It’s no great secret why some restaurateurs greeted December’s $900 billion coronavirus stimulus legislation with trepidation. Andrew Rigie, executive director of the NYC Hospitality Alliance, called it “a Band-Aid on a cannon wound.” The Independent Restaurant Coalition said it fell “woefully short” of helping restaurant workers get the security they needed.

In both cases, leaders lamented the lack of direct aid for the restaurant industry. Where was the $120 billion RESTAURANTS Act operators pushed for months?

Perhaps core to the concern, though, is skepticism concerning another round of the Paycheck Protection Program. The $900 billion relief bill includes $284 billion in funding for the PPP. But restaurants haven’t forgotten the previous go-around, when the “Accommodation and Food Services” sector received just 8.1 percent of PPP dollars. “It is better than nothing, yet still a disgrace,” Rigie said of the new round.

There are plenty of changes intended to fix some prior issues. Here’s a breakdown of all of them.

Yet the question lingers: What happens if I don’t get one? Is there somewhere else to turn?

The good news is there are other options. For instance, there was a clause in the previous CARES Act that allowed many small businesses that received loans from the SBA to recoup big savings. It expired in September but is brought forth, and enhanced, in the new bill, as outlined by the Philadelphia Inquirer.

The new stimulus bill forgives up to eight months of principal and interest payments on Section 7(a) and 504 Microloans from the SBA. Essentially, the government will pay for a portion of a businesses’ debt. A Section 7(a) loan can be used for working capital, equipment, inventory, and business acquisitions. Borrowers can ask for up to $5 million at fixed and variable interest rates as long as they have fewer than 500 employees and less than $7.5 million in average annual receipts. Companies must be a for-profit organization and not be delinquent on any debt owed to the government. Depending on how the money is used, maturities would be 7 to 25 years. The SBA’s 504 Microloan program can be deployed toward purchasing commercial real estate, existing buildings, and equipment to help a business grow. These also tout a $5 million limit, but interest rates are fixed and maturities are 10–20 years.

But they key point to note is if a business already has an existing SBA Section 7(a) or 504 Microloan, then can get eight months of forgiveness of principal and interest payments, capped at $9,000 a month. As the Inquirer pointed out, three months plus an additional five if you’re in a hard-hit industry, such as foodservice. If you get a new loan before September 20, the first six months of principal and interest, up to $9,000 a month, will also be forgiven.

What’s also interesting is business don’t have to show they’ve been impacted by COVID. And those with existing PPP loans can still apply. More on what it takes to get one.

Gerri Detweiler, education director for Nav, a company that matches small business owners with financing options, and provides free business and personal credit reports, chatted with FSR about where operators can look if they’re not PPP qualified or simply don’t receive one, despite trying. Also, what went wrong the last time and how to prepare.

Detweiler has been answering credit and financial questions for more than 20 years, is the author or coauthor of five books on credit and financial topics, and has been interviewed in more than 4,000 news articles.

1. Let’s start with the basics. Which restaurants won’t be eligible for PPP? What do operators need to know to figure that out?

There are three types of PPP loans that may be available to restaurants in this round:

• First-time loans under the same terms as the original PPP loans for those who never applied,
• Second draw loans for those who already got a first-time PPP loan and still qualify, and
• “Gap” loans for those who returned their first loan or didn’t get the full amount for which they qualified.

I detail the qualifications in this article. Note that for second draw loans, restaurants may qualify for more funding; specifically 3.5x average monthly payroll. My understanding (pending guidance from the SBA) is that this calculation applies to second draw PPP loans and not first-time ones, and that first-time PPP loans will still be based on 2.5 times average monthly payroll.

2. In terms of restaurants, what do you think went wrong the last time around with the PPP, given the “Accommodation and Food Services” sector received just 8.1 percent of PPP dollars?

Across the board, PPP fell short for small businesses. However, this was particularly true for industries in which owners of very small businesses were already struggling to maintain day-to-day operations as the solo decision-maker. Most restaurants and food services ventures likely fit into this category—the average American restaurant has fewer than 50 employees and foodservice operations were among the hardest hit of any industry.

How could this have affected PPP allocation? According to a Government Accountability Office study from September, forgiveness applications alone take up to 15 hours to complete and more than three days for lenders to review. More than a days’ work of complicated, intimidating paperwork is unfortunately enough of a barrier for many business owners to simply opt out altogether. And those who did apply often didn’t get the amount of terms they wanted.

In fact, Nav ran a survey of small businesses in December, and we found the smallest companies (one to 19 employees) said the paperwork of applying was “the most frustrating” element of PPP. Small businesses (20–99 employees) were most frustrated by how long the process took, and mid-sized businesses (100–500 employees) were most frustrated by not getting the right terms or amount.

Another reason why PPP may have been a fail for restaurants the first time around is because of the heavy emphasis on payroll. Those that had reduced staff dramatically had to choose between paying employees who couldn’t come to work or letting them collect unemployment (which was often more money for the employee). Remember in the first round you had to spend 75 percent on payroll-related expenses, later reduced to 60 percent. For many restaurant owners it did not adequately address their biggest needs (including rent).

So, although I don’t have a black-and-white answer for why this industry specifically only saw 8.1 percent of PPP funds, it’s likely that the complexity and burden of navigating the application process is partially to blame.

3. What lessons can restaurants learn from the first go-around to make sure they secure aid this time?

The most important thing you can do to prepare for this round is to make sure your bookkeeping is up to date, as those calculations will determine whether you qualify.

Secondly, don’t feel like you have to work with your bank. As we saw the first time around, many banks didn’t prioritize truly small businesses. The way PPP is set up means banks often prioritize those they already have loans with and then larger accounts, before prioritizing small businesses. This isn’t always the case, of course, but generally speaking most traditional banks are not designed or incentivized to serve the smallest businesses. You can apply through any lender approved by the SBA. In the last round we saw that many smaller businesses were well served by fintech companies. (As with the last round of PPP, Nav will match business owners to lending partners.)

4. Shifting gears to other relief/financing options, what are some options out there for restaurants not eligible for PPP, or simply looking for an alternative?

There are still new COVID-19 relief grants and loans coming out at the state and local level. I’d strongly encourage owners to get on the mailing list for their local Chamber of Commerce, SBA regional office, as well as their local Small Business Development Center and SCORE chapter so they can learn about new opportunities when they arise.

And don’t rule out conventional financing if your restaurant has been in recovery mode for the past few months. Lenders have been lending to small businesses over the past few months based on revenues and, in some cases, credit scores.

5. What if you’re a restaurant just getting started, or hoping to open in the middle of the pandemic?

It will be tough if you started around the pandemic and haven’t gained traction yet. The COVID-19 relief programs are not designed for startups. You must be in business by February 15, 2020 to apply for PPP and by January 31, 2020 to apply for EIDL. You’ll need to look at other financing options available to startups, including alternatives like crowdfunding.

6. What about for those who have been around a while and are trying to stay afloat?

Apply for PPP and EIDL if you believe you qualify. (You may apply for both if you qualify.) PPP may be completely forgiven and EIDL may offer a grant that doesn’t have to be repaid, along with a 30-year loan at 3.75 percent.

7. Elaborate on Crowdfunding. What are some pros and cons?

Crowdfunding has been a bright spot for some businesses during the pandemic. There are four main types of crowdfunding restaurants may consider:

Rewards-based: where you offer some tangible reward to backers (a Zoom cooking class, gift certificate, secret recipe, exclusive T-shirt etc)

Debt-based: you take out a loan that must be repaid. A great example is Kiva which offers zero percent, zero fee loans up to $15,000 for U.S. borrowers. It’s a small amount of money but combined with other options like COVID-19 relief loans, it might help you make it until businesses can fully reopen.

Equity-based: where you get investors in your business. You can raise up to $5 million in Regulation Crowdfunding. Restaurants have been successful with this even in the pandemic. (Sherwood Neiss has good data on this as well.)

Donation-based: supporters donate with no expectation of return. I’m not sure if this slowed down from the initial crisis, but it certainly helped some restaurants in the first wave of the pandemic.

The key to successful crowdfunding is to have a fanbase you can reach easily. That means a solid email list, social media following etc.

8. Are there some options that stand out over others?

I’d start with PPP and EIDL if you qualify. If you qualify for traditional financing, now is the time to look into it as many lenders are eager to lend. Alternatives like crowdfunding will take more time and effort, but may be right for your business.

9. Is there a place to turn for help to start looking into these options?

Yes, Nav is happy to help business owners find financing options. This includes PPP via our PPP Application Portal. (For EIDL you must apply at SBA.gov.) Restaurant owners can sign up for a free Nav account and we will help match them to options, ranging from SBA loans to business credit cards to lines of credit. We don’t sell their information to lenders, and a Nav account will allow them to monitor your business and personal credit for free.

Also, we launched a PPP Loan Calculator, which helps business owners quickly determine what financing and forgiveness they qualify for, at no cost.