As New PPP Funds Flow, Perils Await—Wrap-Up Webinar
Paycheck Protection loans may offer a lifeline to restaurant owners, but borrowers should take care to understand the program's still-changing requirements, said panelists on the fifth of five Restaurant Recovery Week webinars.
As $310 billion approved by Congress was set to replenish the Paycheck Protection Program, a "level of frustration" was rising among bankers and borrowers alike, said Restaurant Finance Monitor Publisher John Hamburger on a webinar today. That was an understatement.
"Yeah, it's been a ton of fun, John," quipped panelist Mike Rozman, CEO of Boefly, which has been trying to help restaurant owners and others access the funds.
"My perspective is that the government wanted to act super-fast, and I think that should be applauded. They were desperate to try to save the economy," he said.
The problem was, "you go from law to loan within seven days, and everyone's going to be confused," he said. "And furthermore, rules still changed after the program started."
The program, which offers borrowers a loan with potential for forgiveness if certain requirements are met, already burned through its first $350 billion tranche. This second infusion, bringing the total to $660 billion, is likely already spoken for, said Matt Talcoff, a partner with accounting firm RSM and a panelist.
Nonetheless, Talcoff advised business owners: "If you haven't gotten your application in, you need to get it in right away. That money, the new $310 billion, is going to go very quickly."
PPP loans, administered through the Small Business Administration and carrying a 1 percent interest rate, will be forgiven if at least 75 percent of the funds go toward paying employees, with 25 percent allowed to go toward rent, interest and utilities.
Two challenges there: the payroll amounts have to be paid out in eight weeks, a problem when restaurant dining rooms are closed; and the "utilities, rent and interest" amounts are not clearly defined.
"It's going to be difficult certainly for restaurants to get the full amount forgiven," said Talcoff. "I've seen calculations, they'll get maybe 15 percent forgiveness, or 40 percent forgiveness."
Said Hamburger, "That's a lot lower than people think."
At first, Rozman said, he thought the program would be a great way to help business owners through the COVID-19 crisis. But then, "It's been like carrying a bundle of hornet nests because everyone's mad at us."
He noted Shake Shack and Ruth's Chris as among those companies that took the loans, then faced major backlash and unwanted media attention before saying they'd give the money back. Publicly held companies or those with access to other capital markets were not the intended recipients, Secretary Treasury Steve Mnuchin said yesterday, although no such rules were in the original program.
"Everything around this PPP program is fraught with risk. If you're taking a loan, it's fraught with risk. If you're facilitating a loan like Boefly, if you're making a loan like a bank," the same.
"You as business owners that are borrowing, this is a special ball of wax," and borrowers should take care about texts and emails and other statements. "If you wrote your brother, 'Oh my god I found a way to get free government money,' that could end up in your bank's audit," Rozman said.
The webinar, titled "Immediate Cash Flow and Refund Opportunities from the Government Stimulus Programs and Tax Changes" and available in full here, was the fifth and final installment in Restaurant Recovery Week.
Restaurant Finance Monitor, Food On Demand, Franchise Times and Foodservice News presented the series to help restaurant operators during the COVID-19 crisis.