Independent Restaurants: Relief Bill is ‘Small Step on a Giant Staircase’

Operators are asking Congress to supply more funds, resolve insurance issues, and fix a Paycheck Protection Program that doesn’t do enough.

April 6, 2020 Ben Coley

Although the federal government passed legislation granting small businesses access to nearly $350 billion in forgivable loans, independent restaurateurs nationwide describe the system as flawed and insufficient.

In recent weeks, operators joined together to form the Independent Restaurant Coalition to give a larger voice to a segment of the restaurant industry that, according to the Coalition, includes 500,000 locations, 11 million employees, and a $1 trillion contribution to the economy.

The organization sent a letter to Congress Monday outlining their grievances, such as fixing the Paycheck Protection Program, creating a restaurant stabilization fund and tax rebates, and ensuring business interruption insurance.

WHY THE CARES ACT SHORTCHANGES RESTAURANTS

The $349 billion Paycheck Protection Program is supposed to keep small businesses running and encourage employers to keep workers. The program provides forgivable loans equal to the amount spent on payroll expenses, rent, mortgage interest, healthcare benefits, and utilities for eight weeks. But independent restaurants believe this system won’t help them recover.

The Coalition’s solution is to extend the maximum loan amount to three months after restaurants are allowed to reopen and operate at full capacity, increase the Paycheck Protection Program to more than $350 billion, reinstate a $500 million gross revenue cap to allow more funds for smaller independent restaurants, and increase the loan repayment term from two years to 10 years.

The group anticipates revenue to decrease by at least 30 percent through 2021. To supplement the Paycheck Protection Program, the Coalition is asking Congress for a $50 billion to $100 billion investment to assist independent restaurants and a “job provider rebate” to reward locations based on how many they employ and a “rent rebate” to help units keep their lease.

Tom Colicchio, owner of Crafted Hospitality in New York and cofounding member of the Coalition, said funds for two months of payroll won’t be enough to cover costs until restaurants can reopen. He also noted there’s not enough money to cover rent costs as 75 percent of the funds must go to payroll while the remaining 25 percent goes toward rent and utilities.

“What we really don’t want to do is have a bunch of restaurants open and hire back our staff and then they fail because there’s not enough business there,” Colicchio said Monday on a conference call. “So we need additional funding. We’re not looking for a bailout. We’re looking to get back to work when we can get back to work.”

“I haven’t heard of a single person who has gotten a letter of acknowledgment from their insurance company where they’re owed anything,” says Naomi Pomeroy, owner of Beast in Portland, Oregon. “We’re all owed something, but every insurance company I’ve heard of so far has been able to get out of that.”

Naomi Pomeroy, owner of Beast in Portland, Oregon, and cofounder of the Coalition, laid off her staff of 30 people on March 15. Her employees filed for unemployment insurance the following day, but still haven’t seen any funds.

Pomeroy added that many businesses are unable to apply for loans at a bank if they don’t have prior debt with the institution. In addition, her bank in Portland already turned off the application process—which began Friday—because they were overrun with applicants.

She also voiced concern about the loan terms changing from 4 percent interest over 10 years to 1 percent interest over two years.

“I think the fear is, we all anticipate that 2020 is going to be a wash and 2021 will be lost revenue, as well,” Pomeroy said. “So the concern is, if those terms remain as they are, it may be irresponsible for some people to take the PPP [Paycheck Protection Program]. We don’t want to put businesses at risk by the very thing that we’re trying to help them with.”

Kwame Onwuachi, a James Beard Rising Star and cofounding member of the Coalition, said minority restaurant owners are especially vulnerable during the pandemic because they often face difficulties gaining access to capital. This leaves them will little to no security amid the crisis.

He referred to the Paycheck Protection Program as a “small step on a giant staircase.”

Onwuachi said that if an appropriate amount of relief doesn’t come, there will be a destabilization of local economies and communities.

“Without proper action, this will fundamentally alter the identity of black communities,” Onwuachi said.

The Coalition’s other point of contention is the lack of business interruption insurance, which supposedly covers the loss of income during closure.

Most insurers have used virus and civil government exclusions to exempt them from payout. As a result, a handful of lawsuits have already been triggered. In New Orleans, Oceana Grill is fighting insurer Lloyd’s of London. Operator Thomas Keller, who owns roughly a dozen restaurants across the country, is arguing that his insurer, Hartford Fire Insurance Company, should cover COVID-19 related losses.

The American Property Casualty Insurance Association estimated that for small businesses with 100 employees or fewer, losses could cost between $220 billion and $383 billion per month. Meanwhile, U.S. insurers have an $800 billion surplus to pay future losses.

The Coalition is calling on Congress to “mandate that insurance companies fulfill their obligations.”

Pomeroy said she didn’t have an exclusion for viruses on her policy, but the company said she wouldn’t be insured because there was no physical damage.

“I haven’t heard of a single person who has gotten a letter of acknowledgment from their insurance company where they’re owed anything,” Pomeroy said. “We’re all owed something, but every insurance company I’ve heard of so far has been able to get out of that.”

“… Until there’s a vaccine for this virus, we’re going to continue to see our numbers and revenue plummet, so we do need to have something in place for that,” she added.

Colicchio said that his policy excluded viruses and that his insurer also mentioned the lack of physical damage.

He’s been in touch with those involved in ongoing lawsuits, but he emphasized that any type of remedy must come swiftly.

“[The court cases are] going to take forever,” Colicchio said. “They’ll work through the courts and we don’t have time to wait on this. … “Anything that takes time, we don’t have that luxury right now.”

The Coalition’s urgent letter comes after the U.S. Department of Labor reported that 6.6 million people filed for unemployment in the week ending March 28. Many of the states reporting listed foodservice as an industry that was affected the most.

Despite the bleakness of the situation, Colicchio said there remains one bright spot amid the loss—people are working together.

“They realize this is our generation’s WWII and we need to get our arms around this and we need to actually work together, and we’re really pleased that so many people—it sounds like they are right now,” said Colicchio.