How your restaurant can use the Paycheck Protection Program
After months of political wrangling, a new round of funding for the Paycheck Protection Program was finally passed by Congress and signed into law. The Paycheck Protection Program, or PPP, has provided a lifeline for many businesses in the restaurant and hospitality industry. With $284.45 billion in funds now available, here’s a quick explainer about who is eligible, how large forgivable loans are going to be, the terms of forgiveness, and how the new round of funding differs from the original PPP.
Who is eligible for a forgivable PPP loan?
The second round of money, or tranche, comes with slightly different eligibility requirements from the first round. Businesses that took Paycheck Protection Program funding from the CARES act are eligible to receive more assistance from this second tranche. The eligibility requirements are fairly simple:
- Fewer than 300 employees
- Can demonstrate a 25% reduction in revenue in the first, second, or third quarter of 2020 when compared to the same quarter in 2019
- If a business had taken funding from the first tranche of PPP, they must have already spent all those funds before applying for the second tranche
Generally, most restaurants can meet those requirements easily.
The new round of funding also carries more restrictions on who can receive funds. The intention was to better focus on small to medium businesses that are fighting to survive the pandemic. For example, publicly-traded companies are ineligible, as are businesses that were created after February 15th, 2020, lobbying firms, and non-profit sports leagues.
How large will PPP forgivable loans be?
Unlike funding from the CARES act, the new funding includes larger loans targeting restaurants and hospitality businesses specifically. Restaurants can receive 3.5 times their monthly payroll, up to $2,000,000.
This provision is intended to help the food and hospitality industry weather a long period of low revenue, as restrictions are likely to continue until the vaccines are rolled out into the general population.
What can you do with the funding?
The original PPP was primarily intended to fund payroll but allowed for limited additional uses. This new funding is broader – covering business software, property damage, supplier costs, PPE costs for workers, and certain group insurance payments as well as payroll costs, rent, and mortgage payments. This will allow struggling restaurants more flexibility with the funding while remaining eligible for loan forgiveness.
What are the terms and conditions for loan forgiveness?
To have the loan forgiven, the business must spend the entirety of the loan in a period between 8 and 24 weeks from the time of the loan’s disbursement. (The exact time frame is selected by the borrower when they accept the loan.) The business must use a minimum of 60% of the loan on payroll expenses, with the remaining amount going to the expenses listed above.
If the loan is $150,000 or less, the forgiveness process is streamlined down to a single page form. For amounts over $150,000, the process follows what was laid out in the CARES act. When you take a loan from the PPP, work directly with the lender to best understand the forgiveness terms.
If you do not apply for loan forgiveness, the funds are then considered a loan with a 1% interest and maturing in five years. Again, when you take a loan from the PPP, work directly with your lender to understand its terms.
How is this different from the first round of PPP loans?
While popular, and successful, the first PPP had its problems. The new round comes with several fixes intended to increase the impact of the program. Here are some notable differences, including those already mentioned above:
- Food and hospitality businesses can calculate their loans for up to 3.5 times monthly payroll, up from 2.5 times
- Simplified forgiveness terms for loans of $150,000 or less
- A cap on loan amounts at $2 million, down from the original $10 million
- Publicly-traded companies are not eligible for PPP loans
- Business expenses paid using PPP funds are tax-deductible
The new round of Paycheck Protection Program money will do a lot of good for small businesses, especially in the food and hospitality industry. It’s going to be a long winter as vaccines roll out and restaurants need every dime of help they can get. With the new loans available, some businesses will have the additional funds to bring back and/or retain staff as we all hold on for spring.
If you’re interested in taking out a Paycheck Protection Program loan, contact your previous PPP lender immediately for information and guidance. If you hadn’t taken out a previous loan, start with the Small Business Administration for more information.