HOSPITALITY: Late rule changes to the Paycheck Protection Program discouraging restaurant operators

As funding and application guidelines for the Paycheck Protection Program change, visit our Coronavirus Resource Center for our latest information and guidance. You can also contact our national SBA loan task force or your CohnReznick engagement team for assistance with filing for these loans and providing required financial documentation.

The evening before the Small Business Administration (SBA) began taking applications for its highly anticipated Paycheck Protection Program (PPP), it announced several changes to the regulations that have made the COVID-19 relief program far less attractive to many restaurant operators and other small businesses.  

Of critical importance are the following two amended provisions:

1. While the loan forgiveness component of the program being based on an eight-week spend of eligible costs following the origination date of the loan has not changed, the mandate of 75% of the forgivable costs being strictly for payroll costs is a new component that may be difficult to comply with based on businesses being either shut down or operating at minimal capacity due to sheltering in place and social distancing guidelines being expanded throughout the country. 

2. The maturity date for all PPP loans has been shortened to 2 years instead of the maximum loan term of 10 years outlined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The restaurant industry reacts

CohnReznick has already heard from many of you about the shortcomings of the PPP and its ability to fully support the restaurant industry’s efforts to survive this unprecedented period of shutdown. 

Last week, Bob Giaimo, president of Silver Diner, Inc., sent a letter to his senator, Chris Van Hollen of Maryland, lobbying for amendments to the program. 

Giaimo has recommended several changes to PPP intended to better address the currently projected COVID-19 timeline and the financial realities of operating a small business, including:

1. Aligning the “covered period” for loan forgiveness with COVID-19’s current timeline. Expanding the “covered period” for forgiveness (e.g., 16 weeks after loan origination) would help businesses that resume operations make better use of the loan forgiveness provisions, Giaimo says. Alternatively, tying the covered period to when the business is permitted to reopen (e.g., eight weeks after permitted reopening) would ensure that loan forgiveness is directly tied to the time when the funds will be needed to preserve jobs in the long term.

2. Extending the maturity date for the portion of a PPP loan that won’t qualify for forgiveness.
Under the current scenario, businesses would need to find cash to service their loan debt within a very short, two-year period. This would be extremely difficult for many, even under normal business circumstances.   

3. Revise the permitted uses of funds to include traditional operating expenses to reopen businesses, in addition to payroll costs, interest on mortgages or pre-existing debt, rent, and utilities. 

View Giaimo’s full letter, proposed legislative actions, and supporting graphic.  

CohnReznick has established an SBA task force to assist our clients with the application process and financial documentation for SBA loan assistance.

Visit our Coronavirus Resource Center for additional information on tax and legislative updates, as well as industry-specific strategies to help your business deal with disruption brought on by the coronavirus pandemic.

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