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Why Restaurants May Now Benefit from a Paycheck Protection Program Loan

July 6, 2020

On July 4, President Trump signed into law a bill that allows potential borrowers another five weeks to get a Paycheck Protection Program (PPP) loan.  Many restaurants elected not to take a PPP loan when the program was rolled out in April because of its requirement to rehire staff, along with the administrative headaches and unclear rules established by the Small Business Administration (SBA).  But over the past few months, the dust has settled and the program is now more appealing for restaurants in several key respects. 

First, borrowers will have 24 weeks (instead of the original 8 weeks) to use their loans.  Since the loan amount is generally 2.5 times average monthly payroll in 2019, spreading this out over 24 weeks allows more borrowers (even those operating with a reduced staff) to use their full loan amounts on eligible expenses. 

Second, the program’s requirement to rehire employees was relaxed significantly by the Paycheck Protection Program Flexibility Act of 2020, signed into law on June 5.  Previously, borrowers that did not rehire staff had to reduce their loan forgiveness amount (the amount of the loan that would not have to be paid back).  This would have left many restaurants on the hook to repay a portion of their loans as rehiring staff at a time of significantly reduced business activity may not have been the right business decision to make.  A new exception now applies, however, for borrowers that can certify that they are unable to operate during the 24-week period at the same level of business activity that they operated at prior to February 15, 2020.  This inability must be a result of guidance or requirements issued related to sanitation, social distancing, or other COVID-19 safety requirements.  But, according to the SBA, that includes restrictions imposed by State or local orders. 

  • How have the various local and State orders impacted your ability to operate at full capacity? 
  • Have you been forced to serve less customers because of those requirements? 
  • Have you suffered a loss in business activity because of the COVID-19 restrictions? 

Most restaurants should be able to make this certification in good faith.  By doing so, not only does it avoid a reduction in eligible loan forgiveness, it also relieves much of the administrative burden required by the SBA at the time of loan forgiveness.  On June 16, the SBA issued new loan forgiveness applications, including a shorter two-page EZ form that many restaurants should be able to utilize.  

Third, while the SBA had originally required 75 percent of the loan to be used on payroll expenses (versus certain nonpayroll expenses), Congress reduced that amount to 60 percent.  Thus, while 60 percent of your loan must still be used on payroll expenses, 40 percent may be used for other eligible expenses, such as certain mortgage interest, rent, and utility payments.  In addition, even if you use less than 60 percent of your loan towards payroll expenses, that does not disqualify you from receiving any loan forgiveness—rather, you would have to take a reduction in the amount of forgiveness allowed. 

These changes, and others, have made the program much more appealing for restaurants than it was back in April.  If you have not yet received a PPP loan, you may want to consider taking advantage of Congress’ extension and obtain a loan before the program closes.      

To learn more about the issues in this blog post, please contact Derek Adams at