Restaurants Need for PPP Loan May Rise During Limited Phase II Reopening | Business

Dining rooms in North Carolina restaurants have been closed since March 17, leading to massive layoffs of employees at predominantly foodservice restaurants. On May 22, as part of Governor Roy Cooper’s “more cautious” Phase II plan to reopen, restaurant dining rooms were legally allowed to reopen with limited capacity. However, some local restaurant owners have said they may need a Paycheck Protection Program loan even more as employees return.

Cooper announced on May 20 that restaurants would be allowed to reopen from May 22 with capacity limited to 50 percent and tables at least six feet apart. A limited dinner will be in place until at least June 26.

“The reality is that, from an economic point of view, things are not going to turn out. [normal] overnight, ”said North Carolina State Senator Michael Garrett (D-27).

Garrett said he anticipates that restaurants and other service businesses will need the PPP loan even more early in the reopening process.

“Their margins are going to be tighter because they are going to serve fewer customers and in some cases maybe operate at a loss,” Garrett said. “If we can help them with their payroll to make sure they’re keeping staff on payroll or getting people back to work, I think that’s important. “

The Paycheck Protection Program, a segment of the United States’ Coronavirus Aid, Relief, and Economic Security Act administered by the country’s Small Business Association, began April 3 to help small businesses keep their employees on the payroll during the COVID-19 pandemic. The 350 billion dollars initially allocated to the PPP were exhausted in two weeks, according to Money.com. A second round of the PPP was launched on April 27 with $ 310 billion available, and three weeks later nearly $ 115 billion is still available for loan, said Thomas Stith, executive director of the Small Business Administration in Carolina North.

Stith said part of the reason the funds last longer in the second round is that the average loan size has increased from $ 207,000 to $ 70,000, which Stith says indicates small businesses are receiving loans. Stith said the SBA took steps between the first and second rounds to increase the opportunities for small business owners to receive loans, in response to concerns that large publicly traded companies were eligible for first round loans, avoided small businesses.

One report per research site Business.org On May 3, 96,032 small businesses in North Carolina, or 10.5%, received a P3 loan, making North Carolina the third least funded state in the country. On May 16, the SBA reported that more than 109,000 small businesses in North Carolina had received P3 loans, totaling more than $ 12 billion.

Garrett said the latest updates on the PPP revealed that only 8.9% of total loans were made to companies in the restaurant and hospitality industry.

Aurelio Ruiz, manager of Kiosco, a Mexican restaurant in Greensboro, has not yet received a PPP loan. Ruiz said he applied for a loan the first week of the program in April, but had not received a response.

Ruiz said only eight of his employees worked at the restaurant, up from around 32 to 34 before the pandemic. Ruiz said Kiosco had seen an 80% drop in sales since March 17 and needed the “pretty bad” PPP to bring back some of its employees.

Stith said his recommendation for business owners who have not yet received a PPP loan is to frequently check with their financial institution for the status of their loan application. If an applicant experiences late responses from his bank, Stith said he might have better luck if he changes lenders.

Ray Essa, owner of Cafe Pasta in Greensboro, said his PPP loan application was approved in the second round after moving from what he calls a “big bank” to a small community bank. Stith said in the second round, the SBA allocated more funds to lenders with smaller assets because small businesses are more likely to have a relationship with a small bank rather than a large bank.

Ray said he temporarily laid off seven workers, but with the PPP loan he plans to bring them all back and put them on the payroll. At least 75% of the loan must be used to keep employees on the payroll so that the loan is canceled entirely, according to the SBA website.

Ray Essa’s sister Cindy Essa owns Pastabilities, an Italian restaurant in Greensboro, and she said she hasn’t received a PPP loan yet. Cindy also predicts that her need for a PPP loan will become more urgent when the catering service resumes.

“The longer and gradually the restrictions are lifted, we will need them especially then,” she added.

Cindy said she has put about five of her servers on leave since dinner was banned in March. Her servers will return during Phase II, but if the restrictive measures only allow service at half-capacity, she said her staff may not get the same hourly wages they were used to before the pandemic.

Herbie’s Place, a 24-hour restaurant in Greensboro, qualified for a PPP loan in the second round, manager Jackie Depeyster said. Depeyster said she was concerned the loan might not be enough to make up for lost earnings and pay returning workers when dinner resumes.

If Herbie’s Place can only be used at half capacity when they open for dinner, Depeyster explained, it will likely be more difficult to keep every employee on the payroll.

“I think even at full capacity, we won’t be as busy as we used to be,” said Depeyster, anticipating how his clients, many of whom are seniors, might not feel financially capable or secure enough to catering service. ” There is a lot of [elderly customers] that I have seen every day for 13 years, but I have not seen them once during this pandemic. “

Depeyster said that before COVID-19 and the Stay Home Order, there would be around 10 employees working at Herbies Place during the lunch rush hour on a Friday. Now the number of employees inside the restaurant is paltry – consisting of herself, a waiter, a dishwasher and a cook.

Depeyster has said she has temporarily laid off four of her employees – all of whom are waiters, cooks or dishwashers – and she predicts she will have to permanently fire at least two of them.

Depeyster said his employees who receive unemployment benefits earn more than they would if they were working.

“The challenge will be to get people back to work,” Stith said, noting that some employees make more money on unemployment benefits than they would at home.

The North Carolina Department of Commerce increased unemployment benefits from April to July 2020 so that a person unable to work due to COVID-19 can earn a $ 600 more per week in addition to regular state unemployment benefits.

The SBA has created a condition for PPP loan borrowers that if they make an offer to an employee to return to work and the employee declines, that employee’s salary will still be counted in the repayable portion and not withheld against the employee. loan borrower, says Stith.

According to the North Carolina Department of Commerce website, if an employer asks their employees to return to work during phase II, a worker who wishes to be eligible for unemployment benefits must prove that his health would be seriously threatened by returning so that he can continue to receive unemployment benefits .

Two bills to help the struggling restaurant industry will soon be passed by the North Carolina General Assembly. The first one, Senate Bill 748, allow restaurants to sell alcoholic beverages for take out and delivery. The second bill, also known as the “Save our Restaurants Act”, is Senate Bill 788, which will allocate $ 50 million in restaurant loans to help cover expenses not covered by the PPP.

Garrett said that unlike a PPP loan, which contains guidelines on how part of the loan must be spent to be canceled, loans under the Save our Restaurants Act will not be forgivable, but will give more freedom. expenses to borrowers.

Looking ahead, Garrett said the service industry might even need an additional round of PPP loans, but ultimately it depends on how secure people feel when dining out. .

“I think people will be worried about taking their families out in public and going to restaurants and cinemas if the spread of the virus is not under control,” Garrett said. “To a certain extent, some [restaurants’ need for a PPP loan] will be determined by how slowly or quickly we reopen the state economy, but to a greater extent, it will depend on our ability to contain the spread of the virus. “

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