurs have told Eater, which is that they’re not getting any government money. Eric Sze, co-owner of popular Taiwanese spot 886, which has been donating bento boxes to emergency workers, applied for a loan the first day they were available. He hasn’t heard back from his financial institution since.
Michael Bergemann, who runs the acclaimed Corner Slice pizzeria at the Gotham West Market, applied on April 3, but didn’t submit until a week later because Bank of America, per his account, wasn’t yet ready to begin processing applications. He says he has not received an update on the status of his loan since then.
“There’s been little communication from the banks,” said Stephanie O’Rourk, a partner at CohnReznick, a tax firm with a prominent hospitality practice. The whole process is a “frenzy,” she said.
Bergemann, who said 90 percent of his sales are “profitless” due to delivery fee commissions, also applied for a separate Economic Injury Disaster Loan, which provides grants of up to $10,000 grant, but he only received a “vague confirmation email.” A National Federation of Independent Business survey indicated that few have received proceeds from the disaster loan program.
New York restaurants weren’t the only small businesses to encounter this issue. A California lawsuit alleges that banks front-loaded applications from larger businesses — requesting bigger loans — to reap excess processing fees. It doesn’t appear the bill is doing anything to address that alleged issue. Tapping community institutions to disburse more funds also won’t necessarily help New York restaurateurs waiting on loan approvals from bigger banks.
There also isn’t anything in the bill targeting the decimated restaurant industry for help. That’s a problem given that under 9 percent of the paycheck protection funds, roughly $30.5 billion, went to businesses in food and accommodations. The construction industry, by comparison, received $44.9 billion despite having just over half the workforce as hospitality — and a lower unemployment rate.
Over 500,000 New York food and beverage workers, roughly 80 percent of that industry’s workforce, have been laid off or furloughed, according to the state Restaurant Association.
The fraught application process notwithstanding, restaurants have criticized the paycheck loans themselves. Those receiving funds must rehire all workers — using pre-COVID-19 payroll numbers — by the end of June to qualify for full forgiveness. Few operators expect to be able to achieve that, especially if they’re operating at half-capacity later this summer. Restaurants can also only use 25 percent of the forgivable portion of the loan on non-payroll expenses like rent.
Ultimately, the accountant O’Rourk said, the paycheck protection program does not “align with the reality that most restaurants are facing.”
With additional reporting by Tanay Warerkar
This story has been updated to indicate that President Trump signed into law a bill that allocated additional funds to the Paycheck Protection Program.