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May 5, 2022: The SBA has stopped accepting PPP applications because of insufficient funds. The SBA will continue to fund outstanding applications that have been already approved.
Explore other loan options with our top ten lenders or go to the lending marketplace Lendio to obtain matched with the best offers for the business.
When the COVID-19 pandemic began, you saw a divide begin to emerge between businesses that could function well under “social distancing” and those that saw their work heavily disrupted or even ground to some halt. One type of business that’s been hit particularly hard is restaurants. It has been compounded through the arrival of cold temperature, which makes outdoor dining a significantly less desirable option.
Over 110,000 restaurants have closed (most of them permanently) because the pandemic began according, to a study by the National Restaurant Association. As much as 500,000 are in danger of failing, with 87% of full-service restaurants experiencing a typical 36% stop by revenue.
Needless to state, the brand new December 21, 2022 stimulus bundle is out of its method to note the plight of the foodservice industry and it is offering some kind of special things to consider for companies that fall under this category.
How Restaurant PPP Loans Are Different From Other Industries
Restaurant owners seeking a PPP loan should know that almost all of the processes and rules governing PPP loans will affect you. Which means the items you’re required and permitted to spend the PPP money on — and still qualify for loan forgiveness — are identical. For example, you’ll still need to spend 60% of the funds on payroll expenses.
In fact, for restaurants seeking a PPP the very first time — referred to as “first draw” — there isn't any distinction between restaurant PPP loans and any different kind of PPP loan. The difference is necessary with second draws.
The new stimulus bill allows businesses that previously drawn on PPP to make a second draw when they meet certain criteria.
Second draw loans are capped at $2 million compared to first draw’s $10 million. However, restaurants come with an extra provision. Where most businesses can only borrow up to 2.5x their monthly payroll, restaurants can borrow as much as 3.5x their monthly payroll expenditures. In order long as you’re not maxing the $2 million second draw, you’ll have the ability to borrow more when compared with other industries.
Borrower Requirements For Restaurant PPP Loans
Borrower requirements for both third and fourth draw PPP loans are the same for restaurants as any other qualified industry.
To qualify for an initial draw PPP loan in 2022, you must:
- Have been around prior to February 15, 2022
- Have less than 500 employees
- Have a business that is still operational
To meet the requirements for any second draw, there are a few additional stipulations:
- You have to have used your first PPP draw funds.
- You have to show you’ve experienced at least a 25% loss of revenue in one quarter of 2022 compared to the same quarter in 2022.
- You have to have less than 300 employees.
- You can't be a publicly-traded company.
PPP Loan Forgiveness Rules For Restaurants
While restaurants will qualify for more money the second time they're going towards the PPP well, the guidelines governing loan forgiveness are the same for restaurants as they are for other businesses. To qualify for full forgiveness, you have to spend your funds on approved expenditures. Partial forgiveness continues to be an option should you stray slightly in the formula. The loans make use of a 24-week cycle for expenses, so keep in mind that any money not used during this period will not be forgiven.
The biggest restriction around the use of PPP funds is the fact that a minimum of 60% from the funds must go to payroll (it is called the Paycheck Protection Program for any reason). Specifically:
- You must retain your employees, or rehire them within the 24-week period. Exemptions exist in case your staff turns down good faith purports to go back to work, or your can’t find employees.
- You must maintain payroll, aka, not decrease salaries of anyone earning under $100,000/yr by more than 25%.
The remaining 40% can be spent on qualified expenses. Whilst not unique to restaurants, the next round of PPP loans does expand the list of what the different options are your money on while still qualifying for forgiveness. You can spend the part of your PPP loan not focused on payroll on:
- Mortgage interest
- Rent
- Utilities
- Software expenses
- Necessary supplier costs
- COVID protection measures including masks, sneeze guards, and private protective equipment
- Property damages related to civil unrest
Note that EIDL grants no longer count against loan forgiveness when you get both a PPP loan and an EIDL grant. Additionally, you can deduct normal expenses off your taxes while you would in any other year even though you spent PPP loan cash on them.
Where To Apply For A PPP Loan
PPP loans are overseen by the SBA, but unlike EIDL loans and grants, the federal government organization doesn’t directly disburse these loans. Instead, you’ll obtain a PPP loan through an SBA-approved lender. In most cases, this means your local or national bank, but lending institutions and online lenders will also be making PPP loans.
- PPP Round 2: How to find An initial Or Second Draw PPP Loan
- PPP Loans: 7 Lenders Offering PPP2 Loans Online
- 5 Banks Which are Accepting Applications For that Second Round Of PPP
