Options had largely run out for Isadore Perez, chef-owner of Los Monchies Locos in Pacagoula, Miss. The Puerto Rican transplant had already hit up family members for loans to keep the 7-year-old restaurant in business as the pandemic worsened. He’d even managed to snag one from a private investor.
But the crisis continued to spike and recede, forcing him to shut down his operation—“my greatest blessing,” he says—for weeks or months at a time without forewarning. Meanwhile, bills mounted for his two children, both of whom have special needs. It didn’t help that their mother had her own restaurant and the business dilemmas that came with it.
He worried that his health was being compromised by all the anxiety.
Then Perez heard about a program the federal government was undertaking to help small operators like himself stay in business until a semblance of normality returned. Through the Restaurant Revitalization Fund, he could apply for a grant of up to $5 million to cover costs that were usually paid out of sales.
He was confident enough about qualifying that he promised his staff raises and more hours after the money arrived. And sure enough, he was approved during the 21-day period in which the Fund gave a preference to applicants in particularly acute need.
But the money never arrived. First Perez was told the funds couldn’t be delivered because his bank account number was incorrect. He addressed that issue, but nothing was deposited. And the program’s administrator, the U.S. Small Business Administration (SBA), suddenly went incommunicado. Perez learned from news reports that the agency had rescinded approval of nearly 3,000 loans, but he couldn’t confirm his was one of them, despite repeated calls to the agency.
“I don't know what the future of my restaurant is, the one my staff and I poured so much hard work and sacrifice into,” he told Restaurant Business in a long email intended “to get this off my chest.”
What went wrong?
Numbers released by the SBA itself show he’s one of more than 200,000 restaurateurs whose hopes were raised and then dashed by the Restaurant Revitalization Fund, or RRF. A considerable part of their dismay is that they still haven’t gotten a full accounting from the agency about how a program with so much promise could go so dramatically awry. The SBA’s comments have largely been limited to generic emails and an announcement July 2 that the program will shut down July 14 unless Congress replenishes the pool, which started out at $28.6 billion.
That’s not likely to happen, according to longtime observers of the political situation in Washington, D.C.
“There are absolutely headwinds on moving anything in Congress right now, including a second round of RRF funding,” says Sean Kennedy, EVP of public affair for the National Restaurant Association, the principal owner of RB. “Congress has not gotten more bipartisan and collaborative since the American Rescue Plan was passed.” That $1.9 billion COVID relief package, signed into law in March, was the legislation that created the RRF.
The problem is what Kennedy characterizes as “pandemic fatigue.”
“We are seeing a Congress that no longer looks at the restaurant industry as an industry of shuttered businesses,” he explains. Indeed, they see a business roaring back as COVID-related restrictions are lifted.
“We see the darkened tables, the darkened stations, the darkened whole wings of a restaurant, because they can’t find the employees to staff them,” Kennedy continues.
Congress is missing the harsh reality that higher pay is needed to pull back the needed workers, and many restaurateurs don’t have it. Those who do—the operators who did land a grant—have a clear recruitment edge, says Tom McDowell, owner-operator of Connecticut Wedding Group, a 35-year-old catering and special-events business in Middletown, Conn.
“Here in Connecticut there are more than 2,000 small businesses like mine that have not been funded, putting us all in double jeopardy: Having both not received RRF funds but also having to compete directly against companies that have, which is an incredible competitive disadvantage,” he told RB in an email.
SBA figures show 1,303 foodservice operations in the state did receive a total of $301 million in RRF funding, an average of more than $231,000 each.
In addition to higher operating costs—food prices are also rising—many operators face a stack of overdue bills, including back rent and loan repayments.
Congress “is missing the crushing debt, the uncertainty, the lack of confidence that a place will make it,” Kennedy says. “We know things are going to be uncertain at least for some time to come.”
He suggests that Congress may also be overlooking that the RRF was a success—albeit a highly qualified one, in the opinions of some operators. Nothing like it had ever been tried before by the federal government, and the experiment worked.
“This is a completely new program and a completely new effort,” says Kennedy. “The RRF by any standard has been a success story--the process has been fair, the process has been efficient. What the success has underscored is how much aid is still needed.”
With that in mind, he says, the association is looking at “every possibility” of securing more aid for the industry. He points out that the RRF itself was an out-of-left-field way of providing direct relief.
The association and groups like the Independent Restaurant Council (IRC) started asking for direct financial help for restaurants literally from the first week of the pandemic (see timeline). But they didn’t get much traction until Sen. Chuck Schumer, the Senate majority leader, was convinced of the RRF’s importance back in January. From that point onward, things progressed relatively quickly.
“There’s a very good chance that there could be some surprising good news that happens quickly,” says Kennedy. “Congress acts best when they’re at the edge of a cliff, and that’s where they are right now.
“Stay tuned,” he advises.
Lost in limbo
Tiffany Howell, an owner of two bars in North Carolina, doesn’t need the prod. She was approved for an RRF grant for one bar on May 13, during the 21-day stretch when the SBA was giving a preference to female applicants as required by Congress. She received her funding eight days later.
She applied for a grant for her second operation on May 20, still during the preference period. “I used the same information and codes on both applications,” she told RB. “I called to ensure everything was correct on the May 20th application and was reassured so many times it was, and [that] the money was set aside for me and couldn't be taken back.”
She never got it. The SBA alerted her on June 15 that her payment was cancelled as a result of three court cases that successfully challenged the legality of showing preference to women and the socially and economically disadvantaged. She and 2,964 recipients of the same emailed message were invited to participate in a conference call with SBA officials a few days later for a fuller explanation.
It wasn’t a salve. “After the past year and bearing the brunt of the pandemic, our entire industry is in shambles,” Howell said in an email. “I don't mean the chain restaurants or the hotel bars. I mean the sole-owner, built-from-the-ground-up true small-business bars.” (Legally, chains of more than 20 units were barred from applying for an RRF grant.)
Part of the frustration for her was the difficulty of getting any information out of the SBA. She says she wants everyone to know “how devastating this is for us mentally and physically.” She views herself as a victim of “this colossal failure known as the SBA RRF grant.”
Troy Thorpe, owner-operator of Grand Cru in Washington, D.C., and Bistro Sancerre in Alexandria, Va., knows how she feels. After he read that the SBA was disallowing the grants to 2,965 operators because of the court challenges, rechanneling the money back into the RRF pool, he figured a grant might be coming his way. After all, the SBA said it would process operations from other parties in the order in which they were received.
“I filed my RRF application 16 minutes after the portal opened on May 3rd, yet it was never processed,” he says. “So not sure how they selected the ones to fund if not by the priority group, which I was not in. It doesn’t appear it was by the order they received them.”
He wants answers, as does the IRC. The group has filed a request under the Freedom of Information Act (FOIA) for detailed information from the SBA on its selection process. Among the mysteries it wants cleared is how the selection procedures were changed by the SBA after the court cases forced it to disallow grants to the nearly 3,000 preferred recipients who had already been approved.
Restaurant Business has repeatedly pressed the SBA for reaction to the industry’s criticism of the RRF, as well as any input on processes and changes that have proved controversial. A request to interview an agency official or even an on-the-record statement for this story was turned down.
Instead, the SBA provided what’s known as a backgrounder, an account of the situation that’s intended to provide context to media stories. It noted that the revocation of grants already approved for more than 3,000 applicants—the 2,965 operators who were initially alerted, plus a second wave of applicants still unquantified by the agency—was the result of court decisions that the SBA was legally bound to abide. Similarly, the information notes that the preference initially given to women, veterans and the socially and economically disadvantaged was mandated by Congress.
It would not suggest what could be next for the agency in its efforts to aid restaurants, explaining that it cannot comment on ongoing litigation.