A second COVID-19 relief bill recently passed by Congress and signed by President Trump will provide much-needed additional pandemic assistance for restaurants, though some believe the provisions of the new legislation fall short of what is needed. In this blog, an experienced business owner and restaurant attorney discusses what the COVID relief bill means for restaurants in the months ahead.
What Owners and Operators Need to Know about New Pandemic Assistance for Restaurants
Assistance for restaurants during COVID has been spotty at best. For example, restaurants and other hospitality businesses received only around eight percent of the first round of Paycheck Protection Program (PPP) funds. Many in the restaurant industry hoped a second stimulus bill would grant direct aid to the hard-hit sector.
The second COVID relief bill falls short of those hopes, but changes to PPP loan requirements, as well as some additional provisions of the new law, do lower a rope to restaurant owners and operators who have found their businesses in the hole.
Sean Kennedy, Executive Vice President of Public Affairs for the National Restaurant Association, called the bill provisions directed at restaurants a “down payment” and recognition of the specific challenges facing the industry and the need for pandemic assistance for restaurants. Meanwhile, the organization’s president and CEO, Tom Bené, noted that the access to capital provided by the bill will be a lifeline that allows some restaurants to survive while we wait for coronavirus immunity and a return to some form of normalcy.
Restaurant owners and operators should look at potential relief for their businesses in the following areas under the new COVID relief bill:
- Additional PPP loan availability and forgiveness;
- Expanded tax credits and deductions; and
- Adjustments to non-PPP loan programs
PPP Loan Forgiveness for Restaurants: Additional Expansions
The second COVID relief bill expands PPP loan forgiveness for restaurants and other businesses to 100 percent when funds are used for allowed expenditures. The legislation also allows PPP funds to be used for costs that were not previously included. New forgivable expenditures include personal protective equipment for employees; costs associated with cleaning, sanitation, and accommodation of social distancing requirements; and inventory or supply expenses.
In the new stimulus bill, a streamlined PPP loan forgiveness process for businesses borrowing $150,000 or less aims to reduce administrative burdens. Additionally, the new bill removes a provision that required businesses to deduct from the forgivable PPP allotment any amounts received through Economic Injury Disaster Loans (EIDLs), allowing restaurants to receive the full benefit of both programs when qualified.
While these expansions apply to all businesses, there are also provisions in the second pandemic stimulus bill that apply only to restaurants and other businesses in the accommodation and food services sector (NAICS 72). These businesses can request PPP funds at 3.5 times the company’s monthly payroll expenses, as opposed to a rate of 2.5 times for other sectors.
Restaurants also receive a special allowance with regard to employee caps for PPP loan-eligible businesses. While businesses in other sectors do not qualify for PPP loans if they employ more than 300 people, restaurants may employ up to 300 individuals per location. This change represents an acknowledgement by government leaders that the challenges of the pandemic are not limited to small, independent business owners but have also had significant impacts on larger organizations and franchises. Additional support for franchisees comes in the form of a waiver of Small Business Administration (SBA) affiliation rules that typically prevent these restaurants from receiving loans under SBA terms.
Limitations of PPP Pandemic Assistance for Restaurants and Other Businesses
The new allowances in the second COVID relief bill are accompanied by a few new restrictions related to PPP loans. The original cap for eligibility based on number of employees was 500, so businesses that fall in the 300 to 500 range that qualified for first round funding will not qualify for second draft PPP loans (except those in the NAICS 72 sector with 300 or fewer employees per location).
Eligibility for second draft PPP funds will also require businesses to show a 25 percent or higher revenue loss for any quarter in 2020 as compared to the same quarter in 2019. Finally, the maximum amount for any PPP loan in the second round of funding is $2 million, reduced from $10 million in the first round.
Assistance for Restaurants during COVID: Tax Credits and Deductions
The second round of COVID stimulus also aims to provide pandemic relief for restaurants in the form of additional tax deductions and expanded tax credits. With regard to PPP loans, a change in the new legislation allows businesses to deduct from their taxes expenses paid with PPP funds, including payroll and property costs like mortgage interest, rent payments, and utilities. This provision applies to second draft loans as well as retroactively to PPP loans granted in the first round of funding.
The Employee Retention Credit that was introduced in the CARES Act is expanded under the latest coronavirus relief bill. Businesses that qualify may receive tax credits for up to $7,000 for each eligible employee retained, whether the employee’s wages were paid with PPP funds or not. This program will continue to be available to qualified employers through the first half of 2021. Additionally, a five-year expansion of the Work Opportunity Tax Credit offers a possible tax credit for employers who hire and retain employees in certain targeted groups.
Finally, some restaurants will benefit from an extended business tax deduction allowance in the second COVID relief bill. Through 2021 and 2022, business meals will be tax-deductible in full.
What the COVID Relief Bill Means for Restaurants and Non-PPP Loans
Restaurant owners and operators should also review options related to non-PPP loans via the SBA and changes or extensions of changes to the terms of these programs under the second round of pandemic relief legislation. For example, the bill increases the SBA 7(a) loan guarantee to 90 percent. Fees, principal, and interest waivers are also available under the new legislation for SBA 7(a) loans, 504 loans, and microloans.
Talk to a Restaurant Attorney about Pandemic Assistance for Restaurants
To thoroughly understand what the COVID relief bill means for restaurants and maximize the opportunities available, owners and operators should consult with experienced legal counsel. Xavier W. Staggs at Jenkins Fenstermaker, PLLC is a business owner and restaurant attorney who maintains up-to-date knowledge on the issues that impact restaurants and other businesses, COVID-related and otherwise. If you would like to discuss the available pandemic assistance for restaurants or other business matters, contact Xavier by calling (304) 523-2100 or complete this online contact form.