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Here's why thousands of restaurants could be forced to return their federal small business loan — even though they probably need the most help

Employees stand in the empty dining room of a Sacramento, California restaurant on March 17, 2020.
  • The second round of the Payroll Protection Program is underway, and loans are starting to reach business owners struggling with the economic impact of the coronavirus pandemic.
  • For independent restaurateurs however, the terms of the program don't make economic sense, as public health concerns force them to operate at reduced capacity.
  • One group representing over 51,000 local restaurants is asking Congress for a $120 billion fund to allow independent eateries to weather the next 12 to 18 months of modified business.
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As the second round of Payroll Protection Program loans are doled out and funding starts to hit borrowers' bank accounts, restaurant owners are voicing concerns about what they see as major flaws in the program's design.
"This is a Swiss cheese piece of legislation," said chef and TV host Andrew Zimmern on a conference call hosted by the Independent Restaurant Coalition on Wednesday that Business Insider attended.
"It's an eight-week bandaid that doesn't match the 12- to 18-month challenge that lies ahead," he said, in reference to the terms of the PPP loans, which tie loan forgiveness to businesses using funds within only two-months and spending 75% of it on payroll. The kicker is that most restaurants will not be able to operate at full capacity over the next two months.
Zimmern is one of more than 31,000 signatories of a letter from the IRC to Congress, calling for a $120 billion relief fund for small, local restaurants who have been slammed by the economic impact of the coronavirus pandemic.
Sam Kass, a chef-turned-political adviser, said on the call that the group's request was based on an accounting of the forecasted losses the industry will suffer as a result of mandated closures and changing social behavior.
The IRC estimates that independent restaurants contribute $1 trillion per year and 11 million jobs to the US economy. Zimmern also highlighted the central role restaurants play in the larger economic and business environment, indirectly supporting as many as 50 million other jobs from farm-worker to table-linen launderer.
"Restaurants are the backbone of communities across America," said DC celebrity chef Jose Andrés. "Nobody works harder than the people that make up this big family."
David Traxler, owner of Full Commission, a Southern gastropub in Atlanta, told Business Insider that although he received a PPP loan it doesn't make business sense for him to use the money right now.
"We don't have the business right now to bring back a full staff to sit in a building that only serves to-go food," he said. "It's tricky timing."
Andrew Volk of the Portland Hunt and Alpine Club in Maine said he had his PPP loan funds deposited into a "completely clean" bank account, and hasn't touched a penny of it due to concerns that he won't be able to meet the conditions for forgiveness.
On a press call last week with the Main Street Alliance that Business Insider attended, Volk explained he could not afford to re-hire his employees in time to get the loan forgiven, and that his business cannot take on any additional debt.
And another trade group told the Financial Times that many restaurant owners who have received PPP funds are "highly likely" to pay them back in full before the first payment is due six months from now.
Several restaurant owners on the call described how low profit margins and existing debt make it impossible for them to take on new loans — even low-cost ones, like the 1% interest rate on any unforgiven portion of a PPP loan.
"PPP doesn't work for us," said New Orleans chef Nina Compton. "Getting forgiveness is impossible."
SEE ALSO: Your sneak peek at the government's new $320 billion relief bill for businesses, and what it will mean for entrepreneurs desperate for cash
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