How the Federal Small Business Bailout Loan Is Failing One Brooklyn Restaurant

With the recent $310 billion top up to the Paycheck Protection Program — the federal aid to help small businesses stay afloat during the ongoing coronavirus pandemic — some smaller restaurants are finally beginning to see their funds trickle in after initially being shunned in favor of chains.

One such small restaurant is the experimental Clinton Hill New American spot Otway. Owner Samantha Safer applied for the PPP on April 8, and received a loan of $98,900 on May 4 — the amount of the loan is capped at 2.5 times the average monthly payroll of an establishment.

But much like many small restaurant owners across the country, Safer is afraid to use the funds for her 49-seat restaurant considering uncertainty around when business will return to its regular rate. Eater spoke with Safer about the financial breakdown of keeping the loan, including where the money could go, how much of it would actually help her keep the business open, and why she’s still on the fence about using the cash.

The conversation has been edited for clarity.

Eater: Can you talk about your concerns regarding PPP that you brought up on your Instagram?

Samantha Safer: The reality is that a restaurant like mine, because of the parameters, I was only able to apply for $98,900 for my PPP. So with that amount, 75 percent of that has to be for payroll, which financially is almost exactly $75,000. That’s great for me because there is very little math in that, and then $25,000 has to be used on rent and utilities. What we learned in some of the phone calls today is that they are advising us not to use it on back rent. So lets say I didn’t pay all of my April rent; they are advising me because I received my PPP on May 4 to not use that toward April rent.

The other reality is that because we are closed, I don’t need staff. But in order for the money to be forgiven, I have to use the 75 percent on payroll. Unfortunately, [that 75 percent] doesn’t cover my federal payroll taxes so for me, at 7.6 percent of federal payroll taxes, it would come out to $6,000 out of pocket. I have to take that six grand out of somewhere, so you take the remaining $25,000 minus the $6,000, and then $19,000 is usable income.

I have to weigh the pros and cons. If I have to use money in eight weeks, my rent is almost $7,000, so that is almost $14,000 out of that $19,000. Because you can only use it on rent and utilities, then there’s another $4,000 for gas and electricity. But we are not even using gas and electricity for the most part. An excess of $7,000 of that $25,000 wouldn’t even be used. Technically the money is only helping me a little bit.

What’s the situation with your landlord and rent?

My landlord is a funny guy. You can tell that he is in the same situation as me. He owns the entire block from corner to corner, but he has it mortgaged out for another property. He’s a really nice guy; he’s been good to me over the years.

He had told a few of the tenants on March 11 that he didn’t think this was going to financially affect us, and then we all know the city closed four days later. He hasn’t asked me for my rent. He hasn’t offered to cut me a deal. He hasn’t responded to my emails regarding paying partial rent, so I did finally pay him 70 percent of my April rent on May 1, and I spelled it out in an email to him explaining ‘Hey this is the income that I made in April and this is what I can afford to pay you after my cost of goods sold, so there we go.’ And if he wants to fight me on it later, go for it, but I’m pretty sure I’m one of the only tenants on the entire block that is still paying him.

Are you working alone right now?

Yes. We were really fortunate; prior to this happening, out of the 16 employees, 14 of them live within walking distance of the restaurant. So we put it out there that whoever wants to come and help out, they can come, but they are basically working on tips, and our customers have been super generous, so Jennifer our lead barista has just been coming in and making coffees for the neighborhood.

You’re still open on Saturdays and Sundays. What’s your business been like in comparison to pre-pandemic times?

We are making 4 to 5 percent of what we would be making a month. I’ll tell you on April 21, I hadn’t made bread for a couple weeks, the ovens all needed to get adjusted, so I made four loaves of bread and I sold four loaves of bread, and I made $32. I cried. I was literally bawling my eyes out crying because the idea of making $32 was poetic: I could pull myself up after not making money for five weeks and know that I could make money, but also, what is $32 going to buy me when my rent is $7,000 a month? It’s an emotional roller coaster.

People are being really supportive, and [when we are open], the line starts as early as 9:30 in the morning. I just don’t know how long that support is going to last when other businesses are going to start opening at some point, and they’re going to be risking their employees health, and I’m going to be the one standing back saying ‘Guys I don’t think this is a good idea just yet.’ That’s what makes me nervous. I don’t want to be the last horse in the race, but I also don’t want to be the first.

Are you leaning toward returning the money back?

My thought process is that I’ll either start using it by next week and paying my people out and I’ll use it as a segue into getting open. The transparency is that [once the PPP funds dry up], I’m going to have to tell my people that they’ll have to go on unemployment again because there is no way we are going to be operating [at a normal capacity]. There is just no way. I’ll either take the money, start using it, and hope for forgiveness, or my other option is to sit on the money. You don’t need to start paying the loan back for six months, so I could just sit on it and give the whole lump sum back.

It would be great if the IRC [Independent Restaurant Coalition] got Congress to extend the time in which to use the payroll. We would all love to get our people off of unemployment, and the reality is that when the city says ‘Hey, you can seat 10 people in your dining room or 20 people in your dining room,’ that’s when the money is going to be most valuable for me. The money is useless for me now. That’s what’s such a bummer about it. If they were like ‘Hey you’re going to open June 1, start using your PPP then,’ I’d be like thank you 100 percent, but until that happens I’m forced to use money to subsidize unemployment and that is not its intention. I think everyone can agree that’s not its intention.

Otway [Official]

What do you wish would have happened instead?

There should have been a top down approach. It should have been our congressmen, our senators pushing for tax legislation that would incentivize landlords to work with us. If my landlord had come to me as soon as the shutdown happened and said ‘You know what, I’m going to get this tax break for giving you a 30 percent break on your rent for six to eight months until you know your financial forecast because the reality is that we all sign these leases with business plans in hand.’ Knowing this is what our forecast was, this is the type of income we can make serving people at 100 percent capacity. Not knowing how many people I’m going to be able to serve in my 49-seat restaurant right now is terrifying. And I think anybody who is trying to negotiate leases right now with their landlords is making a huge mistake because you don’t know when you are allowed to open and what your capacity is going to be at. That is crazy. It is playing your bet in poker when you don’t even know the rules yet.

We have already taken a $180,000 hit in eight weeks, and who knows what the next six months are going to be? I can speak for many, many restaurants, especially in our area of Brooklyn, people leave the city for the summers. March, April, and May are the highest grossing months in the year. We make that money and that is our padding through June, July, and August. It is going to get much harder as we see people go to their vacation homes because their kids are not in school. There is no incentive for them.

If they [elected officials] had been like ‘Hey landlords, you’re going to get this break on your 2020 taxes when you go to file in 2021, you’re going to take a little bit of a hit now but you’re going to get this money back 10-fold next year,’ it would have delayed this massive, massive unnecessary spending and all this ‘bailout money,’ and it would have given us the chance to continue operating. If somebody said tomorrow hey take 35 percent off of your rent until September. Oh my gosh. That it’s, that’s all I need. That’s ALL I need. That would have been the answer, and I think a lot of us, that’s all we were really asking for.