The Restaurant Owners Guide to the CARES Act

Restaurant Owners Guide to the CARES Act
Table of Contents

When COVID-19 assaulted the world, only 32% of food and accommodation services in the U.S. continued paying employees. Of those, 36% have a grant or loan, and 20% receive no help. Only 5% of businesses in the industry feel no impact on their business.

Enter the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Four sections of the Act help restaurant owners and workers. The Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) help restaurant owners keep employees on the payroll during shutdowns.

Keep reading to learn about these plus other types of relief.

What Is the Cares Act?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the most extensive economic stimulus package to pass Congress.

CARES Act benefits available to restaurants include emergency grants and forgivable loans. During the onslaught of the pandemic, more laws came into effect. The result is changing requirements and extensions to coronavirus aid.

How Does the Cares Act Affect Restaurant Owners?

CARES Act COVID relief for restaurant owners includes:

  • The Paycheck Protection Program (PPP)
  • Employee Retention Credit (ERC)
  • Emergency Economic Injury Grant
  • Small Business Debt Relief Program

The above relief is available for 2020-2021.

Payroll Protection Program         

The Payroll Protection Program (PPP) gives federal loans to business owners attempting to maintain payroll during the pandemic. If the business maintains payroll throughout the program, they receive loan forgiveness. This helps keeps employees on the payroll, even during shutdowns.

Key features of this program include payroll forgiveness, no SBA fees, and deferrals for up to 12 months. Eligibility requirements include:

  • Operating as a business on February 15, 2020
  • Less than 500 employees, including small businesses, non-profits, and tribal businesses
  • Those operating as independent contractors, sole proprietors, or eligible self-employed individuals
  • Any company employing 500 or fewer employees per location with a NAICS code beginning with 72
  • Business operating as a franchise with franchise identifier code by the administration
  • A business receiving funding through a small business investment company

Eligible payroll costs include wages, salary, and tips. Eligible costs cover payments for health care benefits, insurance premiums, retirement benefits, state and local tax on employees, and payments for vacation, family, medical, or sick leave.

The National Restaurant Association (NRA) established a special carveout maximizing the number of restaurants eligible for the PPP program. This allows restaurants with larger employee counts to participate in the program.

They may also receive up to 3-1/2 times their monthly average in payroll costs. There is a waiver for some rules and tests causing restaurant approval delays.

May 31, 2021, is the end of the PPP program, but borrowers may be eligible to apply for loan forgiveness. To receive loan forgiveness, maintain employee and compensation levels, use loan proceeds for payroll costs and eligible expenses, and use at least 60% of the loan for payroll costs.  

Getting Forgiveness on PPP Loan

You must apply through the lender for your PPP loan to be forgiven. Your application needs to verify the number of employees on the payroll and their pay rates. This includes IRS and state income tax filings, payroll, and unemployment insurance.

You must include documents verifying your mortgage, lease, and utility obligations for the business. You must also include certification from a business representative who can verify the documents you submit are true and meet the program guidelines.

If you do not apply for forgiveness or fail to meet the criteria, the loan continues for up to 10 years at an interest rate no higher than 4%.

Coordination With Other Loans

You may receive PPP and other SBA financial assistance, including the Economic Injury Disaster Loans, 504 loans, and more. The only restriction is not using other financial assistance for the same purpose as your PPP loan during the same time period.

Economic Injury Disaster Loans (EIDL) And Emergency Economic Injury Grants

This program provides up to $10,000 to small businesses and non-profits suffering harm from COVID-19. You may receive an advance on the loan within three days of applying by filing an advancement request.

The funds may be used to keep employees on the payroll, pay sick leave, meet higher production costs, or pay business obligations such as mortgage payments and debt.

The business needs to be operating on January 31, 2020, to be eligible for the Emergency Economic Injury Grant. The grants are available from January 31, 2020, to December 31, 2020. They can be backdated to allow those with applications for EIDL to also receive a grant.

Even if you have an EIDL and/or an Emergency Economic Injury Grant, you can receive PPP. If you receive the PPP or refinance your EIDL into a PPP loan, any advance payments you receive under the emergency grant will be subtracted from your PPP forgiven amount. You cannot use EIDL and PPP for the same payroll time periods.

Small Business Debt Relief Program

This relief program is for small businesses holding non-disaster SBA loans, especially 7(a), 504, and microloans. The SBA covers all loan payments on the loan, including interest, fees, and principal for six months. This relief is also available for those receiving loans within six months of the bill being signed into law.

The 7(a) loan is available for businesses without credit and needing funds for short-term use. Funds may go for purchasing supplies, buying an existing business, and more. Debt relief under this program does not apply to PPP loans.

Employee Retention Credit (ERC)

Restaurants meeting eligibility requirements may receive the Employee Retention Tax Credit (ERTC) for 2020 and 2021. The restaurant staff support wages you take credit for under this program may not be the same wages you receive PPP for.

Restaurants may use this program for eligible employees. The savings is up to $5,000 per employee per quarter in 2020 and up to $7,000 per eligible employee per quarter in 2021.

To be eligible, you need 100 or fewer full-time employees on-premises in 2020 and 500 or less in 2021. Your restaurant operations need to be:

  • Fully or partially suspended because of government COVID-19 shutdowns or
  • Experiencing a significant decline in gross receipts in comparison with the same quarter in 2019

During times when government restrictions limit seating, your restaurant qualifies as being partially shut down. This also applies if you are only able to offer outdoor dining, but nothing indoors.

If the business receives a Restaurant Revitalization Grant from the SBA, you may apply the grant funds to payroll in 2021 as an eligible expense. If the restaurant meets its payroll expenses using grant funds, it cannot use ERTC funds for payroll expenses.

Because of the government’s 3-year lookback period, you can still file for ERC in 2022

Get COVID Assistance for Businesses

If learning about the Employee Retention Credit and other state and local funding for restaurants because of COVID-19 has your head spinning, you are not alone.

ERC today can answer questions about your business eligibility. If you need to file your first application or seek additional funds, we can help. Numerous changes in the law expanding eligibility and changing rules make the process difficult to understand and easy for you to miss benefits.

Let us help. Contact ERC Today to schedule a consultation. 

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More Great Information For Employers:

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act into law, and the Employee Retention Credit sunset date was moved from 12/31/2021 date to 9/30/2021 (for businesses other than ARPA Recovery Startup Businesses). 

HOWEVER, this does not mean the ERC was eliminated! Eligible businesses can still apply for stimulus funds based on financials between 3/13/2020-9/30/2021.