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Federal loans, potential state support and cost-cutting measures will help restaurants survive the first quarter.

Here’s how restaurants can survive the next three months of COVID-related shutdowns

Restrictions may be lifting slowly, but times are still tough. These resources will help operators make it through the first quarter

For those operators that have been hibernating temporarily or considering closure after months of pandemic-related restrictions, there is some good news.

First, the approval of two and perhaps three vaccinations and the start of a massive roll out of a vaccination program this month have raised hopes that the country may finally be on the road to an economic recovery sometime in 2021. 

Second, there are numerous resources available immediately to restaurants that, along with cost-cutting measures, may well provide them with the means to survive until the COVID-related restrictions have been fully lifted. 

Here is a summary of available resources, as well as cost-cutting measures that may allow restaurants to avoid closure:

New and second draw Paycheck Protection Program, or PPP, loans are available under the new stimulus bill.

The new $900 billion stimulus bill, which went into effect Dec. 27, includes $284 billion in new funding for PPP loans for small businesses. Businesses that previously obtained a PPP loan (second draw loans) will have to meet a new revenue reduction requirement. 

However, first-time applicants (first draw loans) do not have to make such a showing and will only require a simple written certification that the loan is necessary to support ongoing operations.  

For second draw loans, the previous requirement that PPP loans were only available to companies with no more than 500 employees has now been changed to 300 employees, thus making more money available for smaller businesses.

FFCRA leave now not mandatory.

The Families First Coronavirus Response Act, or FFCRA, which expired at the end of 2020, mandated paid FFCRA leave. As of Jan. 1, 2021, paid leave is no longer required, but if employers voluntarily elect to provide this benefit, they will be able to recover the cost through payroll tax credits through March 31, 2021. As such, employers will, at least through March 31, 2021, have the flexibility of granting or denying COVID-related leave, and will be reimbursed for the cost if they choose to provide this benefit.

The new stimulus bill expands other small business loans. 

The new stimulus package authorizes $2 billion for the 7(a) and 504 Small Business Administration loan programs, with favorable terms aimed at allowing businesses to recover from the COVID financial crises. An SBA 7(a) loan helps businesses obtain loans they may not otherwise qualify for by guaranteeing a portion of the loan amount, capping interest rates, and limiting loan fees. 

7(a) loans can be used for working capital and to acquire business essentials such as real estate, equipment and inventory. Most SBA 7(a) loans allow businesses to borrow up to $5 million, with the SBA guaranteeing 75% to 85%, depending on the loan amount. The SBA caps interest rates and certain lender fees are waived.

Turnaround time for most  7(a) loans is five to 10 business days, but businesses can get an SBA Express Loan within 36 hours for up to $350,000 with a 50% loan guarantee, which can be used for a revolving line of credit for up to seven years.

SBA 504 loans, which are geared towards economic development and job creation, are aimed at purchasing commercial real estate, existing buildings and equipment. These loans have a $5 million limit with fixed interest rates and 10 to 20 years maturity.  

Businesses that already have 7(a) or 504 loans can get up to three months of forgiveness of principal and interest and an additional five months of forgiveness for hard hit industries such as restaurants. Monthly payments are capped at $9,000. 

EIDL program extended to Dec. 31, 2021.

The SBA has extended the deadline for businesses to apply for the Economic Injury Disaster Loan, or EIDL, program. This program provides loans of up to $10,000 in emergency funds to businesses affected by disasters including flooding, wildfires and COVID-19. 

These loans have a 3.75% interest rate and a 30-year maturity. There is an automatic one-year deferment before monthly payments begin. The loan proceeds can be sued for capital and operating expenses, including paying payroll, rent utilities, health-care benefits and vehicle leases. 

State resources.

Many states have loans or grants available to business in addition to the federal programs outlined above. For example, small businesses in California can apply for COVID-19 relief grants of up to $25,000, depending on a business’s annual revenue. A business making between $100,000 and $1 million would be eligible for a $15,000 grant. 

The program will prioritize distribution based on various factors, including industry sectors most impacted by COVID-19, which should include restaurants. The application deadline for the first round of funding expired on Jan. 13, 2021, but a second round of funding is expected soon. 

Reducing labor costs.

A key component of surviving the next few month will be for businesses to reduce labor costs. In many instances, restaurants will have to lay off or furlough many or most nonexempt workers, leaving exempt mangers to hold the fort. 

A salary reduction for exempt managers with a corresponding reduction in hours may pass muster under the law as a temporary emergency act required by economic conditions (loss of income and need to reduce operating costs). Be aware, however, that this cost saving measure may result in managers temporarily losing their exempt status. Nevertheless, this action, if handled correctly, could be a key cost saving factor that allows businesses to survive these emergency conditions. 

Another cost saving factor to consider would be to require employees that have not been laid off or furloughed to take any accrued vacation time while business is slow. 

To many restaurant owners, January 2021 may seem to be the lowest point in the economic downturn resulting from COVID-19, and they may well be right. 

Yet, despite this current low point, there is good news on the horizon with effective vaccines that are beginning to be widely distributed. Moreover, restaurant owners who are willing to cut costs and take advantage of numerous federal and state emergency relief resources will likely not only survive but will emerge from this downturn stronger then before and ready for growth in a recovering economy. 

Arif Virji is the managing partner at the San Francisco and Sonoma, California offices of Kaufman, Dolowich & Voluck LLP, where he focuses on representing management in employment, labor and business litigation and advisory matters. 

This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News or Restaurant Hospitality.



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