Paycheque Protection Program Fails
It was a punch in the mouth when we had to close the doors of our three New York restaurants and lay off 25 employees. We were frantically looking for a way to stay open. We had followed the news, read press releases from New York Governor Andrew Cuomo and New York Mayor Bill de Blasio, and spoke on the phone with our insurance agent and lawyers. In the end, we had to inform our employees that they would be out of work until further notice.
Our last service was on Sunday March 15th. Sales this weekend had fallen by 25%. Before the mandate to end the restoration operations came from city officials, we saw the writing on the wall: With the growing number of COVID-19 cases in the city, sales would continue to decline. We wouldn’t be able to do the payroll the following week.
We urged our employees to immediately file for unemployment, as we expected the Labor Department’s systems to be overwhelmed – which they were, to a staggering degree. Fortunately, most of our staff arrived early and have been out of work for two to three weeks.
What about pickup and delivery? Sure, that’s easy to say, but we’ll need to bring in around $ 30,000 in sales per week for a location just to cover the expenses. That’s about 650 people per week ordering delivery or pickup at an average of $ 45 per person. This is after Caviar or Grubhub takes their 30% cut. Almost impossible. The numbers don’t lie.
Since the doors were locked and our direct debits were frozen, we have been in survival mode. We started a GoFundMe campaign for our staff and raised enough money to pay the April health insurance premiums. Our loyal supporters continue to buy gift cards. We launched a online wine course series to stay in touch with our clients and create a source of income, even a minor one ($ 10 per course). These funds will help us pay our suppliers and turn on the lights when we can safely reopen.
But these emergency measures are not sustainable without the help of the federal and local government. And so far, this assistance has been impractical, insufficient, or both.
Last month, de Blasio announced a $ 75,000 interest-free loan available to local businesses that could prove a 25% drop in sales over a two-month period compared to sales for the same two months in 2019. This no. It is only recently that we have reached the threshold. because our downfall was so sudden, starting in the second week of March, unlike restaurants in Chinatown, for example, which closed in February. Since last week, applications were closed. Our lawyers think they can pass ours since they set up an account on time, but the money is presumed to have dried up.
The Economic Disaster Loan Program, run by the Small Business Administration, requires a personal guarantor for the amount of money we would need. We are unable to guarantee hundreds of thousands of dollars. Especially with no idea when we can reopen or what the trade will look like. Will opening hours be limited? Reduced occupancy? Our previous sales projections are now not applicable.
What about business interruption insurance? Most restaurants don’t even pay for it. We do, but our broker has informed us that our policy excludes closures due to a virus. This is the case for most policyholders in New York State. A handful of renowned restaurateurs unite to fight against their insurers. So do we, but we don’t hold our breath.
At the end of March, when Congress passed the $ 2 trillion relief package, we thought that one item in particular, the Paycheck Protection Program (PPP), would finally provide a lifeline. Here is why it is not.
The principle of P3 is that the federal government will loan you up to two and a half times your monthly payroll through private lenders, and the loan will be forfeited as long as 75% of these funds are used for retention and payment. employees. The remaining 25 percent can be used for rent and utilities.
After the bill was passed, the Small Business Administration, which is in charge of PPP, added a new clause requiring that 75% of funds be used for payroll whether or not you request forgiveness. It also requires you to keep or rehire all of your staff. The kicker: These payroll funds must be used within eight weeks of the loan distribution, which could happen as early as this week.
A serious flaw in this plan is that hourly workers might be discouraged from returning to work, as many of them will earn more with extended unemployment benefits than they usually earn. While some hourly workers decide UI is a better deal, companies can only remain P3 eligible by hiring replacements – imaginary staff for a shadow establishment.
While it is admirable for government officials to think of employees first, they overlook a crucial part of employment: the business itself. Why is it beneficial to protect the payroll of employees if the company is not protected?
Health experts don’t expect a widespread reopening of the economy until late summer at the earliest. Even then, restaurants and bars will no longer be able to function as in the past. Who knows what the business will look like? Social distancing will continue until the fall or even later, which means that the seating capacity will be halved and overall revenues will decrease by the same proportion.
PPP is a dressing for a wound that requires surgery. What happens after the eight weeks have passed and P3 funds used to pay employees, but sales did not return to a healthy level? Companies will have no choice but to drastically reduce the working hours of employees or lay them off entirely to stay afloat. Restaurants will not have enough sales to justify the staff the government wants them to protect.
One unintended consequence we’ve already noticed is that landlords push back rent negotiations as if P3 is a silver bullet for all of a restaurant’s financial obligations. In fact, most people who use P3 will run out of money to charge rent.
With all of these issues taken into account, many in the hospitality industry will decide that they cannot take the risk of a PPP loan. Business owners will fear that they are doing something wrong and having to pay off a large loan that will need to be paid off in two years. Yes, a 1% interest rate is good, but a monthly payment of thousands of dollars is definitely not. Most restaurants lose money every month or barely break even. These difficulties may explain why the accommodation and catering sector has so far taken a relatively large place. small part of the PPP cake: just over 9% of total loans. (Almost 14% went to construction.)
The recovery will not be a sprint but a long and exhausting marathon. Many businesses will not survive at all and are already in the process of closing or filing for bankruptcy.
Congress must act faster. He must revise the PPP to extend it over a longer period. It must finance the operating accounts of companies in addition to the payroll. It must write off the sales tax owed since closing and for the foreseeable future. It must demand that insurance companies shoulder their share of the burden. He must prepare another bill to anticipate the non-reopening of businesses in two months and the reappearance of the virus in the fall.
We did what we could to survive last month. Now Congress must do its part to ensure the restaurants and the jobs they support exist at the end of this pandemic nightmare.