COVID-19: Key Economic Relief for Restaurants

For restaurant operators, there are (3) key relief opportunities — SBA’s EIDL, CARES Act’s PPPL + CARES Act’s Employee Retention Tax Credit. Please find a breakdown of all three below. Please note, although you are able to apply for multiple loans, the potential grant of the EIDL and the forgivable portion of the PPPL are contingent on one another and cannot both be applied in full to your company. Please see the EIDL + PPPL comparison spreadsheet [Here].

Important Note: As of (4/16), the federal government announced that all funds have been allocated to small businesses. There is an urge to allocate additional fund but this has not yet passed. Stay tuned for additional updates.

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[USA] SBA | Economic Injury Disaster Relief Program (EIDL) [Apply Here]

The EIDL loan is offered through the SBA and covers the financial obligations and operating expenses that could have been met had the disaster not occurred. The EIDL is not forgivable but, in addition to this loan the SBA is offering an immediate $10,000 advance (the Emergency Economic Injury Grant) within three days of applying for an EIDL. To access the advance, you must first apply for an EIDL and then request the advance. The advance is a grant and does not need to be repaid. 

3.75% Interest (businesses) |  2.75% Interest (non-profits) | 30-Year Term

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[USA] CARES Act’s Payroll Protection Program (PPPL) 

The PPPL is intended to keep teams on payroll and is applied through your bank (vs. EIDL which is applied online). The max loan is equal to 2.5x the average monthly payroll costs of the 12 months prior to your application (or, if a new business, the payroll from 2020). The loan can be forgiven if the loan is used by the borrower during an 8-week period (the “Covered Period”) after the origination date of the loan — 75% of the loan must be used towards payroll cost.  The amount forgiven is reduced based on failure to maintain the average number of full-time equivalent employees versus the period from either February 15, 2019, through June 30, 2019, or January 1, 2020, through February 29, 2020, as selected by the borrower.  

IMPORTANT NOTE: For those who had to make the hard choice regarding layoffs, your ability (or inability) to rehire needs to be taken into account since this will affect your ability to use the loan in full in the granted “covered period.”  

 1% Interest |  2-Year Term

UPDATE FROM BDO AS OF 5/1: The IRS resolved one of the many open items surrounding loan forgiveness: no tax deduction is allowed for eligible PPP expenses paid with loan proceeds to the extent the loan is forgiven and such forgiveness is excluded from taxable income. The IRS thus closed the loop on a potential double tax benefit. Note that tax deductions are disallowed up to the total amount of loan forgiveness; to the extent not all loan proceeds are forgiven, taxpayers may deduct expenses paid for with non-forgiven loan proceeds. | BDO Resources [Here]

[USA] CARES Act’s Employee Retention Tax Credit 

In lieu of the PPPL (which many restaurants are finding confining due to the forgiveness period), the employee retention tax credit is a broad based refundable tax credit designed to encourage employers to keep employees on their payroll. The credit is 50% of up to $10,000 in wages paid by an employer whose business is fully or partially suspended because of COVID-19 or whose gross receipts decline by more than 50%. | IRS Resource [Here] + US Treasury Resource [Here]

Recommendation from OS | The PPPL has limitations to the use since 75% of the loan must be applied to payroll for a consecutive 8 weeks from receipt (regardless if doors are open).  As a result, some operators have opted into applying for an EIDL and relying on payroll tax exemption rather than the PPPL. At the end of the day, turning to cash on hand is a valuable metric. 

If you have cash on hand, the EIDL and tax exemption can be the best option forward. If not the case, the PPPL might be a good fit with the understanding that you will likely have the interest to pay off in 24 months. Operate leaner and use 25% of the resources from PPPL to offset other fixed costs that are supported by the loan (rent, utilities, etc) to get ahead of those costs. 

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Disclaimer: The consolidated resources are here for your consideration. The information provide above is not legal advice. We recommend talking to your lawyer to ensure all state + federal compliance is maintained. If you do not have legal representation, we would be happy to connect you with legal counsel. We understand that circumstances are changing quickly and we are updating content as it is available.