Senate’s $320B PPP re-up draws restaurants' fire

Small-business groups applaud the reallocation, but question why the loan process wasn’t fixed.
Photograph: Shutterstock

Congress has yet to approve the bill allocating $320 billion in additional funding for the Paycheck Protection Program (PPP), the key form of federal relief for restaurants and other small businesses, but controversy over the measure has already hit firehose strength.

“Today we learned Congress does not care if local restaurants close forever,” the Independent Restaurant Coalition (IRC), a grassroots organization of chefs and restaurateurs, said in a statement after the Senate voted to re-up the funds on Tuesday afternoon. “Until that program is fixed, it still won’t help America’s 500,000 independent restaurants reopen or ensure their 11 million employees have a job when this ends.”

The group is not alone in voicing dismay that Congress did not address problems that have prevented some small restaurants from obtaining a PPP loan. Many said the application process was an exercise in frustration, in part because lenders of the PPP funds were slammed with applications when the program started on April 3. The Small Business Administration, the PPP’s administrator, said it processed as many loans during the 14 days of the program as it had in the prior 14 years.

Others reported problems filling out the needed forms, having the applications rejected over small errors, and being unable to verify if their requests had even been received, much less processed.

The program ran out of its initial allocation of $349 billion on April 16, two weeks after the funding became available. Only about 4.5% of the loans went to restaurants, according to the Texas Restaurant Association.

Meanwhile, sizable chains such as Ruth’s Chris Steak House, Potbelly Sandwich Shop, Kura Sushi and Shake Shack were able to obtain tens of millions in loans. Shake Shack decided to forgo its $10 million loan, and pressure has built on Ruth’s Chris to do likewise. Nearly 250,000 people have signed a petition demanding that the steakhouse chain return the funds. Ruth’s has yet to respond publicly.

The SBA and its parent agency, the U.S. Department of the Treasury, have pushed back on the criticism that big corporations unduly benefited. “The vast majority of these loans—74% of them—were for under $150,000, demonstrating the accessibility of this program to even the smallest of small businesses,” SBA Administrator Jovita Carranza and Treasury Secretary Steve Mnuchin said in a joint statement.

Small businesses were defined under the CARES Act as enterprises that employ fewer than 500 people per physical location.

The Senate measure also does not address restaurants’ complaints that certain requirements of the PPP are unrealistic for restaurants. Small businesses could borrow 2.5 times their pre-COVID-19 payrolls, up to $10 million. The loans have a term of six months, but repayment is waived if the borrower spends 75% of the provided funds on payroll and the money is spent within eight weeks of the loan being received.

Restaurants said they had no need to rehire a staff when their dining rooms were closed because of social distancing directives from state and local governments. If they remained open, their services were limited to takeout and delivery, which require only skeleton staffs.

The industry has pushed for lowering the payroll requirement to 50% of the borrowed funds, and for extending the spending deadline to three or six months, so money would be available to rehire staffs.

“The serious design flaws of the PPP will not be solved by throwing more money at these programs,” the Main Street Alliance, a national coalition of small businesses, said in a statement.

The reallocation did address criticisms that minority-owned small businesses had a particularly difficult time landing a loan because their communities lacked the needed lending outlets. About $60 billion of the new funds are earmarked for “under-banked” communities.

At a press conference yesterday, Mnuchin was asked why the Senate and White House did not seize the opportunity to address criticisms of the loan process. He said the measure passed by the Senate, and almost certain to be passed by the House of Representatives tomorrow, was intended specifically to replenish the program’s funds immediately and thereby provide a lifeline to struggling small businesses. His comments left open the possibility of making changes in the process in a subsequent relief bill.

But the reallocation itself has also stoked concerns. The SBA stopped accepting applications when the PPP ran out of funds on April 16. Sen. Marco Rubio, R-Fla., chairman of the Senate Small Business Committee, has said he believes the SBA will face a backlog of more than a million applications. About 1.6 million loans were granted under the first phase of the PPP, according to the SBA.

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