PW special report: Restaurants that opened in early 2020 excluded from key COVID relief program

When Tal Blevins first heard about the Restaurant Revitalization Fund, he hoped it would be the sort of help that he and his fellow restaurant owners had been anticipating for more than a year.

But it didn’t take Blevins long to realize someone hadn’t accounted for the real costs of opening a restaurant. When he analyzed the conditions of the revitalization fund, which was within the larger $1.9 trillion American Rescue Plan Act, it quickly became apparent it wouldn’t significantly help his Greensboro restaurant, Machete.

Machete did qualify for the the first round of Paycheck Protection Program loans. That helped it keep a small staff to run the take-out operation, a bridge to what Blevins and many others in the restaurant industry hoped would be more significant aid.

But when the second round of financial aid came around, Machete was not eligible. That round was only open to businesses that had opened by Feb. 15. Machete missed that window by just ten days. That was a blow, Blevins said, and seemed arbitrary. Yet there was still hope that further aid was coming.

This new round of grant funding was calculated based on revenues generated in 2020, minus expenses. That didn’t help restaurants that opened in the first half of 2020, like Machete, whose main expenses were incurred in 2019. “When I was crunching all the numbers, it seemed really obvious to me that whoever put the formula together, there was a huge blindside in it,” Blevins said. “Restaurants take six months to open up, if you’re lucky. Most of the restaurateurs I know who opened in 2020, there’s no way they’d get anything off of this. And there’s the double-whammy that a lot of them were barred from getting PPP Round 2.” 

Machete opened to strong sales and rave reviews on Feb. 25. 2020. But three weeks later, on March 17, the COVID-19 pandemic prompted Gov. Roy Cooper to announce the closing of bars and restaurants, except for take-out. Blevins had never planned to do take-out, but changed in that direction. Without a dining room and in-person customers, Blevins had to lay off 80% of the staff. The restaurant lost money, but less than if it had closed altogether. The debt it had incurred — to staff up, build out, purchase inventory — continued to hover over the operation as it scraped by during the pandemic, unable to recoup revenue as government restrictions kept it from doing the same level of business.

“And I was a big supporter of those restrictions, because it was a public health crisis,” Blevins said. “Without regulation, it would be a public health disaster. But regulation without support, that’s an economic disaster.”

The revitalization fund planned for a lot of scenarios. Established restaurants that opened in 2019 — even if only for one month — can multiply the revenues for that month by twelve and subtract the lower revenue from 2020 to determine how much grant money to apply for.

Even restaurants that have yet to open but nonetheless incurred expenses in 2020 are eligible for aid.

But restaurants that spent 2019 ramping up and then opened in the pandemic year? They’ve been largely left out of the equation.

“It’s not a problem that I’ve heard about before now,” said Mike Arriola, acting district director for the North Carolina District Office of the Small Business Administration, which distributes the Restaurant Revitalization Fund. “I haven’t heard about businesses that are reporting this.”

Businesses across the country, however, have been publicly criticizing the fund for months, even before the program was finally approved. Last month the Washington Post published a story focusing on restaurateurs and their accountants in Virginia and Georgia which called attention to problems with the aid calculation. An SBA spokeswoman acknowledged the problem then, saying the agency was working on a solution.

However, the same spokeswoman, Shannon Giles, told Policy Watch this week that the program isn’t designed to help restaurants who spent money in 2019 and opened in 2020 — only to be sidelined by the pandemic.  “Expenses incurred before the pandemic are not eligible for relief,” Giles said in a statement.

Blevins and his restaurant are hardly alone. The program leaves a potentially large segment of new restaurants in the same precarious situation.

Data analysis prepared by Yelp Economic Average shows 6,565 restaurants and food businesses opened in January 2020 and another 6,660 by February. Though new openings dipped dramatically as the pandemic shut down in-person dining, businesses continued throughout the year. For North Carolina, Yelp data show that 1,078 restaurants have opened in North Carolina since March 2020.

This month Policy Watch spoke to more than a half-dozen restaurateurs in Greensboro, Durham, Charlotte and Raleigh who all said they’ve fallen into the cracks of the program designed to help their businesses. Primarily, they agreed, that’s because it fails to account for the upfront costs of opening a new business, which generally don’t align with dates on a calendar.

“If you’re not in it, you don’t think about it,” said Jayson Whiteside, owner of the restaurant Vana in Charlotte’s South End, which also opened in 2020. “The time that goes into building out a restaurant, the thought and the hiring and the rent before you’re open — you don’t think about them unless you’re in it. I can see the oversight for sure. But it did happen. There was an oversight.”

Vana was fortunate to have good business partners, investors and landlords who helped see it through, Whiteside said. Not all have been so lucky.

“I can’t tell you how many times I have conversations with somebody and they think you can open a restaurant in a couple of weeks or months for $50,000,” said Marty Kotis, a Greensboro developer and businessman (and member of the UNC Board of Governors) who owns and partners in restaurants as well as leasing space to them. “Those are usually the ones that don’t make it.”

Kotis agreed that providing aid for businesses that only takes into account expenses incurred before the pandemic ignores a basic reality of the business.

“It screws new restaurants that opened in 2020, for sure,” Kotis said. “If you opened in 2020, especially the first half of that year, you would have had to be spending money and setting things up well before that. I am sure that the ones that survived did.”

The first year is crucial for new restaurants, Kotis said, as it’s the period when they build their clientele base, work out kinks in their systems and, if they are successful, begin to pay off the debt that got the doors open. “When you lose that whole first year, it’s devastating,” Kotis said. “For a lot of the restaurants that made it, the expense of reopening is going to be like the expense of opening for the first time. You’re already behind a year.”

The current program’s grant-making process will prioritize restaurants and bars owned by women, veterans and minorities during its first 21 days.Those businesses have been hardest hit and often begin with much less savings and support. But Kotis said many restaurant owners are wondering how much will be left after that initial round of grants, and whether Congress or the SBA will again tweak its calculations.

“You really have to stay on top of this stuff, because it changes all the time,” Kotis said.

State Sen. Michael Garrett (D-Guilford) said he’s heard from restaurant owners about the grant calculation problems and is in touch with both the SBA and a White House Office of Intergovernmental Relations about them. “However many businesses this is, even if it’s just eight businesses, that’s eight businesses we need to keep and help,” Garrett said. “They were shut down and restricted through no fault of their own, just because of a public health crisis.”

“Obviously these restaurants weren’t left out intentionally,” Garrett said. “When you’re cobbling together complex legislation the way you try to calculate what grant relief fund should be is based on information they have to try to get the money out the door as quickly as possible.”

SBA needs to find a calculation that works for restaurants that had expenses but not revenue in 2019 and opened into the pandemic in 2020, Garrett said. Restaurant owners have recommended using their revenues when they were fully open in 2020 prior to the shut-down as a baseline. Annualizing that would be a good first step, he said.

“They recognize that a lot of these businesses are in a really tough spot,” Garrett said. “There are going to be stories you won’t be able to write, because they’ve already closed up shop. We need to get the money out the door as quickly as possible, but also be sure there aren’t any gaps.”

Blevins said he realizes he’s been fortunate. Although Machete hasn’t turned a profit, and is still operating at a reduced capacity with opening-related debt, it’s survived.

“We can see the light at the end of the tunnel, I think,” he said. “But it’s a long tunnel.”