Restaurants at the mercy of coronavirus as US government loan money vanishes

The check has arrived, and beleaguered restaurant owners across America are looking down on their empty wallets.

Government coronavirus loans in the spring helped food establishments rehire laid-off employees and ride out the initial wave of the pandemic and wave of shutdown orders.

But that Paycheck Protection Program (PPP) money has now been spent on many restaurants, leaving them in the same precarious position they were in at the start of the outbreak: Thousands of restaurants are being forced to close. again on the mandate of national and local authorities. fight against the resurgence of the virus, particularly in the South and West.

And even in parts of the country where the outbreak appears contained, restaurant revenues are far below normal as social distancing requirements — and wary diners — mean fewer tables, fewer customers and limited hours.

John Pepper used a PPP loan to pay employees and reopen four of its eight Boloco restaurants when Massachusetts lifted its shutdown order in early May. But with the money spent and restaurant business down 70%, Pepper had to close two establishments again. The staff of 125 it had before the virus outbreak has fallen to 50.

“A lot of that is beyond our control at this point,” Pepper says. “For the moment, I do not see recovering all of my payroll.”

Congress is debating another relief bill that will potentially bring more help to small businesses, but even with more loans or grants, restaurants will remain at the mercy of the virus that has decimated their business.

The resurgence of the virus has prompted authorities in California, Texas, Florida and other states to order restaurants to close. In the northeast and other parts of the country where infection rates appear to be more stable, no one expects indoor dining limits to be lifted anytime soon.

Restaurants typically have a low profit margin, between 5% and 6%, and they only achieve that if they have a full house most days, says Sean Kennedy, executive vice president of the National Restaurant Association trade group. They also tend to only have around two weeks of cash on hand, which makes them very vulnerable when their sales are down.

“They are not designed to have an on-off switch. They are designed to be used seven days a week, 14 to 15 hours a day at 100% capacity,” says Kennedy.

Gerry Cea was forced to close his Miami restaurant, Cafe Prima Pasta, from March to May when the outbreak began. Now he has closed the dining room again as local authorities try to contain the virus; the Miami/Dade area is one of the hardest hit by the virus in Florida.

Cea is still able to serve customers outdoors, but South Florida’s intense heat and frequent summer rains limit it to about 40 diners a night instead of the hundreds it was serving before the pandemic. And Cea is aware that peak hurricane season is yet to come.

“With the PPP money we received, we were able to pay 48 employees, but that has now run out, so we have very few alternatives left” for funding, Cea says. He hopes for more help from the government, even if it is a loan that has to be repaid.

In the meantime, says Cea, “the only reason we pretty much survive is because we own the building,” he says.

The pandemic has devastated an industry that is expected to make nearly $900 billion in sales this year. Before the outbreak, the Labor Department had 12 million workers in restaurants and bars, and nearly two-thirds worked in small businesses with fewer than 500 workers. In April, employment in restaurants and bars of all sizes had been cut by almost half due to the closure of establishments across the country.

Restaurants were among the small businesses the Paycheck Protection Program was supposed to help, but some owners say it was of limited use.

So far, the program has provided around $42 billion in loans to restaurants, bars and accommodation companies. But many restaurants quickly exhausted their loans because the program’s original terms required them to use the money within eight weeks in order to get loan forgiveness. Many establishments could not reopen so that paid employees did not work anyway. Then, when they reopened with income limited by social distancing, they couldn’t pay their full payroll. Congress changed the spending requirement to 24 weeks in early June, but that was too late for many restaurants.

It’s not yet clear how much help small businesses will get in any upcoming relief package, although Treasury Secretary Steven Mnuchin has mentioned the possibility that small businesses with a big drop in revenue could get a second PPP loan.

But restaurants need a long-term solution that meets their unique needs, says Kennedy. For example, allowing families who receive food aid to use their benefits in restaurants.

“We’re going to limp or shut down completely” without long-term help, Kennedy says.

Stephanie Williams has still not fully reopened two of her Bennu cafes in Austin, Texas, and continues to operate with curbside and delivery service only; a third location that opened over the weekend has socially distant seats. Williams spent the PPP money she got in early May – she had recalled furloughed workers, but with revenue at one store down by half and the other by nearly two-thirds, Williams had to lay off again 20 employees.

“We assumed that after eight weeks it would be over. But here in Texas, things are much worse than when we closed in March,” Williams says. Like other states where the virus is on the rise, Texas saw cases rise after ending shutdown orders in early May.

Even in areas where the virus appears stable and restaurants can eat indoors, they’re struggling. Wolf’s Ridge Brewing, a restaurant and brewery in Columbus, Ohio, had to close its dining room and return to takeout and delivery, having used up its PPP money and not having enough revenue due to social distancing .

“What PPP did was put us in a position where we brought people back before we had enough business to support them,” said co-founder Bob Szuter. He’s trying to find new ways to generate income, focusing more on the brewing side of the business until he’s sure he has a full dining room.

Jason Brauner’s restaurant, Bourbon Bistro, has exhausted its PPP loan, is operating at 50% capacity and not earning enough to cover its expenses. Brauner fears resurgence of virus could force Louisville, Ky., facility to close; it had completely closed for two weeks in March before switching to curbside service and then gradually reopening. He paid all of his staff throughout.

Brauner hopes to get a grant from the city and he would appreciate another PPP loan. A separate economic disaster loan from the SBA gives him some breathing room, but also presents a dilemma. Like many restaurateurs, Brauner worries about taking on long-term debt when the future is uncertain.

“I’m almost tempted to give it back,” he says. “We just have to see how it all plays out.”

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