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Chefs and restaurateurs argue new SBA loans don’t protect the beleaguered restaurant industry

April 6, 2020, 6:30 PM UTC

This article is part of a Fortune Special Report: Business in the Coronavirus Economy—a look at the impact of the pandemic on more than 50 industries.

With more than half of humanity on lockdown and advised to stay home and practice social distancing, the restaurant industry has taken a severe beating amid the collective effort to curb the spread of COVID-19. Takeout and delivery services are still available options, while seated dining is out of the question for the foreseeable future, and some local authorities have eased up restrictions on liquor sales to soften the blow.

But the vast majority of bars and restaurants are simply not able to make the immediate switch to takeout and delivery, and even those that do are falling short of the resources to keep staff on payroll. As a result, millions of hospitality workers are filing for unemployment, and chances are that even when restaurants are given the green light to reopen, many of them never will, and those jobs will not be there again.

Prominent chefs and restaurateurs of the Independent Restaurant Coalition—formed in March as a grass-roots movement to secure benefits protections for more than 500,000 independent restaurants nationwide and 11 million restaurant workers who were impacted by the coronavirus pandemic—issued a letter on Monday addressed to congressional leaders, asking them to take more urgent actions with a long-term recovery approach in mind.

Specifically, the coalition’s leaders argue that the $2.2 trillion stimulus legislation under the recently passed CARES Act does not meet the unique needs of the restaurant industry—a sector that contributed approximately $1 trillion to the national economy last year. Not only does the new small-business loans program hinder most restaurants from even qualifying, as they can’t remain open (and keep employees on payroll or rehired by at least June 30), but current funding limits under the program wouldn’t help restaurants stay open past the first month.

“There are so many things we have to think about now in terms of the future of our industry,” said Kwame Onwuachi, chef at restaurant Kith and Kin in Washington, D.C., during a media conference call on Monday. “Once it becomes time to reopen, there are going to be huge obstacles in front of us.”

Coalition members are looking for additional legislation and recovery funds to not only ensure restaurants currently shuttered are able to reopen but stay open through the remainder of 2020 and 2021 as the economy slowly recovers and communities return to normal rates of socialization.

The coalition’s call for action comes following reports that more than 10 million Americans have filed for unemployment in the past several weeks, with more than 6.6 million filing just last week.  The U.S. Department of Labor’s Bureau of Labor Statistics reported that two-thirds of jobs lost in March came from the hospitality sector—and more than half were food and beverage jobs. The department also noted that the drop nearly wiped out all the gains in the restaurant business from the past two years. 

“We’re not looking for a bailout,” said Tom Colicchio, chef and founder of Crafted Hospitality, in New York City, which oversees management for Colicchio’s Craft, Riverpark, Temple Court, Craftsteak, Heritage Steak, and Small Batch restaurants. “We’re looking to get back to work when we can get back to work.”

Colicchio, who immediately shuttered all of his restaurants in mid-March when New York State announced the closure of all nonessential businesses, stressed that he and all of his employees understand the shutdown and the need to shelter in place. But the real concern for the industry, he explains, is making sure financial protections are set up not only to reopen but to then stay open.

The major point of contention is the Small Business Administration’s new Paycheck Protection Program (PPP), set up to dole out forgivable loans intended to help small businesses pay their employees during the coronavirus crisis. Small businesses and sole proprietorships can borrow up to 2.5 times their average monthly payroll from the previous year through the PPP. Although the application period opened up on April 3, the program is already fraught with misinformation and miscommunications as many banks say they weren’t provided with guidance in time as to how the program actually works.

“The PPP is a flawed program when it comes to businesses already shut down, which most of us already have,” said Naomi Pomeroy, restaurateur and chef at Beast in Portland, Ore., adding that from the restaurant managers she has spoken with who have kept up with takeout and delivery, those establishments are still only seeing about 10% of their previous revenue rates and are only employing 10% of their previous workforce.

The coalition is asking Congress to not only increase the amount of PPP funding from 2.5 times monthly payroll, but to extend the loan period to three months after reopening. “We don’t know when we’re going to reopen, and when we reopen, we’re certain to be less busy than we are right now,” Pomeroy said. All three chefs reiterated that while 2.5 months of payroll might fund the staff initially before reopening, it will take restaurants at least three months on average to reopen. Thus, the PPP funding as it stands now would not be enough to keep staff employed after opening, resulting in layoffs all over again.

“It’s a nightmare the way it’s set up,” Pomeroy said.

The coalition is also asking that the next stimulus package include two new tax rebates: the first rewarding businesses based on how many people they employ, and the second ensuring restaurants can maintain rent rates and leases through recovery. The letter also asks for the creation of a restaurant stabilization fund—worth $50 billion to $100 billion in reinvestments that would help fund rehiring employees—and a mandate that insurers extend business interruption coverage, often employed during natural disasters, to include the public health shutdown owing to COVID-19.

More coronavirus coverage from Fortune:

—Millions won’t be able to pay their bills this month. What financial experts advise
—What small businesses applying to the SBA’s Paycheck Protection Program need to know
—The worst part of losing 10M jobs in 2 weeks? The real number may be much higher
—Why the U.S. is changing its mind on coronavirus face masks
Americans face hunger crisis as SNAP benefits are harder for some to get
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—Hospitals are running low on the most critical supply of all: oxygen
—PODCAST: Two health care CEOs on why coronavirus tests and vaccines are the ammunition needed to fight COVID-19
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19

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