Updated 4/3/2020

Options for beleaguered restaurants owners are quickly mobilizing and here is what you need to know. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, recently passed by Congress and signed by President Trump on March 27, allows the Small Business Administration (SBA) to guaranty $349 billion in loans to small businesses that have been impacted economically by the virus. The loan program, known as the Payroll Protection Program (PPP), is designed for you to maintain employment, or to quickly hire back as many employees as you can. The program also provides a mechanism for forgiveness based on a whether or not a borrower can maintain employment through June 30, 2020. Consider it free money if you play it right.

There are many attractive features of the PPP loans for restaurant and franchise owners, and the Monitor anticipates there will be overwhelming demand from multi-unit owners.  

Here is what we know so far about the PPP program: 

Who is eligible?

Small businesses that employ less than 500 employees per location and were in operation on February 15, 2020 are eligible.

Are multi-unit franchisees, private equity funds, family offices, public companies or large franchisees eligible for PPP loans?  

Yes, according to the rules, any business concern that employs less than 500 employees per physical location and has a North American Industry Classification System code beginning with 72 (Accommodations and Food Service) is eligible. It’s important to note that typical SBA 7(a) loan affiliation rules don’t apply here. A private equity fund could conceivably receive a PPP loan for its own office, and its portfolio companies could receive PPP loans for each of their store locations.

What if I operate as a sole-proprietorship?

Yes, sole-proprietorships can obtain a PPP loan.

What is the maximum loan amount?

The maximum amount you can borrow under the PPP loan program will be based on 2.5 times your average monthly payroll costs per location during the past 1-year period before the date on which the loan is made.

How do you define payroll costs?

Payroll costs include salaries, wages, commissions, tips and other payroll costs, including vacation, family and medical leave, sick pay, retirement benefit costs, or any state or local tax assessed on payroll. It does not include taxes withheld from employees or any sick leave wages for which you are eligible for a credit under the recently enacted Families First Coronavirus Response Act. For purposes of calculating salary in the look back period to obtain the loan amount, the compensation of any individual employee cannot be greater than $100,000 and employees must be residents of the U.S.

What if I wasn’t in business for the entire 1-year look back period?

Then you would calculate the average total monthly payroll costs incurred during the period beginning on January 1, 2020 and ending on February 29, 2020.

What is the interest rate for these loans?

The government has set the interest rate at 1%.

What are the payment terms?

 Although the legislation said the loans could be written for up to a ten year term, the SBA set the term at 2 years and requires the lender to defer principal and interest payments for at least six months, but no more than one year.

What can the loan proceeds be used for?

The loan can be used to pay payroll costs, interest payments on a mortgage (no principal or loan repayments), rent and utilities. You can also use the loan proceeds to pay interest on any other debt incurred before February 15, 2020.

Do I have to give a personal guaranty?

No. A personal guaranty is not required.

Do I have to offer the lender collateral?

No collateral is required.

How are the loans forgiven?

You are eligible to have all or a portion of the loan forgiven for the costs you’ve incurred for payroll, interest payments on a mortgage, rent and utilities during the covered period of February 15, 2020 and ending on June 30, 2020. Revised loan guidelines issued by the SBA on April 2 mandate that not more than 25 percent of loan proceeds may be used for non-payroll costs. The amount of loan forgiveness will be reduced by a percentage to the extent the average number of full-time equivalent employees per month during the covered period (February 15, 2020 to June 30, 2020) is less than the average number of full-time equivalent employees per month during the year ago period (February 15, 2019 to June 30, 2019). You will be required to provide documentation such as payroll records and tax returns, copies of leases, mortgages and utility bills.

Is the loan forgiveness portion taxable?

No. It is specifically excluded from gross income.

Is there a pre-payment penalty on the portion of the loan that is not forgiven?

There is no prepayment penalty.

When can I expect the SBA to provide definitive rules so participating banks can start making loans?

The SBA provided final rules to lenders on April 2nd.  More information can be found here: https://home.treasury.gov/system/files/136/PPP--IFRN%20FINAL.pdf

How long will it take for my bank to underwrite and process a PPP loan?

Many national, regional and community banks are already designated as SBA Preferred or Certified lenders so they should be able to process these loans depending on their ability to deal with high demand. Preferred lenders have the ability to underwrite the loans themselves without a long SBA approval process.

I assume banks will focus on their existing customers first?

Probably. Some banks are already reaching out to their customers advising them of the features of the PPP even though they don’t have all the details, but others will look at this as an opportunity to introduce themselves to potential clients.

How do I know if my bank is making PPP loans?

Call your bank to ask them if they will be processing PPP loans.

My existing bank loan has a clause that I cannot borrow additional money without the bank’s consent. Will I need a waiver from them to access PPP loans? 

Yes. You should already be talking to your bank about your credit situation and whether or not a PPP loan is right for you. If you are utilizing a non-bank lender for your credit needs, then you need to read your loan documents carefully to see whether or not you can take on additional debt. One thing to remember here: You do not have to pledge any additional collateral to get a PPP loan, so senior lenders many not be opposed to you receiving additional liquidity, especially with the potential for a portion of the loan to be forgiven.

What if I’ve closed my locations and let go of most of my employees? Can I still access the PPP funds?

The PPP funds are designed to help you hire employees back and reopen.  If you are planning on giving the keys back to the landlord instead of reopening, we doubt a lender would process your loan. The purpose of this PPP plan is for you to maintain employment during the covered period, or incentivize you to quickly hire back as many employees as you can.

Will I need to rehire all my employees back for the loan to be forgiven?

If you want the maximum forgiveness on the loan then you should. Remember, the loan forgiveness is based on your payroll costs, mortgage interest, rent and utilities during the covered period of February 15 to June 30, 2020. The final rules will set forth the exact tests for loan forgiveness.

Are there any fees to obtain a PPP loan?


Does the borrower have to make any certifications to the lender or the SBA?

Yes, the borrower must certify that the current economic conditions make it necessary to support their ongoing operations with a PPP loan. The borrower will also certify the funds are being used to retain workers and maintain payroll and is not part of a duplicative application with another lender or have previously received funds under the program. The revised guidelines issued April 2 also introduce penalties for the unauthorized use of PPP loan funds and said the SBA would now have recourse against any shareholder, member, or partner in a company that misuses the funds. 

Should I work with my existing bank or should I talk to another bank?

That’s up to you, but your existing bank knows you and may be able to process the loan quicker. 

What does the $10 million borrowing cap mean? Does it mean I can borrow up to $10 million per location, or does the $10 million cap apply to my entire organization?

Most bankers we spoke with believe the $10 million cap is per entity.

The U.S. Treasury Department has finally released more Information on Payroll Protection Loans

SBA application for borrowers

Watch the Monitor’s website at www.restfinance.com for update information.


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