Article written by:
Dustin Minton, CPA, MBA
Director, Restaurant Services
When the Small Business Administration (“SBA”) revised the Paycheck Protection Program (“PPP”) Loan Forgiveness Application to reflect the changes made by the PPP Flexibility Act of 2020, an EZ application along with EZ application instructions were provided. If you have reviewed the revised loan forgiveness application, you know it is extremely complicated and cumbersome to complete in full. The EZ application is great news for restaurants assuming you meet one of the eligibility criteria to use it because the EZ application, in essence, assumes you have achieved a 100% FTE factor. So, can a restaurant that was undoubtedly impacted by COVID-19 file the EZ application? Here is how we think it applies to restaurants—
|Must meet one of these criteria to be eligible||Restaurant considerations|
|1. Borrower is self-employed, independent contractor, or sole proprietor and did not include employee salaries in the computation of average payroll used for the initial loan application;||This criterion likely applies to a food truck operator or very small restaurant concept and will not apply to the majority of restaurants receiving a PPP loan because almost every restaurant has employees.|
|2. Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the chosen covered period compared to the period between January 1, 2020 and March 31, 2020 AND the borrower did not reduce the number of employees OR average paid hours of employees between January 1, 2020 and the end of the chosen covered period;||Quick service restaurants (“QSR”) and pizza businesses primarily focused on delivery/carry-out may be able to meet these criteria; however, the bar is quite high depending on employee retention/hiring strategies. While these types of restaurants may not have had to reduce salary or wages by 25% the borrower also must have maintained headcount OR maintained the average paid hours of employees between January 1, 2020 and end of the chosen covered period in order to qualify under this criteria.|
|3. Borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the chosen covered period compared to the period between January 1, 2020 and March 31, 2020 AND the borrower was not able to operate during the chosen covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by government mandates related to maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.||This is the criteria that many restaurants can likely meet, as most restaurants did not reduce salary or hourly wages by more than 25% AND business activity is significantly less than what it was prior to February 15, 2020 due to government regulations regarding social distancing and decreased capacity.Notice that we did say “most restaurants.” Many QSR, pizza and some fast casual businesses have been able to return to normal sales volumes by the end of their chosen covered period when compared to February 15, 2020. It will be important to analyze whether a QSR, pizza or fast casual business can meet these criteria through lender discussion.Casual restaurants who did not rely heavily on delivery or carryout prior to COVID-19 will likely meet the criteria of lower business activity due to indoor dining capacity restrictions thereby reducing sales.|
The table is our interpretation of the EZ eligibility criteria. We recommend that you discuss the criteria with your lender to determine if their understanding is the same. As with many details of the PPP, there is an array of interpretations and points of clarification needed from the SBA to better define positions. One example is the term “business activity” used in criteria three that has no definition and can be interpreted in many ways. We think business activity can be best measured by sales volume, however, there may be other ways to measure this.
Simplicity makes the EZ application a great option for restaurants assuming you meet one of the three criteria. The EZ application is one page of simple calculations and a page of certifications to be made by the borrower. You still need to provide to your lender the documentation support needed for payroll and non-payroll costs but it makes the loan forgiveness process much easier to navigate. As you may recall, the FTE calculation can be daunting on the original application.
To discuss whether you are eligible for the EZ application or if you have questions, please reach out to Dustin Minton.