[Update] How the New Stimulus Package Helps Restaurants

This blog post has been updated as of February 23 to reflect changes made to the Paycheck Protection Program 2.0 by the Biden—Harris administration on February 22.

After more than half a year of deliberation and inaction, the United States Congress passed a stimulus bill that was signed into law by outgoing President Donald Trump on December 27th, 2020. The $900 billion dollar deal—named the HEROES Act—comes at the end of a devastating year for the restaurant industry, and at a time when many restaurants are choosing to hibernate or outright close their doors.

The National Restaurant Association supported the bill in a statement: “The action taken by Congress today will keep tens of thousands of restaurants from closing in the coming months,” said Tom Bené, President & CEO. However, they recognize it as more of a “down payment” and acknowledge that more support is needed soon. The Independent Restaurant Coalition said that “This bill falls woefully short of giving 11 million independent restaurant workers the job security they need before the holidays.”

While the industry’s general sentiment towards this stimulus package is day late, dollar short, the bill does provide restaurant owners resources to keep their staff paid and doors open.

Here’s what the restaurant stimulus bill can do for you.

The Paycheck Protection Program 2.0

The main attraction of the HEROES Act is the extension of the Paycheck Protection Program, providing small businesses (that’s restaurants!) with 100% federally-backed, forgivable loans to keep their employees paid. The new law adds $284 billion to the program through March 31st, 2021.

What do I get?
Restaurants (like you) are eligible for up to 3.5 times their average monthly payroll, up to 2 million dollars (whichever comes first).

What can I use it for?
While you must use at least 60% of the loan amount on payroll costs within the covered period (8 to 24 weeks after the date of when the funds were deposited)—same as the initial round of PPP funding—the remaining 40% can be used on a newly expanded list of expenses, like:

• Business software and services that facilitate business operations (like your POS, payroll software, or 7shifts!)
• Worker protection costs such as Personal Protective Equipment (PPE) like masks, gloves, face shields, and sanitizer
• Supplier costs for any contracts, purchase orders, restaurant utilities, and essential goods

Who qualifies for a PPP loan?

• Businesses that employ fewer than 300 employees and have been operational since Feb 15th, 2020 or before. Update 2/23: Beginning Wednesday, February 24, businesses with more than 20 employees will be excluded for a two-week period. This was enacted by President Biden to facilitate funding towards small businesses, including restaurants.
• Business that are able to demonstrate a 25% year-over-year revenue loss in gross receipts for any calendar quarter of 2020 when compared with 2019
• No publicly traded companies will be eligible to apply this round. This is likely to prevent a majority of the funds from making their way into the larger restaurant chains as it did the first time around.

How do I apply?

• The SBA has announced that the PPP will open up on January 11, 2021 for first draw loans, and on January. 13, 2021 for second draw. Here’s a link to the application.

How do I get my loan forgiven?

• For operators whose PPP loan totals $150,000 or less, there is a simplified, 2-page form available to use for loan forgiveness
• Those who borrow more than $150,000 will have to fill out the long form Loan Forgiveness Application

Updated EIDLs

The Economic Injury Disaster Loan is not a new initiative, but the requirements have been changed due to COVID-19 to allow restaurants to obtain this credit regardless of if they’re receiving credit elsewhere. Now, restaurants that are facing substantial economic impact from COVID-19 are able to apply for an EIDL. The new stimulus bill adds $20 billion in funding to the program. It also extends the covered period for grants through December 31, 2021.

What do I get?
A loan of up to $10,000 to pay for paid sick leave for staff, payroll for retaining employees, meeting increased costs, paying rent, or repaying other obligations.

Who qualifies for an EIDL?

• Businesses that are located within a state declared a disaster area by the SBA (currently all states are declared disaster areas by COVID-19)
• Businesses who have (or are likely to) suffered a substantial economic injury due to the disaster
• Businesses that demonstrate good credit and an ability to repay the loan

How do I apply?

• According to the SBA, a new disaster loan application will be available by January 17, 2021

Tax-related updates for the PPP and EIDL loans

The new stimulus bill also contains a few new provisions that can help restaurants save money on their taxes:

• Restaurants can now deduct business expenses made with PPP loans like payroll and utilities. They can be applied to the original PPP draw from earlier this year, or a second draw from round 2 of the Paycheck Protection programs
• The Employee Retention Tax Credits (ERTC) will be available for the first half of 2021, and allow employers to claim up to $7,000 per employee retained during that time. While your restaurant can be eligible for both the ERTC and PPP loans, you cannot claim the credit on wages paid with the loan funds.
• The Work Opportunity Tax Credit (WOTC) is extended for five years, which grants support for restaurants that hire, train, and retain employees from certain disadvantaged groups. Learn more here.

“Three Martini Lunch” Business Lunch Tax Deduction

The HEROES Act grants businesses the ability to claim 100% of meals and entertainment as a business expense, previously 50%. Restaurants can use this to their advantage by marketing lunch dine-in or takeout to companies in your area.

Temporary Enhancements to SBA Lending Programs

The HEROES Act provides support in a few key areas of Small Business Association loans. The bill:
• Increases 7(a) loan guarantee to 90% with no fees
• Eliminates fees for 504 loans
• Extends the CARES Act principal and interest waiver for new and existing 7(a), 504, and micro-loans

For loans taken before the CARES Act (the first stimulus in March of 2020), the new bill allows three additional months of principal and interest paid by the government; and restaurants authorized to take an additional five months..

Unemployment Updates

For those on your staff who you just can’t hire back yet, or if you’re still out of work due to the pandemic, the stimulus package has a few resources through the Federal Pandemic Unemployment Program. The HEROES Act will put federal unemployment subsidy back in the hands of the unemployed, to the tune of $300 per week on top of state benefits for up to 11 weeks.

For people already on their state unemployment benefits, the Federal benefits will kick in automatically—and has in a few states already.

State and local initiatives
A few states have introduced new relief programs over the past few weeks. In New York, there’s the LMI Storefront Loan, an interest-free loan of up to $100,000 for restaurants in low to moderate-income level zip codes. Check with your state and local governments and small business associations to find out what’s at your disposal. You can search for your local chapter via the Small Business Administration.

Conclusion: How the New Stimulus Package Helps Restaurants

While the latest economic stimulus package may not have all the answers for restaurants, and is not enough given the current circumstances, it certainly is a start. There are a number of updated and expanded programs that you can use to help keep your restaurant’s doors open for the next few months.

Looking ahead, there is restaurant-industry specific legislation on the table—the $120 billion RESTAURANTS Act—but it’s unlikely to see a vote until the new administration takes office on January 20. The bipartisan bill would create a $120 billion dollar Restaurant Revitalization Fund to give grants, not loans, to restaurants in need. In addition, incoming President Joe Biden is the on the record supporting grants over loans for the restaurant industry. For more information, you can check out our COVID-19 resources page.