'How Long Can We Do This?': Restaurants Say PPP Loans, Takeout Won't Ensure Survival

The federal government is continuing to fund loan programs meant to help small businesses, but restaurant owners say the policies don't work for them, and the sales they earn from takeout and delivery won't be enough to keep many of them alive through the crisis. 

For thousands of restaurateurs like Erik Bruner-Yang, the award-winning chef behind several popular D.C. restaurants, the fate of their businesses could depend on whether federal and local relief programs work.

Bruner-Yang tells Bisnow it will be difficult to reopen his Michelin Guide-honored Maketto on H Street after the stay-at-home order is lifted. He said the federal Paycheck Protection Program doesn't help restaurants reopen, and he will need an Economic Injury Disaster Loan to save Maketto.

"It’s kind of fucked up the airline industry’s going to get a huge bailout, but small businesses have to take out loans,” Bruner-Yang said. “It’s great we’re getting loan offers, but it’s like, ‘Why are we forced to pay it back?’ We have to make a decision whether we want to take out a loan we might be tied to forever in order to save our business."

Nationally, just one in five restaurant owners in cities that are shut down say they are either “very certain” or “somewhat certain” they will be able to survive the crisis and reopen, according to a survey released April 16 by the Independent Restaurant Coalition and the James Beard Foundation. A March 25 survey from the National Restaurant Association found 3% of restaurant operators had already permanently closed, and another 11% anticipated they would close within 30 days. 

Geoff Dawson, the co-owner of six D.C.-area bars and restaurants, said Big Chief, his bar in Ivy City, won't reopen after the shutdown order is lifted. He said the business was already facing challenges prior to the crisis. 

“We were in the middle of restructuring and rebranding, and the pandemic just killed that,” Dawson said. “We were struggling, and that was just the final nudge.”  

'All We're Doing Is Saddling Restaurants With Debt'

The IRC earlier this month wrote a letter to Congress, signed by more than 9,000 chefs, detailing a series of problems with the Paycheck Protection Program, part of the CARES Act aimed at helping small businesses keep workers employed. The organization asked for several changes, such as pushing back the loan origination date to the point when restaurants are able to seat customers again. 

After PPP funding from the CARES Act ran out last week, the Senate Tuesday passed another bill that will pump an additional $310B into the PPP loans, but the IRC says the issues it raised with the program still exist. 

"Today we learned that Congress does not care if local restaurants close forever," the IRC said in a statement released Tuesday, adding that the Senate didn't fix the issues with the PPP loans before approving more funding. 

Less than 9% of the PPP loans approved thus far have gone to the hospitality industry, and even fewer to independent restaurants, the IRC said. The program has come under fire this week because larger chains such as Ruth's Hospitality Group, Shake Shack, Texas Taco Cabana and Potbelly received $10M or more in loans while many small businesses received nothing.

Shake Shack Chairman Danny Meyer said Sunday the company would return the funding it received after obtaining funding from the private capital markets. 

Not only are the PPP loans difficult for some small businesses to obtain, they are also structured in a way that is impractical for many restaurants. The program places a heavy emphasis on employment, granting loan forgiveness if businesses spend 75% or more on payroll. But restaurants in cities across the country aren't allowed to seat customers, giving them little for their staff to do, while they have other payments like rent that are necessary to keep the businesses alive. 

With the timeline for reopening restaurants still unclear — D.C. has already extended the shutdown to at least May 15 — the restaurants could be forced to lay off staff members again after paying them temporarily with the PPP funding. 

“The problem with PPP is that if I get my loan approved and 10 days from now I have to start hiring staff back, I can pay them for two months, and then my restaurant will not be open in two months when the money runs out and everyone will be back on unemployment,” Crafted Hospitality owner Tom Colicchio, a founding member of IRC, said Thursday on a conference call the organization hosted.  

Chef Kwame Onwuachi, a former Top Chef contestant who opened Kith & Kin at The Wharf in 2017, said the PPP loans should go into effect on the date restaurants are allowed to reopen. 

"We need to help fix the PPP and the flaws within to ensure we can afford to reopen and rehire workers," Onwuachi said on the IRC conference call. 

If restaurants decide not to spend 75% of the PPP money on payroll, then it adds to the debt obligations they must pay back. The IRC survey found 51% of restaurants have taken on at least $50K in new debt obligations since the pandemic began.

“If we can’t turn this loan into a grant, then all we’re doing is saddling restaurants with debt that there’s no way they can pay off,” Colicchio said.

Local jurisdictions have also enacted policies to provide emergency funding to small businesses. But because cities and states must balance their budgets and face shrinking tax revenues, they are more limited than the federal government in the amount they are able to spend.

D.C. is planning to distribute $25M to small businesses through its micro-grant program. The city received 7,600 applications from small businesses, nonprofits and independent contractors. It removed the roughly 1,600 independent contractors because they are now eligible for unemployment insurance. Of the remaining 6,000 applications, D.C. expects to give about 2,000 awards with the average being just over $10K, Deputy Mayor for Planning and Economic Development John Falcicchio said on a webinar last week.

The Green Zone owner Chris Francke told the Washington City Paper that $10K is not enough to cover a single month's fixed expenses, and not enough to cover half of a full payroll run. 

The outlook of restaurant owners has only worsened since the PPP program was put in place. The IRC survey found the percentage of restaurant owners in cities with mandatory closures who don’t believe they could survive more than a month of closure increased from 17% to 28% after the CARES Act passed.

“Immediately following the opening of the PPP application, independent restaurants should have been gaining confidence, not becoming more anxious, which is what we’re seeing from this data,” James Beard Foundation CEO Clare Reichenbach said on the IRC call. “The fact that restaurants are now more fearful of losing their livelihood than before PPP opened shows just how futile the program has been in helping this industry.”  

'How Long Can We Do This?'

With government relief not sufficient to keep restaurants alive, they are trying to keep the lights on by pivoting to takeout and delivery service. But industry leaders say the sales from those services are unsustainable. 

It has been more than a month since Mayor Muriel Bowser ordered restaurants to stop seating customers to halt the spread of the pandemic. Restaurant Association of Metropolitan Washington CEO Kathy Hollinger said 62% of D.C. restaurants have continued to operate under the takeout and delivery service business model. She said most of those restaurants are experiencing a decrease in sales of at least 70%.  

“The reality is, as much as it is incredible our restaurants are so resilient to pivot on a dime to operate differently, it’s just not sustainable. It’s not a sustainable model,” Hollinger said last week on a Downtown D.C. BID webinar.

Chef Tim Ma, the owner of D.C. restaurant American Son, said he tried offering delivery and takeout, but as of last week, it pivoted to only cooking for philanthropic purposes, including José Andrés's World Central Kitchen and local group Hook Hall Helps.

“It became a very crowded space in terms of to-go food,” said Ma, also speaking on the Downtown D.C. webinar. “It was very good at the beginning. But I think as the weeks went on, you started to see the business trail off.”

Two weeks after D.C. ended in-house restaurant service, the Washington City Paper reported that five restaurants decided to stop offering takeout service and instead close temporarily: Rooster & Owl, Tonari, The Green Zone, The Royal and Tyber Creek.

Bruner-Yang has continued takeout and delivery at Maketto and ABC Pony, his new Capitol Riverfront restaurant, but he said sales are down 60%. The pandemic forced him to lay off a majority of his company’s 225-person staff, which is now down to 34.

“The biggest concern is not the money,” Bruner-Yang said. “It’s: How long can we do this?”

He has also begun to focus on philanthropy, launching a program called The Power of 10. It aims to raise $10K per week in donations that will support 10 full-time jobs at a restaurant and provide 1,000 free meals to the community. It launched March 30 with H Street restaurant Cane.

Some of Dawson’s bars have remained open for takeout and delivery, including Franklin Hall, Church Hall and the Astro Doughnuts portion of his Astro Beer Hall. But he said the revenue isn't sustainable.

“Those projects support barely — and sometimes not even — the staff that’s there to do them, so it’s really more of a ‘Let’s keep busy doing something’ plan,” Dawson said. “It’s not a profitable solution for us.”

The inadequacy of the relief programs and takeout service will likely lead many restaurants in the District to close permanently. 

“The restaurant industry is pretty fragile,” said CBRE Executive Vice President Michael Zacharia, a top D.C.-area retail broker. “There were a lot of groups who were struggling prior to this, but hanging on and making ends meet, and that was sustainable. But if they weren’t strong financially with backing and substantial reserves, I think there will be a lot of groups that don’t come back and open for business.” 

Stay tuned for Part 2 of this story, a look at how a coming wave of restaurant closures could impact D.C.'s retail real estate market.