The PPP is confusing AF (especially for restaurants)

April 7, 2020
Abhinav Kapur

Cash rules everything around me

I have watched 4 webinars, talked to 2 law firms, and called my bank (Chase) and…I’m still unsure how to actually apply for the Paycheck Protection Program (PPP) loans administered by the SBA as part of the CARES Act (mouthful!).

And to be clear – the guidelines are still changing. Banks are scrambling since the Treasury Department issued revised “interim final rules”.

🚨 The most critical information I can provide is to CALL YOUR BANK 🚨

Many banks are only just now in a position to start accepting PPP applications. But because the program is first-come first-serve, having a good relationship with your bank can potentially expedite your application.

Having gone through the new “final” rules a couple of times, here’s what I’ve learned:

You down with PPP? Yes, but only if you follow these specs for the loan and forgiveness

  • Interest rate of 1% with a term of 2 years.
  • Loan amount is 2.5x the average monthly payroll costs for the last 12 months prior to Feb 15th, 2020. In some cases banks may accept calendar 2019 payroll records, but have both ready just in case.
  • Payroll costs include:
  • Salary, wages, commissions
  • Cash tips
  • Benefits payment for vacation, parental, family, medical, or sick leave
  • Allowance for separation or dismissal
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement
  • Payment of state and local taxes assessed on compensation of employees, interest on mortgage payments
  • You have 8 weeks to use the funds and get 100% forgiveness. Over those 8 weeks, you must use at least 75% of the funds on:
  • Payroll costs
  • Interest on mortgages prior to Feb 15th 2020
  • Rent on leases prior to Feb 15th 2020
  • Utility payments on agreements from prior to Feb 15th 2020
  • 8 weeks after receiving the loan, you must maintain the same full-time equivalent employee level and compensation level from prior to Feb 15th 2020 for the 8 weeks from receiving the loan (you can either hire folks back or hire new people, the rules don’t make a distinction).
  • Keep detailed records because you will likely have to provide documentation on exactly how you used the money to the bank in order to get forgiveness
  • You have until June 30th to bring back the headcount and compensation levels to the pre-Feb 15th levels
  • Unlike other SBA loans, they are waiving the personal guarantee and the “credit elsewhere” provision

Additional resources and getting PPP funds for your restaurant 👀

I know it’s a lot (imagine reading through 35 pages to get to 7 key bullet points!), but there are additional resources that make it easier.

Our friends at Sevenrooms put together a comprehensive PPP loan forgiveness calculator. This is the best one I’ve seen out there.

Here are the PPP “application” portals for various large or active SBA banks. I say “application” because they’re really just contact forms. As mentioned earlier, the program is first come, first served, so please get your application in ASAP. Note that most banks are only accepting applications for existing business customers, so again, the best advice we can give is to contact your bank.

I managed to get approval for a PPP loan for my parents’ restaurant through Chase in a couple of days (more luck than anything I imagine). Here’s what the process was like:

  • Friday 4/3 @ 1:30pm – I submitted the contact form via the Chase link I shared above
  • Sunday 4/5 @ ~6pm – I received an email from a business banker at Chase with the subject: “Chase Lending Request – someone will call you from the number…”, followed by the banker’s phone number. The email said that I need to have:
  • the SBA loan application filled out (link here),
  • a supplemental form they sent in the email (takes only ~2 min to fill out); and
  • supporting payroll documentation to determine the eligible loan amount (contact your payroll process / provider for this they should already have a report ready to go to make this easy).
  • Sunday 4/5 @ ~6:15pm – the banker called and we talked on the phone for ~30 minutes. I emailed him all the supporting documentation listed above, we verified the Chase bank account details and the eligible loan amount, and quickly walked through the application. Once he said everything looked good, he submitted the application to the underwriter and said he would call back in ~15 minutes with our note agreement (i.e. the actual terms of the loan) to sign.
  • Sunday 4/5 @ ~7pm – the banker called again and emailed the note agreement for electronic signature. There was a 5 minute security check, then I read over the terms with my parents and we signed the note. After that, the banker said that the application would go to the SBA for approval. He said we could expect approval within 1-2 days, and for the funds to be deposited within ~3 business days after that. All further communication would be done via email.

The process was only efficient because we already had all documentation ready to go before the banker called. He mentioned that some applications could take >1 hour because people weren’t ready with their payroll records and application docs.

Even though it wasn’t as painful a process as expected, there are still some serious lingering questions about how exactly the PPP will help restaurants.

Some lingering questions 🤔

From my standpoint, the critical flaw in this legislation is that it assumes things will be back to normal within 8 weeks from getting the money. You need to hire back the folks you let go within that time frame.

Looking at my parents’ restaurant and the current state of NYC, let’s assume we apply next week and get the money by the end of April. Per the legislation, they need to hire everyone back by June 30th. Even if they did reopen for takeout and delivery, there just won’t be enough demand to warrant hiring everyone back.

After all, in normal times delivery is only ~30% of the business. So can you even stay profitable if now you’re handing over 20-30% to third-parties on >90% of your business? And even if you can’t then, do you just lay-off everyone again after 8 weeks?

I think the rules are still far from final and I wouldn’t be surprised if an extension gets baked in once the program is up and running, but something to keep in mind.

At the very least, it’s cheap money that you can (hopefully) take advantage of today.

Surviving the current environment 💪🏽

I know things look tough, but it’s so inspiring to hear about all the ways in which many of you are adapting. You give me hope and courage to continue fighting for our collective future.

Here are the couple things that are working:

  • Dinner volumes are up – especially for casual dining brands. My hunch is because these brands are seen as “dinner destinations” for group / family dining in normal times, and that’s translating to delivery.
  • Those offering new family meal bundles are seeing greater demand. This means pre-packaged options for 2, 4, or 8 people. Note, these are not DIY kits, but specific meals marketed for families who want to dine together after a long day trying to balance working from home while simultaneously trying to home school the kids. The meal bundle is just much simpler to order + customize than individually selecting menu items and tailoring them to each family members’ preferences.
  • Brands that couple delivery with an explicit social mission (i.e. listing menu items that if ordered are delivered to hospitals and other frontline workers). We’ve seen some brands who have doubled their delivery business month-over-month thanks to these efforts.

Wrapping up

I spent some time crying by myself late last night. Was it the adrenaline of the past 2 weeks was finally wearing off?

Or realizing that my parents, who – having gone through 9/11 and the financial crisis + subsequent recession – just closed their doors for the first time ever?

Maybe it was listening to my 4-year old talk so sweetly before bed about missing the beach, his friends, his school…all remnants of a past-life that was so real just 6 weeks ago.

I know things are tough now – tougher than they’ve likely ever been before. Be strong. Be creative. You got this.

As I said earlier, I’ve been so humbled by how many of you refuse to accept the situation and just be complacent.

I’m so thankful to have you as part of this community. And if you ever need to talk – about what I’m seeing in our data, or where our industry is heading, or what you’re watching on Netflix (yes, Tiger King is worth it) – then I’ll do what I can to be here for you as well.

Above all, stay safe, stay healthy, and stay positive.