What’s in the $ 900 billion restaurant stimulus?
Now that the Senate approved a $ 900 billion COVID-19 relief plan on Monday night, hours after it was passed by the House of Representatives, restaurants can start sifting through the massive 5,500-page document. to see what lifelines it could offer as the intimidating winter season ends around operators across the country.
Andrew Rigie, executive director of the NYC Hospitality Alliance, said the main component of the stimulus – another round of the paycheck protection program – is “just a band-aid over a gun wound.”
Let’s dive into a legislative assessment of the bill, as broken down by the National Restaurant Association, to see if any potential positives emerge.
In summary, there are basically six things that could benefit restaurants. The PPP is the most important.
Paycheque Protection Program, what has changed, what has not changed
The package includes $ 284 billion in this PPP go-around. It will allow restaurateurs to access a second draw at 3.5x the monthly payroll for companies in NAICS 72 (compared to 2.5x for other sectors). A restaurant selects its average monthly payroll, either one, the monthly payroll for 2019, or two, the monthly payroll for the 12-month period before the origination of the second PPP loan.
How has this changed? For eligible restaurants, the second draw is for an amount greater than the initial PPP loan number. The two options for the average payroll reflect the hiring / re-hiring challenges of COVID-19, the Association said.
The maximum amount is $ 2 million.
How has this changed? He went from $ 10 million, which is a big turnaround. As everyone in the industry recalls, there were larger chains that had previously accessed $ 10 million PPP loans. Shake Shack was one of them, but soon returned the money.
Businesses must demonstrate a 25% revenue loss in gross revenue for any calendar quarter of 2020 compared to the same quarter in 2019 to be eligible. The threshold was originally proposed at 50 percent.
How has this changed? Simply, this eligibility threshold was not in the original PPP.
Businesses with 300 or fewer employees are eligible.
How has this changed? This represents another tangible change. The latest edition set the employer size limit at 500 employees. As is evident, most of the changes are aimed at channeling funds to small businesses.
Catering and accommodation businesses have obtained an explicit exclusion, the Association said, which allows them to meet size eligibility requirements (by location) if they have 300 or fewer employees per location (compared to collectively for other industries).
How has this changed? This explicitly preserves the intent of the original PPP, but adjusts the figure to 300 employees rather than 500 employees. Why is this important? It opens the pool to franchisees, as it did the last time. Only now, it’s a conversation of 300 versus 500 employees.
Speaking of such things, restaurant and accommodation businesses are not subject to the SBA’s affiliate rules that could limit a franchisee’s ability to access a loan under the program. The waiver of membership restrictions allows otherwise NAICS 72 eligible businesses that are affiliated with a joint franchisor business to access a second PPP loan.
How has this changed? This provision, explicitly included in recent legislation, provides for the same exemption as the previous PPP cycle. Essentially, franchisors can go back to helping operators get loans across their systems.
PPP second draw loans are repayable when spent on eligible expenses (60% of payroll / 40% of non-payroll) during a specific period.
How has this changed? This is not the case. It is a postponement of the Paycheque Protection Program Flexibility Law passed in June. Originally, the PPP required operators to spend 75% of the loan on the payroll to obtain a discount, or the so-called 75/25 rule. But restaurants have retreated, especially in high-value markets like New York City, where 25% haven’t gone far to help cover other expenses. Thus, the second round of the PPP sticks to the changes of the summer.
Regarding forgiveness, funds must be spent within eight weeks or 24 weeks of loan origination, at the borrower’s option (another change in the Paycheck Protection Program Flexibility Act) . As noted, 60% of expenses should be spent on salary costs (paychecks and group insurance, or pension benefits) to maximize forgiveness.
How has this changed? Like the 60/40 position, it is the same setting as in June.
There are, however, new reimbursable non-salary expenses. Eligible personal protective equipment (PPE), cleaning products and services, reconfiguration of spaces to allow social distancing and supplier costs (perishables are one example, the Association pointed out) can be canceled for non-salary expenses.
How has this changed? The change is that these aforementioned options are newly eligible PPP expenses. And rightly so, as far as operators are concerned. According to a Coca-Cola study in September, restaurateurs invested an average of $ 7,400 for these various elements essential to the functioning of COVID-19. Sixty-six percent of operators said it would take at least six months to recoup the expense. On a larger scale, Dominos said in the third quarter that it had spent $ 11 million with hiring, bonuses, sick pay policies and sanitary supplies.
For undergraduate and graduate PPP loans, businesses using PPP funds for qualifying business expenses can deduct these expenses from their taxes.
How has this changed? This time, PPP borrowers are allowed to keep up to 37% of their loan funds by restoring deductibility, which was previously denied by the Treasury Department.
For borrowers of $ 150,000 or less, a simplified two-page progression will be available to streamline loan cancellation.
How has this changed? The Association said this was an improved process previously unavailable.
The new program repeals the provision that required PPP borrowers to deduct their Economic Disaster Loan Advance (EIDL) from their PPP loan forgiveness amount.
How has this changed? This is a correction of the CARES law.
Due to an SBA rule in August, rent paid to a “related party” with a similar interest was not a forgivable expense.
How has this changed? Congress did not address the issue of authorizing the “related” rent rebate.
Some 501 (c) (6) nonprofits with less than 300th employees are eligible for a P3 loan, if they do not receive more than 15 percent of their income from federal lobbying activity.
How has this changed? It was not an eligibility category before.
The program includes new support for first-time PPP borrowers with 10 full-time employees or less, second-time PPP borrowers with 10 or fewer full-time employees, first-time PPP borrowers who have been newly eligible and returning PPP borrowers.
How has this changed? Naturally, this was not in the first version as there were no “PPP borrowers returning for the second time”.
Monday’s version also prohibits the proceeds of the PPP loan from being used for lobbying activities.
How has this changed: It is also a new element.
Some other things to note
Here are four other elements that the Association believes could benefit restaurants.
Tax deductibility (a spotlight on the PPP): Businesses can deduct qualifying business expenses paid with P3 loans, including payroll, rent, mortgage interest, utilities, and other qualifying expenses. This applies to either a first drawdown or a second drawdown of a PPP loan.
Employee Retention Tax Credits (IRTC): The ERTC will be available for the first two quarters of 2021 and will allow some employers to take up to $ 7,000 per eligible employee retained during those two quarters. Employers who have received a PPP loan may still be eligible for ERTC on wages that are not paid with canceled PPP funds
Work Opportunity Tax Credit (WOTC): WOTC extended for five years, providing support to restaurants that hire, train and retain employees from target groups
Expansion of the deduction for business meals: Business meals are now 100% deductible for 2021 and 2022.
Temporary improvements to SBA loan programs (non-PPP): Four things here to consider.
- Increases the 7 (a) loan guarantee to 90 percent free of charge
- No charge for 504 loans
- Extends CARES principal and interest exemption for new and existing 7 (a), 504 and micro-loans
- For loans taken out before the CARES Act, authorize three additional months of principal and interest paid by the government; restaurants allowed to take an additional five months beyond the three