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'It doesn't make any sense:' Restaurant owners push back against SBA loan restrictions

Akiko Fujita
Anchor/Reporter


Spencer Rubin has seen his restaurant locations dwindle from 20 to 2 in just one month. 

The rapid closures brought on by the coronavirus pandemic have slashed 80% of his revenue, forced him to lay off roughly 100 full-time employees, as well as other painful cuts to The Melt Shop, a restaurant chain he built out over nine years.

Still, Rubin hasn’t applied for a loan through the Small Business Association’s $350 billion program yet, because he’s not certain it will get his business back to where it would need to be.

“That money will quickly come and go, and then you’ll kind of be back to where you are, if you don’t plan it out properly,” Rubin said. “If you just take that money and just pay people to be on payroll but there's no demand for them to work, there's no other money coming into the rest of the business to build up cash to then fund the next step of the business.”

The Paycheck Protection Program (PPP) allows small businesses to apply for loans up to 2.5 times their average monthly payroll. The funds are fully forgiven, so long as they are used for payroll costs, interest on mortgages, rent, and utilities. While payments can be deferred for six months, forgiveness is based on the employer maintaining or quickly rehiring its employees. The amount of forgiveness drops for companies that don’t follow all the requirements.

“The challenge with the loan and the potential loan forgiveness is the 8-week window of time for spend, which may not work as intended for every business,” Rubin said. “Some restaurants will not see revenue above single digits of their pre-COVID steady state for some time. This will make it near impossible to rehire 100% of [full-time employees] which is the majority of the basis for the loan and loan forgiveness.”

Rubin says his dilemma points to the limitations of the stimulus for restaurant owners. On Monday, the Independent Restaurant Coalition urged Congress to reconsider restrictions tied to the PPP. Among the requests by chefs: extending the loan period to three months, longer repayment windows, and an expansion of the total size of the program.

In an interview with Yahoo Finance, Union Hospitality Group Chairman and CEO Danny Meyer, echoed frustrations expressed by other restaurant owners.

“The stimulus package tells us we’ll forgive your loans if you hire everybody back by June. Well, I can pretty much guarantee you that restaurants are not going to be back full force by June,” Meyer said. “Hopefully, we’ll see somebody come to their senses. And it’s just not realistic for our business.” 


NEW YORK, NEW YORK - OCTOBER 12: Chef Anthony Carron prepares pizza at The Ultimate Pizza Party presented by Saputo hosted by Jeff Mauro during Food Network & Cooking Channel New York City Wine & Food Festival presented by Capital One at Fornino At Pier 6 on October 12, 2019 in New York City. (Photo by Mike Pont/Getty Images for NYCWFF)


With more than a million restaurants across the U.S., the industry accounts for more than 15 million jobs in the country, according to the National Restaurant Association. Grim projections suggest a $225 billion loss stemming from the pandemic. 

At Los Angeles-based pizza chain 800 Degrees Woodfired Kitchen, founder and chef Anthony Carron plans to apply for PPP, after laying off nearly 200 people. But, he’s not sure how many he can hire back.

Prior to the virus outbreak, he operated 15 restaurants around the world. Now, he’s down to three locations in the U.S. 

“It wouldn’t make any sense to take out a loan against something that is closed right now, because we just don’t know what’s going to happen when things bounce back,” Carron said. “It doesn’t make any sense to pay people to stand there to do nothing.”

Meanwhile, he’s deployed his “hanging on strategy” to get through the next few months: upselling wherever he can through delivery. He’s added options for extra cheese, extra sauce, and started serving desserts and cocktails. 

“We're pushing out payables, we're stretching everybody. We're negotiating landlords for reduced or no rent,” he said.

Carron is confident current demand from deliveries will allow him to keep remaining employees on the payroll, but he’s less certain about the future of the restaurant industry. The dramatic changes brought on by the pandemic, may lead to permanent shifts that result in a significantly smaller footprint, he said.

“It's no longer 100% full dining rooms anymore. It's a dramatically different risk calculus,” Carron said. “I think we've begun to see how this thing is going to affect the economy. I think it's just the tip of the iceberg.”


Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita