Dive brief:

• The national association of restaurateurs sent a letter to Congress on Monday urging lawmakers to change the Senate Heals Act revenue loss threshold that would determine a business’s eligibility for a second loan from the Payment Protection Program. Currently, small businesses with less than 300 employees and a loss of 50% of their quarterly gross revenue from the previous year would qualify. Within these parameters, 55% of restaurants would not be eligible, according to the NRA. The association pleads for a threshold of 20%, which would make 430,000 restaurants eligible for a second PPP loan.
• The association is also urging Congress to change the tax obligations related to the PPP. If a business pays an expense with a PPP loan that is then canceled, business expenses normally deductible are no longer deductible.
• “This undermines the intention of the PPP program to survive by imposing an unexpected 25-35% tax liability on canceled loans,” said Sean Kennedy, NRA executive vice president for public affairs. said in a press release. “Restaurants that have secured a PPP loan to support their employees and pay their bills shouldn’t face unexpected and unforeseen tax burdens that would further deplete their cash flow. These P3 spending should not face a massive “clawback” in the form of federal taxes.

Dive overview:

While the Heals Act may give U.S. businesses an extensive safety net as the novel coronavirus pandemic continues, the NRA and the Independent Restaurant Coalition say there are gaps in the plan that restaurants would cross.

The tax obligations that come with PPP loans could catch restaurants off guard, according to the NRA. The association cites examples of a restaurateur who now bears a tax burden of $ 182,000 after receiving PPP loans for five locations, and a Texan operator with six locations who expects to have a tax bill greater than. $ 1.3 million.

Even if a thin-margin restaurant survives dining room closures, safer home orders and delivery commissions up to 30% if they partner with an aggregator, tax burdens like this might be too large to maintain.

One in three American restaurants could close permanently this year, according to data from Aaron Allen & Associates. The industry’s rapid rate of closure, its unique business model, and vulnerability to changes in consumer behavior as many U.S. residents continue to work from home and even leave major cities are all reasons why corporate groups in the industry are asking for direct help from restaurants. And if the Heals Act is passed as is and 55% of American restaurants are unable to access funding, it could have devastating ramifications for the longevity of the industry.

“The PPP secured thousands of restaurants during the spring shutdown, but most are now open under strict trade restrictions and each month struggles with their bottom line,” Kennedy said. “A second round of PPP will make or destroy these restaurants, so we are pushing for a bipartisan agreement to lower the qualifying threshold so that more troubled restaurants in our communities can have a fighting chance.”

The NRA and IRC continue to support the Restaurant Act, who would give to American restaurants $ 120 billion in funding and is specially designed to support the industry. If the Restaurant Law is not passed, the Heals Law Income Loss Threshold could be a benchmark that further destabilizes restaurants that have low gross income losses but are still on the bankruptcy bubble, adding to the impressive number of permanent restaurant closures.